The billionaires’ tax

SPEAKER_1 (0:00)

What we want to maximize is not expected return, it's not expected wealth.

It's some kind of risk-adjusted wealth or risk-adjusted return. And we all know that, but we have to be really careful that we don't fall into a trap of maximizing expected value or expected money or expected return.

SPEAKER_2 (0:20)

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Robert Armstrong (0:36)

Pushkin.

The G20 group, which represents the world's largest economies, is discussing a billionaire's tax for the first time. Today on the show, why are the very, very rich so very, very rich? Is it a problem? And what should we do about it?

This is Unhedged, the finance and markets podcast from the FT and Pushkin. I am Rob Armstrong, coming to you from Unhedged World Headquarters in New York. Coming down the phone line to us from his lair in London is the FT's own intellectual Robin Hood. Scourge of the billionaires, our European economics commentator and author of the free lunch newsletter, Martin Sandbu. Martin, thank you for coming on the show.

Martin Sandbu (1:32)

Thanks for having me. Never been introduced that way before, but I'm happy to hear it.

Robert Armstrong (1:36)

You recently wrote a piece on the billionaire's tax that got a lot of action on the FT's website. What, if anything, did you hear from readers?

Martin Sandbu (1:49)

This was one of my most read and most commented on pieces in a long time. And I do write quite regularly about wealth taxation and measures to combat tax dodging and so on. And the more I write, the more I actually get in touch with very, very rich people who are basically saying, go on, tax me more.

Don't believe the propaganda. You can tax me more and I'll happily pay it. So those people are out there. They're just not as vocal as those who say different things.

Robert Armstrong (2:17)

Before we get to this new billionaires tax proposal, do we have a working economic theory of why there is so much wealth concentrated at the very, very tip of the wealth pyramid and why that concentration seems to be rising?

Martin Sandbu (2:34)

I think we have several working theories. I'll try to very quickly rattle off three.

The first is, you remember Thomas Piketty?

Robert Armstrong (2:42)

Yes.

Martin Sandbu (2:42)

Capital in the 21st century. Everyone remembers Piketty, R greater than G. The return on capital is higher than economic growth. So if you have capital, it will grow faster than incomes for everybody else. It's kind of arithmetic if R is greater than G. That's one theory.

Another theory is that things have changed in policy terms. Basically, the whole transformation in economic policymaking that happened from the 1970s to the 1980s, some people call it neoliberalism. I don't like that word. But basically, the withdrawal of the state in terms of redistribution. It had a lot of aspects. It was partly simply changes in tax system, less taxes on capital in particular, lower taxes or an attempt at lower taxes at the top end in general, but also deregulatory policies that allowed for more accumulation.

So all of that has contributed to a smaller share of the economy going to wage incomes, a larger share going to capital incomes and the accumulation of big fortunes. But I think a third working theory, that's a good term, the technology has changed. Our economies are now very different economies from 50 years ago, less manufacturing based, more service based, more globalized.

Many of these changes in, you know, what are the driving sectors in the economy have made for a more winner takes all kind of structure. So it's just the economy we live in lends itself to whoever gets up on top, getting a much larger share of the cake than before. So I think those are all three reasons that work at the same time.

Robert Armstrong (4:15)

When you give that description, Martin, the shadow of John Rawls falls over our conversation.

John Rawls is the American political philosopher. One of his most famous arguments is that the just society is happy to tolerate high levels of inequality so long as those high levels of inequality, as it were, make the pie for everyone larger. They are consistent with wealth, especially at the bottom of the wealth pyramid rising. So why are we worried about all this inequality? Rawls would say it's fine as long as everybody is getting enough to eat and so forth.

Martin Sandbu (4:53)

Yeah, and if the poorest ones are as well off as they could possibly be, right?