I'm a former [short-term] Executive Director of the World Bank (2002-2004) for Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Spain and Venezuela. I write this blog to echo my voice and my noise. Though I know many will only be able to read it in yellow or blue, I do make an effort to write it in green. The Radical Middle or the Extreme Center is not any wishy-washy place to be, in a world where swimming to any of the ideological shores provides for a much calmer shelter.
Sir, Diego Laje and Anthony Faiola report that Gabriel de Raedemaeker, a land-rich farmer in Argentina, says he doesn’t have the cash flow to absorb an increased tax burden, and might need to sell a tractor to cover the cost. “Argentina sends its bill for pandemic to the rich” Washington Post, February 23, 2021.
A follow up to that could lead to a long never-ending sequel of articles. Who will de Raedemaeker sell the tractor to? What will the buyer do with it? Produce more or less than de Raedemaeker? And if the buyer had not bought the tractor, what else could he have done with his money? And so, on and on and on!
I’ve always thought that it would be great to read a book that followed the money trail left by Louis XX commissioning in 1500 Leonardo da Vinci to paint Salvator Mundi; and how it flowed through the years, perhaps to a Bill Gates, and in the process generating so much wealth that someone in 2017 decided to freeze $450.3 millions of purchase power on a wall with that painting.
But even if Raedemaeker had the cash, unless it was stashed away under his mattress, that does not either mean it was doing nothing. It might be deposited in a bank that used it to finance the purchase another tractor, that could be extracting even more wealth from the so fertile western Pampas of Argentina.
Why are just the "filthy rich", like Louis XII and the buyer of Leonardo da Vinci’s Salvator Mundi cursed? Why not Leonardo da Vinci, or the current vendor of Salvator Mundi? Could they‘ve not just as well used money they got from filthy rich for something “more worthwhile”?
Does it all boil down to that Louis XII should not have commissioned Leonardo da Vinci’s Salvator Mundi and instead have bought food for the poor? I guess that would then depend on what the food suppliers did with that money, grow more food or drink more gin. Life isn’t easy
We can just pray that something of that main-street-purchasing-power comes into the hands of the few risk-taking entrepreneurs who, with luck, help catapult our world forward. Sadly, with risk weighted capital requirements for banks, regulators have made that less possible.
Yes, life isn’t easy. So let us all beware of all those redistribution profiteers out to make money or gain political power and who tell us “Let us just redistribute the wealth of the filthy rich, and you will all live in Nirvana. Venezuela, Nirvana? My …!!!
If Louis XX commissioned Leonardo da Vinci to paint Salvator Mundi, would it not make a beautiful novel to trace how that money flowed, perhaps to a Bill Gates, generating wealth so that someone could freeze $450 million on a wall, and keep the human development ball rolling?
These ramblings about how the “filthy rich” convert their main-street-purchasing-power into assets and services, some that would never have existed without them started when seeing a totally useless shield in the Louvre in Paris.
Just in case, this is not a point blank defense of the “filthy rich”. It refers strictly to how their purchase power morphs into assets and services. Many “filthy rich” do become so in unjust and corrupt ways, quite often highly detrimental to development.
PS. A tweet: "A tax on wealth? Ok! But please, what assets should the wealthy sell to whom, in order to raise the money to pay it? And what would the buyers otherwise have done with the money they also must raise? And so on, and on, in the circle of the economy’s life."
PS. A tweet: "A conundrum. How to structure a tax on wealth without reducing the wealth that is taxed?"
PS.When it comes to wealth, yachts are often depicted… but rarely do we see any interest in what those yacht-builders did with the money they received.
PS. Legend holds that when 1974’s Carnation Revolution’s, chief strategist Otelo Saraiva de Carvalho told Sweden’s Olof Palme in Lisbon: “In Portugal we want to get rid of the rich”, Palme replied, “how curious, in Sweden we only aspire to get rid of the poor”
The Guardian writes: “An alarming projection produced by the House of Commons library suggests that if trends seen since the 2008 financial crash were to continue, then the top 1% will hold 64% of the world’s wealth by 2030… equating to $305tn” “Richest 1% on target to own two-thirds of all wealth by 2030”, April 7, 2018.
How awfully unjust… but… how do you productively convert that wealth into the products or assets that could be useful for the 99%, without unexpected consequences or without most wealth just going to a 1%, or less, of some new filthy-rich wealthy?
How much value of that $305tn of wealth would just evaporate by the redistribution? And what would that do to the value of the then projected $152 wealth in the hands of 99%?
For instance what would happen to the price of a Leonardo da Vinci’s “Salvator Mundi”, in which, someone very wealthy, agreed to freeze $450 million of his main-street purchase capacity? How do you turn that wealth into something the poorer of the 99% need?
Where would the stock market value head?
Where would the interest rate, for instance on public debt go?
It is amazing how much discussions there are about the need to redistribute wealth without any consideration to what that redistribution would entail. Could that be because that is not in the interest of any redistribution or polarization profiteers?
As I see it there is much more to be gained by capturing more income before it has been converted into wealth assets. Just redistributing existing wealth is a one-shot unsustainable top-down approach.
Much better is a very modest starting Universal Basic Income where you little by little begin to build up a societal dividend that will keep the redistribution and polarization profiteers at bay. And that is of course why the latter hate UBI… as it eats into the value of their franchise.
“The world’s billionaires – the richest 2,000 people on the planet – saw their wealth increase by a staggering $762 billion in just one year. That’s an average of $381 million apiece. If those billionaires had simply been content with staying at their 2016 wealth, and had given their one-year gains to the world’s poorest people instead, then extreme poverty would have been eradicated. Hell, they could have eradicated extreme poverty, at least in theory, by giving up just one seventh of their annual gains.”
That particular paragraph is spoken like a true redistribution profiteer 😞
First: Where do those “one-year gains” originate? If from criminal corruption, if from skewed central banks stimuli, if from exploiting monopoly and similar forces, then a reduction in that wealth increase would be absolutely justified and good… but, if that wealth increase came from true wealth creation, or even from heritage, then a reduction of it could have very negative consequences for all, especially for the poor.
Second: If that wealth has already been created and is consequently represented by assets, how does one liquidate those assets so as not to affect the value of those assets, or in other ways put markets at risk? One of those 2.000 billionaires is probably he who bought Leonardo da Vinci’s “Salvator Mundi” for $450 million. He, de facto, like with a sort of voluntary tax, froze $450 million of purchasing power on a wall, or in a safe box. How on earth does one go about to reconvert that into $450 million of new purchase power that could be handed over to the poor?
The Oxfam report contains many correct statements. I totally agree with that wealth should not be created by criminal and unfair behavior, or derived from crony statist relations; and I also agree with that wealth should not be used to abusively increase the influence of the wealthy in our societies.
But when the report states “To end extreme poverty, we must also end extreme wealth” I disagree. First because whether one likes it or not, wealth, as it is invested in assets, has de facto already been redistributed… like in the previous case to those who received the $450 million paid for the “Salvator Mundi”… to those who sell a luxury yacht… to those who sell handmade shoes in Milan… to governments by buying public debt… to markets by buying shares.
On the report Jeffrey Sachs comments: “Sometimes the super-rich call out Oxfam and others for ‘stoking class warfare’ but the truth is that in many societies, including my own, the United States, many of the super- rich have in effect declared war on the poor.”
That sounds precisely like what Chavez preached and now Maduro does in my Venezuela… and look where that has taken our poor country… with asset values and salaries totally destroyed over some very few years… a whole generation of Venezuelans growing up severely malnourished… and the Bolivarian revolutionaries blaming it all on the war declared on them by The Empire.
Oxfam, a multinational confederation of NGOs, having issued this report, has now a moral obligation of explaining, once wealth has been created, how it can be redistributed without running the risks of making the poorest poorer. And, if it can’t, it should stop creating false expectations.
PS. Legend holds it that when Otelo Saraiva de Carvalho, chief strategist of the 1974’s Carnation Revolution in Lisbon, told Sweden’s Olof Palme: “In Portugal we want to get rid of the rich”, Palme replied, “how curious, in Sweden we only aspire to get rid of the poor”
The plutocrats can have obtained their wealth in many forms ranging from highly licit and commendable ways that have even enriched many others, to odiously having used criminal means leaving many impoverished in their wake. But, once that wealth exists, what can the wealthy do with it?
They can invest their wealth in bonds and shares, which mean these assets, if well invested, will be productive.
They can freeze their purchasing power, by a sort of voluntary tax, on walls or in storage rooms, like for instance the $450 million Leonardo da Vinci “Salvator Mundi” (What those who got the $450 million fresh purchase power do with it, is what then becomes relevant to the economy)
They can put some cash, on which they earn 0%, under the mattress... a couple of $100 bills?
They can engage in philanthropy, hopefully efficiently in worthy causes, otherwise that's a loss.
They can use their wealth to manipulate and exert undue influence.
That should primarily make us go after that wealth that has been obtained through illicit or immoral means; and that wealth that is used to manipulate and obtain more influence than what its owner should rightly have; and keep an eye out for useless and even bad philanthropy.
I argue all this because, when redistribution profiteers try to increase their franchise value by instigating envy and hate, it behooves the rest of us to make a clear distinction between the good and the bad among the astronomically wealthy; and to much better understand what has already been "redistributed" by the wealthy themselves, so as to avoid unexpected consequences.
What is absolutely certain though is that any redistribution of wealth will yield only a minuscule fraction of the benefits so loudly promised.
Clearly Leonardo da Vinci has to personally, from above, be extending his deepest gratitude to Janet Yellen of the Federal Reserve and Mario Draghi of the European Central Bank. Had it not been for their quantitative easing (QEs) and ultra low interest rates, he would never ever have seen his Salvator Mundi valued, so soon, at an incredible US$ 450 million.
Of course the wealth redistribution profiteers will scream bloody murder. The US$ 450 millions is like a voluntary tax that has escaped their franchise.
The real question though is: Was the freezing of US$ 450 million in purchasing capacity in a painting (or in a storage room), like with a sort of voluntary tax, something good, or something bad. If bad how do you reverse it without other negative unexpected consequences? But, for the time being, what is much more interesting is what are the vendors to do with US$ 450 millions in cash?
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