Around this time of the year two things happen. The World Economic Forum (WEF) a gathering of the world’s rich and influential, happens in Davos, the Swiss alps ski resort town, which prompts aid agency Oxfam to release its annual report on how the rich are getting rich and the poor are getting poorer.
I don’t know who said it but when capitalists meet in a room they are conspiring against labour, the consumer and whoever else who is not them. Maybe that is why Davos has become a fly trap for all the dogooders, who want to take pot shots at the rich and influential. Maybe for good reason.
The WEF is described as a lobbying organization, which
turned 50 a few years ago. When the rich and influential meet at the WEF the
conversation is not about who is seeing who or who has been naughty or what did
you do during the holidays. With all that concentration of power you can expect
its more about scratch my back and I scratch yours. National policies are
shifted, billions of dollars are committed in investment, research and charity
and the geopolitical map is reordered.
So the envy is understandable.
Oxfam have taken it a step further and pegged their call for
a reduction in wealth inequalities to the event. Oxfam has worked out among
other things, that world poverty is related to the greatest accumulation of
wealth the world has seen and one way to redress inequality is by taxing the
wealth of the world’s richest.
"I am a big fan of people accumulating as much wealth as they can within the law. Its good for the economy if people can be incentivized to be wealthy....
But first let us clear up some misconceptions. If Elon Musk
is the richest man in the world and his wealth is valued at $300b or ten times
the GDP of Uganda, it does not mean that Musk has $300b seating in the bank.
His wealth is held in shares that he owns in his various companies, which if
quoted on the stock exchange, see their value change from second to second.
Its only poor people and thieves , who hold on to cash.
For all his billions Musk may have only a few thousand
dollars in the bank. The story is told that when he sold PayPal he took all the
money and used it to invest in his electric vehicle company, Tesla, his space
exploration firm, Space X and Solar City, his green energy company. For a while
he was so “broke” he would borrow from friends to meet his living expenses and
was not averse to sleeping in their guestrooms or at the factory. The rich are
in a constant effort to deploy their cash to make more money.
And that seems to be what piques people like Oxfam’s ire.
“Why do they need all that money?” The truth is they don’t.
How is money made? At a fundamental level money is made by
trading a good or service. To be extremely rich you have to trade your good or
service to more and more people. To wake up suddenly and decide you have made
enough money and therefore you should stop deploying your money to trade your
good or service, would be to deny people who don’t have the opportunity and
make the world a poorer place.
But even then you may place your money in a bank, which
money will be used to finance other companies, increase production and
consumption.
What us mere mortals don’t seem to understand is that money is the by product of delivering a good or service, it is not an end in itself. Its only the poor who think money is the end...
I agree with Oxfam and company to worry about growing
inequality but I disagree (not that it matters to them) that the way to redress
is to tax the wealth of the rich.
It’s interesting they are going after their wealth because
many of the rich don’t earn much salary from the companies they won.
US investor Warren Buffett who is worth more than $100b has
earned $100,000 annually for the last 40 years. So even if you taxed him at the
highest rate it would be a miniscule fraction of his total wealth.
Besides that the rich pay less tax because their income
often comes from dividends, which are taxed at a lower rate than personal
income. But then there is Buffett who has received only one dividend payment
from his company Berkshire Hathaway in the last 50 years.
So because we cant get much in tax from their incomes let us
go for their wealth. Good luck!
A bad idea if ever there was one and suggests a lack of
appreciation of why the rich are where they are and the rest of us are where we
are.
If we got all the wealth in the world and distributed it
evenly to every one within a few years the
original wealthy will be back at the top of the pile.
It has happened before.
"On the collapse of the Soviet Union the communist economists thought they could privatise all the state enterprises by dishing a piece of the companies to all the workers. The financially literate among them borrowed money and bought the shares off their less financially literate colleagues and that is the genesis of the oligarchs in Russia. It happened in South Africa as well, after the fall of apartheid....
And why do I think a wealth tax is bad idea? Oxfam is
suggesting something like a one percent tax on fortunes above $550m. That
presupposes that the tax revenues will go towards lifting more people out of
poverty. In our part of the world that is laughable.
That aside the rich will have to borrow or sell off some of
their property to pay the tax, but they will most likely do is hide their
wealth to avoid this nuisance tax, so they can continue providing more and more
goods and services.
So the man has a mansion with a hundred bedrooms, a garage
with as many cars and flies his own private jet, because he does not want to
mix with unwashed masses. That is his reward for risking his capital, creating
jobs and paying taxes – because their companies do pay taxes.
"Leave the rich make money. Make sure they do it in legal and ethical ways. Invest in educating people in financial literacy as a way to even out the disparities, I am sure the rich would not be averse to chipping in to finance such an endevour. In addition, assure clean efficient government to properly distribute the taxes in education, health infrastructure and general rule of law, essentially ensure government is good in its distributive role....
All this presupposes they are making money legally. I am
sure it is possible to be grow fabulously wealthy legally.
The people at Oxfam think that the wealth is a finite
resource, that there is not enough to go around so the rich need to share what
they have accumulated. That is not true. If you improve financial literacy and
improve the business environment, more and more wealth will be created and we
will all be just fine.
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