Thomas Piketty (see “Book review: Piketty’s Capital”) predicted that, absent a wealth tax administered by a powerful world government, the world’s richest bastards would run away with all of the wealth on the planet. This is partly because, he claims, rich people can earn a higher return on investment than average people. This Wall Street Journal article summarizing research by “Wealth-X” shows the opposite trend, however:
Billionaires controlled 3.9% of the world’s total household wealth in 2015, slightly down from 4% in 2014, according to Wealth-X, a consulting group that uses public records and research staff to manually track the habits of ultra-high-net-worth individuals, or people valued at more than $30 million.
The article also contains some fun stuff on the evolution of language:
For most billionaires, however, it takes more than an inheritance to join the so-called three-comma club, according to the census; 87% of billionaires, up from 81% in 2014, made the majority of their fortunes themselves.
(Note that the latter part of the above quote also tends to discredit Piketty; if it is all about inheritance why is a growing percentage of the richest bastards self-made?)
Sorry, Philip, but a 1-year drop from 4.0% to 3.9% is basically a rounding error and the total share of world wealth owned by billionaires is going to go up and down with much larger annual fluctuations than that just because of stock market movements. To really tell what is happening to that proportion you need to look at something like a 5-year rolling average.
Joe: I recognize that 4 to 3.9 is not a big move (and could well be simply noise). However, Piketty said that the problem was urgent, that the growth was a runaway process, and that we needed a world government. So I would still say that this is evidence against one of his main points.
The three comma club represents about one third of the one percent of the one percent of the one percent. There is a lot of wealth not represented in these numbers so by themselves they do not provide a compelling refutation of Piketty. The fact that self made individuals (unusually capable/ambitious people whose wealth has not yet been diluted by distribution to heirs) are over-represented at the very tip of the top is not terribly surprising and does not, by itself, discredit Piketty.
Wait, where did the “we need a world government” come in? It’s been a while since I read the book, but I don’t remember Piketty arguing for a world government.
The Economist: “Mr Piketty closes the book by recommending that governments step in now, by adopting a global tax on wealth, to prevent soaring inequality contributing to economic or political instability down the road.”
Yeah, but Picketty was talking about capital, not billionaires. Perhaps you didn’t understand him.
Russil: http://philip.greenspun.com/blog/2014/06/17/book-review-pikettys-capital/ mentions the book’s call for a world government, but doesn’t cite a specific page. I think it is kind of obvious that you need a world government if you’re going to have significant wealth taxes. Remember that most countries don’t tax non-residents. So there would be a big incentive for one country to offer a low-tax environment and lure most of the world’s richest people (the same way that Ireland lures rich corporations by having lower taxes than other EU countries or Switzerland brings in wealthy individuals for a negotiated annual tax payment (see http://www.bloomberg.com/news/articles/2014-11-30/swiss-to-keep-millionaires-tax-breaks-projections-show )).
Here are some excerpts from Piketty’s Chapter 15, “A Global Tax on Capital”: “A global tax on capital is a utopian idea. It is hard to imagine the nations of the world agreeing on any such thing anytime soon. To achieve this goal, they would have to establish a tax schedule applicable to all wealth around the world and then decide how to apportion the revenues. … Admittedly, a global tax on capital would require a very high and no doubt unrealistic level of international cooperation.”
So there is some entity that decides on a common tax rate that will apply everywhere in the world. And this entity also decides “how to apportion the revenues.” What would you call such an entity other than a “world government”? It collects taxes worldwide and distributes revenues worldwide. If the EU qualifies as a “European government” (leaving in place local governments, such as Italy’s and Germany’s, for example), then wouldn’t Piketty’s global wealth tax collecting-and-apportioning entity qualify as a “world government”?
Call it the International Revenue Service if you like, but it’s still functionally a world government.
They surveyed billionaires and asked whether they thought they were self made?
I guess if you inherited $450 million dollars and you (or your army of lawyers, accountants, and family office people) managed to just more than double your money over the span of your life you would qualify as “self-made” under this definition
Thanks for clarifying your interpretation, Philip. (My read is that Piketty is talking about a WTO-style agreement between existing governments, not creating some new entity with the power to set tax rates.)
As noted above, I don’t think that an agreement among existing governments can work, Russil, as the incentives are enormous for one or more sovereign governments to refuse to participate. Let’s just consider http://www.heritage.org/index/country/estonia , which I recently visited. They have a GDP of about $25 billion generated by their 1.3 million residents. Using the Heritage numbers they spend about $9.5 billion on all levels of government spending for all purposes (including healthcare). Let’s say that the “not a world government” agrees on a wealth tax rate in Piketty’s suggested range of 1-2% (annual rake). Call it 1.5%. Suppose that Estonia offers a 0.15% deal instead, thus giving a 90% discount to any rich person who wants to move to Estonia. If they can get people with $6 trillion in wealth to move (for at least part of the year) to their World Heritage capital then the rest of Estonians can stop paying VAT, income tax, payroll tax, gas tax, etc. Is that achievable? Supposedly there is about 250 trillion in wealth planet-wide. So $6 trillion is just 2.4 percent of the total.
[Actually, now that I think about it, rich people also do pay income tax. So if the Estonians also said “we’ll take 10 percent of whatever you’re currently paying in income tax” (negotiated lump sum, Swiss-style), then they wouldn’t need to reel in people owning 2.4% of the world’s assets. Maybe closer to 1%.]