How can we, the 99.99%, in order avoid suffering the tragic consequences of any awful leveling events, coexist in a friendly and mutually beneficial way with the extremely wealthy 0.01%?

Edoardo Campanella reviews five books debating “the growing wealth gap between a narrow upper class and the rest of the human population” that which he argues may be the greatest economic challenge of our time. “Inequality and the Coming Storm” Project Syndicate, December 8. 

The books reviewed are: The Great Leveler, by Stanford University historian Walter Scheidel; Global Inequality, by CUNY economist Branko Milanovic; The Vanishing Middle Class, by MIT economist Peter Temin; The Broken Ladder, by University of North Carolina at Chapel Hill psychologist Keith Payne; and Plutocrats, by the former journalist and current Canadian Minister of Foreign Affairs Chrystia Freeland.

There are many origins of that wealth that feeds inequality, some abominable and odious, like crime and corruption, other, like Chrystia Freeland writes, “built their fortunes through hard work, talent, and discipline. But, once that wealth has been created, it can be destroyed by what Walter Scheidel calls the “Four Horsemen of Leveling”, exemplified by “the twentieth-century world wars, the Russian and Chinese Revolutions, the fall of the Roman Empire, and the Black Death, respectively. 

Surely the consequences of such horrendous levelers, especially for the much more numerous poor, cannot justify us ever wanting to get rid of inequalities that way… that is except if we have a need of a schadenfreude with masochistic characteristics. 

When Scheidel argues, “all societies eventually reach the level of inequality they can tolerate. Once this pain threshold is breached… Only carnage, chaos, and destruction can restore fairness in the system… extreme inequality yields only to extreme equalizers” our first and only concern should be, how on earth can we learn to live well and prosper in a world of runaway inequalities? 

Campanella, seemingly agreeing on that goal writes: “What can be done? Many commentators recommend improving the availability and quality of public education. Others have proposed more effective ways to tax wealth, such as a global tax on capital income, higher marginal tax rates, more aggressive estate taxes, or even a tax on robots. And still others are calling for a universal basic income (UBI).”

But Campanella is no optimist… “none of these will be a panacea. Educational policies take years to gain traction; taxing the global super-rich would require a level of international cooperation that does not exist today; and a UBI is simply unaffordable for most – if not all – governments.”

I instead, hopefully since I see no other remedy, think we do have a chance to coexist in a friendly and mutually beneficially manner with the unbelievable wealthy. But for that to happen there are some requisites:

1. We appreciate what inequality might produce. For instance when Campanella writes “Most of the great temples, royal palaces, pyramids, castles, and other monuments of history are the lasting evidence of past wealth disparities”, we should immediately ask ourselves whether those monuments would have existed at all without rampant inequality and, if our answer is no, would the world have been a better world for all of us? 

In this respect I had a wake up experience a couple of years ago when reflecting on a beautiful richly adorned but totally useless shield at the Museum of Louvre, it dawned upon me that most of it would not exist were it not for immense inequality. I suspect that Thomas Piketty, as a Frenchman, would not want to have sacrificed Louvre either, in the name of some unknown equality…we know the inequality we have.

2. We begin to understand that much of the wealth that exists cannot just be redistributed without the possibility of serious unexpected consequences. For instance what harm can it do that one person has now decided to freeze on a wall, with a sort of voluntary tax, US$450 million of his main-street purchase capacity, in Leonardo da Vinci’s Salvator Mundi? If anything we should go after those who got the US$450 million and see what they do with it… and if they pay their taxes. Those US$450 million on the wall should also help to raise expectations about the value of art, which might lead to some thousands of painters getting a dollar or more for their paintings, something which though it might not decrease inequality much, would in general be very good. (Disclosure, my daughter is an art consultant J)

3. We fully comprehend that all that wealth that, if it were ours, would surely help us to solve many of our daily problems, does not really guarantee its current owners one iota more of happiness.

4. We fight against all that hinders opportunities, like the risk weighted capital requirements for banks with which regulators have basically decreed inequality. In the same vein we need to combat all criminal or unproductive accumulation of wealth, like that obtained by means of corruption or the excessive exploitation of monopoly elements. 

5. And finally (especially as a Venezuelan) we have to fight tooth and nail against all the redistribution profiteers, those who instigate envy and class hatred only in order become themselves the neo-Plutocrats.

PS. And though for much more than reducing inequality, I do believe in a Universal Basic Income.

So much in the world, like art, to become a reality, has required tremendous doses of inequality.

Walking around the museum Louvre in Paris I suddenly saw an amazingly decorated silk embroidered full with gold filaments shield, made around 1555-1560 by Pierre Reddon for King Charles IX.

https://collections.louvre.fr/en/ark:/53355/cl010117233

I then asked myself who in his sane mind would request this type of absolutely useless shield? Clearly it had to be someone extremely wealthy and powerful, someone who did not care one iota about his own security being threaten on a close range, or about its enormous costs.

In that moment it suddenly dawned on me that basically nothing of what I was seeing at the museum would exist, if it had to be produced by a society where income and wealth was equally distributed. In other words, all this art around me, to have become a reality, has actually required a very unequal society. 

In other words, shhh... between you and me...the museum of Louvre is, unwittingly, a homage to inequality.

So are all those of us who with good intentions are fighting for a more equal society truly aware of what we could be giving up, of all unexpected consequences, if we were too successful?

I then tweeted: What would Thomas Piketty’s France exhibit at Louvre, had not huge societal inequality allowed the financing of so much "unnecessary" art?

Then of course you find cases like Vincent Van Gogh who did not require much inequality to give us his marvels, much more of a loving brother.

PS. That’s not only at Louvre just go to the BritishMuseum.

PS. Without inequality the world would never ever have been able to see a Fabergé egg.

Would that have been a better world? I don’t know. You tell me! At least we would not have to envy that some got more impressive burial gaskets than us.

PS. Redistributing wealth is not as straightforward as redistribution profiteers want us to think.

PS. Where would Florence be without the Medicis?

If we are going to squeeze the rich, let us do it at the lowest cost... government bureaucrats are too expensive

I refer to The Economist's "If the world introduces a 'Piketty tax': Squeezing the rich"

Let us be careful since too many rich-squeezers are just out to maximize their commissions from the squeezing.

As Sheriff of Nottingham said, “Squeezing the rich is always good business for some… especially for us"

We need to privatize the squeezing of the rich, to those who will charge the lowest commissions for the service.

Can you imagine a privatization bid to see who offers to redistribute 1% of the wealth of the richest 1% to the poorest 10% every year at the lowest cost… delivering an insurance of adequate compliance for a couple of billions of US$?

Or better yet that offers to redistribute 1% of the wealth of all to all, so that there is no political benefits derived from the distribution, since those are what probably costs us all the most.

That said we must also be careful that redistributing wealth does not concentrate wealth even more... as that could happen if we do not remove some of the distortions.

But of course, in an oil cursed country like my Venezuela, where government coffers receive 97 percent of all exports, the wealth that needs to be redistributed is 100% of the net oil revenues, since governments should work only with resources provided to them by the citizens... so that they have to care a lot about how it goes for the citizens

The myth of the unused wealth

Every day we read of some excessive wealth that has quite shamefully accumulated in some very few hands, and which should be redistributed for some good purpose that most often sounds very meritorious.

Unfortunately that wealth is not some magic unused wealth stored under a mattress, but something that represents value somewhere. 

If for instance part of that wealth is invested in public bonds that helped finance education in the wealthiest’ home lands, should these bonds be sold in order to finance education in the land of the poor?

Or should it finance education in poor lands before financing some green investments that could make planet earth more sustainable?

And for one wealthy to sell the Picasso he owns or a bar of gold to another wealthy does not really seem to be the source of a solution for getting rid of the inequalities either.

To phrase good intentions, without fully spelling out the full range of possible opportunity costs, and upfront suggesting squarely what should be cut, is irresponsible and does little to help to solve the great challenges the world faces.

On that we need to call out all those who make a career of creating false illusions among the needed… offering one big redistribution party but not saying a word about the morning after.

By the way, how can we redistribute wealth without redistributing powers and paying commissions to profiteering wealth-redistributors?

Here the famous Venezuelan/Nicolás Maduro method to eliminate income inequality among citizens.

For all of you who like Thomas Piketty are very concerned with income inequality, you can sleep like babies now. 

Venezuela´s president Nicolás Maduro has designed an easy 3 step method that will forever condemn to bad memories all inequality among citizens.

1. With expropriations, price and foreign exchange controls, and similar creative methods, you create a scarcity of many vital consumer products.

2. Then you introduce a rationing system which allows for limited purchases of some of the really scarce consumer products, and which requires you to present your right hand thumb at a machine, for fingerprint recognition.

3. Finally, you allow the poor to negotiate freely in the market the lease of their right hand thumb.

It is a beautiful method. The more severe the scarcity, the more are the rich prepared to pay in order to lease the right hand thumbs of the poor, and so the less the inequalities. It can´t go wrong… that is for as long as you are still alive!

PS. I guess they will try to make the thumb of the left hand work too! That way you can lease out two thumbs at the same time… and make the inequalities disappear much faster. Hurrah!

My current list of prominent inequality drivers

I do not care about some having much more wealth than others, for instance having Picasso's on their walls that if taken down only had to go up on somebody else’s wall… and I fret where all those jobs which are based on obnoxiously expensive manual procedures would be were it not for the insanely wealthy… and, if there were no accumulation of wealth where would all those savings that can be invested come from?... 

But I do care profoundly when wealth is acquired by ways of opportunities not accorded to everyone... like mothers (and fathers), not getting any direct monetary societal reward, for their extraordinary efforts when staying home to lovingly take care of their children.

And here are some new non traditional inequality drivers of which I am currently most suspicious.

Intellectual property rights which give way to incredible fortunes… there should be some more explicit limits on these… like a maximum amount of profits covered … a fixed number of units produced protected… or at least that profits derived from intellectually protected activities should be taxed at a higher rate than profits derived from competing naked in the market.

Monopolies… profit derived from monopolies should perhaps be taxed at a higher rate than ordinary profits.

Market shares/globalization… profit derived from activities that have achieved especially large local or global market shares should perhaps be taxed at a higher rate than ordinary profits.

Financial returns produced by the fact that banks because of implicit government guarantees are able to hold less capital than other normal commercial entities should be taxed at a higher rate than ordinary on their profits… something which they could naturally avoid by simply keeping more capital. 

And then there are those regulatory inequity drivers like pushing quantitative easing flows through a banking system with risk-weighted capital requirements, which so much favoring what is perceived as absolutely safe so much discriminates against what is perceived as risky, and something which of course impedes that liquidity and credit gets to where it is needed the most.

And had it not been for bail-outs and QEs Piketty’s book Capital in the 21st Century would not stand a chance to have seen the light as so much wealth would have been wiped out. 

And then there is the wealth tax, which if applied in a system where inequalities like those explained above persist, will only end up concentrating wealth more and more among fewer and fewer Plutocrats.

And, of course, perhaps foremost, all those other sources of discrimination that exist and hinders some from having the same opportunities as others... and all those resulting from the many existing inequalities at the start point.

And the list goes on, and the list goes on.. most likely including the low interests too.

And I also utterly dislike those who are only out to make a buck on the redistribution of wealth. If there is going to be redistribution do it through a system that guarantees that at least 99% goes where it was supposed to go… and that it all does not end in the hands of for equality fighting opportunists

But before ending let me pose the BIG Q.: Professor Thomas Piketty. What’s better, to live in your own inequality, or in somebody else’s equality?

What does it matter whether the Picasso, hanging on my wall, is worth 5 or 50 million? I did not pump up its value.

Yes, I accept that you might have a point thinking it is not fair that the Picasso that had I been rich could be hanging on my wall, should now be worth 50 million, instead of the 5 million it was valued when I would have had to pay inheritance taxes to keep it in my family? But I did not pump up its value...that was done by those who with their QEs and fiscal deficits injected so much liquidity. 

I swear, it is the same Picasso as always, I did absolutely nothing to it… in fact it has perhaps even lost some of its shine.

If the government now takes my Picasso in a Thomas Piketty wealth-tax, to help repay its debt… would it not then have to sell it, causing it only to hang on somebody else’s wall? 

Of course the government could export the Picasso to pay for oil… but what about when we run out of Picasso’s on our walls… and these all hang on their walls? Is that fair?

PS. Down here, on earth, with no Picasso, I am still envious of that 50 million Picasso hanging on somebody’s wall and wondering whether a little wealth tax would not be such a bad idea.

When writing about “Capital”, like Piketty, can you just use data about it, without ever having seen it at work?

The real importance of capital is when it marries risk… meaning when it is willing to burn itself up in order to multiply enormously or reach something much higher.

And that angle is entirely absent in Piketty´s “Capital”.

The closest he gets is when on page 115 he writes “Capital is never quiet: it is always risk-oriented and entrepreneurial, at least at its inception”. 

Indeed… but then? What happens after its inception? Truth is that from being muscle creating capital, most of it turns into obesity creating capital… and dies out over time.

Look for instance at those many trillions invested in the debt of the “infallible sovereigns”. Is that capital? No way! In fact all that has already been condemned to disappear through financial repression.

Frankly… the more I read the book (I am almost through it) the more upset I get... at least with its too capitalistic publisher's campaign.

From reading Thomas Piketty’s Wikepedia biography it becomes absolutely clear that he has never ever seen capital put to work… and yet he dares to write about capital.

Is this an expert to follow? No way Jose! He is just another Bill Easterly tyrant!

PS. Avoid the merchants of poverty!

FCC any impairing of network neutrality will de facto increase the man-made inequality.

And this not by increasing the wealth of the 1% but of the 0.01%

If I am to be solicited at home on my flat screen or my on computers, the least I can ask is that all solicitors stand on equal ground.

That is all!

Professor Thomas Piketty. What’s better, to live in your own inequality, or in somebody else’s equality?

Is Thomas Piketty, with his “Capital” unwittingly working for the big time Oligarchs and Plutocrats?

In the absence of QEs and TARP, would Piketty have written the same “Capital in the Twenty-First Century”?

When and if taxing the wealthy, because of inequality, remember that governments are a big part of the problem.

Professor Piketty. Would you tax wealth if that only benefited even more some few oligarchs?

Avoid the merchants of poverty

“Don't be so defeatist, it is so middle class.”

Could Thomas Piketty´s tax on 1% wealth, be a Trojan horse for Chrystia Freeland’s 0.01% Plutocrats to capture more wealth?

If the last man sitting in the last chair having all the wealth had something sustainable… would that not mean he was worth it? 

Professor Piketty is exaggerating the sustainability of wealth… too much of it degenerates… but I also understand that most of us would probably like to be wealthy, even if degenerated.

Let us avoid the merchants of poverty

I admire those who help the poor. Not so those who use the poor to help themselves.

Even though there has been a considerable reduction in the number of poor in the world (not necessarily sustainable), inequality, in terms of differences in income and wealth between the richest and the poorest has increased considerably during the last decades ... and that's not healthy, to say the least.

And accordingly, opportunistically, those who argue that everything is solved redistributing, meaning taking from the rich and giving it to the poor, now appear on the scene. How easy it would be if everything was just that easy. It is not. It is our duty to make sure that merchants of poverty, with their insidious sowing of envy and hatred, makes it even more difficult to help solve the poor’s already sufficient precarious situation.

The proposed solution is based on the illusion that it is possible to take away purchasing power from the rich and hand it over to the poor; and that the poor can then go with that purchasing power to the grocery store. False!

First, the rich have their wealth invested in assets, houses, stocks, paintings, yachts, etc. And so, to transform those assets into money, you have to sell them. To whom? Without wealthy buyers around, the sale would only translates into a reduction in the value of the assets ...resulting in a lower amount than estimated to be delivered to the poor. How does it help the poor that a Picasso valued at $50 million, is then only worth $1 million? 

Second, assuming you could sell the assets and give the money to the poor, will there be sufficient supply to satisfy the needs of the poor? No! The unexpected new demand will result in much inflation.

Does this mean that there is nothing to do? Not at all! What is clear is that instead of attacking the results of the inequitable distribution of income and wealth, we must concentrate on attacking its causes ... especially the artificial ones, those not based on the natural reality that we are not all equal.

What are these artificial causes? Each economy has them, in different degrees, but their most frequent common denominator is state interference. Licenses leading to monopolies (intellectual property rights?), foreign exchange controls, transparent and non-transparent subsidies, corruption, discriminatory regulations, etc. For example, in Venezuela, how much more could you have benefited the poorest if the government had not insisted on giving away gasoline at US$ 4 cents a liter... or selling foreign exchange cheaply to those vacationing abroad?

A seemingly easy way out like re-distribution, is simply not enough, nor is it sustainable, and it is the poor who most need to know that. It cannot be that the final result of the redistribution of wealth and income in Venezuela would be to concentrate even more income and wealth in the hands of our Boligarchs of turn… whatever political color they wear. 

But Kurowski! Have you not for years insisted in distributing all of Venezuela´s net oil revenues to the citizens­? Yes! But with that, much more than a redistribution of purchasing power, I mean the redistribution of powers and opportunities... from petrocrats to citizens.

And if the rich want to help, welcome, but perhaps they better deliver that help directly to the poor, instead of going through the politicians who so often are only acting as the merchants of poverty.

In other countries, where for the .01% plutocrats what the 99% holds seems not to suffice they are now looking for the other 0.99 %. Tax the wealth and, at the end of the day, without further changes, most of it will come back to fewer and fewer Plutocrats.

Translated from El Universal, Caracas Note: You will not find the link. I was censored in my homeland Venezuela 

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” 

Below some follow ups on the theme

http://perkurowski.blogspot.com/2014/07/what-does-it-matter-whether-picasso.html

http://perkurowski.blogspot.com/2016/10/i-tweeted-how-do-you-morph-200-million.html

http://perkurowski.blogspot.com/2016/01/the-wealth-of-62-richest-equals-that-of.html

http://perkurowski.blogspot.com/2015/03/the-myth-of-unused-wealth.html

Universal Basic Income: The way to free us from the redistribution profiteers.

Taxing Wealth 101

Thomas Piketty. Would you tax wealth if this only benefited even more some few oligarchs?

We begin to hear proposals about taxing wealth, like that presented by Thomas Piketty in “Capital in the Twenty First Century”

Taxing wealth might reduce the fever of inequality, but it does not attack its causes. In fact, forcing the sale of assets, which is where wealth is stored, in order to increase the consumption of the less well off, might direction the funds away from those who have earned their wealth naturally, to those who earn it thanks to market imperfections, or to outright crony capitalism. An in such a way it could undermine even more the meritocratic values on which democratic societies are based, something that Piketty himself would seem to abhor.

In other words, if in Russia, would you tax wealth if that benefited the oligarchs?

I believe it would be better to concentrate on what is causing unjust artificial inequality and in this respect I could mention the following possibilities.

Like to eliminate the concept of risk weighted capital requirements for banks which channels bank credit away from “the risky”, in much a proxy for the poor, to “the infallible”, in much a proxy for the wealthy.

Like to increase the tax on all those profits which have originated under the protection of intellectual property rights. There is no reason for these to be taxed at the same rate as profits obtained from competing naked in the markets.

Finally, let´s give it a thought to what would have happened to all that unequally accumulated wealth, had not TARP and Quantitative Easing come to its rescue.

Just the fact that, except for religious considerations, when in the grave, we’re all equal, and the Gini coefficient is zero, should not mean we should hurry to get there... I think.