Back to the article: In a nutshell, the director of economic policy studies at the American Enterprise Institute berates Zohran Mamdami, NYC mayoral candidate, for his calls to abolish billionaires as morally-wrong zero-sum thinking. You would expect something like this from the AEI of course. But I thought it’s worth debunking one of the claims in the piece.

Strain claims that Jeff Bezos has created about $11 trillion in wealth for the US, applying William Nordhaus’s research on the returns on innovation. Commentators rightly point out that the 2.2% “Schumpeterian profit” figure (this is the personal gain of the innovator, so dividing his/her net worth by this number gets you to $11 trillion social wealth creation) is based on empirical data from 1948-2001, when the wealth share held by the top 0.01% was much smaller.

Nordhaus studied innovations that pushed the international production frontier, like semiconductors, etc.). I am not an innovation expert but would have my doubts that Amazon is in the same category as the microchip or the internet: It uses existing ICT infrastructure and supply chain theory. Granted, Amazon Web Services (AWS), the cloud computing and online infrastructure arm of Amazon, is highly innovative, but accounts for less than 20% of Amazon’s bottom line.

Applying the 2.2% private capture ratio to a mere business model innovation is also dubious because this business model relies so much on rent extraction. You don’t have to go as far as Yannis Varoufakis (“Technofeudalism”) to see Amazon as a monopsonist over many suppliers that often employs anti-competitive strategies (self-preference, etc.) and tax arbitrage. This means that while generating wealth for society, Amazon also captures significant rents. (And yes, most people still shop with them voluntarily, although that’s becoming increasingly like the petrol station argument.)

The calculation also omits externalities and distributional issues: small retail trade is down and inner cities increasingly hollowed out, while employment in low-wage distribution centers is up. The environmental degradation of ultra-fast logistics and return policies is hard to quantify but undeniable. Tax optimization leads to significant revenue shortfalls for governments and municipalities. True, Amazon is not alone in this and not the bogeyman for inevitable structural change. But there needs to be an arithmetic correction to the social wealth creation figure nonetheless.

Finally, Strain thinks that the 2.2% private share can be applied to the stock of the innovator’s wealth, when Nordhaus thought it should be applied to the flow of innovation rents. To think that that Bezos’s $240 billion net worth only reflects his innovations at Amazon is to omit the vagaries of our financialized and speculative world.

Even though Strain might argue that the $11 trillion figure is just an estimate, numbers have a strong symbolic power, and I wouldn’t be surprised to find the figure taken onboard uncritically. Taking into account all of the above, $11 trillion is very likely to be extremely overstated.

But maybe it’s not even worth arguing about Jeff Bezos, whose business acumen is beyond doubt. We should ask what the Schumpeterian profit share of the entire Forbes 400 list is, or indeed, that of the more than 3,000 (known) billionaires–if we account for negative externalities, stock vs. flow, etc.

I don’t think this article merits much discussion weren’t it for the fact that Strain’s view remains so influential among those pushing back against any kind of increase in taxation on extreme wealth. The refrain appears to be that we’re shooting ourselves in our own foot by taking money away from these super rich geniuses who contribute so much to our societies.

I have been reading Ingrid Robeyns’ Limitarianism over the past couple of days and have been enjoying it a lot in the light of the above.

Robeyns advocates for limits on personal wealth to deal with spiraling inequality. When much of the inequality debate is focused on the Forbes 400 list, or billionaires as a group (see above), Robeyns sets the bar for extreme wealth much lower, at EUR/USD/GBP 10 million. To her, this should be the political limit above which no further wealth accumulation is legally allowed. Below that, however, there are further limits, i.e., personal and ethical limits.

Robeyns is a political philosopher who studied under Amartya Sen in Cambridge. I feel her book is stronger when she goes into philosophical details than when she is explaining basic economic concepts–nothing surprising here given her background and the fact that this is a book aimed at a general audience.

The book is dense and takes a few concentrated sittings. There were many sections that stuck, among them her work with focus groups to establish a contextual definition of “extreme wealth” in various geographies (yielding surprisingly similar results–akin to the age-old question of what makes a good life?).

Robeyns makes a strong case against inequalities per se (we don’t have any influence over our socio-economic status at birth, or innate, genetic talent, etc.). The rich’s corrosive influence on climate change and the political system cannot miss in a book like this. There is also a good section on why philanthropy is not the answer (which reminded me of this book I read some years ago).

Limitarianism has of course garnered some criticism, some of it from predictable corners. I feel Robeyns deals with most of the points quite well in the book already, e.g., the assertion that limitarianism stifles innovation (as if money were the only incentive to innovate), is an assault on our economic freedom (one cannot have an innate right to what is ultimately socially constructed), or that its wealth thresholds are arbitrary (they are symbolic and not day one enforcible limits).

The most important criticism might be related to the low political feasibility of limitarianism, mainly thanks to the extreme rich’s weight in political decision-making processes. This review here goes into some of these issues, and they are all valid. Of particular note is the need for a macroeconomic and monetary policy theory to underpin limitarianism if it is serious about moving forward with enforcing hard limits on people’s wealth and the likely ensuing effects on prices.

Not a critique of her book but some food for thought: there is some evidence that increased inequalities can lead to reduced concerns about inequalities. System justification theory in particular suggests that people need to view their societies as fair and legitimate for their mental sanity. At the same time, this paper argues that with increased economic segregation, there are fewer acts of comparison between income segments, and hence a lower awareness and concern for economic inequality. Interestingly, this ties in with my work on spatial inequalities.

Limitarianism is ambitious to say the least. Perhaps more realistic proposals for the short term include the French “Zucman Tax”, which calls for a minimum 2% tax on assets above EUR 100 million. Predictably this has driven rich people to the barricades crying revolution. “Communism”, a “clearly stated desire to destroy the French economy”, are just some of the common responses.

It is true that an asset based tax on the rich can be hard to administer, if for example the super rich hold much of their wealth in “paper”, i.e. illiquid holdings of company stock, etc. Yet I am sure there are technical solutions to balance practicability and fairness. The tax would obviously only work if it were enacted globally. Otherwise rich people will continue to vote with their feet, like recently when the UK made changes to its “non-dom” tax regime.

Perhaps existing tools could be finetuned before we start introducing new taxes. Limitarianism should above all be a guiding principle, and there are other ways to make faster progress towards more egalitarian societies.

Some ideas include:

• Reinstate steep progressivity in income taxes above a high threshold to clamp down on excessive corporate remuneration.
• Increase inheritance tax above a high threshold to break the cycle of intergenerational extreme wealth transfer.
• Increase capital gains taxes above a high threshold, and introduce a small but noticeable tax on unrealized capital gains to put the brakes on speculative wealth creation.
• Increase property transaction taxes for all properties beyond the first (and owner-occupied) to rein into the excesses of the real estate sector.
• Etc.

As ever, the exact definition of “high” is an urgent task we have to deal with in democratic fora, not expert bodies and coopted interest groups that see neoliberalism as a post-political consensus without alternatives.

And one can be hopeful that despite the progressive sound of Limitarianism, people on the left and right have a fairly similar intuition of what a fair income distribution should look like. This bodes well for building coalitions that can achieve this long overdue wealth transfer despite the growing polarization of our societies.