Reducing Wealth Inequality

Reducing Wealth Inequality – The Wealth Time Limit

If you have read my theories on Wealth Inequality and the economy, you will see that Wealth Inequality is the cause of most of the key problems facing our economies today – Wealth Inequality causes low wages, it causes high house prices, and it causes a lack of jobs in certain industries and geographic areas of the world.

This obviously raises the question – how can Wealth Inequality be reduced?

There are number of ways that Wealth Inequality could be reduced, but we can divide them all into one of two methods – either the very Wealthy increase their spending and reduce their saving (Voluntary Spending), or the government directly taxes their wealth (Involuntary Taxation).

Both methods achieve lower Wealth Inequality, but I prefer allowing the wealthy to spend their own money, as it is more compassionate, less extreme, less dramatic, and doesn’t involve state intervention.  Besides, in many cases people worked hard and made sacrifices to accumulate their wealth, and I don’t think it would be fair to punish them.

So I think that the fairest and best way is to allow the wealthy to spend their own money.  But that is not happening under our current system.  The very wealthy spend tiny (in fact negative) proportions of their wealth within their lifetimes, meaning that their fortunes take on a life of their own and grow exponentially, sucking in the wealth of the poor all over the world.  This is what causes Wealth to become concentrated and just the most obvious consequence is extremely expensive housing, as houses are accumulated by very wealthy people who never sell them.

The problem can actually be solved quite neatly and easily, allowing, but subtly forcing, the descendants of the very wealthy to spend their wealth over  the long term, without any resort to taxation.  We could simply place a time limit on physical property, the same way we place a time limit on intellectual property.

As a society, we place time limits on copyrights and patents, because we don’t think it is fair to allow people who invent works of art or ideas to maintain complete economic control of them forever, long after they are dead.  If you write a song or a book you own it for (depending on the country) around 100 years.  If you invent a new drug or machine the patent (again depending on the country) lasts only 20 years.

This means that the creators of great works and inventions can benefit enormously financially, in the short term, but, in the long term, once that person is dead,soceity can mutually benefit from the art, inventions or ideas.  Initially, the great work is the property of the creator, eventually it becomes the property of us all.  If we allowed these ideas to stay owned forever, it would detriment us all as a society.  As extreme examples, we would all be paying huge chunks of our wages to the descendants of the original inventors of farming and metal casting.  As a society, it doesn’t make sense to allow people’s descendants to keep ownership of ideas centiuries after the inventors are dead.

Interestingly, we don’t use the same logic with physical property and land.  Even though it was given to us by the universe (or god), we allow land to be owned into perpetuity.  This allows land and property to be owned in a very concentrated fashion, in a way that we would never allow with ideas.  Indeed, much land and property are now owned on an inherited basis, based on what was done by now dead people,  many generations ago.  This concentrated ownership of now dead people’s land and properties causes land and property to become very expensive to the rest of us.

I propose that we could treat physical property the same way that we treat intellectual property.  It  is perfectly fine for people to trade and to own it, but not to own it forever, long after they are dead.  If one small group of people are allowed to own all of the land and property forever, then the majority will always be poor.

Let’s place a long time limit on ownership of physical property.  It could be very long, as long as 150 years.  Once someone is dead, they can pass their assets to their children, but only until that 150 year time limit is reached.  This encourages the very wealthy to spend, rather than save forever their assets, and involves no state involvement.

It massively increases spending in the whole of our society (ending our recession and rocketing wages), and also decreases propensity to hoard houses and land, bringing house prices down.

This also means that, over the long term, Wealth Ownership will remain relatively distributed, and will not begin to clog the arteries of our economy over time.

The effects of this upon wages and asset prices such as houses will be significant:

Assume that, at  present, 80% of all wealth will be passed to far future generations based on inheritance.  Under this new, proposed system, that would reduce to 0%.  That means that all physical property will reach future generations based on their earnings.

Each generation will  therefore be able to afford 100% of the properties based on their earnings, rather than the current rate of 20%.  That means that wages will be able to buy 5 times as many houses as they are able to do.  Relative to houses, wages will increase 400%.

It’s a small change with no requirement for government taxation or interference (only enforcement), and it could completely change our economy, and send wages through the roof.

Keynes’s dream that we could all work for only 15 hours a week could finally be true – with only one small, simple (but transformative) change.

3 thoughts on “Reducing Wealth Inequality

  1. Really interesting theory and makes a lot of sense!

    About your theory on how to fix the wealth inequality – How would this would in practicality? Drugs, arts and inventions are all imitable and a theoretically infinite resource. You can make more drugs, replay music or make more iPhones without ‘using up’ the original asset.

    Land is a fixed, finite resource and can’t be copied. So when the time limit is up for ownership, how is then shared out for the benefit of the public domain? If the children are forced to sell the land, they are still benefiting from wealth and if the state takes control to sell on, how do you determine the value of the land/property?

    Property rights is often heralded as an economic driver, giving people security to invest in their assets in the long term to make them more productive than they would have otherwise been, had they been a common good. Do you risk economic harm, when the grandchildren of the dead wealthy person only have a 10 year interest in the property and either exploit it or let it fall/drive it into disrepair? Eg extracting all the mineral resources to convert the wealth into non-property assets that don’t expire? Or letting a house fall into complete ruin to the point it is worthless/unusable? Would it be fair to force them to invest in upkeep of a property that they can only enjoy for another 10 years? Or perhaps even spite – contaminating agricultural land so that it can’t produce (although this would be illegal and irrational, so is a different example).

    Isn’t this the sort of example where state intervention is needed because it’s a market failure and requires a guiding hand for the common good and can’t rely on the benevolence (and potentially irrational behaviour) of the wealthy to create jobs, spend more, etc?

    Also, how have things planned out in the three years since you wrote this article? Interest rates have been kept low, but are starting to look up now. Can you explain this, wouldnyou have seen it and what would your trading strategy have been in response?

    Amazing work, Gary

  2. Hi Gary I love your theory and I think it combines nicely with another theory , I emailed you a few days ago, let me know what you think?

    • Hi Ryan, sorry for the delayed response, I put this site up years ago and have only just started accessing it again. Thanks for your message, I don’t think I received your email, maybe post a link here?

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