Tuesday, November 30, 2021

A Conversation about Wealth Inequality

Please welcome a person I’ll call John Doe.  The following “interview” is loosely based on a real conversation with an acquaintance.

Michael James:  Hello, John.  Thanks for agreeing to discuss your ideas on wealth inequality.

John Doe:  I’m glad to be here.

MJ:  Let’s get right to it.  How can we solve the wealth inequality problem?

JD:  Nobody should be allowed to have more than a million dollars.

MJ:  Interesting.  Some people already have more than a million dollars.  What should we do about this?

JD:  Take it away.

MJ:  So, somebody should take away the excess above a million dollars.  Who should do that?

JD:  The government.

MJ:  I have some questions about how this would play out.  Let’s look at a specific case.  You work for the federal government, and your pension is currently worth about $1.2 million.  You also have about $400,000 of equity in your house.  It would be easy for the government to seize your bank accounts and your car, but how should they go about getting your excess $600,000?

JD:  What?

MJ:  You're a millionaire.  How should the government go about taking away the excess wealth you have in your pension and house?

JD:  They can’t touch my pension or house.

MJ:  Would that be an exception just for you?

JD:  No.  The government can’t touch anyone’s pension or house.

MJ:  Okay, so we’re refining the rule to ‘nobody should be allowed to have a million dollars, excluding pensions and real estate.’  Is that right?

JD:  Yes.

MJ:  What will we do about the housing supply problems when all the millionaires start buying more houses so the government won’t seize their assets?

JD:  Huh?

MJ:  If I had millions the government was about to seize, I’d buy a bunch of houses or maybe a big patch of land.  Then I could sell off a house or a strip of land once in a while to live rich.  Many wealthy people would have this idea.  Then people who aren't rich wouldn’t be able to find somewhere to live.  What will we do about this problem?

JD:  They can’t do that.

MJ:  What would stop them?

JD:  They can only have one house that’s not too big.

MJ:  Okay.  The next challenge would be rich people buying huge annuities or pensions to shelter their wealth.  I suppose this wouldn’t cause a new problem, but it’s an obvious workaround for the rule about limiting wealth.

JD:  They can’t do that.

MJ:  What will stop them?  Never mind.  Maybe it’s time to add some detail to your rule.  I’ll try to keep it consistent with your intent.  ‘The government should come up with a complex set of avoidance rules to limit people to a reasonable amount of real estate, a reasonable size of pension, and at most a million dollars in other assets.’  Does that sound right?

JD:  Yes.

MJ:  Most people who run medium and large businesses already have far more money than your proposed limits.  So, they have no incentive to keep working.  Having cable companies and banks shutting down would be inconvenient, but the most immediate problem would be the complete breakdown of the supply chain bringing food into cities.  What would you do about this problem?

JD:  That wouldn’t happen.

MJ:  If I already had more money than is allowed, there’s no way I’d keep working only to have my pay seized by the government.  Most rich people would simply stop working or leave Canada.  Having so many rich people who currently work in key positions suddenly quit would create chaos.  Food riots would be only weeks away.  What would you do about this?

JD:  They can’t quit.

MJ:  So everyone would be compelled to keep working?

JD:  Yes.

MJ:  That sounds like a huge political shift for Canada.  We’d be abandoning the Charter of Rights and Freedoms and moving to a communist-style state where the government tells people what jobs they have to do.  That’s a bold proposal.

JD:  I don’t want any of that.  I just don’t like seeing rich people who have more than I have.

MJ:  Everything has side effects.  We can probably find a way to reduce wealth inequality somewhat without devastating side effects, but you don’t seem to have it figured out yet.

JD:  Leave me alone.

MJ:  Thanks for coming by.


  1. OMG nice one today. Falls right into that viral "Overtaxing the rich : A cautionary tale" from May 2015 article that sparked much discussion.

    I have a "JD" where I work. A very nice guy in many respects, very skilled at his role. However many of the same arguments would come from him as well. It's very difficult to argue with a JD. They tend to think there are simple fixes for very complex economic issues, and when you ask a question they claim your changing the subject or deliberately being argumentative or don't understand.

    My JD is against anyone making money off another persons labor, so for example investing is inherently evil in his eyes. I'm exploiting others for personal gain. I ask if he uses a bank, because I look at myself as a micro bank. I take money that I earned and lend it out (with risk) so another company can flourish and grow and hire more employees possible benefitting some young people entering the workforce. For that I am hopefully paid for doing so. Somehow this concept does not sit well with him. I find reasoning with JD types tends to be an exercise in futility.

    My favorite question to ask a JD type is, what does their Utopian end goal look like? That part seems to always be missing from all their incessant complaints and arguments about the semi free market we are in. I know the answer to that, but JD does not (but it whatever it is, it will be better than what we have now). What is concerning is the amount of JD's is on the rise and that is not good IMO.

    1. Hi Paul,

      I'm glad you liked it. I have sympathy for the idea that we need to address wealth and income inequality, but simple solutions won't work. I remember Gail Vaz-Oxlade asking what things would be like if everyone just made $60,000. My answer is that everyone doing a hard job would quit to do something easier. So, no doctors, software developers, or many other people we need. People with big hearts want to change one thing and don't see the huge knock-on effects.

  2. not sure if my other comment went through. michael, is it possible to share template of spreadsheet you use to track a portfolio?

    1. Anonymous,

      I've tried a few times to modify my spreadsheet to remove personal information and generalize it to make it useful to others, but it's just too big a job. I've written posts describing most of it, but it's 100x the work to create a user-friendly general solution vs. a solution just for myself.

  3. Good conversation. I find many people like the idea of bringing down the ultra rich, but don't think about the effects that would have. I do think the government has a role to play (fair taxation and using laws to ensure fair business practices are being enforced). Many complain about the complex tax laws and there is lots of room for improvement but there is no simple answer or magic policy that will fix everything.

    1. Anonymous,

      Glad you liked it. Part of the trouble we have is that we don't all mean the same thing by the word "rich". To some, it means an income of $75k+. To others it means a net worth of $100 million+.

      I agree that there is no simple answer. One idea that makes sense to me is expanding the Canada workers benefit. I see no reason why we tax people with ultra-low pay from their part-time jobs.