Natural sources of inequalities are more than enough for us to carelessly layer manmade ones on top

Sir, Tim Harford writes that “Anthony Atkinson is right to say that the evidence doesn’t conclusively rule out… that a 65 percent top rate of tax is likely to be counterproductive”, “The Truth about inequality” April 25. 

For anyone trapped one way or another in the UK, that might be valid. But anyone with a fair or unfair capacity to generate earnings and who is thinking about living in England, that certainly gives him reasons to think again. That some have to pay higher taxes than other could be reasonable, but it is not really about equality either.

I consider that in discussions about inequality it is always important to try to classify its origins as natural or manmade. For instance those perceived as risky from a credit point of view will always have less access to bank credit and will always have to pay higher interest rates. And that is natural, because it is natural that banks should give the loans to those who pay them the best margins after all costs, including credit risk premiums.

But regulators have decided that a bank should also be allowed to leverage its equity, and the support its receive from taxpayers, much more with margins paid by those perceived as safe than with margins paid by those perceived as risky. And that signifies a manmade source of inequality. Those perceived as risky, like SMEs and entrepreneurs, consequentially face even less access to bank credit and even higher relative interest costs. Any society that believes that’s the way to go has clearly gone bonkers.

@PerKurowski

Tax the 1 per cent with no other changes and all you get is the 1 per cent of the 1 per cent becoming even wealthier.

Sir, I refer to Richard Robb´s “If you tax the 1 percent it is the middle class who will suffer” May 16.

He is absolutely right and I have myself made similar arguments in an Op-Ed published in Venezuela about a month ago.

That said, what Robb misses is that 99 percent of the 1 percent would, though quite bearable, suffer too, because unless the current wealth concentration channels are altered, the resulting flows would just signify that the 1 percent of the 1 percent, the real plutocrats would become wealthier.

http://perkurowski.blogspot.com/2014/04/avoid-merchants-of-poverty.html

When fighting inequality, before redistributing, eliminate some of its worst man-made causes.

Sir, on the front page you label Martin Wolf’s “A more equal society will not hinder growth” as “Robin Hood’s economy” April 23. Just in case, and since so many have recently been mixing up Robin Hood with the Sheriff of Nottingham, let us be clear in that Robin Hood indeed helped the poor, but he was not a tax collector for King John… much the contrary.

Many years ago in an op-ed, I wrote that since justice lies on a never ending continuum, which made it hard to know where you find yourself, the most effective way to fight for justice was by attacking the much easier identifiable injustices. In the same vein, since it is hard to define what equality we need, before the grave, it is better to combat the most egregious sources of inequality.

Right now many economic injustices firmly anchored in what is known as rent extraction or crony capitalism are important inequality drivers. Trying to make up for the bad results, by for instance a tax on wealth, without correcting those drivers will lead to even more inequality.

There are many man-made causes for inequality. Two of those that I have been proposing to end are:

First: It makes no sense if we want to make our capitalism vigorous that the usually ample profits obtained under the protection of a patent, or through the power of an extravagant market share, should be taxed at the same rate, that those more meager profits resulting from having to compete naked and unprotected in the market. As a result the capital accumulation of “the protected” will be higher than that of “the unprotected” with very dire long term implications to the dynamism of capitalism.

Second: It makes no sense whatsoever to allow banks to obtain higher risk-adjusted returns on equity when lending to “the infallible” than when lending to “the risky”. And that is the direct result of those so obnoxious risk-weighted capital requirements. Robin Hood would never agree with allowing banks to lend, in risk-adjusted terms, more favorably to the “infallible sovereign” or to the AAAristocracy than when lending to a “risky” Sherwood Forest entrepreneur.

Again, let us be sure that we fight inequality by reducing its causes, not by increasing the profits of the intermediaries in redistribution, the merchants of inequality reduction.

PS. Sir, just to let you know, I am not copying Martin Wolf with this, as he has asked me not to send him any more comments related to the capital requirements for banks, as he understands it all… at least so he thinks.