Oxfams report on economic inequality

[Parihaka]

https://oxfam.app.box.com/v/an-economy-for-99-percent
Various language versions available

[DOR]

What I don’t see in this report is the role of women’s education, women’s property rights, women’s rights of inheritance, women’s human rights – all of that – in reducing poverty. They are mentioned as important things that need to be done, but they are not given the central role they deserve. Liberalization, global opening and female empowerment are where we know poverty reduction succeeds.

Harvard economics professor Greg Mankiw said, “I have noticed over the years that headline writers often try to make stories more sensational than they really are. This one at Yahoo News and Time, however, got me chuckling. The story tells us:

The gap between the super-rich and the poorest half of the global population is starker than previously
thought, with just eight men, including Bill Gates and Michael Bloomberg, owning as much wealth as 3.6 billion people.

That fact is not really surprising, as many people live hand-to-mouth with hardly any accumulated wealth at all. But the headline makes a stronger claim:

Half of the World’s Wealth Is In the Hands of Just Eight Men

Of course, this conclusion does not follow from the fact reported in the story and is not even close to being true.”


Other howlers:

Inequality Since 1300, there have been two periods – only two – when income inequality in Europe significantly narrowed. The first was the Black Death, when the nobility’s wealth dropped by some 15-20%. The second was 1915-45, when war was the cause of devastation. In other words, the only historically recorded means of significantly narrowing the income gap is to destroy. (I can dig out a scholarly paper on exactly this, if it is needed.)

“As growth benefits the richest, the rest of society – especially the poorest – suffers.”

This is simply not true. Some people can become richer through hard work, good ideas or a lucky stumble over a nugget of gold. None of those require suffering by anyone else. To posit that all wealth is created by causing suffering among others is deliberately false.

Bill Gates & Co created a products that billions of people use every day. If it was not something useful, affordable and better than not having that product, he wouldn’t have made any money at all. It isn’t difficult to argue that what he created improved the lives of billions of people (freeing up time, reducing mistakes, whatever).

Was he overpaid? Who knows? How would we measure the benefits accruing to every user of his products, and what would be the responsible compensation to which he would be entitled in a more just society? Should we deduct the vast sums he has given to charity?

Apple minimizes material and labor to maximize its profits

Huh? Of course they do! While I am dumbfounded at the notion that minimizing material inputs is somehow evil, paying American wages and taxes to produce iPhones would make them prohibitively expensive for the mass market. Is the suggestion that such products should only be available to the uber-rich?



The slaughter of the straw men

False Assumption # 1: The market is always right …

Aside from Ayn Rand, I can’t think of anyone who would subscribe to this. Straw man.

False Assumption #2: Corporations must maximize profits … at all costs

Even the Mafia knows that turf wars are bad for business; they have no time for this straw man.

False Assumption # 4: GDP growth should be the overriding goal of policy making.

Ask Janet Yellen what her priorities are, and she’ll say “a sound dollar – i.e., low inflation – and relatively full employment.” No country in the world would accept the notion that GDP growth is the most important goal.

False Assumption #6: The planet provides inexhaustible resources.

I can’t even begin to think anyone, even climate change deniers, believe this.

Bottom line
The Oxfam report isn't [all] wrong, but it is very badly balanced

There are some important nuggets in the report, such as the vast unearned wealth that is passed on from generation to generation. While you are right to want to pass on some of your wealth to your family, so that their future is easier or more secure, it is very easy to argue for a cap on inheritance. Such a limitation might encourage people to give more money away, either before or after death.

The incomes of the poorest people on earth rise very slowly, but that masks the historic increase in standards of living, and the historic decline in absolute poverty, that has occurred over the past 30-40 years. By linking income inequality to poverty, this report suggests that the hundreds of millions of people brought out of poverty in China, through liberalization and opening up, do not offer an example of what other countries might do.

The section on workers’ bargaining power misses the point. Between 1990 and 2015, China, Russia, India and East Europe joined the international pool of labor. Prior to that, their workers did not compete in the global market place. Adding those billions to the global labor force must, by simple logic, change the relative value of labor vis-à-vis capital. Increasing supply of labor reduces the value of each worker. Giving those workers a chance to compete in a modern economy, instead of closed markets or agricultural labor, increases their standards of living. No, they don’t have the same advantages white, male, Protestant men had in America in the 1950s. That advantage was based on heavy discrimination that artificially reduced the labor pool. It wasn’t fair then, and it shouldn’t be an ideal state to aspire to today.

[Parihaka]

I can dig out a scholarly paper on exactly this, if it is needed

Yeah I'd be keen if it's easy for you to find, a link or search topic/name would be fine.

[Parihaka]

The section on workers’ bargaining power misses the point. Between 1990 and 2015, China, Russia, India and East Europe joined the international pool of labor. Prior to that, their workers did not compete in the global market place. Adding those billions to the global labor force must, by simple logic, change the relative value of labor vis-à-vis capital. Increasing supply of labor reduces the value of each worker. Giving those workers a chance to compete in a modern economy, instead of closed markets or agricultural labor, increases their standards of living. No, they don’t have the same advantages white, male, Protestant men had in America in the 1950s. That advantage was based on heavy discrimination that artificially reduced the labor pool. It wasn’t fair then, and it shouldn’t be an ideal state to aspire to today.

Not sure on this bit. Businesses are protected by all sorts of legislation, workers (read unionization) are not. I'm not convinced that a bit of old fashioned unionization isn't the answer to the current growing disparity in most societies.

[tantalus]

Yes, plenty of strawmen is the summary and it would be better if the language was more nuanced instead of the absolute bolded statements, the False Assumptions.

I have a general question, if it's the wrong question, please explain, I'm being simplistic on purpose. What do people consider an approximate percentage of tax large corporations and billionaires should pay a year relative to a person on 70,000 euro/dollar a year?

[DOR]

Yeah I'd be keen if it's easy for you to find, a link or search topic/name would be fine.

Here it is: http://voxeu.org/article/europe-s-rich-1300

[DOR]

Not sure on this bit. Businesses are protected by all sorts of legislation, workers (read unionization) are not. I'm not convinced that a bit of old fashioned unionization isn't the answer to the current growing disparity in most societies.

Unions are great, but they only work when the labor supply is tight, or they can otherwise block certain people from working (e.g., closed shops). If labor is over-abundant, unions will have a very hard time.

cf 1970s USA, just as the Baby Boomers hit the market.

[DOR]

Yes, plenty of strawmen is the summary and it would be better if the language was more nuanced instead of the absolute bolded statements, the False Assumptions.

I have a general question, if it's the wrong question, please explain, I'm being simplistic on purpose. What do people consider an approximate percentage of tax large corporations and billionaires should pay a year relative to a person on 70,000 euro/dollar a year?

Corporate income tax and rates, are very different from personal income taxes and rates. I don’t think it’s useful to compare the two. Having said that, I would argue that the increasing dependence of US federal tax revenue on personal tax payments at the expense of corporate payments is dangerous.


Billionaire vs. Ordinary Joe?
How about no income tax on the first $40k (single, no dependents), 5% on the next $40k and another 5% on each subsequent $40k.
You hit 25% at $200k, and from there it starts to bite:
35% on $300k;
50% on $500k;
65% on $700k;
80% on $1 million.

Just to kick things off, of course.
I have no idea how much revenue that might generate.

[tantalus]

Corporate income tax and rates, are very different from personal income taxes and rates. I don’t think it’s useful to compare the two.

I read you, but what I am really trying to get at is the essence of fairness. How does anyone decide what tax rates should be if they were banned from discussing historical causes, how can one rationalise outside of chance history or necessity to justify this rate or that. Mid level incomes look very heavily over taxed in western societies from my subjective perspective, only for the fact of arguing the necessity that they need pay them to provide key state services, be it welfare, health, infrastructure, defense etc. Is it me or is that burden unfairly distributed on them? Income taxes must severely depress innovation and economic activity, paying 50% tax on income above 32,000 in Ireland (since our recession) must be a shocking demotivator to bother trying to increase income at all...

Why bother renting the second house or spare room - half goes to government anyway = housing crises - rent infllation- many economic consequences downstream = can't attract foreign investment - no houses for workers - high wage demands etc etc These are the worst kinds of taxes

Billionaire vs. Ordinary Joe?[/B]
How about no income tax on the first $40k (single, no dependents), 5% on the next $40k and another 5% on each subsequent $40k.
You hit 25% at $200k, and from there it starts to bite:
35% on $300k;
50% on $500k;
65% on $700k;
80% on $1 million.

Just to kick things off, of course.
I have no idea how much revenue that might generate.

What makes me really despise high income tax for the middle class is the idea that larger corporations and billionaires pay an unfair amount. Maybe I'm just a soft leftie, maybe I'm just hard-wired by evolution to care for an misplaced idea of fairness over sound economic policy. Or maybe they are one and the same. That would be really convenient for me.

[DOR]

tantalus,

Only in an economist’s dream world would someone decide what the tax rates should be based on fairness, or revenue demand or some other logical foundation. The rates are a product of history, and the most current politicians can do is to adjust them up or down, and add or subtract special penalties or perks.

The closest example to a real world experiment would be the oil-less micro states. There are about 20 economies that charge less than 2% corporate profits tax, according to the way the World Bank’s “Doing Business in…” series measures it (that’s very important: measurement). The details are here: http://www.doingbusiness.org/data/ex...s/paying-taxes [Note that Singapore’s 1.8% corporate profits tax is actually about 17% (I’m a bit out of date on that), but because of WHAT is measured, it comes out extremely low.]

The reason they charge such a low profits tax rate is that they are in intense competition for investment, and have decided that being highly attractive to business is the right strategy. They make up for it with (largely) broad-based consumption taxes (GST, VAT) and personal taxes.

Some of the SSRs decided on a 10-10-10 or 15-15-15 model: equal taxes on profits, income and transactions (VAT). The numbers chosen suggests that there wasn’t a whole lots of heavy mathematical calculation involved.

In more developed economies, mid-level incomes are more heavily taxed exactly because they are mid-level: that’s where the money is. There’s aren’t enough rich people – and they’re highly mobile – and the poor don’t have any money.

Do tax rates severely depress innovation and economic activity? If that were true, Silicon Valley would be Saudi Valley (no taxes), and every time the tax rate went up, innovation would collapse. It is a long-established myth of the Austrian School that doesn’t hold water. The Celtic Tiger is just one example.

[Doktor]

The gap between the super-rich and the poorest half of the global population is starker than previously
thought, with just eight men, including Bill Gates and Michael Bloomberg, owning as much wealth as 3.6 billion people.

That fact is not really surprising, as many people live hand-to-mouth with hardly any accumulated wealth at all. But the headline makes a stronger claim:

Half of the World’s Wealth Is In the Hands of Just Eight Men

So, the world population is 3,600,000,008?

[DOR]

So, the world population is 3,600,000,008?

Not my figures; I was just quoting.

The assertion -- which is highly questionable -- is that 8 men own as much as 3.6 billion people. There's no where I can see that asserts that's everyone in the world, just the poorest 3.6 billion.

[tantalus]

Bit late on the reply here but have been reflecting on my economics 101.

The rates are a product of history...

In more developed economies, mid-level incomes are more heavily taxed exactly because they are mid-level: that’s where the money is. There’s aren’t enough rich people – and they’re highly mobile – and the poor don’t have any money.

That's part of my point though, the rates are historical, not logical, for the present day, much of the world's wealth isn't taxed and is accumulating in the hands of a small number of people and companies and the tax system only functions effectively (and depends) on the lower, middle classes, disproportionately.

Do tax rates severely depress innovation and economic activity? If that were true, Silicon Valley would be Saudi Valley (no taxes), and every time the tax rate went up, innovation would collapse. It is a long-established myth of the Austrian School that doesn’t hold water. The Celtic Tiger is just one example.

It's usually isn't clear though, Is it? You have to define severe...perhaps switch it with desirable or optimal... Are certain taxes depressing economic activity from its true potential and innovation for that matter and well-being? Good can always be better, along a spectrum.

Indulge me here DOR on my economics 101. Although economics is a social science, in practice its role is to serve humanity. It is not a religion, there is no prophet, no blind faith required, no need to adhere to an ideology if it's found to be false, if it fails to serve humanity. I understand that serving humanity can be counter-intuitive, it can make sense to award greed, that sound economic practices can be the less obvious ones, those that make the rich richer but also reward hard work, talent, innovation, and ultimately can benefit everyone. Not a zero sum game. I understand that great progress has been made in bettering the lives of billions of people in the 20th century, despite a rapidly growing world population, a great feat.

But I am curious if we now have a major problem. That western nations are too dependent on taxes from the lower and middle classes. I am open to the idea that the state is inefficient with taxpayers money. I am also open to the idea that despite that inefficiency, it doesn't mean that the best course isn't for the state to continue to spend prodigiously and expand its welfare programs. I wonder however if a dollar from a lower/middle class person isn't the same as a dollar from Apple's reserves, reserves that run into the tens of billions. For one, the former dollar does a lot more economic activity, but it is also more likely to generate increased well-being, the ultimate purpose of economics. This makes me wonder if the merit of a big state, with big spending (and potentially inefficient spending at that) is weakened if the money has to come from the lower, middle classes. In simplistic terms, taking it so as to give it back again in the form of welfare, and also taking the most efficient dollars in the economy out of circulation. This is all without touching on the concept of fairness. These are generalisations, and easy to attack, that's their nature, so please keep this in mind. What are your thoughts?

[DOR]

tantalus,

“much of the world’s wealth isn’t taxed” is a candidate for understatement of the year. Only about 40% of OECD citizens pay income tax, and probably something like 80% are net beneficiaries of the system. That means the benefits they receive out-weigh the tax paid.

If you want to broaden the tax base to catch all those sneaky billionaires, without spending all your tax revenue plugging loopholes and tracking down wayward bank accounts on Caribbean island, just put in a straight-forward sales tax.

Rich people can’t avoid paying a sales tax (particularly a well-designed GST or VAT), and since they spend so much more than the rest of us, they end up paying more taxes. But, don’t forget to reimburse the poorer folks for most of the tax they pay or you’ll end up tied to a nice warm stake and surrounded by people with pitchforks and bad attitudes.

If we take money from Apple’s reserves, instead of from tax returns, we increase the distance between the cost and the benefit. Worse, we might look to Apple (et al) as the source of all largess, rather than as merely a middleman for people’s tax money.

Given that 98% of the services government provides to its people go to something like 98% of the citizens (those are actual, made-up numbers), it makes sense to have as broad a tax base as possible. Where services are tightly focused or unique to specific groups of people (e.g., foreign travel is unique to passport holders), then a fee-based service model makes sense. The East India Company paid for gunboat diplomacy, in a way.

People who receive services but don’t pay taxes have only a very small stake in the system. In Hong Kong, I called it the lack of connection between the pocketbook and the policy book: what ever government did, someone else would pay for it. If people don’t feel a bit of pain when they pay taxes then they will feel no restraint in asking that government provide more and more services.

(The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers, with the smallest possible amount of hissing. — Jean-Baptiste Colbert, Minister of Finances of France from 1665 to 1683 under the rule of King Louis XIV.)

On a more general note, the Economic Vatican indulges the heathen when he claims there is no prophet (Blessed be the name of Adam Smith) or that blind faith is not required (reread the Book of Supply Side Voodoo Reaganomics) or that there is no need to adhere to an ideology (see St. Milton’s conversion, “We’re all Keynesians now.”) Yes, the Great Lucifer Marx founded a false branch of the Holy Science, but as it failed to serve humanity it generally failed.

[tantalus]

tantalus,

...is a candidate for understatement of the year.

That's no harm, as I know little about economics I may as well call that a starting point and a victory.

[B]

If you want to broaden the tax base to catch all those sneaky billionaires, without spending all your tax revenue plugging loopholes and tracking down wayward bank accounts on Caribbean island, just put in a straight-forward sales tax.

Rich people can’t avoid paying a sales tax (particularly a well-designed GST or VAT), and since they spend so much more than the rest of us, they end up paying more taxes. But, don’t forget to reimburse the poorer folks for most of the tax they pay or you’ll end up tied to a nice warm stake and surrounded by people with pitchforks and bad attitudes.

Sounds like admitting defeat on the logical course, than becoming practical, finding a work around that won't be popular, and may not be very efficient. Tough sell. And don't the really rich ones, just sit on their big mounds of money stumped on how there going to spend it all...

[B]

If we take money from Apple’s reserves, instead of from tax returns, we increase the distance between the cost and the benefit. Worse, we might look to Apple (et al) as the source of all largess, rather than as merely a middleman for people’s tax money.

I didn't specifically mean tax Apples etc reserves directly. Merely if they pay the taxes there supposed to, presumably they would have fewer reserves. I don't think I fully follow the underlined statement?

[B]

Given that 98% of the services government provides to its people go to something like 98% of the citizens (those are actual, made-up numbers), it makes sense to have as broad a tax base as possible. Where services are tightly focused or unique to specific groups of people (e.g., foreign travel is unique to passport holders), then a fee-based service model makes sense. The East India Company paid for gunboat diplomacy, in a way.

People who receive services but don’t pay taxes have only a very small stake in the system. In Hong Kong, I called it the lack of connection between the pocketbook and the policy book: what ever government did, someone else would pay for it. If people don’t feel a bit of pain when they pay taxes then they will feel no restraint in asking that government provide more and more services.

That makes sense but I am not trying to suggest people shouldn't pay significant tax, only that in many instances we have gone past that. And concurrently others are paying virtually nothing.