The patrimonial society comes to Australia

Forbes just released its annual list of the ten richest Australians. Of the top eight, four inherited their wealth. The other four range in age from 75 to 85, suggesting that new heirs are likely to be joining the rich list before too long.

This pattern isn’t yet representative of the Australian wealth distribution as a whole, but it is becoming more so. Piketty’s patrimonial society is not far away.

There are a lot of things we can do to promote a more equal distribution of opportunity and outcomes, but a return to taxes on inheritance (preferably levied on the recipient rather than the estate) would be a good start.

80 thoughts on “The patrimonial society comes to Australia

  1. John Quiggin: “Here’s a recently published piece you could easily have found”

    I did exactly what you advised above John:

    it’s a good idea to do a search of the blog on “land tax”.

    Should I apologise for exactly following your advice? (Or believing I’m exactly following your advice.)

    Also: “making exactly the point to which you refer”

    That’s not true. I pointed out why owners would actually have some justification for opposing a new land tax (instant capital loss) and that an alternative based on economic rent did not have this problem. Your smh article did not mention these points.

    You tolerate all sorts of comments from people who agree with you John. Not so for those who dissent who you apparently believe deserve to be bullied. A very tilted playing field indeed.

  2. @Julie Thomas

    No interruption. I am struggling to have original thoughts today or else the pseudo-original thoughts which I fondly imagine are original. A little technical problem paper-trail is a pleasant diversion at such times.

  3. @Chris O’Neill

    I dunno. I think J.Q. is tolerant of dissenters. I dissent quite a bit. “Tolerate” has a range of meaning after all. J.Q. tolerates me but he still gets rather cranky with me and shows it from time to time. Usually, if I am honest with myself I can see I have provoked such a reaction. However, I am trying to acquire the ability to contest ideas (when I think they need contesting) without being personally annoying about it. Clearly, I have a long way to go.

  4. Chris, I’m tired of this. I provide this blog for free and don’t appreciate wasting my time dealing with ignorant and lazy comments like yours. Please take a week off commenting, and don’t come back unless you’ve decided to change your attitude.

  5. Defeatist mentality? John Brookes?

    It ia purely practical. John Howard at a time of huge surplus gave very generous tax cuts to the top income earners. The Rudd gave them the second stage of those cuts, honouring an election promise (totally unlike LNP election pledges). Now those surpluses are gone and the budget is in significant deficit. It is only natural that some of those tax handouts to the high income earners are reclaimed to the treasury.

    Top income earners understand the practicality here. When there businesses are in a slump they call on their staff and workers to reduce hours, trim entitlements, and even take hourly rate reductions. They understand the necessity to contribute more during this time of reduced treasury income.

    I had a long discussion today with a long time friend who as an economist was an aid to a minister in the Whitlam government, after that was a successful representative for IBM, established a highly successful business producing financial software for many of Australia’s leading companies, and when he needed to retire Macquarie Bank organised a buyer for his business. ie highly regarded. I asked him what was his taxation rejuvenation plan.

    1. Address the larger of loopholes in the superannuation.

    2. Increase the top tax bracket.

    3. Rework capital gains taxation removing negative gearing.

    3. Cause multinationals to pay tax for the proportion of their business in this country.

    4. Apply a financial transaction tax.

    5. Remove the diesel rebate for mining and farming. Increase the tax on petrol.

    6. Reinstate the Carbon Price.

    If a party cannot run a surplus with those options available then they have no place being in Canberra.

    I was just reading an article where Morrison was saying the only reason for considering raising the GST was to be able to give tax cuts. ie eliminate progressive taxation altogether. WTF!

  6. @BilB

    Experience to date has been that the LNP and ALP will never implement those measures. While either of those parties govern, the necessary changes will never occur. More concerning, Greece’s experience shows that even when the standard governing duopolies are thrown out, the new “left” party is still helpless. The reasons why such a “left” party with a full mandate still demonstrates complete helplessness and subservience to the global capitalist system would bear some analysis.

    Australia has signed the TPP but still has 2 years to ratify it IIRC. Given the current political duopoly mindset in Australia, it seems likely it will be ratified. Do we (the people) imagine that any tax measures more effectively taxing corporations will have any chance after the TPP comes into force? No. The people will continue to be impoverished. The super rich will get richer each year, on say a 5 year rolling average. Matters overall will get worse each year until something breaks. The people or the environment or both will break. Only at that crisis juncture can the system be changed.

  7. As an aside from this topic, I mention a reference J.Q. and others might be interested in.

    Necessary Conditions: Theory, Methodology, and Applications – Edited by Gary Goertz and Harvey Starr.

    Chapter 6: Necessary Conditions in Case Studies: Preferences, Constraints and Choices in July 1914 – by Jack S. Levy.

  8. @BilB

    One of the roles of a progressive inheritance tax is to counteract the ossification of the wealth inequalities created by the ‘naive market’ ideaologies (neo-liberalism, neocons, whatever the preferred label), which have dominated policies for at least 20 years. It is not a total substitute for all other tax laws that need revision.

    There seem to be some people though, who talk ‘market’ and ‘competition’ and ‘lifters and leaners’ while aspiring to be little kings and queens with privileges and power.

    If the entire business sector would be populated by such people, nothing would work any more for quite some time. Since this is not the case, your argument is credible.

  9. If you read Piketty’s book closely enough (a bit tedious) you will see that his analysis is not simply based on patrimonial society but more precisely on patrimonial capitalism. But his actual discussion is mostly on trends and misery within the finances and reality of patrimonial society.

    Patrimonial society is the result of patrimonial capitalism. The obvious point (which I have yet to see in Piketty) is that if capital/income ratio increases and the rate of profit remains relatively stable – then the share of income going to Capital must increase. Piketty only shows that it does increase.

    Picketty, concerned with Capital labour shares, explicitly assumes there is a “right split” between Capital and labour. He even suggests that he finds that labor’s share may increase over the long run [p42]. This contradicts his findings that Capital’s share increases. Both cannot increase.

    His solution is of course – regulating Capital, and that is why everyone is invited or tempted to argue over taxes and fixate on public debt, to fight austerity and cuts to welfare state – not pursue revolutionary changes to the mode of production.

    Piketty then concentrates attention away from the labour Capital split and focusses on trends of his Capital / income ratio driven by unfair ownership of Capital.

    The worsening Capital Income trend is only possible because of the worsening underlying Labour Capital split.

    Piketty wants a tax on Capital and presumably would support social ownership. However this still maintains the central contradiction and socially owned enterprises can still operate as capitalists.

    We need a mode of production where averaged “r” is not greater than “g” irrespective of who owns it.

    As Corbyn and Sanders probably realise – this is socialism. You cannot have capitalism if r = g.

    Socialism is one policy completely missing in Piketty’s 600 page tract on addressing the problems of capitalism.

  10. @BilB
    A financial services tax, especially if it applied to international financial transactions has the advantage of putting a bit of grit into the system making speculative financial transactions less attractive.

  11. @Ikonoclast
    Ultimately I presume there must be some limit to this ratcheting up of inequality which otherwise is self defeating on a number of fronts. Ultimately some level of consumer demand must be maintained otherwise the whole capitalist system will collapse, those who benefit from its existence will surely not allow this to occur. Just as scary is the social disruption/societal breakdown that will inevitably occur if inequality continues apace. Even the super rich will not be able to protect themselves if the situation reaches that point.

  12. @John Turner

    Yes there is a limit to inequality and ineffective final consumer demand will lead to collapse but only after a raft of countervailing tendencies have been exhausted.

    We are still in this stage now although some have argued that around 2015 is a watershed point.

    I am not aware of any capitalist who has a policy that will surely not allow this to occur.

  13. @John Turner

    Certainly, there are limits and it is self-defeating on a number of fronts. However, capitalists are not an homogeneous class so different segments have competing interests. Some operate purely selfishly and shortsightedly, and among the rest there is no consensus on how to manage the system best overall. In many ways they and orthodox economists don’t understand the system except how to game segments of it. It is clear that orthodox macroeconomics is in disarray. J.Q. has said as much himself. See his own post on this blog – “The state of macroeconomics: it all went wrong in 1958.” – January 5th, 2013.

    Opinions vary on which branches of heterodox economics might offer any solutions. I would favour an eclectic mix of ideas from Socialism (including elements of market socialism), Thermoeconomics and Functional Finance. I think something coherent could be synthesised from these elements. This is just my own view of course.

  14. I did read Piketty’s book closely, over a period of a few months. Be careful, Ivor, putting words into Piketty’s book.

    Piketty proposed, as a conceptual solution, a wealth tax (both physical and financial wealth). He is quite careful to discuss the limitations in practice. He is very explicit to distingush his work from that of Marx.

    His conceptual framework of ‘wealth’ is consistent with that in Radner’s mid-1970s model of an economy with a sequence of commodity and secuties markets. He used various data sources, trying his very best to use accounting data consistently. He used a version of the notion of ‘payback period’ (see Finance literature) together with macro-data to relate income to wealth data, sub-classified by ‘capital’ and ‘labour’. This is, IMHO, an original and very clever approach, nobody seems to be talking about.

    The much focused on relationship between r and g belongs to macroeconomics.

    In contrast to Radner’s model, where the finiteness of natural resources is in (the Arrow-Debreu type general equilibrium) model, albeit in an admittedly very abstract fashion, Piketty’s work does not deal with the importance of natural resource constraints. This is, IMHO, not a criticism of Piketty’s work but a fact that ought to be recognised. To this extent, Piketty’s work does reflect both, the limitations of macro-economics (growth mantra) as well as the mindset of financial capitalists (and, if you like, the Old Testament).

    Not long ago, I checked my intuition as to who within a society is interested in ‘economic growth’ (ie GDP growth) with an ex-colleague of mine who became a banker. He agreed it is private banks and the government who are interested because they generate net debt. Only if GDP grows is there a chance of being repaid (even if we ignore the pile of debt in the form of derivatives), nevermind who in the process goes bankrupt and who doesn’t.

    Piketty does give examples of aspects of past ‘patrimonial societies’. The point being that wealth concentration becomes fixed and even enhanced via inheritance. Given we have income taxes (and and and), which did not exist during the past patriomonial societies referred to by Piketty, and the data on Australia shows there is still a chance to counteract a ‘patrimonial society’, an inheritance tax seems to be a rather logical way to proceed.

    I am somewhat puzzled why the very interesting topic of JQ’s thread, as well as the previous one, receives so little coherent attention by so many commenters.

  15. @Ernestine Gross

    “I am somewhat puzzled why the very interesting topic of JQ’s thread, as well as the previous one, receives so little coherent attention by so many commenters.”

    I am puzzled why capitalism always has to be saved even at the risk of a humanly uninhabitable biosphere. It is clear that it is a system predicated on endless growth. Since endless growth is impossible, then endless capitalism is also impossible. You checked your intuition and your banker friend told you it was banks and the government who are interested in (endless) economic growth. You friend is mostly right. It is capitalists and governments who are interested in economic growth.

    Since endless capitalism is impossible, the real question is what new system must we develop? Asking any other question misframes the problem. Current tax problems are system relative problems and end when this system ends. They are not the real issue.

  16. @Ivor

    I know you can do better than point scoring. “Be careful” is not the same as “you have”.

    But, if you want a word, here it is: Picketty. (smiley)

  17. @Ikonoclast

    A minor point first. The banker agreed with my intuition. He did not tell me what it is.

    As to ‘new system to be developed’ (assuming the label you attach to the current one is meaningful), go for it, if you like.

    I am aware there are a lot of people in this world – 7 or 8 billion. Do you really believe I am interested in spending my time pretending I can develop a ‘system’ for all these people who, upon my relevation of the new system will bow and do as I say and, to make the project even more fantastic, all future generatons? To be quite clear, I am not interested.

    So, what is your opinion on the relevancy of a progressive inheritance tax and what properties of such a tax would you suggest?

  18. @Ernestine Gross

    I will play a straight bat to that.

    1. Why be cryptic? Why not reveal your intuition?

    2. New systems are developed by humans all the time. Some by individuals. Some by groups. Some by societies. To be sure, there are both conscious design efforts and unconscious and inadvertent “design”, “evolution” and “fortuitous and unfortuitous discoveries/accidents” produced by large groups. If I were proposing that I was going to design and implement a large new political economy system all by myself, that would indeed by delusional. However, I am not aware that I ever claimed all the ideas I express are my own or that I claim I am the only person thinking along these lines or that I think I can do it all by myself and convince 7 billion people. Such implicit jibes are gratuitous.

    3. “What is your opinion on the relevancy of a progressive inheritance tax and what properties of such a tax would you suggest?” – It’s a system-relative post hoc remedy. I am not interested in keeping a patently failing and doomed system on life-support. I align myself with those who have enough vision to advocate system change.

  19. @Ernestine Gross

    In reading the exchange between yourself and Iconoclast I rather agree with Ikonclast that a complete system change is needed. As you say, there are around 7 billion people on this planet, around 1.5 billion have what might be termed first world levels of consumption requiring between .75 acres and 1.2 acres of arable land per capita to sustain it. With falling levels of arable land due to rising urbanisation and around 3 billion people in China and India aspiring to the same levels of consumption, it is fairly obvious that the present trends are not sustainable even with the existing population levels let alone the 9 to 12 billion the world population may actually reach.

    As suggested by others in this thread the levels of complexity involved effectively render a solution within the present capitalist paradigm impossible to achieve. We are on the road to a major disruption in every sense of the word and in every sphere of human activity.

    Seen in this context to talk about the subject of this thread I.e the advent of a patrimonial society in Australia seems somewhat surreal however, since individually I cannot do anything about the inevitable collapse of the present system, I am happy to discuss the mundane issues that affect my living in the here and now.

    Reading the various comments it would seem to me that there is a reasonable consensus that to tackle income inequality and the concentration of wealth does require both higher and more progressive rates of income tax AND the introduction of inheritance taxes. Other taxation measures also suggested above – clamping down on tax avoidance by multinationals, financial transaction taxes, reintroduction of carbon pricing, stronger capital gains taxes should also be in the tax mix to tackle the problem of the increasingly concentration of wealth and income in the hands of the few.

  20. @Ikonoclast

    I wasn’t cryptic. I spelt out my intuition with which my ex-colleague who became a banker agreed. It seems you overlooked it, which can easily happen.

    I believe this is the only matter I need to respond to.

  21. While taxing wealth after it has damaged society is not the solution, it is a desirable moderating reform.

    However I would hope this was targeted at wealth that was obtained from exploitation of workers and not wealth that was earned by individuals own labour.

    This is most relevant in the case of family businesses where the wealth nominally owned by a deceased person may in fact be the wealth earned by surviving partner and children.

    So provided a inheritance tax was not a blunt tax over a single threshold irrespective of the political economy involved, then maybe more than Costello’s 5 billion could be raised.

    I see no need to allow exemptions for gifts to charities.

  22. J.Q.,

    Can you point me to what you regard as your “manifesto work” or comprehensive statement of your full political-economic position. I think it’s a reasonable request. It would certainly assist me to understand and place in context individual pieces of your policy advocacy.

    Alternatively, you can just point me to a label. Your blog strap-line suggests you are an advocate of social democracy. A simple definition of social democracy is that it “refers to support for political democracy, regulation of the capitalist economy, and a welfare state”.

    However, if you did the latter, I would be left wondering why you regard social democracy as the “best of all possible” economies. You might be right. You might be wrong. But I would be left wondering about your deeper reasons for the adoption of that position. Your “manifesto work” or comprehensive explanatory work would enlighten me about your reasons. It might or might not convince me overall but it could certainly enlighten me about possibilities and benefits in social democracy I am either overlooking or dismissing out of hand. It might also offer convincing reasons why socialism cannot work.

    My ideas on many matters are in considerable flux at the moment. I am not as undeviating and fundamental as I might appear to be.[1] I tend to appear dogmatic when I argue my position(s) as best I can. In fact, I am always seeking dialogue and refutations which I do take seriously if I find them cogent and convincing.

    fn 1. I was reading an old article (circa 1930s) in which a British Socialist boasted that his group or party had “never deviated” on a particular point of doctrine. He was indeed essentially referring to what is properly called doctrine. I thought, “Nothing scares me more than people who never deviate.” A certain amount of flux and uncertainty in one’s position and feelings is necessary in confronting – or cooperating with – complex, ambiguous reality. Fuzzy logic considerations alone would suggest that a level of flexibility (ability to deviate, re-think, re-cast, admit personal error and so on) is adaptive.

  23. @Ernestine Gross

    «He agreed it is private banks and the government who are interested because they generate net debt. Only if GDP grows is there a chance of being repaid (even if we ignore the pile of debt in the form of derivatives), nevermind who in the process goes bankrupt and who doesn’t.»

    I hope that here «the government» means in understood to mean “the middle classes”, because even more so than the wholesale speculators («private banks») they are the main generators of net debt, to be paid later by someone else with «growth».

    One major example that has come up recently is the suburban and exurban sprawl, where the middle classes want low density housing with high cost urban infrastructure, but don’t want to pay the high taxes that result from sharing a lot of infrastructure among a few properties, and therefore have financed the building cost with debt, and don’t pay for the maintenance costs, because “growth” will solve it all.

    http://www.newgeography.com/content/004788-voting-with-your-feet-aaron-renn-s-new-donut

    The same applies to pensions, where the middle classes are massively undersaving and hoping that a strongly patrimonial society with capital “growth” of 8-12% a year will sort it all out.

    The sociologist C Crouch has called the resulting policy “privatised keynesianism”, common in anglo-american political systems. It is the situation where the property-speculating middle classes vote themselves the ability to borrow ever larger amounts of net debt, and an implicit government guarantee on it.

    An USA commentator summed it up as:

    «Rather than workable solutions, my party is offering low taxes for the currently rich and high spending for the currently old, to be followed by who-knows-what and who-the-hell-cares. This isn’t conservatism; it’s a going-out-of-business sale for the baby-boom generation.»

    So the main drivers of the (nominal) “growth” are in effect *the voters*.
    And “growth” in effect is an euphemism for “upwards redistribution”.

    So it is a big political problem to persuade the middle classes to cut significantly their standard of living, which is presently fueled by growing private and government debt, and wishful thinking is not going to make it happen.

  24. @John Turner

    «the subject of this thread I.e the advent of a patrimonial society in Australia seems somewhat surreal»

    Well, it has happened over the past 30 years, in Oz, the UK, etc: the property speculating middle classes have created a patrimonial society, where those who own property in classy Sydney etc. suburbs have seen r > g (and significantly so) for decades, and their heirs are just waiting for their turn as lords of the suburban micro-manor and the stream of rents and tax-free effort-free capital gains.

    Most voters in Australia, the UK, etc. want property price growth to be significantly higher than wage growth for example, and they got their wish for decades. There is nothing surreal about that, it has happened and continues to happen.

    Can you imagine the crucial property owning middle classes voting for a government with policies that result in wage growth higher than property price growth?

    And if not them, who else is going to be have the votes to return a parliamentary majority?

  25. Blissex, perhaps the middle class would come to the table if the obscenely wealthy were able to show real leadership with regards to fair wealth distribution and sustainable economic growth.

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