Real-life nobles don’t produce 10,000x value; they extract value from peasants, by force of arms and law and custom. It makes no sense to redistribute wealth by taxing everyone’s income if the nobles get their income by taxing the peasants; just stop the nobles from extracting so much value.
I think that redistribution by taxing still makes sense, e.g. if nobles effectively get their money by owning and controlling the land (by force or whatever) and taking a big cut from the people who work it. But I also agree that there may be easier and better things to do than raising taxes, it seems like a waste of effort for nobles to collect local taxes and then the king to collect taxes from the nobles and pay it back.
But most of their income still comes from capital and owning the tools of production and all that (citation required).
I think this probably isn’t right—e.g. capital income is a minority for the top 1% of earners in the US today, and the situation is even starker for global inequality.
A terminology of “nobles” and “peasants” implies to me the idea that most all of the nobles’ (the modern rich) income is extracted from from the peasants (everyone else), enabled by the same state that then taxes them. Did you intend or endorse this view? If not, or if you think it’s irrelevant to the thought experiment, do you think the framing of “nobles” and “peasants” distracts from the issue? It does for me.
In retrospect I agree it would have been better to use a different example.
(In retrospect people also didn’t like the big and unrealistic numbers, so I could have just made them 10 and 100 instead. I generally overestimated the extent to which readers would separate the simple quantitative point, which I wanted to make in the shortest way possible but didn’t think about that much, from other features of the scenario.)
I think this probably isn’t right—e.g. capital income is a minority for the top 1% of earners in the US today, and the situation is even starker for global inequality.
That’s surprising to me. Where does most of the income of rich people come from, then? Can you point me to some relevant resource?
One thing I would like to figure out is whether this can be explained by businesses restructuring so that some of the rich people who used to be owners getting dividends are now company executives getting salaries—but the salaries are still set mostly by themselves to benefit themselves, out of proportion to the value of their work to the company. Directors or board members often also get salaries, again for very little work in most cases.
These are things that might be colloquially called ‘capital’. Jeff Bezos has a total compensation of 1.6 million; that is indeed a tiny part of his net worth, but I still think of it as “Jeff Bezos is a capitalist who is making money from the successful business he owns”, not as “Jeff Bezos is being paid for his talents as a CEO”. I don’t care about the distinction from the income he gets from Amazon dividends, shares, or his salary as a CEO. But then I’m not an economist; perhaps these are really significant differences that I should care about.
(In retrospect people also didn’t like the big and unrealistic numbers, so I could have just made them 10 and 100 instead. I generally overestimated the extent to which readers would separate the simple quantitative point, which I wanted to make in the shortest way possible but didn’t think about that much, from other features of the scenario.)
For what it’s worth, I think the big, unrealistic numbers and framing of the example made this feel like a much more valuable intuition pump to me, so thanks! (Key point I took from it: It is actually perfectly reasonable to favour taxation while being unwilling to donate yourself, and there’s a big gap between these two thresholds)
I think that redistribution by taxing still makes sense, e.g. if nobles effectively get their money by owning and controlling the land (by force or whatever) and taking a big cut from the people who work it. But I also agree that there may be easier and better things to do than raising taxes, it seems like a waste of effort for nobles to collect local taxes and then the king to collect taxes from the nobles and pay it back.
I think this probably isn’t right—e.g. capital income is a minority for the top 1% of earners in the US today, and the situation is even starker for global inequality.
In retrospect I agree it would have been better to use a different example.
(In retrospect people also didn’t like the big and unrealistic numbers, so I could have just made them 10 and 100 instead. I generally overestimated the extent to which readers would separate the simple quantitative point, which I wanted to make in the shortest way possible but didn’t think about that much, from other features of the scenario.)
That’s surprising to me. Where does most of the income of rich people come from, then? Can you point me to some relevant resource?
I think it’s mostly wages.
Might be misreading, but see table III here (h/t Howie Lempel for the source). Looks like even the top 0.01% is still <50% capital income.
[Edit: though in the past the capital shares were higher, in 1929 gets up to 50% of income for the top 0.1%.]
There are various ways this data isn’t exactly what you want, but I still think it’s very unlikely that it’s more than half capital income.
Thanks, that’s informative.
One thing I would like to figure out is whether this can be explained by businesses restructuring so that some of the rich people who used to be owners getting dividends are now company executives getting salaries—but the salaries are still set mostly by themselves to benefit themselves, out of proportion to the value of their work to the company. Directors or board members often also get salaries, again for very little work in most cases.
These are things that might be colloquially called ‘capital’. Jeff Bezos has a total compensation of 1.6 million; that is indeed a tiny part of his net worth, but I still think of it as “Jeff Bezos is a capitalist who is making money from the successful business he owns”, not as “Jeff Bezos is being paid for his talents as a CEO”. I don’t care about the distinction from the income he gets from Amazon dividends, shares, or his salary as a CEO. But then I’m not an economist; perhaps these are really significant differences that I should care about.
For what it’s worth, I think the big, unrealistic numbers and framing of the example made this feel like a much more valuable intuition pump to me, so thanks! (Key point I took from it: It is actually perfectly reasonable to favour taxation while being unwilling to donate yourself, and there’s a big gap between these two thresholds)