13 December 2012

Comments from MMM forum part 2: Pursuing a Responcible Early Retirement

A continuation of the last post, this is taken from another thread on the MMM forums.
Again, for the sake of brevity, I have included just what I’ve written, along with quotes of what I am responding to, after the initial post, but if you are curios, feel free to click the link in the first post for everybody’s discussion.


By: darkelenchus

Pursuing and Maintaining A Responsible Early Retirement
« on: August 01, 2012, 12:07:04 PM »
Purpose & Rationale For This Thread

Since nobody seems to have any real objections to the central argument in sol's thread on how your early retirement might be evil, and since the thread has morphed into a discussion about somewhat tangentially related matters (e.g. justifying charity, differing moral systems, the purpose/value of taxation, sustainable population levels, et alia), I figured it'd probably be be best to start a new thread to begin discussing practical ways of reducing or eliminating the evil in pursuing & maintaining early retirement.

Summarizing the Problem

Okay, so let's identify the areas (in italics) where evil can creep in to MMM/ERE-style early retirement:

MMM/ERE Early Retirement =df A lifestyle attained and maintained through frugal practices and investment strategies, whereby one keeps a high savings rate during one's working years, eventually reaching the point where return on investment from savings covers all living expenses at the very least, which enables one to forego working a conventional job and thereby free more of one's time in comparison to more conventional working careers.

The thesis is that in pursuing early retirement, each of the three italicized areas above could perpetuate an unjust inequality: viz., the manner in which one executes one's early retirement could support (or at least be dependent upon) a system that denies that same opportunity to others.
  • Frugal Practices: If one seeks to maximize one's savings rate by purchasing the lowest priced goods at the best value, one might be supporting businesses that utilize exploitative business practices.
  • Investment Strategies: Investing in stocks provides capital to companies that seek to maximize return on shareholder investment. Just as with keeping prices low for the consumer, many companies employ exploitative business practices to maximize that return. Investing in bonds provides capital to many of those same companies.
  • Allocating Free Time/Resources: If we will early retirement as a value, it would be contradictory for us to maintain that other's shouldn't have that same opportunity. Merely refraining from perpetuating the system is not enough. We should do what we reasonably can to provide people that opportunity.

If we're concerned with reducing or eliminating this unjust inequality, then we'll have to a) choose frugal practices and investment strategies that at the very least don't exasperate the unjust inequality, and b) actively do what we can to help alleviate it. Below are some of the ideas I've come up with for going about doing this.

Responsible Frugal Practices
  • Consume Less: Bakari pretty much nailed this one.
  • Whenever Possible, Investigate and Factor In the Practices of the Companies and Vendors That Sell the Products You Buy: If this means that a product with an ethically benign history costs more than a product that was exploitatively produced, don't fret over how this negatively impacted your savings rate. Rest well knowing that your purchasing behavior didn't perpetuate unjust inequality.
  • Reuse/Repurpose, Whenever Possible: If you're reusing and repurposing things, chances are you're eliminating the possibility or otherwise necessity of purchasing products that are produced via exploitative means.
  • Grow/Make Your Own Stuff: You're producing goods for yourself or your household, which is about a 99.99% certainty of being not self-exploitative.
Responsible Investment Strategies
  • Consider Socially Responsible Stocks: Not all companies on the stock market are evil. If you invest in individual companies, make it part of the process of doing your due diligence to consider how the practices of the companies you're analyzing stand up to moral standards. If you're a more passive investor, consider socially responsible mutual funds.
  • Invest in Tax Liens: Many counties across the country auction off or allow you to make an assigned purchase of tax lien certificates, which entitles you to any interest that the property owner owes as a result of being delinquent on her taxes. It's a win-win, in many ways. You buy the property owner more time to pay for her delinquent taxes, the county gets the money it needs to operate, and either you collect the interest (which varies by state & sometimes county, but tends to be pretty high) or, if the property owner doesn't pay the taxes, you get the property at no extra cost.
  • Buy Rental Properties and Be An Upstanding Landlord: That is, keep the property in nice working order, give the tenants a fair market price, treat them well, consider how your rental behavior affects the greater community, etc. You've got a lot of control if you own rentals. This one is really only exploitative if you make it so.
Responsible Allocation of Free Time/Resources
  • Volunteer: Help others develop skills that might make them more self-reliant, help distribute resources to those in need, help organize and develop systems that facilitate the missions of non-profits/charitable organizations.
  • Donate to Non-Profits/Charitable Organizations: Many non-profits/charitable organizations need money and resources more than they need your assistance. Do your due diligence when you donate, but donate what you can.
  • Donate on a Peer to Peer Level: There's no need to think that charity is restricted to giving to an institution. Most of my own giving is direct to the person who receives the aide (e.g. giving or buying clothing, bus tickets, food, providing shelter, etc., to the homeless/needy). Bakari's giving customer's a discount by not charging for hours worked is another example. In my experience, I've noticed that this builds one's charitability muscle more effectively than, say, having money directly withdrawn from my paycheck or including a dollar donation for the Save-The-Trees Foundation when I buy tofu at our local co-op. That doesn't mean its more effective to the recipient of aide, just that it's more effective in cultivating virtuous character.
  • Invest in or Start Social Businesses: This whole "responsibility" thing is about making the world a better place, and donating to charities and non-profits are one way of doing it. But they're dependent on the generosity of others to sustain their activity. Sometimes that generosity may run dry. Social businesses address many of the social maladies that charities and non-profits address, but they're not dependent on donations. As a business, they seek to preserve themselves by charging a fee for their products and services. However, their motive is to treat a social malady rather than maximize return for their investors, which allows them to keep their prices down. Any social business will, however, pay back any money invest in it, which effectively makes it a no interest loan. As an investor, you can then allocate that returned money to another social business, or to a charity.
  • Do What You Can To Not Be a Burden To Others: The less liability you have, the less risk you have of being dependent on others. Obviously someone who has reached early retirement is so asset positive that they're unlikely to be a financial burden on others, but what about emotionally, psychologically, physically? Take care of your health and seek ways to improve in these areas. Of course, others may need help in these areas even if you're okay, which brings me to my last point...
  • Share MMM/ERE-Style Early Retirement and Social/Moral Responsibility Ideas and Practices With Others: What others have said (e.g. gooki & James81, to an extent) is true - If early retirement is an alternative to the typical consumerist Western lifestyle that perpetuates the unjust inequality even more so than pursuing early retirement in a moral vacuum, at least you're doing something that currently alleviates that inequality (less consumption of resources, opens up a position of employment for another) by promoting MMM/ERE-style early retirement as better serving one's own self-interest. I reckon that if everybody began to pursue FI, the world would be a different and probably much better place. The message of FIRE isn't merely early retirement; it's also one of self-reliance, and by letting others know about it and explaining/teaching/helping others to get it, you're not only helping to make the world more just, you're also making the people in the world more happy. This is the motivation behind the blog that my wife and I started, and I suspect this is true of MMM, too, given the whole "save the world" undercurrent (even if somewhat in jest, it's still somewhat in jest).

On another note, I was scheduled to write a post for our blog (i.e. the blog of my wife and I, not MMM) today, but this seemed more important and I'm kinda tired after writing all this. Would you guys mind if I used this as a basis for a near-future post on Real Sustainable Habits?

Also, I wanted to say thanks to everybody who has participated in the other thread so far. The discussion has inspired quite a bit of introspection on my part, which has been fruitful. 
« Last Edit: August 01, 2012, 05:44:39 PM by darkelenchus »


By Bakari:

Re: Pursuing and Maintaining A Responsible Early Retirement
« Reply #28 on: August 02, 2012, 10:55:22 PM »
Are we worried here about restricting a particular individual, or just the general amount of people who can have early retirement?

I ask because we've previously discussed what would happen if everyone retired early, and I still think that an entire society based on people being full time parents isn't sustainable in our industrial age.  We need some people to work long hard careers or the whole thing falls apart.  By this metric, my early retirement would be necessarily evil because it's not possible for everyone to have that which I have willed as a value.

The issue though isn't "could everyone in society never work?"

It is "could everyone in society work less than 40 years?"

I think the answer is unquestionably yes.
When a generation leaves the work force at age 60, it doesn't cause the economy to collapse.  Other people take the places of the people who left.  The fact that someone retires eventually, and goes on living another 30 years, doesn't mean they didn't contribute to the work that needs to be done in society.

Right now we have something like 8% unemployment (and that number only reflects those people who are both able to and want to work), so right off the bat everyone who is currently working could work 8% less and society would not slow down even a little.
That 8% could be in the form of working 37 hours a week, or it could be in the form of retiring 3 years sooner - in the long run they would both be the same thing.  Each worker works 8% less, giving everyone else an opportunity to have a job.

At the same time, mustachian style ER involves consuming less.
In this thought experiment we are talking about everyone retiring early, so we can assume everyone is consuming less.
That interrupts the whole consumer cycle, as people buy less things.  In turn companies produce less stuff, because there are no buyers.  Which means there is less work to be done.
Lets say, just as a random example, everyone cut their consumption to one fourth (and lets pretend that manufacturing is domestic - ha!)  Now the sectors that produced all the various stuff lay off 75% of their workforce.

Of course, there are other sectors which wouldn't change much, if at all - emergency services, utilities, farming, plenty of things society is still going to need.  But that 75% of people now need to be redistributed into the remaining workforce.  That means that everyone currently employed can work even less still, and everything that needs to get done will get done, while having nobody who wants to work unemployed.

On the one hand, people would make less money.  On the other hand, they would need less money, because they are spending less.  It is obviously possible to spend enough less that you don't have to work as much, because that is the entire point of frugality based FI.

The reason this all works is productivity.  The 40 hour work week was developed over a century ago, when people had to work with a century ago level technology, and everything got done.  Today each worker can produce 20 times as much value in the same amount of time, yet we still have everyone work the same amount of hours for the same number of years.

The result of that is we need to find crap to produce just to keep everyone employed!  That's why you have politicians urging people to go shopping to help the economy, and why people think the only healthy economy is one that is growing. 

What would be impossible is for every single person to inherit massive wealth and just live on dividends for a lifetime.  Then nothing would get done.  As long as you spend some time contributing via work, then you existing the workforce just leaves a job open for an unemployed person to take.

By Bakari:

Re: Pursuing and Maintaining A Responsible Early Retirement
« Reply #34 on: August 03, 2012, 07:32:21 AM »
The issue though isn't "could everyone in society never work?"

It is "could everyone in society work less than 40 years?"

I think the answer is unquestionably yes.

While your post is thoughtful it fundamentally ignores the principles of economics.   There are many flaws in the logic, even if they do sound logical, and is somewhat along the unintended consequences logic.  For instance, if all the older people stopped working to free up jobs you are right that it would create opportunities of younger people.  It would also deplete a significant portion of the labor force and would result in income inflation (supply and demand of the resource), which isn't a bad thing for those benefiting from it but would be terrible for those older people that you just kicked out of the workforce because inflation would kill their savings/fixed incomes.  Just like anything else there will be winners and losers.
There didn't use to be any retirement age.
Then, at some point in time it was invented.
It didn't kill old people's savings from inflation.
We have inflation currently. 
I agree it would tend to increase wages, but I don't think it would necessarily result in inflation.  That increase in wages could, at least partially, come from lower corporate profits.
And even if you got your outcome that everyone would make less money but that is ok because everyone will need less money - no that is just deflation.  If everyone deflates or inflates at the same rate then the outcome is neutral. 
If we have a system where everyone is employed, everyone can retire early, and everyone has the same effective income they have now, that sounds like a pretty friggin perfect system!
More people working with less income doesn't change the total income pot.  The inverse of this is when women entered the workforce and overtime it lead to two income households today earning the equivalent of one income household 50 years ago to survive. 
Again: Good!  If your theory is right, then people could work less total life hours and in the end the average household would still make the same effective income.  I hadn't even thought of that.  That's a better outcome than my original version.  Thank you for the concept.
You are also assuming that for the redistribution of jobs the people that are currently unemployed are qualified or skilled enough to do those jobs, 
Not right away they wouldn't be.
Just like we didn't transition from an agricultural to a manufacturing economy, or then from a manufacturing to a service economy overnight.  When certain jobs are made obsolete by technology (or outsourcing, or corporate consolidation) the unemployed may need to go back to school and learn a new skill set.  It is a natural consequence of capitalism and technology.  Why would it be any more of a problem in the context of reducing everyone's lifetime labor hours?
and if we stop consuming then more unemployment would be created from all the layoffs from retailers, hoteliers, automakers, etc.   We need people chasing the carrot.
I already covered this in the original post!
Creating more unemployment is the goal
Its just that this unemployment would need to be equally distributed throughout society.
Instead of having some people be employed for 80,000 hours (40 years of 40 hours weeks) and other people working 0 hours, there is no inherent reason we as a society couldn't choose to have everyone work 40,000 lifetime hours.
Less environmental damage and waste, more free time for everyone, nobody wastes their life chasing the carrot.

Utopian fantasy?  That's what all the capitalists said when some radicals proposed a 40 hour work week too.
Let's say we stop consuming/consume materially less and therefore seek to produce less, modern currency theories would become invalidated and the current economic system would evolve, or really devolve. 
There will still be haves and have nots but instead of currency wealth, wealth would be accumulated in housing, farmland, water....you know the basic resources to survive with labor being the other commodity to trade.   Not unlike the various empires that existed throughout history.
You are not in favor of economic equality.  Are you suddenly objecting to their being haves and have nots?  Under the system I'm describing there would be more equality of opportunity (which we can all agree is a good thing, no?) as there would ultimately be less unemployment (
I'm was never suggesting that this system would make everyone equal, or that it should even be a goal.  Just because I don't believe in unchecked capitalism doesn't make me a communist!
What I do think is the benefits of productivity gains would be more equally distributed allowing the already rich to skim less off the top of everyone elses labor.  That still allows for some people to own the companies while others do the actual work, and the owners will still make the most money.  They just won't make such ridiculous amounts.  But I'll save more on that for your capitalism thread...


By Bakari:

Re: Pursuing and Maintaining A Responsible Early Retirement
« Reply #43 on: August 03, 2012, 03:53:13 PM »
I don't think you're being egotistical enough here.  You're trying to force our thief to construct & submit to a universal personal property value; one that applies equally to her and to everyone else.  I suggest that for many of us the world is much more pragmatic: we wish to survive and prosper; what helps us do so is good.  Therefore me successfully stealing stuff is good, someone stealing from me is bad.  Values are not equal and reciprocal.

Your correct that this position is both widely held and logically consistent.

Nor is it necessarily even inherently immoral.

But it is inherently amoral.

Its just like how a predator killing its dinner isn't being immoral.  The issue of morality simply doesn't apply.

If you are using the word "value" in the sense of "I value this item that I enjoy", then your correct about everything you wrote, but I think darkelenchus is talking about values, not value.
Given that these are discussions about morality, we are starting with an assumption that we aren't simply looking out for our own best interests.

By Bakari:

Re: Pursuing and Maintaining A Responsible Early Retirement
« Reply #44 on: August 03, 2012, 04:09:26 PM »
Perhaps it would be fruitful to stop beating around the bush and establish some common guidelines that all can agree upon as being solid points of morality and ethics in this discussion. If I may be humored:

1) Intentional or malicious harm is bad.
2) Theft of property is bad.
3) Exploitation of minors is bad.
4) Permanent enslavement is bad.
5) Usurious loans are bad.
6) Responsibility is good.
7) Honesty is good.

I'm not sure about #2. 
You would have to clearly define theft.

If it means taking something which was previously acknowledged to belong to an individual without said individuals permission, then one could make the case that taxes are theft.
(In fact, a whole lot of people do make that case.  They are called the Tea Party)

There are a number of areas in which even in America, probably the most individualistic large society that has ever existed, we do not consider property rights inalienable.
In addition to taxes, We The People see fit to confiscate property as punishment for even minor and/or accidental infractions of the law (e.g. fines for parking or equipment violations).
We redistribute property for alimony and child support.
If not for eminent domain the interstate highway system would not exist, which would have caused a severe hindered to economic expansion.  The land owners get compensated, but giving up the land is involuntary, if it is needed for a public project.

Then there are questions that may be settled by law, but are grey in terms of morality.
If a person owns a plot of land which they have not done anything with for years, and have no intention of doing anything with, and someone else comes along and builds something there, are they a trespasser or a homesteader?
Inheritance undermines the American ideal of equal opportunity and concentrates wealth without adding value to society or the economy, as well as leading to a quasi-aristocratic class with the power to undermine democracy.
Yet many claim that the property rights of the newly deceased should outweigh the benefits to society of redistribution.

Some claim that none but Aboriginal Americans have legitimate claim to any land in the US.  When a tribe occupied Alcatraz island, where they stealing property, or were they reclaiming what was rightfully theirs?

If someone acquired property through legal but unethical means, is it immoral if another person steals the ill-gotten property and returns it to the original owner?

By Bakari:

Re: Pursuing and Maintaining A Responsible Early Retirement
« Reply #67 on: August 08, 2012, 08:52:52 PM »
I don't think anything James said implies racism.
At worst, a little bit of ignorance, but even that is debatable.

But James, no one here is saying "whitey is the devil".
No one is saying everyone of European decent is evil, and they have caused all bad things that ever happened.
And most of all, no one is blaming you personally, nor your family, nor even your ancestors, for things which some Europeans in a position of power have done.

Obviously many societies have done bad things to other humans throughout history, but for whatever reason there are some very notable bad things that Europeans have done in the relatively recent past that don't really have a parallel.

Slavery has existed nearly as long as civilization.  However, in the majority of cases, slaves were recognized to be people.  They were the losers of battles, or people who couldn't repay debts.  There were rules to how their owners could treat them, and they often had rights - sometimes even property rights.
The US stands out as a rare (possibly unique) example of slaves being treated as farm animals. 
Actually, if a modern farmer were to treat his farm animals the way slaves sometimes were, he would probably be shut down and fined for cruelty to animals.
This invalidates your argument that the African societies which captured and sold people into slavery deserve equal blame - they had no way to know the conditions they were selling people into.  You don't blame the pet store owner when a kid tortures his pet, because most people wouldn't do that.

Sure, many societies throughout history have conquered others.  But there are very few examples of a society (with no historical claim to a given land) coming in and deliberately and systematically killing or displacing the entirety of the indigenous population.  In South America there was a mixing of cultures and widespread intermarriage that lead to the modern Latino.  But in the US there was very little intermarriage, and a lot more of the deliberate spreading of smallpox.  If the new comers tried to spread leprosy, but accidentally spread measles instead, I'm not sure how it makes anything better.  (If you shoot someone, and the shock makes them die of a heart attack, does that make you less guilty?).  How many places can you find tiny patches of the least useful land set aside as reservations for the few remaining aboriginal inhabitants?

Maybe the only reason the first settlers to the US did these things and not anyone else was an accident of circumstance - they were the first with the means to do so.  Maybe if someone else had ocean worthy ships, horses, and guns, they would have done the same thing.  But that's not what happened.

What I first said that lead to this whole tangent was just that the land of America was taken by force.  Whether or not other cultures have done similar things is irrelevant to my point.  My point was to call into question the supposedly inalienable human right of private property.

By Bakari:

Re: Pursuing and Maintaining A Responsible Early Retirement
« Reply #68 on: August 08, 2012, 09:07:19 PM »
The alternative to allowing individuals to pass on wealth is for the government to take all or a substantial portion via the inheritance tax (which it appears you support).  Doesn't your position assume the government is a better steward of the assets than the family.

Giving the goverment additional assets further increases the power of the government.  I would argue the transferring assets simply transfers power from a smaller entity (the family) to an even larger entity with more resources (the govt).  I'm not convinced that's a good thing.

Additionally, with regard to family owned businesses and farms, the inheritance tax can have the impact of harming the community (ie job cuts) as the owners struggle to pay the tax via what may be illiquid assets.



The United States of America is a democracy.
It may not be a perfect democracy - it isn't direct, there is some corruption, and its size necessitates a less than ideal level of bureaucracy.
It is still a democracy.

So when you talk about "The Government", try to remember that you are talking about us, all of us, the citizens of the US.
If "The Government" is a bad steward of the nation's resources, there is no one you can blame for that but We the People.  We choose the specific individuals doing the stewardship.

Yes, I think a democratic government is a better steward of resources - given the goal of bettering society overall, for everyone - than a private individual family, who's primary goal is bettering their own lives.

If we were to return massive estates to the community upon a successful person's death, it would allow the tax rates on the living to drop enormously.  The wealth currently held by the top 0.5% would be enough to not only cover the deficit - it is enough to cover the ENTIRE DEBT.  This in turn would mean interest on the debt (which is one of the single biggest uses of taxpayer dollars) would drop to zero, which would in turn mean the government would have to collect even less total taxes - which means they would need to be stewards of a smaller amount of resources.

People talk about the government like its some giant lumbering beast out in the forest somewhere, that no one has any control over.  Wealth redistribution doesn't mean the government gets to hold all this money so it can play with it and do what ever it wants.  Roads and courts and jails and firefighters and mosquito abatement and police and bridges and utility infrastructure all have to get paid for somehow.  These things benefit everyone, and the free market won't create on its own.  That's why we (humans) invented government in the first place.

By Bakari:

Re: Pursuing and Maintaining A Responsible Early Retirement
« Reply #71 on: August 09, 2012, 09:13:12 AM »
I think that is what it started as and lived as for a number of years, and while technically we are still a democracy in reality we have become an oligarchy.  This has ocurred because of voters becoming dienfranchised by the absolute abhorrence of our polical representatives, that their self interests motivate them above all esle, and that money drives politics more than the notion of actually representing the people. 
But if we chose representatives who are motivated by self-interest, who else can we blame for that than ourselves?  Think they guy in office is corrupt?  Start a recall campaign, pick someone better, and if everyone running is a jerk, apply for the job yourself! 
Your argument is circular - people don't vote because they don't like the people who are in office!?!?
Much of the way in which money drives politics is campaign donations.  If people didn't vote on the basis on TV commercials, campaign donations would have much less influence.
And we the people have become lazy as a result, so it was refreshing to see the tea party movement, the occupy movement, and the 99% movement. 
We the people are not good stewards of our individual resources even when they are limited, so what would make you think that the the government run for and by the "we the people" is a good steward of our resources when those resources are unlimited (taxes, debt, printing). 
Fair point.
But what is the alternative?  A benign dictatorship?  Not a bad solution, but it only works if you get lucky and have a dictator who genuinely wants what is best for the country and not just himself.  Arguably could apply to Castro, but very few of the dictators of the world.  Otherwise, the best we got is democracy.

This is simply not true. If the government took all wealth upon death it would merely evaporate and not be accretive to society. Much of this wealth, its value comes from the ability of its people and assets to create future cash flow - in the governments hands this would not be the case. Taxes are paid on these cash flows year after year and that is what supports those government services. 
What do you mean wealth would "evaporate"?
The taxes that get paid now don't all just evaporate.  Some of it goes to transfer payments, some of it gos to services, and some of it goes to infrastructure.  The existence of that infrastructure and services make it possible for citizens to create value.  And if you read my last post carefully, I wasn't suggesting giving additional money to government.  I was suggesting that we could lower income taxes on the living if we replaced that money with wealth held by people who can no longer use it anyway. 
Furthermore, there would be no reason to accumulate wealth if it ultimately will be taken away.
Now that's just plain silly.  People accumulate wealth so that they can spend it and enjoy the things it buys.

How many people are under the impression that being rich is going to allow them to live forever?  God is the one who decides to one day take everything away from us, not the government.  Ultimately everything gets taken from us.  That's just reality. 
But if someone feels that it isn't worth it to become rich because he can't pass his money down to his kids, and therefore chooses not to, fine.

By Bakari:

Re: Pursuing and Maintaining A Responsible Early Retirement
« Reply #77 on: August 10, 2012, 07:03:58 AM »
Given that framework, why is marijuana still illegal?

Because about 1/2 the country is against legalization.  In CA, where the percentage of supporters is higher, it has been legalized for medical use.
Those massive estates often produce an enormous amount of jobs and income taxes when continued to be held in private hands.
I don't understand what you are suggesting.  If a company isn't held in private hands, it no longer produces jobs?
First of all, the company doesn't "produce" the job in the first place (see: http://biodieselhauling.blogspot.com/2012/06/poor-person-never-gave-me-job.html )
Also: Facebook just went public recently.  The company was held in private hands, now it isn't.  That didn't mean they fired all their staff.
Private businesses are the lifeblood of the economy and the estate tax is an enormous burden to them.
Can you provide any evidence whatsoever that it is a burden to them?  [many have tried, yet there has not even been one single example ever produced of, using a common example, a family farm that had to close due to the estate tax]
Am I correct that you are advocating a 100% estate tax over some asset level and a nearly 100% income tax at some income level?  Assuming I'm correct on my understanding of your position, what makes you think wealth won't just leave the US over time?
You are correct.

Because the US is a great place to live.  Because much of the rest of the first world taxes wealth higher than we do already.  Because back when we had a 94% to income tax bracket and 77% estate tax, wealth didn't leave the US.
A good portion would be tied up in the stock markets.  As the law stands now, estates would be forced to liquidate the assets and pay cash to the govt.

Another portion is tied up in privately held companies and farms.  Many of these assets are ill-liquid and must be liquidated and/or burdened with debt in order to pay the estate tax.  This often isn't good for the employees or the community.

Common theory, but not supported by real life: http://www.nytimes.com/2001/04/08/us/talk-of-lost-farms-reflects-muddle-of-estate-tax-debate.html?pagewanted=all&src=pm

But lets say a company did have to liquidate.  That doesn't mean they would shut down - that wouldn't generate any revenue anyway.  It means they would sell.  Companies get bought and sold all the time.  That doesn't mean all the employees get fired or the product stops getting produced.  It just means someone else is sitting in the office at headquarters.
if there is a 100% inheritance tax people would just transfer the wealth prior to death or via trusts and the like.  There would be unintended consequences.
Which is why there is also a gift tax.  Sure, there are always unintended consequences, that isn't a reason for inaction.
But who's the we here?  That's the fundamental problem with democracy: it assumes that everyone wants pretty much the same thing.  If you have a heterogenous population, with many groups wanting different and often incompatible things, it fails.

Agreed.  Do you have a better idea?
We could split the country up into smaller units - say, each state it's own country?  I'd support that.

By Bakari:

Re: Pursuing and Maintaining A Responsible Early Retirement
« Reply #80 on: August 10, 2012, 09:00:48 PM »
You didn't seem to get my overall point.
Even if an heir did need to sell a company due to estate tax, the company wouldn't disappear.
It would just pass into the hands of whoever bought it.  The heir has to do their own labor or innovation, and build their own fortune, and at the same time the existing business becomes an investment opportunity for someone else.

With the income brought it by estate tax, we could lover the income tax rate on everyone else, creating MORE incentive to earn money.

I think if you look at most invention and innovation throughout history, it much more frequently happens by people with a passion for what they are working on than people looking to become billionaires.  As for capital investment, wealth distributed throughout the middle class can be invested just like concentrated in the hands of a few can be.

Given the topic of this thread, I'll bring this back around: one part of being responsibly wealthy is teaching your children to be productive members of society; make them earn their own wealth - it will be better for them and for society.

By Bakari:


Re: Pursuing and Maintaining A Responsible Early Retirement
« Reply #85 on: August 12, 2012, 07:19:01 AM »
So you will stop trying to foist you beliefs/values upon the rest of us.

And just get on with your lives.

This is the internet.  No one can foist their beliefs on you here.  You have to actively open the page and read it.  If you have no interest in learning from other peoples' values, why would you read a thread about being responsible?

There would be many far reaching short and long term consequences to having 100% inheritance taxes.

100% tax above a certain level.  Not the same thing as a 100% tax.  Estate taxes have brackets, just like income taxes, and I wasn't proposing changing that, just changing the brackets.  Say, maybe 0% for the first 10k, and then increasingly progressive amounts up to 100% after 5 million, or something like that.

When business owners know they are taking 100% of the risk of loss with their business, and that that a huge percentage of their business will be taken from them upon death, they will not risk their own capital to expand that business. 

What evidence is there that people actually behave this way in the real world?  Why would the ability to make lots of money here in the real world, while they are alive, stop being an incentive?  Do people generally make their life decisions primarily based on what will happen after they die?  Why do people who don't have kids build wealth or invest at all, if giving money to kids is the only reason for building wealth?  Why do some wealthy people give their money to charity and teach their kids to make their own way in life?
People who don't own businesses will look at that situation and be less likely to start new businesses.  Therefore, existing businesses will grow more slowly, and not create as many jobs, and there will be less new businesses, thus creating even fewer new jobs.
As I said before, this country had at one time a 77% top estate tax and 94% income tax.  The economy didn't shut down.  I don't understand why this fact alone isn't enough to invalidate these sort of claims.
Also: businesses don't create jobs.  That's just something that republican politicians made up recently to try to get the middle class to support tax breaks for the rich (see: http://biodieselhauling.blogspot.com/2012/06/poor-person-never-gave-me-job.html )
Iinvestments in improved machinery, factories, technology, etc. will slow.
Good.  We produce and consume way too much crap in this country.
  In the long run, this prevents consumers from getting better and cheaper products and services, thus keeping real wages down.
Improved machinery and technology actually keeps wages down, by increasing unemployment via increased production per worker in a system where a company has the option to lay off workers based on no longer needing them, and keep the resulting increased profit.
The same would be true at the personal level for non-business owners.  If all of their income is going to be taken from them upon death, instead of them being able to give it as they choose to their own families, friends, charitable causes, etc., why should they work even one bit beyond what they need to cover their own spending?
Isn't that kind of the whole point of Mustachianism?  Why should anyone have to work more than they actually need to?  One of the ideas that was mentioned in terms of being FI without being evil is that what we want for ourselves we should make available to everyone.  The natural consequence of that would be the economy would expand more slowly.  But that would be ok, because we wouldn't need as much total wealth if we weren't wasting so much of it on stupid crap.  At the same time, we would slow the rate at which we are using non-renewable natural resources.  Win-win.

By Bakari:


Re: Pursuing and Maintaining A Responsible Early Retirement
« Reply #87 on: August 12, 2012, 07:59:27 PM »
Regarding your "fact" about 94% tax rates not shutting down the economy, I think it's hard to say how things would have been different with lower tax rates.  Tax rates are of course not the only variable either--the period you're describing is when the economy was rocketing back out of the Great Depression, and includes the effects of WWII.  It's quite feasible that economic growth, job creation, overall production, innovation, improvements in real wages, etc. may have all been faster with lower taxation.
Yes, it is hard to say what things would hypothetically have been like.  Yes, the real world is very complex.  But that is the only example we have.  Everything else is purely theory and speculation.  Last year we had no estate tax, we have had some of the lowest top tax brackets in US history for the past decade, and the tax on stock investing is half that rate - yet during that time we went through the worse recession since the Great Depression, and have had double digit unemployment.

Further, the last several decades have shown us that economic growth is not always coupled with job creation or improvements in real wages.  GDP has gone up substantially, yet inflation adjusted median income has not.  The real wages of the working and middle class have been basically stagnant.  So its hard to see why so many people still believe that economic growth is inherently good for everyone.
Its basically the old "trickle down" theory - let the rich get super rich, and this will make everyone a little bit rich.

But since the real world is complex, lets give the theory the benefit of the doubt, and say that allowing unrestricted concentration of unearned wealth benefits society as a whole.

Your same arguments about encouraging people to make longer term risks and investments could apply in a similar way to a Monarchy.  If the king knows that he will not only keep his position for a lifetime, but also pass it down to his son, he has much more incentive to think long-term - as opposed to just the next election cycle.  He wants to make sure his country stays stable, safe, and provides well enough for the people that they don't revolt.
Therefore, we should give up on democracy, and just trust that the Emperor of the United States will do what is best for the country, since it is in his own best interest to.
We could accept the trade off of short sighted politicians for the greater good of a democracy.

Even if lower estate taxes did provide some small benefit to the economy, is it worth the trade-off of creating an aristocratic class, destroying the potential for meritocracy, having to tax actual productive labor at a higher rate, and ensuring that every citizen has an equal shot at success if they work hard?
I'm with you on overconsumption.  However, as MMM has said, it's amazing that we can live SO CHEAPLY in this country, with so much abundance.  That is a direct result of innovation that allows businesses to produce what people need (and want) for so much less now vs. the past.  I'm thankful that such thrifty abundance is a possibility.  One of the core concepts in the Hazlitt book is that more and cheaper production means cheaper real prices and more real abundance for consumers.  That doesn't mean you *need* to overconsume--it means that you can have better products and services for less real work required.
It should mean that.  It certainly could.  And yet, despite the increase in productivity per worker, real income has barely changed, and we still have a 40 hour work week.  Where is all that extra money going?  Its going to the top 0.1%, and the reason it is going there is because so many American citizens have bought into all the stuff they (and the politicians they purchase) have claimed.  The sort of stuff you are repeating here.

Hazlitt would argue that the slowdown you're describing would make the quality of life for everyone worse--everything would cost more in real terms/real wages would be lower/more work would be *required* to buy what you need and want (all three are really the same thing). 
That's what the factory owners and others of the investor class said when some crazy radicals wanted to lower the standard work week from 80-100 hours to only 40 hours(!) said too.
It didn't happen.



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