Note that this Luxembourg Income Study capital income metric is very deceiving. The “zero capital households” figure depends a lot on how surveys classify capital income: your definition includes only cash flows from financial or productive assets (dividends, interest, rents, business profits).
It explicitly excludes own-use housing (which is something you can definitely argue for) but often also deferred savings vehicles like pensions if they don’t currently pay out. For example, Swedish residents all have the equity-heavy AP7 Såfa as the default fund in the publicly-administered premium pension (PPM) component of their state pension (equivalent to American Social Security). Basically every Swedish adult is a owner of capital, then. But the equity dividends are re-invested and the income from capital gains deferred until statutory retirement age (when they are paid out more like an insurance scheme, accounting-wise). So the Luxembourg Income Study counts this as labor income deferred, not capital income.
To your point, this doesn't much help a worker rendered unemployed by AI, since they would need income today and not after age 65-67. But, strictly speaking, they are de facto owners of capital and receive capital income... just later.
This might be a way to resolve the perennial "crisis" in Social Security and ideological criticisms thereof: you could add a "premium" or "flexible" aspect funded by Social Security payroll taxes or contributions and default to a lower-cost indexed fund with a conservative 40/60 equity split. Therefore rendering all Americans as owners of capital and investing more national savings in the financial system. You'd still retain the core system to be more inflation-proof and annuity-like, as the Swedish pension system does.
«This might be a way to resolve the perennial "crisis" in Social Security and ideological criticisms thereof: you could add a "premium" or "flexible" aspect funded by Social Security payroll taxes or contributions»
That is the usual sordid propaganda by financial speculators to create a mass of "dumb money" pumping up stock prices to the benefit of already very rich incumbent owners, and to give an incentive to many voters to demand government policies to pump up stock prices to boost retirement incomes at any cost to someone else... and we all know how that ends.
Grover Norquist "An interview", Enter Stage Right, 2003:
«The growth of the investor class -- those 70 per cent of voters who own stock and are more opposed to taxes and regulations on business as a result -- is strengthening the conservative movement. More gun owners, fewer labor union members, more homeschoolers, more property owners and a dwindling number of FDR-era Democrats all strengthen the conservative movement versus the Democrats. [...]
But going into November, what actually saved it for the Republicans was the investor vote, which went heavily R. Why? One, they didn't blame Bush for the collapse of the bubble.
They were mad at having lower stock prices and 401(k)s, but they didn't say Bush did this and that caused this. Secondly, the Democratic solution was to sic the trial lawyers on Enron and finish it off. No no no no no. We want our market caps to go back up, not low. [...]
Now if you say we're going to smash the big corporations, 60-plus percent of voters say "That's my retirement you're messing with. I don't appreciate that". And the Democrats have spent 50 years explaining that Republicans will pollute the earth and kill baby seals to get market caps higher. And in 2002, voters said, “We're sorry about the seals and everything but we really got to get the stock market up.”»
I greatly admire your posts and your analyses as here generally. But you are simply repeating a falsehood when you imply with your term "cryptocurrencies" that all decentralised, open source blockchain technology is simply a lottery/scam without utility and cannot benefit poorer individual investors. If you would learn more you'd say most Web3 chains are not currency although they operate with tokens eventually backed by fiat currencies. They provide access to finance for individuals without middle people; they provide efficiency for transactions; and in many cases provide decentralised, more private for activities currently only provided by centralised sites that mine and sell data and enable surveillance. BTC, Monero, and a few others may be essentially only currencies and these may be scams of a sort. So too Memes. But ETH, Chainlink and a huge range host of blockchains operating on staking are not. They represent an important evolution of the internet that have the potential to expand capital ownership although I will grant you that there is certainly the potential for legacy financial institutions to slowly but surely monopolise Web3. But for now please investigate further and avoid the use of the generic term "cryptocurrency".
1. distributing capital to ignorants does not work - they cannot apply it for value added and hence waste and lose it again. putting custodians to the job enriches them primarily and pressures returns leaving shambles. the agency problem cannot be solved by the ignorant - they require beneficial guidance upheld by a social bond and accountability with physical skin.
2. to tax hi incomes is ok if you let the rich participate in the application of the tax money as they tend to know what really works and to limit the wasteful drain on ideology (equality, social justice, eco...) and clientelist consumption that leftists use to hold their voters captive
3. bans dont work as resourceful individuals always evade them and they require restriction on freedom that empowers big brother I dislike. however to tax unwanted interaction ie speculation, ponzi schemes or peddling useless stuff like casinos (90% of gains, no legal recourse for punts) sounds ok to subsidize the common cause.
According to Mariana Mazzucato these tech companies use inventions made by state-funded universities – but the states are very adverse to tax them and generally make them pay for what they use. I believe with her that they should pay much, much more.
“From the distributional point of view, the issue is that substitution of labor by capital leads to the larger share of national income accruing to capital.“
This is of course neither theoretically nor historically true, and was recognized by Kaldor decades ago in his “stylized facts of economic growth“. Although for a period after radical, labor-saving technology is introduced, the capital share may temporarily increase due to Schumpeterian quasi-rents, in the long-run it returns to the near constant value required for Harrod-Domar steady state growth. This has changed particularly in the US since 1980 with the systematic decline in labor‘s bargaining position due to deunionization and foreign imports, but it theoretically must remain true in a closed economy in the steady state with normally functioning labor markets. If it were not, labor‘s share would have disappeared by now, since labor productivity has increased over the last century by 10x, yet labor‘s share in national income has fluctuated between 60-70% with no obvious trend.
Making patents less advantageous also could moderate increased inequality from new technology development. New technology that lowers production costs confers a monopoly advantage if property rights are backed up by patents. If patents and other property rights to AI formulas could be clipped back, then profits from new tech might be reduced by market competition.
Funny -- I'm currently writing a book that's half about this. (The other half is about broadening economic motives beyond profit.) I agree the problem is immense, politically as well as economically, and that existing approaches are largely played out. Time to think outside the box.
«what policies should be used to stop or moderate the increase in income inequality?»
What *politics* should be used to stop or moderate the demand for an increase in income inequality?
That is the bigger question because increasing inequality in much of "the west" have been driven by a solid, long term demand for an increase in inequality by middle-class voters and upper-class "sponsors". This demand for higher inequality has been the reason for the popularity of reaganism, thatcherism, neoliberalism in general among middle-class voters and upper-class "sponsors".
Thanks to reaganist, thatcherite, neoliberal politics middle-class voters and the upper-class "sponsors" have made enormous profits from the long term increase in inequality and have been strongly opposed to any policies that would moderate the increase in income inequality.
In particular the middle-class have in much of "the west" have nearly doubled their after-tax income thanks to colossal redistribution upwards from the lower classes thanks to rapidly rising property prices and rents:
“a 79-year-old retired carpenter in Cornwall, who bought his council house in Devon in the early 80s for £17,000. When it was valued at £80,000 in 1989, he sold up and used the equity to put towards a £135,000 fisherman’s cottage in St Mawes. Now it’s valued at £1.1m. “I was very grateful to Margaret Thatcher,” he said.”
That is a profit of £1m over 33 years, or around £30,000 per year on average, entirely redistributed from someone else poorer than that owner, work-free and and tax-free.
How do you persuade the middle-class to give up that massive increase in inequality? That is a big question.
«Spread the ownership of capital. [...] Tax highest capital incomes. [...] Ban some noxious new technologies.»
But that is... SOCIALISM! :-)
How do you persuade middle-class thatcherites to endorse those policies and so give up the source of so much redistribution in their favor? Because the greatest mass of redistribution from the lower classes has been not to the upper class, but to the middle-class, and it is that which has created an increase in income inequality.
4.) Government could give everyone, say, £1000 each to pay down debt and those without debt would be mandated to buy a special government bond (so as not to cause inflation). The central bank could be mandated to buy the extra gilts accruing from this program so as not to increase national debt, with profits form the dividends on the bonds returned to the treasury. Not how we do things, but we do need out of the box thinking.
Plus, as extra reserves would be created, stop paying interest on them.
Note that this Luxembourg Income Study capital income metric is very deceiving. The “zero capital households” figure depends a lot on how surveys classify capital income: your definition includes only cash flows from financial or productive assets (dividends, interest, rents, business profits).
It explicitly excludes own-use housing (which is something you can definitely argue for) but often also deferred savings vehicles like pensions if they don’t currently pay out. For example, Swedish residents all have the equity-heavy AP7 Såfa as the default fund in the publicly-administered premium pension (PPM) component of their state pension (equivalent to American Social Security). Basically every Swedish adult is a owner of capital, then. But the equity dividends are re-invested and the income from capital gains deferred until statutory retirement age (when they are paid out more like an insurance scheme, accounting-wise). So the Luxembourg Income Study counts this as labor income deferred, not capital income.
To your point, this doesn't much help a worker rendered unemployed by AI, since they would need income today and not after age 65-67. But, strictly speaking, they are de facto owners of capital and receive capital income... just later.
This might be a way to resolve the perennial "crisis" in Social Security and ideological criticisms thereof: you could add a "premium" or "flexible" aspect funded by Social Security payroll taxes or contributions and default to a lower-cost indexed fund with a conservative 40/60 equity split. Therefore rendering all Americans as owners of capital and investing more national savings in the financial system. You'd still retain the core system to be more inflation-proof and annuity-like, as the Swedish pension system does.
«This might be a way to resolve the perennial "crisis" in Social Security and ideological criticisms thereof: you could add a "premium" or "flexible" aspect funded by Social Security payroll taxes or contributions»
That is the usual sordid propaganda by financial speculators to create a mass of "dumb money" pumping up stock prices to the benefit of already very rich incumbent owners, and to give an incentive to many voters to demand government policies to pump up stock prices to boost retirement incomes at any cost to someone else... and we all know how that ends.
Grover Norquist "An interview", Enter Stage Right, 2003:
http://www.enterstageright.com/archive/articles/0903/0903norquistinterview.htm
«The growth of the investor class -- those 70 per cent of voters who own stock and are more opposed to taxes and regulations on business as a result -- is strengthening the conservative movement. More gun owners, fewer labor union members, more homeschoolers, more property owners and a dwindling number of FDR-era Democrats all strengthen the conservative movement versus the Democrats. [...]
But going into November, what actually saved it for the Republicans was the investor vote, which went heavily R. Why? One, they didn't blame Bush for the collapse of the bubble.
They were mad at having lower stock prices and 401(k)s, but they didn't say Bush did this and that caused this. Secondly, the Democratic solution was to sic the trial lawyers on Enron and finish it off. No no no no no. We want our market caps to go back up, not low. [...]
Now if you say we're going to smash the big corporations, 60-plus percent of voters say "That's my retirement you're messing with. I don't appreciate that". And the Democrats have spent 50 years explaining that Republicans will pollute the earth and kill baby seals to get market caps higher. And in 2002, voters said, “We're sorry about the seals and everything but we really got to get the stock market up.”»
I greatly admire your posts and your analyses as here generally. But you are simply repeating a falsehood when you imply with your term "cryptocurrencies" that all decentralised, open source blockchain technology is simply a lottery/scam without utility and cannot benefit poorer individual investors. If you would learn more you'd say most Web3 chains are not currency although they operate with tokens eventually backed by fiat currencies. They provide access to finance for individuals without middle people; they provide efficiency for transactions; and in many cases provide decentralised, more private for activities currently only provided by centralised sites that mine and sell data and enable surveillance. BTC, Monero, and a few others may be essentially only currencies and these may be scams of a sort. So too Memes. But ETH, Chainlink and a huge range host of blockchains operating on staking are not. They represent an important evolution of the internet that have the potential to expand capital ownership although I will grant you that there is certainly the potential for legacy financial institutions to slowly but surely monopolise Web3. But for now please investigate further and avoid the use of the generic term "cryptocurrency".
Well said and articulated, ty.
Fascinating result for China!
1. distributing capital to ignorants does not work - they cannot apply it for value added and hence waste and lose it again. putting custodians to the job enriches them primarily and pressures returns leaving shambles. the agency problem cannot be solved by the ignorant - they require beneficial guidance upheld by a social bond and accountability with physical skin.
2. to tax hi incomes is ok if you let the rich participate in the application of the tax money as they tend to know what really works and to limit the wasteful drain on ideology (equality, social justice, eco...) and clientelist consumption that leftists use to hold their voters captive
3. bans dont work as resourceful individuals always evade them and they require restriction on freedom that empowers big brother I dislike. however to tax unwanted interaction ie speculation, ponzi schemes or peddling useless stuff like casinos (90% of gains, no legal recourse for punts) sounds ok to subsidize the common cause.
According to Mariana Mazzucato these tech companies use inventions made by state-funded universities – but the states are very adverse to tax them and generally make them pay for what they use. I believe with her that they should pay much, much more.
“From the distributional point of view, the issue is that substitution of labor by capital leads to the larger share of national income accruing to capital.“
This is of course neither theoretically nor historically true, and was recognized by Kaldor decades ago in his “stylized facts of economic growth“. Although for a period after radical, labor-saving technology is introduced, the capital share may temporarily increase due to Schumpeterian quasi-rents, in the long-run it returns to the near constant value required for Harrod-Domar steady state growth. This has changed particularly in the US since 1980 with the systematic decline in labor‘s bargaining position due to deunionization and foreign imports, but it theoretically must remain true in a closed economy in the steady state with normally functioning labor markets. If it were not, labor‘s share would have disappeared by now, since labor productivity has increased over the last century by 10x, yet labor‘s share in national income has fluctuated between 60-70% with no obvious trend.
Making patents less advantageous also could moderate increased inequality from new technology development. New technology that lowers production costs confers a monopoly advantage if property rights are backed up by patents. If patents and other property rights to AI formulas could be clipped back, then profits from new tech might be reduced by market competition.
BTW - I have proposed that all Americans could be owners of capital through a universal retirement savings and investment system. See: https://inequalityink.org/wp-content/uploads/2023/07/universal-retirement-savings-system-5-27-18.pdf
and https://www.washingtonexaminer.com/opinion/447412/half-of-americans-have-no-retirement-savings-heres-how-congress-can-look-out-for-them/
also https://inequalityink.org/wp-content/uploads/2023/07/2016-diverse-risks-essay-polzer.pdf (Society of Actuaries)
Funny -- I'm currently writing a book that's half about this. (The other half is about broadening economic motives beyond profit.) I agree the problem is immense, politically as well as economically, and that existing approaches are largely played out. Time to think outside the box.
«what policies should be used to stop or moderate the increase in income inequality?»
What *politics* should be used to stop or moderate the demand for an increase in income inequality?
That is the bigger question because increasing inequality in much of "the west" have been driven by a solid, long term demand for an increase in inequality by middle-class voters and upper-class "sponsors". This demand for higher inequality has been the reason for the popularity of reaganism, thatcherism, neoliberalism in general among middle-class voters and upper-class "sponsors".
Thanks to reaganist, thatcherite, neoliberal politics middle-class voters and the upper-class "sponsors" have made enormous profits from the long term increase in inequality and have been strongly opposed to any policies that would moderate the increase in income inequality.
In particular the middle-class have in much of "the west" have nearly doubled their after-tax income thanks to colossal redistribution upwards from the lower classes thanks to rapidly rising property prices and rents:
https://www.theguardian.com/society/2022/jun/29/how-right-to-buy-ruined-british-housing
“a 79-year-old retired carpenter in Cornwall, who bought his council house in Devon in the early 80s for £17,000. When it was valued at £80,000 in 1989, he sold up and used the equity to put towards a £135,000 fisherman’s cottage in St Mawes. Now it’s valued at £1.1m. “I was very grateful to Margaret Thatcher,” he said.”
That is a profit of £1m over 33 years, or around £30,000 per year on average, entirely redistributed from someone else poorer than that owner, work-free and and tax-free.
How do you persuade the middle-class to give up that massive increase in inequality? That is a big question.
«Spread the ownership of capital. [...] Tax highest capital incomes. [...] Ban some noxious new technologies.»
But that is... SOCIALISM! :-)
How do you persuade middle-class thatcherites to endorse those policies and so give up the source of so much redistribution in their favor? Because the greatest mass of redistribution from the lower classes has been not to the upper class, but to the middle-class, and it is that which has created an increase in income inequality.
4.) Government could give everyone, say, £1000 each to pay down debt and those without debt would be mandated to buy a special government bond (so as not to cause inflation). The central bank could be mandated to buy the extra gilts accruing from this program so as not to increase national debt, with profits form the dividends on the bonds returned to the treasury. Not how we do things, but we do need out of the box thinking.
Plus, as extra reserves would be created, stop paying interest on them.
All true. Thank you for saying it.
jim@globalguideway.com