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August 6 - August 18, 2017
Few new or good billionaires are to be found in nations where an aging regime has turned away from reform and cultivated a class of politically connected tycoons.
no city rivals the concentration of wealth and power in Moscow.
These imbalances make Russia a prime candidate for a political backlash against inequality, and in fact the conspicuous consumption of the superrich is matched by their heavy security.
Under Putin, the government has often exploited popular unease with these billionaires in the most cynical way, protecting the oligarchs who stay in favor, while making an occasional propaganda show of humbling those who trample the proletariat.
When billionaires feel compelled to lie that low, something may be wrong with a nation’s system of wealth creation.
the United States and China are quite unusual in terms of the number of billionaires they have generated from the ranks of young solo entrepreneurs, unaided by family ties.
The rubric of good versus bad billionaires is the most important part of this rule, because even if the superrich control an unusually large share of the wealth, and leading families face little competition, they can make a positive contribution to growth if their wealth is concentrated in productive companies.
is hard to dispute the growing view that low levels of inequality fuel long runs of strong economic growth, and that high or rapidly rising inequality can prematurely snuff out growth.
during periods when the rich control a growing share of the national income, growth in total consumer spending tends to slow, holding back the economy’s growth rate.
The big difference is that in Latin America the growth spells have tended to be shorter and much more likely to come to a premature end in violent “hard landings” that set the economy back many years, measured against the basic goal of catching up to incomes in the developed world.
“Inequality may impede growth at least in part because it calls forth efforts to redistribute that themselves undercut growth. … In such a situation, even if inequality is bad for growth, taxes and transfers may be precisely the wrong remedy.”
Tossing more money at the problem of poverty can throw budgets out of balance, create an unwieldy state, and ultimately backfire by derailing the growth necessary to pay for social welfare.
High levels of inequality can instead magnify the impact of the financial crises that arise in the closing stages of strong growth spells.
oil states tend to be havens for bad billionaires.
countries with large black economies also tend to be the most unequal and that this is no accident.
Jobs in the black economy are often poorly paid, with no benefits, on dead-end career paths.
In India, the government manages to collect income taxes equal to only 3 percent of GDP, and the size of the black economy is estimated to account for around 30 percent of GDP.
tax dodging at the top creates a strong disincentive for any Indian citizen to pay up, in turn perpetuating tax evasion.
In India, many of the top tycoons command sprawling empires that often include at least one but often all four of the following businesses: a local hospital, a school, a hotel, and a local newspaper.
Most people understand it is wrong to take cash bribes, but few in India see much of a problem in accepting gifts in kind,
These ancillary businesses are seen as unprofitable but necessary investments for cultivating contacts among politicians and bureaucrats, who often repay their benefactors by granting special licenses or other favors.
Backdoor deals of this kind entrench the power of insiders and increase inequality, while funneling money into unproductive industries.
In short, bad billionaires tend to feed a vicious cycle of corruption, rising inequality, and slow growth.
Mexico’s auction in 2015 to sell offshore oil rights
conducted live on national TV,
Measuring changes in the scale, rate of turnover, and sources of billionaire wealth can help to provide some insight into whether an economy is creating the kind of productive wealth that will help it grow in the future.
Government attempts to manage economic growth come in many and varied forms, but I watch three basic trends: changes in the level of government spending as a share of GDP, coupled with an assessment of whether that spending is going to productive ends; the misuse of state companies and banks to achieve essentially political goals; and the extent to which the government allows private companies room to grow.
the size of any government needs to be manageable so that it can be focused on a few key tasks.
The normal postwar pattern has been that as a country grows wealthier, spending by the government has tended to grow as a share of the economy.
In France, however, the heavy taxes that support this outsize state have become such a burden that many businesses and businesspeople say they are giving up and leaving the country.
Greece combined the bloated spending habits of a France with a level of tax dodging more typical of a developing nation.
the government is not in all cases evolving into the all-powerful creature that some fear.
the state is spending way too much on giveaways, it tends to be forced back in line by global markets, as we recently saw in Europe.
global markets were charging interest rates as high as 40 percent to extend more loans to these governments.
Prior crises had already started to erode the welfare state, and that trend may continue.
The state needs to be spending at least enough to provide the essential conditions of civilized commerce, including building basic infrastructure and mechanisms to contain corruption, monopolies, and crime.
The flip side of the underfunded state is the black economy, where people do business off the books in order to evade taxes.
Jobs in this untaxed netherworld tend to be poorly paid and often dead-end career paths without benefits, and employers in this realm get the kind of productivity they pay for.
Tax dodgers tend to avoid banks,
many Egyptians throw fake weddings as a way to raise capital from their network of friends and relatives.
When changing any policy, the state has to take into account how it will affect business sentiment, as an abrupt shift can hurt the animal spirits in an economy.
no nation, going back to Tudor England in the sixteenth century, produced competitive industrial companies without significant help and protection from the state in the initial stages.
redistribute land from aristocrats to peasants,
set up a competition among leading tycoons
China’s successes were less a tribute to “command capitalism” than to Beijing’s steady free market reform.
So the key factor to look for—at least in the current global scene—is states that are just meddling less.
Russia, Brazil, India, and especially China, private companies had been cutting investment even as the state had been investing more, and this shift from private to public investment had produced more and more waste.
His advice focused on emergency spending to ease the pain of a recession, not on open-ended attempts to generate perpetual growth.
all they achieved was to delay the pain.
Why can’t governments spend to stimulate growth in the short term and simultaneously push reform—for example, by cutting regulations or selling loss-making state-owned companies—to increase productivity and growth in the long term?
