The battle between capital and labour may be surpassed by the battle between the working class and the not working class.

Rana Foroohar announces, “The age of wealth distribution is coming and will have major investment consequences”, “The age of wealth accumulation is over” August 5.

Indeed, but two questions stand out. 

First, for wealth to be redistributed some assets of the wealthy must be sold and, since precisely because of that there might be less interest among other to acquire those assets, the value of these could fall… with unexpected consequences. Here’s an example, what is best for New York City keeping property taxes and property values at current values, or increasing the taxes running the risk that property values fall and wealthy property owners run away somewhere else?

The second question is who is going to redistribute? Will a mechanism like an unconditional universal basic income be used, or will the usual redistribution profiteers be in charge of it?

Foroohar also announces, “Another battle will be between capital and labour.” That battle will always be present but, in these times when robots and AI seem to threaten jobs, the real battle could end up being between the working class and the not working class.

http://perkurowski.blogspot.com/2012/04/we-need-worthy-and-decent-unemployments.html

@PerKurowski

High house prices, besides a function of low interest rates, is a function of senseless bank regulatory favoritism

Sir, You write: “With or without a price crash, [resulting from interest rates rising] thinking about real estate must change… A house is not, after all, a productive asset. It is a shelter.”, “When property becomes a roof and a floor again”, July 15.

With Basel II regulators allowed banks, when financing residential houses, to multiply their capital with 35.7 times the net risk adjusted margin, in order to obtain their return on equity. When lending to an unrated SME or entrepreneur, those who could help create new jobs, banks were only allowed to multiply that same margin 12.5 times.

The only reason for that senseless distortion was and is that regulators, as did and do the banks, considered financing houses something much safer than financing some risky enterprises. 

Sir, compared to the case in which such regulatory differences did not exist, what gets much more credit than it should, and what much less? Or are you among those naïve enough to believe bankers have a responsibility, for the good of society, to overlook such skewed incentive structure?

Extrapolates that, and the logical result is the future, we would all end up sitting in ample homey shelters, but with no jobs to be able to pay mortgages, utilities or food.

Sir, such is the short-termism of regulators you have cared nothing about to understand and denounce. On the contrary, you have dedicated yourself to silence my warnings.

PS. By the way if an AAA rating was present, like in the AAA rated securities backed with mortgages to the subprime sector, banks could multiply that margin by 62.5.

PS. Where do you think fiscal sustainability is heading if house prices crash and much property tax revenues vanishes?

@PerKurowski

Taxing property or inheritance could, ceteris paribus, only lead to more inequality.

Sir, I refer to Janan Ganesh’s “Tory tax on property is perfect for the Piketty age” May 6.

If I was to make a fast list of what has increased inequality during the last decades that list would include rent extraction, crony capitalism, excessively exploited intellectual property rights, the power of global brands, be it Coca Cola or Real Madrid, the force residing in monopolies or excessive market shares, how managers have taken away corporate control from shareholders, and how bank regulators have allowed such incredible high leverages in the banks while ascertaining to the public these were sound institutions… inheritances would not be on it.

And if I was to combat inequalities I would not start by taxing properties or inheritance since, in the great scheme of things, ceteris paribus, meaning money will keep on flowing how it normally flows, that could lead to even more inequality.

Do I have any suggestions? For a starter two:

First all profits derived from operating under the protection of intellectual property rights or excessive market shares, should be taxed at a higher rate that profits obtained by competing naked in the market.

Second, the tax deductibility as an expense of any salary should be limited to fifty times the median salary of the nation.