Bill Gates has revealed that he finally got round to reading the economics treatise du jour, Capital in the Twenty-first Century, by Thomas Piketty. In a LinkedIn post, Gates admitted that the 700 page book wasn’t exactly a light read, ‘even for someone with an admittedly high geek quotient’ (MT didn’t know Bill Gates was a geek!), but that he was glad he got through it.
Of course, when Bill Gates wants to discuss the topics raised in a best-selling book, he gets to have a chat with the author. In a Skype conversation with Piketty, Gates said, he outlined which areas of the economist’s theories he agreed with, and which he didn’t.
Here’s the gist. Gates agrees with Piketty that wealth inequality is bad, ‘messing up economic incentives, tilting democracies in favour of powerful interests and undercutting the ideal that all people are created equal’. He also agrees that capitalism doesn’t automatically correct this tendency and that governments can have a constructive role in doing so.
That’s where the agreement ends. Gates takes issue with Piketty’s central thesis, that the rate of return on capital is greater than the rate of economic growth, and that therefore the rich will get relatively richer. For the Microsoft boss, this doesn’t differentiate between three types of wealthy person: one who invests their money into their business, one who gives it away to charity and one who spends it on yachts and planes.
‘While it’s true that the wealth of all three people is contributing to inequality, I would argue that the first two are delivering more value to society than the third,’ Gates writes. Piketty’s suggested tax on capital should fall instead, Gates argues, on consumption. Convenient that, given that he’s a famed philanthropist and (relatively) frugal for a multi-billionaire.
A consequence of Gate’s approach, of course, would be that more of the very rich’s money would be spent on good causes at their discretion than at the metaphorical tip of the taxman’s blade. But would that be a good thing, or is it better for government technocrats to allocate such monies in a more coldly efficient way?
What if, for instance, the country’s billionaires were determined to give away their collective wealth to donkey sanctuaries rather than hospitals, and the tax man got no portion of it? It would be dire news for everyone who’s not a homeless donkey.
Of course, Gates isn’t calling for a ‘philanthropy or tax’ option for the very rich, and does spend the lion’s share of his own fortune on causes such as HIV and Malaria research and treatment. Such actions, he argues, also undermine Piketty’s theory that capital accumulates in families through ‘rentier’ income.
Philanthropy, Gates writes, drains old money from old families, along with instability, inflation, taxes and consumption.
‘Take a look at the Forbes 400 list of the wealthiest Americans,’ Gates writes. ‘About half the people on the list are entrepreneurs whose companies did very well (thanks to hard work as well as a lot of luck). Contrary to Piketty’s rentier hypothesis, I don’t see anyone on the list whose ancestors bought a great parcel of land in 1780 and have been accumulating family wealth by collecting rents ever since.’
That’s right, stick it to him, Bill! MT eagerly awaits Piketty’s response. So long as it’s not 700 pages and in French, of course.