Wednesday, 30 July 2014

Taxes or Haircuts?

There's an interesting dialogue here between economist Thomas Piketty and anthropologist David Graeber whose piece on bullshit jobs is good fun.* Graeber gets schooled a bit by Piketty.
Piketty: ...I loved your book, by the way. The only criticism I would have is that capital cannot be reduced to debt....
Piketty goes on to point out that capital has grown faster than debt, so collectively "we" are actually better off economically. But when growth stalls, as it has, wealth concentration increases (because r > g).
Piketty:  ...This is not a problem from a strictly economic point of view, but it certainly is in social terms, because it brings about great concentrations of wealth....
I think this is correct: wealth concentration is primarily a social issue rather than an economic one, though the desire to protect wealth might well induce policies that limit economic activity. Anyway, there are basically three options for mitigating concentrations of wealth:

The two gents disagreed over these options: Piketty favoured wealth taxes while Graeber kinda went along with haircuts. We take up the dialog just after Piketty points out how easy it is for the wealthy to offload liability onto some poor sap, thereby avoiding the consequences of any debt cancellation.
Graeber: No one is saying that debt abolition is the only solution. In my view, it is simply an essential component in a whole set of solutions. I do not believe that eliminating debt can solve all our problems. I am thinking rather in terms of a conceptual break. To be quite honest, I really think that massive debt abolition is going to occur no matter what. For me the main issue is just how this is going to happen: openly, by virtue of a top-down decision designed to protect the interests of existing institutions, or under pressure from social movements. Most of the political and economic leaders to whom I have spoken acknowledge that some sort of debt abolition is required. 
Piketty: That is precisely my problem: the bankers agree with you!
Piketty implies that neither the bankers nor their major clients (on average) will be seriously hurt. It'll be some other random that took a risk and therefore deserves to carry the can. That's basically a tax efficiency problem: you aim at the wealthy and hit someone just getting by who sank their life savings into a bond.

A wealth tax wouldn't have this collateral damage. It could also be quite an efficient tax compared with taxing income (less likely to undermine effort) though there would be evasion through tax havens. Still, I have to agree with these last comments from Piketty
Is it possible to fight tax evasion? Yes, if you want to, you can. When modern governments really want their decisions to be respected, they succeed in getting them respected.
When Western governments want to send a million soldiers to Kuwait to prevent Kuwaiti oil from being seized by Iraq, they do it. Let’s be serious: If they are not afraid of an Iraq, they have no reason to fear the Bahamas or New Jersey. Levying progressive taxes on wealth and capital poses no technical problems. It is a matter of political will.
So there you have it: back to politics.

* Ryan Avent has a good review of Bullshit Jobs here.


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