Posts Tagged ‘Melinda Gates’

A Wealth Tax

March 15, 2020

This post is motivated by an article by Michael Birnbaum titled, “Warren, Sanders want a wealth tax. Swiss suggest their model for America” in the 4 March 2020 issue of the Washington Post. Economists advising Sanders and Warren point to Switzerland’s wealth tax as a successful one. And some deep-pocketed Swiss say their wealthy American peers should consider Switzerland’s system.

Peter Kurer, a former chairman of UBS, Switzerland’s largest bank, and now head of the country’s second-largest phone and Internet provider, said, “Rich people can live with a wealth tax. There are many wealthy people in the United States who don’t pay any taxes at all, and this spoils social peace.”

“Hitting the wealthy based on their assets is an old practice here, dating to Switzerland’s origins as a unified confederation in the mid-19th century. In the country’s highly decentralized system, where most tax decisions are put directly to voters, wealth taxes have reaffirmed again and again by citizens, a sign of broad support.”

“Here in Solothurn, a German-speaking state about 50 miles west of Zurich, the wealth tax is so popular that residents opted to increase it by nearly a third in a Feb. 9 referendum, while also trimming corporate rates in a kind of compromise. Each of Switzerland’s 29 states gets to to pick its own tax rates, though all must have a wealth tax.”

Roland Helm, Solothurn’s top finance official, who presided over the tax compromise as a state councilor from the center-right Christian Democratic party said, “For the people, it’s normal that those who have more rich than others have to pay more than others. It’s a part of justice.”

In Europe, only Spain, Norway, Belgium, and Switzerland impose wealth taxes. France scrapped its wealth tax in 2018, after tens of thousand of millionaires were estimated to have left. But Americans are liable for US taxes regardless of where they reside. So the wealthy who left the United States could, along with their offspring, be prohibited from re-entering the US. They would be in permanent exile until they paid their taxes. There are many Russian billionaires affiliated with Russian mobs, who would like to enter the United States, but are prohibited. The US is a highly desirable country in which to reside or visit, so precluding tax owing citizens from reentering the country would provide a strong disincentive for owing taxes.

It important to make a distinction between earned wealth and inherited wealth. Jeff Bezos and Bill Gates have amassed fortunes by generating new businesses that benefited the economy. Warren Buffet generated a fortune through wise investing. These fortunes can be justified. It is interesting that Warrant Buffet and Bill and Melinda Gates do not believe in leaving their wealth to their children. They believe that doing so would not be in the general interest of their children. Bill and Melinda Gates work developing a charitable corporation that uses operations research to find those populations and areas of the globe that are most needing of assistance. Warren Buffet is transferring his wealth to their foundation. Inherited wealth can be, and frequently is, pernicious.

At this point, please allow a digression to the royalty and peerage of Great Britain. At one time the King or Queen and the peerage controlled virtually all the wealth in the country. Over time, that has greatly decreased. But what was the justification for royalty and the peerage? It was by thuggish acquisition and warfare. Their aires inherited their wealth and power.

One can make an analogy between British royalty and the peerage to Americans who inherit wealth. This introduces distortions and inequities into the countries. In the United States

In 2010 the Top 1% had 35.4% of the wealth
The top 5% had 63% of the wealth
The top 20% had 88,9% of the wealth
And the bottom 80% had 11.1 % of the wealth

And the situation has become more unequal in 2020.

So why should this be a concern? As the share of the nation’s wealth going to the wealthy rises, the share going to everyone else falls. What else falls? The freedom that wealth can buy, and the power that wealth can buy. Technically, we may still have one person, one vote (but given the menacing Electoral College, not for Presidential elections). But the effect of one person on elections has gone way down.

Thomas Piketty makes a distinction between productive wealth and reinvestment wealth. Productive wealth is the wealth generated by work, by producing and selling things or services, and the kind of wealth Adam Smith talked about.

Reinvestment wealth is generated by receiving returns on investments and then reinvesting the returns over and over. This kind of wealth grows exponentially, like compound interest. The more you have, the more you invest, and the more you invest, the more you have.

Most inherited wealth is reinvestment wealth. Read the healthy memory blog post “The Piketty Insight on the Accelerating Wealth Gap” to understand why this is undesirable.

The most effective way and addressing this glaring inequality is to gradually chip away the inequality with a wealth tax.

The Worst Problem: The Most Imminent Danger

June 23, 2019

Of all the issues raised in Douglas Rushkoff’s book “TEAM HUMAN,” which is the worst; which constitutes the most imminent danger. Although HM would argue that global warming is the most imminent danger, economics presents a possible existential threat. Adam Smith was aware of the dangers presented by large corporations and stressed that regulations would be necessary to keep them from destroying the marketplace. There are regulations, but one can readily question whether they are adequate and can anticipate future problems.

In 1969 the CEO of a typical company made about 20 times the salary of the average worker. Currently, CEOs make 271 times the salary of the average worker.

The following statistics are taken from “Resisting the siren song of ‘modern monetary theory” by Heather Boushel in the 21 April 2019 issue of the Washington Post. “Between 1979 and 2015, after accounting for taxes and transfers, Americans in the middle 60% of the income spectrum saw their incomes rise by 46%, while those in the top 20% saw their incomes rise by nearly 103%. High inequality is associated with less upward mobility and with the capture of politics by elites.”

What is more important and more worrisome is accumulated wealth. This problem was discussed in the post The Piketty Insight on the Accelerating Wealth Gap. In the United States in 2010, the top 1% had 35.4% of the wealth. In 2010, the top 5% had 63% of the wealth; and the top 20% had 88.9% of the wealth. That left the bottom 80% with 11.1% of the wealth. So what is being lost? The freedom that wealth can buy, and the power that wealth can buy. Technically, we may still have one person, one vote (but given the menacing Electoral College, not for Presidential elections). But the effect of one person on elections has gone way down.

It is important to appreciate the difference between inherited money and earned money, and more importantly the distinction between inherited money and earned money. Earned money is earned and deserved. Inherited money is not earned and creates a wealthy class analogous to royalty. Presumably the United States broke away from England and its royalty to form a society of equal citizens. This inherited wealth destroys this goal of equality.

It is important to note exceptions. Perhaps the most famous exception is the most successful capitalist, Warren Buffet. He does not believe in inherited wealth. Similarly the most successful entrepreneurs, Bill and Melinda Gates, do not believe in inherited weather. They have created the Gates Foundation, which uses the techniques of operations research to maximized the effectiveness of their giving. Both Buffet and the Gates regard inherited wealth as being unhealthy for their children. It also needs to be mentioned that there are billionaires pledging to give away significant portions of their wealth.

But unfortunately, these people are the exception. Greed seems to be the governing principle for the remainder. One wonders, how many billions does a billionaire need? For too many the answer appears to be infinity. They use their wealth as a measure of their success, and, according to their calculus, how they rank against the rest of humanity.

Corporations need to grow continually and at ever higher rates. This creates the treadmill or rat race that just gets worse. Add to this effect of automation and the loss of future jobs, which will likely exacerbate the problem.

In the past politicians would promise jobs and expect voters to grovel at their feet, even those these jobs would damage further the environment.

We need to stop or get off this treadmill, or we shall eventually, and perhaps, shortly, reach disaster.

© Douglas Griffith and, 2019. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Douglas Griffith and with appropriate and specific direction to the original content.

Science Explains the World of Manafort and Gates

August 22, 2018

This post is based on an article by William Wan in 18 August 2018 its of the Washington Post. The article asks the question are rich people more likely to lie, cheat, and steal?

This is a timely question as Paul Manafort’s trial has revealed details of his alleged crimes: defrauding banks out of tens of millions of dollars, evading taxes by stashing huge sums in offshore accounts and using riches earned through unregistered word for governments to buy $15,000 ostrich and python jackets. Rick Gates, Manafort’s deputy testified about the small fortune he spent on globe-trotting infidelities. And last week, Rep. Chris Collins (R-NY) was charged with insider trading. Scandals have shown Trump’s Cabinet members flouting government rules and ethics for private jet rides $31,000 dining table sets, $43,000 soundproof booths and questionable business trips abroad.

Dasher Keltner, a psychologist at the University of California, Berkely has spent decades studying wealth, power, and privilege. He said, “To researchers who study wealth and power, it’s dismaying but not surprising, because it tracks so closely with our findings. The effect of power is sadly one of the most reliable laws of human behavior.” Six years ago, Keltner and a then graduate student in his lab, Paul Piff, published influential innovative research that confirmed many of our worst assumption about the rich and the corrupting power of wealth.

In one study, the researchers stationed themselves at a busy intersection with four-way stop signs and tracked the model of every car whose driver cut off others instead of waiting their turn. People driving expensive cars—like a brand-new Mercedes—were four times more likely to ignore right-of-way laws than those in cheap cars like an old beat-up Honda. Keltner said, “ It told us that there’s something about wealth and privilege that makes you feel like you’re above the law, that allows you to treat others like they don’t exist.”

Next, they had a researcher play a pedestrian trying to cross at a crosswalk and tracked which cars stopped as the law requires and which blew right past him. Every one of the cheapest cars stopped, while half of the expensive cars ignored the pedestrian in the crosswalk, many even making eye contact. Pedestrians need to be aware of this study. It could save their lives.

Religious leaders have been issuing warnings throughout the ages about the corrupting effects of wealth and power. Buddha gave up the rich life of a prince for enlightenment (and found it!). Jesus warned his disciples a camel would have an easier time squeezing through the eye of a needle than a rich man trying to get into God’s kingdom.

In the past few decades, a growing body of psychology research has tried to capture and measure the exact effect of wealth and behavior and morality. This research has shown the rich cheat more on their taxes. They cheat more on their romantic partners. The wealthy and better-educated are more likely to shoplift (HM finds this quite surprising). They are more likely to cheat on games of chance. They are often less empathetic. In studies of charitable giving, it is often the lower-income households that donate higher proportions of their income than middle-class and many upper-income folk.

Keltner and Piff in their 2015 paper found the rich are more likely to literally take candy from children. In that experiment, they first asked 129 subjects to compare their finances with people who had either more or less money. Then they give their subjects a jar of candy and told them the sweets were intended for children in a nearby lab but they could take some if they wanted. Those who felt richer after comparing their finances to poorer people took significantly more candy for themselves.

The findings build on similar research in recent years that suggest wealth and power strip people of their inhibitions, increase risk taking and feelings of entitlement and invulnerability. At the same time, power makes people less empathetic and able to see others’ perspectives.

Adam Galinsky of the Columbia Business School says, “Wealth is basically a mechanism for power and power has a freeing effect on people. It takes away the constraints of society and frees people to act according to their dominant desires.” His experiments have explored how power often propels people’s actions. In some cases, those desires may be altruistic or helpful to society, so power heightened those goals and can give rise to effective philanthropies. Often, however, power leads to self-serving behaviors unrestrained by the usual concerns over rules or the consequences for others.

Because much of the psychological research into wealth and power is relatively new, many of the findings are still being tested and need to be confirmed by replication, researchers say. Michael Kraus, a social psychologist at Yale’s School of Management says, “I wouldn’t say these questions are settled. There are disagreements about the exact effect of wealth on ethics and how large the effect is.” But the research has never seen such booming interest and momentum, with the growing inequality in America and a multimillionaire born into wealth in the White House.

Kraus said, “There’s a lot of reasons we should care about the ethics of wealthy people. Even if research found that they were no more unethical as anyone else, their influence on the world is so much greater. If someone like me steals something, it only affects a handful of people. But if someone like Manafort steals or lies or cheats it affects so many more people. There are foreign governments and banks involved. You start getting into that area where it can affect the whole country and the course of democracy.”

HM thinks that this discussion ignored an extremely important variable, and that is differences in individuals. There are billionaires like Warren Buffet, Bill and Melinda Gates who are giving away their fortunes. They do not believe in inherited wealth, which is particularly pernicious. And the Bill and Melinda Gates foundation is using the tools of operations research to maximized the benefits of their giving. We need to learn how to produce more rich people to pursue the paths of these three outstanding individuals.

© Douglas Griffith and, 2018. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Douglas Griffith and with appropriate and specific direction to the original content.