A sophisticated look at some of the issues around the "wealth tax" that we do not (yet) have a good handle on: Josh Gans: Does Being Rich Make You Better at Allocating Capital? https://digitopoly.org/2019/10/27/does-being-rich-make-you-better-at-allocating-capital/: 'While we can all agree that the wealth tax likely deters risk-free saving, where the money actually goes otherwise is quite open. It could go to consumption which will cause actual resource use in ways that are certainly not in the direction people concerned with redistribution would like although just how much of that there can be given that the wealthy haven’t managed to do that spending previously is arguable. It could go to philanthropy which is a form of consumption (at least from the point of view of the donator) and is something that could be beneficial (but we have to consider whether the wealthy are the most productive to make those decisions—more on that another time). Or it could go to political influence which is a mixture of consumption (the naked expression of power) or investment to help them get wealthier (the well-dressed expression of power) but in actuality depends on how much other rich people are spending on these activities in terms of the potential return (a complicated game). Finally, where the money could go is to riskier investment because at the margin this is now more attractive than risk-free investment. This is not a given as the wealth tax could deter or spur this type of investment based on other margins (something Summers notes) but given the presumption above, if it does cause the wealthy to get out and find places for their money with a higher potential return, it is causing the wealthy to live their intended social purpose. So we are left with two empirically resolvable statements: Will the wealth tax increase or decrease riskier investment by the wealthy? Are the wealthy the most productive people to be making investment decisions?... We are left with either the early exit entrepreneurs (like Khosla) or the retired entrepreneurs (like Gates). But what skills did they have that they earned as a result of building a successful business that makes them likely to be presumptively socially optimal allocators of capital? I think there are things that likely do transfer so if I had to allocate capital between someone with their experience and someone with no experience, then the presumption makes sense. But note that, in terms of the impact of a wealth tax, wouldn’t it be presumptively sensible to suggest that the wealthy who have the skills are precisely those who are likely to end up investing more in riskier options than less when the risk-free capital is taxed so effectively?...


#noted #2020-03-05

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