With my new Mercatus job, I think I’ll go back to my practice of doing off-the-wall stuff on Sundays–the day of rest.  I already did one today, here’s another.

While flying back from Hong Kong last September I read the Financial Times.  They have a glossy section discussing objects at their website

Then Mosqueda has commissioned many of the world’s most interesting designers to create pieces for the project. Maarten Baas has taken an old carpenter’s desk ($15,000) and done his famous burning act with it, while Matali Crasset for Nodus has produced strikingly geometric rugs ($5,900). Some of Holland’s top designers (Julius Vermeulen, Swip Stolk and the legendary Wim Crouwel) have brought out special fabrics, which have been used to upholster vintage furniture, such as the Theo Ruth & Swip Stolk chair ($6,300). There is a copper Dutch bicycle ($7,100) in an edition of 10 from Van Heesch Design, a skull sculpture ($6,700) by Nick Ervinck and a Botanica vase ($3,100) by Studio FormaFantasma, plus an amusing Naughty Bavaria pillow by Studio Job for Maharam ($415). Verging more towards art than functional pieces are Esther Janssen’s hand-sewn, leather artworks of natural disasters ($5,900), but alongside these there are also utilitarian pieces such as a steel floor lamp by Tom Dixon ($5,900) and a Piet Hein Eek chair ($7,500), as well as a stunning Camino vase by Alessandro Mendini ($7,100). A contemporary Nendo Deep Sea table for Glas Italia ($9,000), a stylish tray by Tord Boontje ($2,200) and a special Viktor & Rolf doll ($75,000) add to the curiosities.

Each new collection at Chamber will come with a limited-edition perfume. The scent for the gallery’s opening has been created by Julian Bedel of Argentine perfumery Fueguia 1833 and costs $350 for 100ml eau de parfum. Mosqueda asked Bedel, who is famous for taking his inspiration from South America and its culture (for example, a fictional library in one of Jorge Luis Borges’s short stories), to craft a unisex scent based on the experience of being in an old Louis Khan building. It is bottled in a porcelain vessel that was designed by Studio Job.

My first reaction was that if the rich need advice on how to spend their money, then maybe it’s time for a progressive consumption tax.  But of course first reactions aren’t always the best, and so for months I mulled the question of how to address this issue; do I want to mood affiliate with philistine populists or reactionary aesthetes?  Let’s consider a few arguments:

1.  The marginal utility argument.  Surely the rich receive less marginal utility from these objects that the poor would receive from an equivalent amount of money.

2.  On the other hand there are externalities involved.  People like me can get utility browsing the Chelsea gallery where these objects are displayed.  And jobs are created making these objects.

3.  But jobs are a cost.  The opportunity cost of making these objects is fewer objects for the poor. Many fewer, as objects for the poor are mass-produced in southern Chinese factories.  And people browsing that Chelsea gallery will also be fairly affluent; these objects do nothing for the working class and poor.

4.  But these jobs are a labor of love for those who feel called to the arts.  Do we really want to go back to the egalitarian 1950s, when Wallace Stevens had to sell insurance? The super rich support a large class of young artists.  Right now the 21st century equivalent of Venice is being created somewhere, we are just too close to see it.  (Let’s just hope it isn’t Macao.)

5.  Perhaps we could tax mansions and yachts on a sort of aesthetic basis, with much higher property tax rates on faux Versailles palaces in the Hollywood Hills than mid-century modern masterpieces.

6.  Are you kidding!  You expect IRS agents to be able to assess artistic merit?

And so it goes.  So I’m torn between these two arguments.  I suppose in the end it was the perfume that tipped me over the edge.  Now I’m as much a fan of old Louis Kahn buildings and infinite libraries as the next guy, but let’s consider the following hypothetical.  Suppose it cost $350 to create the Louis Kahn perfume and only $250 to create a perfume that will leave you smelling like an old Louis Sullivan building.  What is the marginal utility from that extra architectural cache?

So the philistine in me won out.  But how are we going to get the money to the poor? Matt Yglesias tells us that our next president (Hillary Clinton) plans to run on a platform to help the middle class, not the poor.  (I refuse to believe she has no idealism; rather (like Mitt Romney) she intends to lie her way into office and then tell us what she really believes.)  At the other extreme, after very wisely cutting the Kansas income tax, Governor Brownback had to wreck everything by a plan to raise the cigarette tax from 79 cents to $2.29/pack.  A blow right to the solar plexus of poor and working class Kansans.

The Dems want to subsidize NPR while the GOP doesn’t want to subsidize any radio stations.  Who will subsidize the stations that the poor listen to?

So I’ll keep advocating a progressive consumption tax/wage subsidy to help the poor. But I’m not very optimistic. The rich have their lobbyists and the middle class has their teachers/public employee unions.  No one listens to the poor cigarette smokers.

You might wonder why I am so obsessed with redistributing consumption from the rich to the poor, and so disdainful of those who want to help the middle class.  I suppose it’s partly because I believe the motivations are different, utilitarianism vs. envy.  Why is utilitarianism better? Consider the following from a recent piece in the New York Review of Books:

Aly’s emphasis on emotion (in this case envy) and psychology (concerning the reception of race theory), to say nothing of the topic of anti-Semitism itself, represents a significant departure from his earlier work. Here is a creative scholar who continues to grow in remarkable ways. In Aly’s portrayal the German paradox alluded to above disappears. If the Jews of Germany experienced the greatest success of any Jewish community in Europe in assimilation, social mobility, and the attainment of wealth and preeminence, they did so amid a Gentile population for which the modernization experience was more compressed, intense, and disorienting than in other countries. If envy of Jewish success was the driving motive behind modern anti-Semitism, as Aly argues, then it would be logical rather than paradoxical that the most intense anti-Semitic reaction would also occur in Germany, the land of the greatest and most visible Jewish success. This in my opinion is the most important contribution of Why the Germans? Why the Jews?

PS.  Would you rather smell like this:

Screen Shot 2015-01-25 at 6.38.25 PMOr this:

Screen Shot 2015-01-25 at 6.38.44 PM



40 Responses to “”

  1. Gravatar of david david
    25. January 2015 at 18:57

    The smell of heavy-duty air conditioning and carpet cleaner, versus the smell of pressure washer detergent?

  2. Gravatar of Major.Freedom Major.Freedom
    25. January 2015 at 19:01

    Regarding wealth inequality and diminishing marginal utility:

    “During the 1930s Oscar Lange and other socialists argued that any given-sized unit of wealth has a higher marginal utility to whoever has fewer such units. They argued, for example, that $1,000 has a higher marginal utility to a man who is worth only $10,000 than to a man who is worth $100,000. It follows, they believe, that if $1,000 were taken from the man with $100,000 and given to the man with only $10,000 an increase in total marginal utility would result.

    “In their view, the law of diminishing marginal utility implies that some kind of gain in utility can be achieved so long as anyone has more than someone else and his wealth can be transferred to a party who has less: the marginal utility of the wealth gained by the poorer person will allegedly be greater than the marginal utility of the wealth lost by the richer person. Perfect equality of wealth and income appears to them to be a norm requisite for maximizing “utility”””in a country or in the world.

    “Needless to say, this argument serves as an important rationalization for the progressive income and inheritance tax and for other forms of confiscation of wealth and income.

    “It is difficult to say which is the greater defect of this argument: the lightness with which it takes the matter of property rights and the speed with which it is prepared to violate them, or its confusion concerning the nature of marginal utility. The argument assumes that all that has to be established is that something is wanted or needed by someone more than by its owner, and that that is sufficient to justify forcibly taking it from its owner and giving it to the nonowner.

    “That this is what the argument assumes is highlighted if we put aside any question of inequality of wealth or income for the moment, and consider the vast range of other cases in which something can have a higher marginal utility to someone who does not own it than to the person who does own it. Thus, for example, if anything, whether a painting or a puppy, is owned by someone who does not appreciate it or therefore value it as highly as someone else would who does not own it, the argument of the socialists concerning diminishing marginal utility implies that a prima facie case exists for taking the property from its owner and giving it to the other party.

    “For this change in ownership too will allegedly result in an increase in total marginal utility. Thus, the argument implies not only that a poor person has a right to the property of those who are better off than he is, and who therefore need it less. It implies equally that anyone who would value something more highly than its present owner, whether on the basis of his education, character, or whatever, as much as on the basis of the smallness of the number of units he owns, has a right to it at the expense of the owner.

    “The supporters of this view, it should be clear, have no regard for rights of any kind, but merely for needs and desires. They have never outgrown the chaotic world of small children, who frequently act on the principle that whoever needs or wants something has the right to take it away from its owner, irrespective of the owner’s wishes.

    “The only difference between them and such children is that they think it must be clear that they, or some other beneficiary, need the goods more than the owner before they seize them and that they use the government to seize the goods rather than seize them personally.

    “This brings us to the other fundamental defect of the argument for economic equality on the basis of the law of diminishing marginal utility. This is the fact that it divorces the concept of marginal utility from individual people and assumes that it pertains to a kind of collective organism, of which the individuals are mere cells serving as centers of pleasure and pain for the organism. It is only on this basis that it can be assumed that the loss of a thousand dollars by one person and the gain of a thousand dollars by another person represents any kind of overall net gain. The argument assumes that the individuals are mere cells of “Society,” which allegedly feels only a relatively small loss when the richer person’s wealth is diminished and a relatively great gain when the poorer person’s wealth is increased.

    “Of course, the problem with this view of things is that people are not cells of some greater organism. Each individual person is an organism. Thus, each individual person constitutes a separate base and standard for judging utility. It is only to the individual human being that there can be utility, marginal utility, or any other kind of value.

    “It is true that to one and the same person $1,000 would be of higher marginal utility if all he had was $10,000 than if he had $100,000. But it is a non sequitur and completely false to imply that the marginal utility of $1,000 to this individual is increased if, when he has $100,000, $1,000 is taken away and given to someone else, who has only $10,000. It is absurd to think that the eleventh $1,000 in the hands of someone else is of greater marginal utility to a person than the one-hundredth $1,000 in his own hands. And if it is not the marginal utility to this person, the man who has the $100,000, that is increased, then there is no universal, objective, or valid sense in which marginal utility could be increased by “redistribution.” Exactly the same point applies to “redistribution” in favor of those who appreciate and value things more highly on the basis of factors other than the smallness of the number of units they possess. It is no satisfaction to someone whose painting has been stolen that now it is in the collection of someone who looks at it more often and with greater pleasure than he, the owner, would. The most intense pleasure of the thief is of no account to the owner.

    “The fundamental philosophical issue that is present here is the conflict between altruism and egoism. Altruism demands that we regard the needs of others as though
    they were our own. If we were starving, we would value a bowl of rice as highly as our lives. Asiatic coolies and others are starving, and thus, according to altruism, we should be as concerned as if we ourselves were starving. Nevertheless, in fact, we value our last scoop of ice cream or bar of chocolate above their first bowl of rice, which rice we could buy for them with the price of the ice cream or chocolate, if we chose.

    “According to altruism, such a state of affairs is a moral abomination, and we deserve to feel profoundly guilty for allowing it to exist. Many of us, no doubt, do feel guilty for a while, when the plight of the coolies or other impoverished, suffering group is called before us; but our guilt rarely lasts so long or goes so deep that we are led to give up very much for the sake of such groups. We find
    that giving charitable assistance is also of diminishing marginal utility, just like any other activity, and we leave off at a point where the importance we attach to the satisfaction of others’ needs is far less than if those needs were our own. There is good reason for this. The basic fact is that we are separate, independent organisms, and our survival, well-being, and enjoyment require that each of us devote his abilities to providing for himself. This does not mean that we are unconcerned with the needs of others. There are some others, such as spouses, children, parents, and close friends, whose existence and well-being are very important to our happiness. We are very much concerned with the needs of these others, and often attach as much or even more importance to providing for their needs as for our own, because we regard their existence and happiness as vital to our own. For example, most parents would rather go hungry themselves than
    allow their children to go hungry.

    “Apart from this small number of other people, however, there is no connection between our lives and wellbeing and the lives and well-being of others that is of
    such a nature as would justify our expending any major portion of our energies or wealth for their sake. It is true that because of the harmony of rational self-interests that prevails under freedom…we also derive major benefits from the
    existence, success, and prosperity of others whom we do not know or have any personal relationship with, and, indeed, potentially could each derive enormous benefit if the whole human race were successful, prosperous, and happy. Nevertheless, in the very nature of the case, the good will that we can reasonably feel for the rest of our countrymen and the whole rest of the human race that is
    founded upon their actual or potential success and prosperity precludes their being a drain upon us.” – Reisman, Capitalism.

  3. Gravatar of david david
    25. January 2015 at 19:18

    In this day and age – of handheld technology that look alike without being alike – I think it takes a greater depth of lived experience to observe a building and be aware of whether it is both aesthetically appealing and reasonably usable/maintainable, rather than being merely aesthetically unusual alone. It is achieving a balance of both priorities that is an indication of skill; it is assessing the achievement of this balance that is an indication of depth of knowledge – you can just browse Wikipedia for architectural oddities, never mind any quasi-specialist magazine.

    Anybody can be outrageous if it is the structural engineer’s job to realize it and the property manager’s job to clean it. We should have been harsher on functionalists who nominally believed in buildings as machines for living in, whilst constructing buildings that did none of those things.

  4. Gravatar of Ryan Murphy Ryan Murphy
    25. January 2015 at 19:53

    No more Romney love?

  5. Gravatar of Ray Lopez Ray Lopez
    25. January 2015 at 20:06

    @MF–you could of stopped after the first couple of paragraphs, but thanks!

    Old buildings? We got plenty of those here in the Philippines. They literally look 500 years old, some are, but more often it is the tropical weather plus neglect that makes them look old.

    Regarding Obama’s plan to increase dividend and capital gains taxation, Matt Yglesias says ( that Danny Yagan’s 2014 paper “Capital Tax Reform and the Real Economy: The effects of the 2003 dividend tax cut” shows a tax increase has no effect on capital formation (see the link for more details, it’s quite ingenious, looking at S vs C corps), contrary to what Sumner informs us in another post.

  6. Gravatar of Ben J Ben J
    26. January 2015 at 00:09


    You should stick to boasting about your IQ, at least you make sense when you’re doing that

  7. Gravatar of Derivs Derivs
    26. January 2015 at 03:21

    “My first reaction was that if the rich need advice on how to spend their money, then maybe it’s time for a progressive consumption tax.”

    Writers need to write articles to attract rich peoples attention so that they can sell advertising to high end retailers.

    “envy” – Yes, if you are fortunate enough to accumulate wealth you are best off to remain with your mouth shut about it. Read any comments section in HuffPo. In those comments, if you substituted any minority class for the word ‘rich’ you would be banned instantaneously. Rich can be roped up by their necks to swing from trees without moderators being offended.

  8. Gravatar of Vivian Darkbloom Vivian Darkbloom
    26. January 2015 at 03:54

    The rich are getting from all sides these days: some economists claim they spend too little (so we need to redistribute their wealth so that it will be spent by someone else) and others that they spend too much of their wealth (so that we need to tax it if it is spent, thus curbing their appetite). There does seem to be at least one point of relative consensus: they’ve got too much!

  9. Gravatar of mbka mbka
    26. January 2015 at 05:49

    Scott, you’re cracking me up. In this spirit, has anyone ever considered to pity the rich? Look at their decreasing marginal utility for money: they literally _must_ keep on increasing their incomes more than poorer people just to keep their utility growing at the same rate. Tell that to Piketty. We shouldn’t tax the rich, we should subsidize them, so that they get at least some increasing utility every once in a while. Yes, it’s a joke, but no, not a sarcastic one. I don’t envy the rich too much and I often enjoy their positive externalities.

    BTW – am I missing something or does Piketty’s capital-growth-is-higher-than-GDP-growth not also imply that the returns on capital are diminishing? Wouldn’t come as a surprise.

    Finally, getting more earnest. When I visited Berlin last summer I had an epiphany just like your review excerpt of “Why the Germans”. Berlin is just one of the most liberal and cosmopolitan places I have ever seen – and so it was too in the 1920s. It dawned on me that Nazism must have been in part a reaction to this joyful explosion of freedom from the older values. I am not sure if it was all about pure envy of money though. The severity of it probably had more to do with how advanced it was on a societal level. The German Jews may have been more like a symbol and scapegoat for something larger. It may have been more generally the inhibited hating the uninhibited.

  10. Gravatar of ssumner ssumner
    26. January 2015 at 06:18

    David, Good points.

    Ryan, I’ve always liked Romney as a person, and disliked him as a politician.

    Ray, I know that’s wrong, because higher taxes on saving would make me save less. Even if that’s true for no one else in the world, it refutes your “no effect” claim.

    I do find your confidence in “studies” to be rather touching.

    Vivian, I’m in the “spend to much” camp, but at least I don’t envy the rich, their money doesn’t make them luckier than you and I.

    mbka, Good points. I seem to recall that Piketty is aware of the diminishing returns factor.

  11. Gravatar of LK Beland LK Beland
    26. January 2015 at 07:16


    1) Taxing all income as regular income,


    2) subtracting all contributions to a savings vehicle from taxable income and adding all withdrawal from a savings vehicle to taxable income

    be considered a progressive consumption tax?

    Is this what you have in mind?

  12. Gravatar of Anthony McNease Anthony McNease
    26. January 2015 at 08:01

    The marginal utility of the $1000 depends on whether it is used for consumption or investment. I think from just an purely economic standpoint a purely consumption tax replacing any and all taxes on income, capital and investments would be optimal. However, as Scott points out economics and business is not the only concerns. Such a system would maximize economic output, but the progressive consumption tax necessary would probably reduce the consumption of luxury and artistic goods. Patronage of the arts would basically have to shift in large part to the state, and I think would produce a very ugly world. Additionally I think the marginal utility gained by the poor may be lower than hoped for. There is no guarantee that the redistributed consumption from the rich will end up in investments or education for the poor instead of tractor pulls and pro wrestling tickets.

    But these are the extremes. Just because pure, idealistic egalitarianism can’t be achieved doesn’t mean we shouldn’t pursue some moderately more just and efficient tax system. Perfect can’t be the enemy of the good.

  13. Gravatar of benjamin cole benjamin cole
    26. January 2015 at 08:06

    Milton Friedman advocated a progressive consumption tax to finance military outlays. I think so too.

  14. Gravatar of Anthony McNease Anthony McNease
    26. January 2015 at 08:08


    I don’t think taxing income is just, efficient or truly progressive. Arguments for progressive taxation have consistently targeted two things: conspicuous consumption and wealthy people. Income is an indirect way to target these and therefore inefficient. An honestly progressive tax plan would directly target these with consumption taxes and wealth taxes. Wealth taxes would be very destructive to an economy by turning capital stock into consumption and of course causing remaining capital to flee and discouraging foreign capital from investing domestically.

  15. Gravatar of LK Beland LK Beland
    26. January 2015 at 08:16

    Anthony McNease

    Are you sure you understood my proposition?

    Income – savings + withdrawals = spending = consumption

    If you tax savings and withdrawals, but deduct contributions to savings vehicles (savings accounts, brokerage accounts, private corporations, etc), you end up taxing consumption. If you income tax is progressive, then this amounts to a progressive consumption tax.

  16. Gravatar of LK Beland LK Beland
    26. January 2015 at 08:18

    *If you tax savings and withdrawals*

    Sorry,I should have written *income and withdrawals*.

    The whole idea is not to tax savings…

  17. Gravatar of Charlie Jamieson Charlie Jamieson
    26. January 2015 at 08:24

    In agricultural societies, the rich were rich because a few of them owned all the land.
    In today’s America, the rich are rich because they own all the financial assets. The value of their assets grows faster than the general economy, which may very well be a sign that asset prices are artificially high.
    If you want to be fair and distribute wealth, you really can’t tax their consumption — you have to seize their assets.

  18. Gravatar of Major.Freedom Major.Freedom
    26. January 2015 at 08:39


    Ahh, refreshingly accurate.

    I of course would go a step further and say that also eliminating consumption taxes would increase the incentive to save and invest, from the side of people being able to consume more than they otherwise could with the same labor.

  19. Gravatar of ThomasH ThomasH
    26. January 2015 at 09:00

    Keep pushing for a progressive consumption tax, I think the marginal utility of consumption argument is sound. We will need one to offset the otherwise regressive effects of the carbon tax needed to discourage the externality of emitting CO2 into the atmosphere and to finance the wage subsidies, child care credits, etc.

  20. Gravatar of Doug M Doug M
    26. January 2015 at 09:39

    This article stinks of a reverse snobbery… it this is how the rich spend their money, then they don’t deserve to have that money…

    As for the aesthetics… I would rather smell like brutalism. That says nothing about the architectural styles I would like to live in, work in, or walk by.

  21. Gravatar of Vivian Darkbloom Vivian Darkbloom
    26. January 2015 at 10:53

    “I’m in the “spend to(o) much” camp…”

    Well, Scott, on this issue, it appears that you and Joe the Plumber have about a 50 percent chance of getting it right. 🙂

  22. Gravatar of ssumner ssumner
    26. January 2015 at 11:06

    LK, Yes it would, but I have in mind a progressive payroll tax, which is far easier to implement, and essentially equivalent in the long run.

    Anthony, I believe our billionaires would still have plenty of money to support the arts.

    Benjamin, Milton was usually right.

    Charlie, I think the real problem is our intellectual capital laws, which give too much ownership over ideas to the rich. Disney is a classic example.

    Thomas, I agree.

    Doug, You said:

    “This article stinks of a reverse snobbery”

    Oh come on, do I need to insert a smiley face? I was joking about the perfume.

    Vivian, Does Joe wear that Louis Kahn perfume?

  23. Gravatar of Jeff Jeff
    26. January 2015 at 11:21

    “It is difficult to say which is the greater defect of this argument: the lightness with which it takes the matter of property rights and the speed with which it is prepared to violate them, or its confusion concerning the nature of marginal utility”

    This could be a fallacious argument. One could argue rightly – depending on what assumptions you make – that the law of redistribution annuls or augments the simple right to property. The very existence of redistribution laws calls into question such a notion of property rights.

    I personally would further argue that the notion of rights prior to the state is suspect. Where do they come from? Who decides what they are? Who enforces them? Shady business, talking about laws and rights but not something that establishes them.

  24. Gravatar of TravisV TravisV
    26. January 2015 at 12:18

    Really cool post:

    “In the United States, voters replaced Republicans with Democrats in 1932 and the economy improved. In Britain and Australia, voters replaced Labor governments with conservatives and the economy improved. In Sweden, voters replaced Conservatives with Liberals, then with Social Democrats, and the economy improved. In the Canadian agricultural province of Saskatchewan, voters replaced Conservatives with Socialists and the economy improved. In the adjacent agricultural province of Alberta, voters replaced a socialist party with a right-leaning party created from scratch by a charismatic radio preacher peddling a flighty share-the-wealth scheme, and the economy improved. In Weimar Germany, where economic distress was deeper and longer lasting, voters rejected all of the mainstream parties, the Nazis seized power, and the economy improved. In every case, the party that happened to be in power when the Depression eased went on to dominate politics for a decade or more thereafter. It seems far-fetched to imagine that all these contradictory shifts represented well-considered ideological conversions. A more parsimonious interpretation is that voters simply””and simple-mindedly””rewarded whoever happened to be in power when things got better.”

  25. Gravatar of LK Beland LK Beland
    26. January 2015 at 12:26

    “Yes it would, but I have in mind a progressive payroll tax, which is far easier to implement, and essentially equivalent in the long run.”

    Isn’t there a large part of consumption paid for by non-payroll income? Retirees, for instance.

    At the moment, we already see a substantial amount of labor income being “shifted” to capital income. Wouldn’t it be even worst if we only taxed payrolls?

  26. Gravatar of Anthony McNease Anthony McNease
    26. January 2015 at 12:32


    I really like that. I’ve come to view most politics as a side show with little impact. Capital just needs a fertile spot to land in order to meet the aggregate demand for goods and services. Today there are more fertile places for capital than there were 30 years ago and there will probably be more 30 years hence regardless of what happens in DC.

  27. Gravatar of Matt McOsker Matt McOsker
    26. January 2015 at 12:39

    So long as there is enough willing labor to produce the necessary goods for people, then money is not the problem. If all Farmers decide to quit farming and make expensive, I’ll say art, then we have a problem. But if you have lots of excess labor sitting idle, then pay them money to serve market needs.

    One might argue we need to tax rich people to make that money available, but there are other ways to make the money available to without raising taxes. If more money mobilizes what is needed, then spend it so long as we do not create too much inflation.

    I have no evidence, but I suspect a lot of regular folks support the arts with money not needed for necessities. I know many bands who depend on lower classes to shell out $10-$25 for an album or concert.

  28. Gravatar of Charlie Jamieson Charlie Jamieson
    26. January 2015 at 15:13

    These are examples of asset bubbles and speak to the mis-allocation of money.
    Let’s say you are wealthy and have 100k to ‘invest.’
    If you purchase a piece of art, you may see it double in price in a few years.
    If you put that money to work in a plumbing business, your return on investment might 5 pct, plus you all kinds of hassles with labor, taxes, regulation, etc.
    So if you are wealthy, you buy financial assets — an I’m going to count art here as a financial asset and not a real asset because that’s the utility here.

  29. Gravatar of Anthony McNease Anthony McNease
    26. January 2015 at 16:22

    Charlie, what are risk odds in the art and plumber business achieving those returns? Have you ever heard of risk premiums and how they are associated with potential rates of returns?

  30. Gravatar of Don Don
    26. January 2015 at 18:14

    The primary purpose of government is to protect wealth, so why not tax wealth. People thus pay in proportion to the benefit they derive from governments protection.

  31. Gravatar of Charlie Jamieson Charlie Jamieson
    26. January 2015 at 18:16

    Charlie, what are risk odds in the art and plumber business achieving those returns? Have you ever heard of risk premiums and how they are associated with potential rates of returns?

    New business formation is very low these days. It’s easier to make money buying and selling financial paper. Especially when the central bank is doing its best to support those financial asset prices.

  32. Gravatar of TravisV TravisV
    26. January 2015 at 19:17

    (Sigh) Stiglitz:

    “For the past six years, the West has believed that monetary policy can save the day. The crisis led to huge budget deficits and rising debt, and the need for deleveraging, the thinking goes, means that fiscal policy must be shunted aside.

    The problem is that low interest rates will not motivate firms to invest if there is no demand for their products. Nor will low rates inspire individuals to borrow to consume if they are anxious about their future (which they should be). What monetary policy can do is create asset-price bubbles. It might even prop up the price of government bonds in Europe, thereby forestalling a sovereign-debt crisis. But it is important to be clear: the likelihood that loose monetary policies will restore global prosperity is nil.

    This brings us back to politics and policies. Demand is what the world needs most. The private sector – even with the generous support of monetary authorities – will not supply it. But fiscal policy can…..”–stiglitz-2015-01

  33. Gravatar of Michael Sugnan Michael Sugnan
    26. January 2015 at 19:24

    Trivial detail: Walkace Stevens did not sell insurance to support his poetry habit. He was a seminal and important surety lawyer, and apparently an admirable executive. For example he fought hard against fraud, but paid out all claims where the truth could not be determined. If not an important modernist he would be remembered as a figure in his day job field. He was inspired by his daiky walks from his home to his Hartfir office, and from that inspiration he would dictate poems to his secretary for her to type. Plus he was just about retired by 1950 and died in 1955. He famously saw no contradiction between poetry and insurance.

    But since I have never heard a Keynesian or New Classical economist express a love for poetry, I will give more thought to NGDP targeting. Maybe there is something to it…


  34. Gravatar of Michael Sugnan Michael Sugnan
    26. January 2015 at 19:25

    Sorry for many typos. He lived in Hartford.

  35. Gravatar of Eric Eric
    26. January 2015 at 23:26

    Not related to the post. It seems like my RSS-feed for MI have stoped working. Does anyone else experience the same problem and know how to fix it?

    Grateful for answers!

  36. Gravatar of ssumner ssumner
    27. January 2015 at 06:09

    Travis, Thanks, that’s a good one.

    LK, Yes, there is a risk of labor income being shifted to capital income. My view is that when in doubt it should be viewed as capital income. (I.e. earnings of people running hedge funds, etc.) Perhaps the self-employed would continued to face a income tax with unlimited 401k privileges, whereas the rest of us could get by with a payroll tax.

    Wage and VAT taxes are the same in the long run, but not at the point of implementation. Thus if you suddenly switched from a wage to a VAT tax, current retirees would get hit twice on the same income.

    Don, Wealth is the present value of future consumption, so in theory a VAT (consumption tax) should be identical to a one time wealth tax. Of course measuring things like human capital is very difficult.

    Travis, Stiglitz being Stiglitz.

    Michael, Thank, I sort of knew it didn’t fit Stevens perfectly, but he was the best example I could think of.

    Eric, Sorry, I can’t help you.

  37. Gravatar of JL JL
    27. January 2015 at 08:54


    You make a very valid point; for the 99% millenials (myself included) the emotion of envy is felt stronger than the emotion of compasssion and envy is a great motivator…

    But, disregarding the spending habits of the uber rich, what do you think about their increasing power, which undermines the ideal of equality?

    For example, Jeffrey Epstein gets away with a few months of night curfew for prostituting minors whereas a normal person would get 10+ years of prison. An he was convicted!

    Other rich people, like OJ Simpson, R Kelly, Prince Andrew, Bill Cosby, either don’t get prosecuted or get absolved thanks to the best lawyers money can buy.

    And those are just the obvious crimes: child sexual abuse, murder.

    There are also the big white collar crimes (LIBOR manipulation, etc.) that hardly get punished. Whereas if you steel a can of coke you get jail time…

    Nowadays we look back at sexual abuse, corruption and other crimes by priests and nobles and speak disapprovingly of how our (religious) ancestors allowed these high status individuals to get away with their crimes.

    We do the same. Only now the criminals hide behind money, rather than religion or nobility.

  38. Gravatar of ssumner ssumner
    28. January 2015 at 10:09

    JL, There is no plausible tax system, even a 90% income tax, where the rich would not be able to afford good lawyers. In some cases (OJ?) they may have gotten off more because they were popular than because they were rich.

    Regarding Cosby, non-famous people who spiked women’s drinks 25 years ago also got away with it. Back then there was less awareness about the rape issue, that’s why the accusations are appearing now–there is less stigma for women. Times change. And doesn’t the statute of limitations also help Cosby?

    Not saying you don’t have a point, I think you do. It’s just that at the margin any plausible income redistribution won’t make much difference. And again, a progressive consumption tax is the best way to rein in loutish behavior–people like Gates and Buffett who give away or reinvest their money are not the problem.

  39. Gravatar of JL JL
    29. January 2015 at 14:49


    Thank you for your kind and thoughtful response. I am fully with you on the progressive consumption tax.

    I do think that redistributing capital would also be a good idea to re-balance economic power and strengthen the middle class. And I think that tax incentives that lower the burden on labor and increase the burden on large capital is the quickest way to achieve that.

    My dream is a society with more old, retired millionaires in Florida and less power hungry multi-billionaire hedge fund managers on Wall Street.

  40. Gravatar of ssumner ssumner
    29. January 2015 at 20:54

    JL, Progressives should go after IP laws, that’s the hidden problem that’s transferring billions to the wealthy.

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