Discussion #10 : Patrimonial Capitalism and Inheritance Taxes

Question 1

What is Patrimonial Capitalism?

Answer 1

The belief that the economic elite attain their fortunes by inheritance rather than by self-made routes

Question 2

What is the Old Mentality? (3)

Answer 2

1. The %1 are self made men
2. Capital is human capital/earnings (they made their own ways to make money
3. Their wealth is large but in comprehensible values

Question 3

What is the New Mentality (3)

Answer 3

1. The %1 are the children of the current elite
2. Capital is the collection of assets overtime (especially inheritance)
3. So large that it is near invisible to the average person

Question 4

What is R and what is it currently?

Answer 4

Rate of returns to capital -> Currently HIGH (4-5%)

Question 5

What is G and what is it currently?

Answer 5

Rate of economic growth -> Currently LOW (2-3%)

Question 6

What does it mean when R is High and G is Low? (3)

Answer 6

1. Investments grow faster than the economy
2. Wealthy live very well off
3. Families/Dynasties rule over the majority

Question 7

What is the impact of R & G on the Working Class? (2)

Answer 7

1. Part of the income goes to labour & capital (however capital is held by the rich & labour is diminishing)
2. Political Economy (Wealthy buy political interest)

Question 8

How do we get more wealth equality (Paul Krugman) (2)

Answer 8

1. Better Programs
2. Wealth Tax

Question 9

How do we get TO more wealth equality (Paul Krugman) (2)

Answer 9

1. Negative Perspective -> It takes large events (war, crisis)
2. Positive Perspective -> Progressive movements grow overtime

Question 10

What is the idea behind Inheritance Taxes (according to Milton Friedman)?

Answer 10

A 100% inheritance tax is the solution to arbitrary differences in capital. Someone born in a disadvantaged context is unfair inequality but taxing inheritance will solve this problem

Question 11

How do we distribute Wealth with the Inheritance Tax (according to Milton Friedman)?

Answer 11

We need to change the incentives to have wealth. Reasoning is that society is not individualistic but family based as we accumulate wealth for our children. Taxes currently encourage people to waste wealth so the IT would change incentives (destroy society)

Question 12

1. What is bad about Wealth Concentration (2)
2. Should we worry more about Income Distribution or Wealth Distribution? (Pros & Cons of each)

Answer 12

1. Wealth concentration both reduces the level of demand in the economy (rich people spend less proportionally) and reduces opportunities for the low income
   2a. Pros of Income Redistribution depends on Flat/Progressive Taxes but is also the Con along with how the tax system is established.
   2b. Pros of Wealth Redistribution is that it’s good for pursuing equality but it is bad for the rich

Question 13

Is a Wealth Tax a Good Idea? (PROS) (3)

Answer 13

PROS :
1. Wealth Tax does help reduce wealth inequality
2. Increases Tax Revenue to the Federal Gov
3. Creates a more level playing field for smaller players in politics & business

Question 14

Is a Wealth Tax a good idea? (CONS) (3)

Answer 14

CONS :
1. A wealth tax punishes success and will hurt the economy by discouraging business investments
2. A wealth tax will likely miss its main objective of raising more tax revenue
3. A wealth tax may be deemed unconstitutional and be an ineffective means to curb wealthy individual’s influence

Question 15

Is Wealth Redistribution a good idea? (PROS) (4)

Answer 15

1. It helps to even out a society’s wealth/income
2. It has a broader impact on the economy as a whole
3. Even those without work are guaranteed to have enough to survive
4. Assists with bridging the wealth gap

Question 16

Is Wealth Redistribution a good idea? (CONS) (3)

Answer 16

1. Underprivileged may still continue to lack necessary skills, ambition and relationships to compete
2. Incentive effective : Promise of higher wages is essential to encourage extra effort
3. Entrepreneurs require rewards, therefore without rewards, there would be little incentive to take risks and invest in new business opportunities.