We are developing the social individualist meta-context for the future. From the very serious to the extremely frivolous... lets see what is on the mind of the Samizdata people.

Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]

Samizdata quote of the day

We’re living longer lives these days, we’re working for fewer decades of them and thus people are rationally saving for their expected golden years. Thus capital as a percentage of GDP rises – not to produce inheritances, but to produce incomes in retirement. And rises by potentially at least more than 100% of GDP.

We can’t see that this is a problem and we most certainly cannot see that this is an argument for greater taxation of capital. Quite the reverse in fact, people saving for their old age should be encouraged, not specifically taxed.

Tim Worstall

26 comments to Samizdata quote of the day

  • Paul Marks

    Well living longer is a nice problem to have.

    Unlike the United Kingdom American society does not have this problem – with life expectancy actually declining. More people now die of drug abuse in the United States than are killed by firearms (social-cultural decline). American industrial output (contrary to the falsehoods of the “Financial Times” about “accelerating manufacturing”) is also declining with America being essentially a Credit Bubble place borrowing vast sums of money to fund imports of consumption goods – although that is true of the United Kingdom as well.

    This rather hits saving for one’s old age. Say someone (unlike me) has a job that enables them to save, what should they do?

    Putting the money in the bank is essentially useless – interest rates being so low (due to the Bank of England’s antics). But investing in the stock exchange is also problematic – as the stock market is a vast Credit Bubble as is the housing market (this also true in the United States), due to the already mentioned Bank of England antics (and Federal Reserve antics).

    Perhaps people should get married and have children – and educate these children to look after their parents when the parents become old.

    But that would mean reversing the “Social Revolution” of modern times- especially since the start of the 1960s.

    As for taxing Capital Investment (the source of income for old age – and for the next generation of people) that is of course insane, totally demented. The French author of the work “Capital” may be employed as an economics professor in a university, but his suggestion of increased taxation of Capital Investment shows he is not an economist.

    Without Capital Investment in productive industry hopes of future generations being as well off (let alone better off) than people are today are empty. There will be a terrible Credit Bubble crash that will cause the property market and the stock market to crash and will cause a massive recession – but future generations still have a chance, AS LONG AS CAPITAL INVESTMENT IS MAINTAINED.

    Even though, in the short term, investing in gold (even though there is no “return”) makes more sense than investing in productive industry – just before there is a rerun of the Great Depression (which seems likely).

    In some ways Bavaria is in a better position – Germany has a massive trade surplus (based on family owned manufacturing) and a balanced budget (not the chronic deficit spending of Britain and the United States – have a look at the American “Debt Clock” internet page sometime if the numbers do not scare you, you are already dead) – but the Germans are not having children, and the Chancellor of Germany has invited in vast numbers of people to replace the Germans.

    Of course Chancellor Merkel does not think these people will replace the Germans – she thinks these new people will become Germans. The Chancellor is mistaken.

    There is no reason why the forces of Islam should provide money for “infidel” Germans in their old age. Even if these new people are likely to get good high productivity jobs in Germany – which they are not (as they can not speak German are believe in the doctrine of the infidel tax- i.e. that infidels are there to support them, not the other way round).

    By the way, this is in no way an attack upon the incomers. If another culture (with which one’s own culture has been in conflict for more than a thousand years) invites you in and offers you income support and health care (and so on) it would be mad to refuse.

    It is not the fault of these people that the German Chancellor and the rest of the Western “liberal” elite are insane.

    And make no mistake, it is insanity. There is no other way to describe, for example, the position of the Economist magazine (the house journal of the international “liberal” establishment elite) that everyone should be offered free healthcare, income support and so on and that this offer be made by the governments of the West to the ENTIRE PLANET, via the doctrine of Free Migration into a Welfare State.

    Again it is not the fault of the people who accept the offer – it is the fault of the people who make the offer.

    We can not maintain our projected elderly population (my generation – it will be impossible to look after us all), but inviting in new people will not help – on the contrary it will make the problem worse. As they are mostly low skill people who are more likely to take government (taxpayer) money, even in their “working age” period.

    Back to the original options – have more children (not invite in other people’s children), and-or more productive investment in industry to produce the income to maintain the old and the next generation of the young.

    The economic policy and social (cultural) “reforms” of the late 20th century have been folly – they will have to reversed.

    Or Western Civilisation will cease to exist.

  • rxc

    The trouble with all that accumulating capital is that it is not being used for socially valuable purposes. It is only being used to generate more evil money, for a person who does not really need any more money. The wealth needs to be shared.

    This is the mindset of the progressives, and as the retirement capital accumulates, it becomes more and more of a tempting target for them. There are serious argument being made here that retirement funds should be nationalized, because (1) the old people will get fleeced by the evil financial people, (2) the progressives have better, more progressive uses for all these resources, (3) people should not be accumulating riches, but should be doing something caring and helpful for those who cannot accumulate riches, be caring, or be helpful, and (4) all that money will go into a government fund that will be used to support all the former savers, at a rate that will be determined by the “smart people”, guided by the politicians who follow the will of the people, to make things more equitable.

    I think that Trump just inserted a bump in this path, but it is certain to happen. My suggestion would be to go to a socialized medicine option, and make some part of health care contributions depend on the accumulated wealth of the recipient. It would cause all sorts of problems, but that does not seem to be completely unfair to me (full disclosure – I have capital that would be taxed). This would require a complete declaration of accumulated wealth, and all the assorted bureaucratic crap and pain and avoidance, etc. See, e.g., France…

  • Laird

    Worstall’s comment isn’t wrong (and Picketty is a world-class idiot), but both miss one crucial point: all that “saving” isn’t going under mattresses or being buried in the back yard. It’s being invested. Maybe not directly by the people saving for retirement, but if they put their savings into mutual funds or similar vehicles (which is where most pension savings goes) that fund invests it. So to the extent our capital pool is increasing it is strengthening the economy.

    I would also argue that “capital as a percentage of GDP” is a wholly meaningless metric, because GDP itself is largely meaningless. It conflates true economic activity with government transfer payments, which largely detract from economic growth. “Capital as a percentage of the industrial base” or some such measure (if that figure even exists) would have some relevance, because it would essentially be a measure of equity (or an inverse of leverage), but that’s not what is being talked about.

  • NickM

    This is possibly slightly OT but is it?

    You chose.

    I was in the Coop yesterday and a women bought six oranges. The till guy apologised because he had to put the code in six times so it took longer. He said the management had disabled the “multiple” key because making the tills slower meant more hours of work were needed.

    Let’s have more work by deliberately fucking it up!

    100% true. All I wanted was some eggs.

  • Fraser Orr

    @Laird’s point is lost of so many people it deserves to be reiterated.

    There are only two things you can do with money, spend it and invest it.

    If you spend it you buy goods and services which brings great things like jobs and new businesses.

    If you invest it you help fund new businesses or help build new houses and create new wealth (even if the investment is extremely indirect such as a certificate of deposit or an option.)

    People who demand that we soak the rich seem to think that rich people take their money out into the backyard and burn it, or cart it about in wheelbarrows full of gold coins, as if they were Scrooge McDuck. On the contrary, rich people spend or invest their money, actions that make us all wealthier.

    Actually I lied. There is a third option of what you can do with money. That is, give it to the government. And if you do they will spend it too, in an extremely inefficient way.

    The definition of a politician is someone who thinks they know how to spend your money better than you do, and then proves how laughably wrong they are.

  • Vinegar Joe

    @Paul Marks

    Interestingly enough, I just saw a report last night from Singapore’s Straits Times about the new “Proximity Housing Grant”…….it’s a grant for families to buy homes near their parents.


  • CharlieL

    It would seem to make sense to not tax income placed in savings ( a la I.R.A / 401K ) until it is withdrawn, as it both provides capital for economic growth and removes some of the necessity for “social programs”. But as Professor Reynolds might say, where’s the graft in that?

  • Eric

    Worstall’s comment isn’t wrong (and Picketty is a world-class idiot), but both miss one crucial point: all that “saving” isn’t going under mattresses or being buried in the back yard. It’s being invested. Maybe not directly by the people saving for retirement, but if they put their savings into mutual funds or similar vehicles (which is where most pension savings goes) that fund invests it. So to the extent our capital pool is increasing it is strengthening the economy.

    Honestly, I wonder if that matters any more. If people don’t save enough money for growth the government magics it into existence, effectively taxing everyone who holds the currency.

  • RRS

    @ (and in possible confirmation of) Laird:

    As Laird infers, the concept of GDP is a transactional statistic.

    For statistical comparisons or correlations the concept of “Capital” and its composition has to be defined.

    If we confine the definition to transferable, durable assets that can be accumulated for deferred consumption or further production, and identify those specific allocations, we are not likely to agree the Pikety-type perceptions. “Credit,” despite being able to give access to “real” (defined) capital (or to substitute for some of its functions) is NOT capital. Further, capital is a means to ends. Capital can be exchanged for credit and credit can be exchanged for capital: but, that does not make them identical; nor always equivalent.

    The GDP concept is basically derived from measuring consumption & transfers. That seems plausible since we can not consume or transfer anything unless it has been produced. However, actual production (if sustainable) results in surpluses (profits); simplified as prices in excess of costs.

    We (the developed economies) have been in a “short-wave” cycle of the sequestration of surpluses (particularly in larger enterprises) by managerial motivations; such that those surpluses from production have neither been distributed to the beneficial owners; nor redeployed (with risks of course) for further production. By and large they have been converted to credits (retained earnings, e.g.). The results have been labeled “stagnation;” but may be the cyclical managerial motivation reactions to political and social conditions.

    So long as there are political accommodations to social pressures for uses of governments as transfer agencies, the present cycle will continue – unless interrupted by a taxation on “excess” retained earning. We may see some of both; but nothing of Pikety.

  • Fred the Fourth

    NickM: shades of India in the 60s, when full employment was the stated intent, productivity be damned…
    CharlieL: saving is good because it “removes some of the necessity for “social programs”.”
    From the Washington DC POV, at least, that’s a bug, not a feature.

  • Tim Worstall

    “Worstall’s comment isn’t wrong”

    Well now, that is a relief.

    “but both miss one crucial point: all that “saving” isn’t going under mattresses or being buried in the back yard. It’s being invested.”

    This is a point I regularly make. Even to the point of insisting that all that stuff stashed in offshore banks is invested – the banks themselves invest deposits into loans, that’s how they make their money.

    But please do allow me my little conceit, that I’m not going to try and describe the entirety of the economy in every short blog post.

  • staghounds

    The value of any money-denominated savings, pensions, or investments will be consumed by monetising debt.

    Only the richest old people won’t depend on a government check.

  • Paul Marks

    That is interesting Vinegar Joe – I suppose I should be able to predict this sort of statism by now, but it often still comes as a surprise to me.

    Of course Singapore has demographic problems – few children. And I have my doubts about that massive government investment find – that provides the old pensions.

    Still at least it is an investment fund – the Western old-age-pension benefits are just a Chain Letter or a Pyramid (Ponzi) scheme.


    Are you aware of “FITS News”? A lot of useful South Carolina information – on the State pension scam and so on.

  • Laird

    I’m glad I could set your mind at ease, Tim!

    But while I certainly agree that you can’t “describe the entirety of the economy” in that one short blog post, it seems to me that this particular point is sufficiently important, and moreover is a directly relevant to Pickety’s argument which you were rebutting, that it should have been included. After all, it can be dealt with in a couple of short sentences (as I did).

    Paul, yes I am familiar with Fits News, although I don’t read it as often as perhaps I should. There are several good sources of SC political information; if you want I can send you some links.

  • Nicholas (Unlicensed Joker!) Gray

    Matt Ridley wrote an interesting column a while back, about how medicine is advancing faster than people have a chance to realise, and that we might soon regularly expect to live to 100, and over. (The Queen will get cramps sending all those congratulations to the Centenarians!) So, instead of saving for retirement, save for life, and medical procedures!

  • staghounds

    Saving for old age requires two things- first, a predictable cost of living/value of money, so you know what you save will buy.

    Second, you need a reasonably predictable date of death, so you know how much of #1 to save.

    A hundred years ago we had both, but penicillin and the World War put an end to good life expectancy tables and sound money.

    We haven’t had either in the west for what, fifty years? You’re going to live much longer than you expected when you started saving, and your money will buy less than you ever expected it to. Saving for old age is an illusion, at least it is for anyone doing it now.

    (I’m doing it like crazy but I know it’s a fantasy.)

  • Julie near Chicago


    But that is exactly the deal with an IRA. What you put in at any given time is deductible from taxable income on that year’s income-tax return. When you retire and start withdrawing from your IRA, you are taxed on a withdrawal as if it were regular income.

    This means there is plenty of work for the estate planners and tax advisors, because every dollar you withdraw puts you a dollar nearer to the boundary of the next marginal tax bracket. For instance, withdrawing $ 300,000 from an IRA in order to fund a Roth account (another governmentally-approved system where you put in money left AFTER paying income tax on the income that produced it, where you will pay no tax on the proceeds from the investments of which the account consists, provided the funds remain in the account for at least 5 years) — such a $ 300K withdrawal from your IRA will trigger your moving well up into the higher marginal tax brackets for that tax year. In order to pay that tax, you will have to withdraw still more from your IRA to send to Uncle. And so on. Eventually you do hit a breakpoint, but it can take a few years for your income tax to settle down again. All you can do is hope that you, or at least your kids, will live long enough that taking the hit on the IRA will pay off in a bigger spendable sum from the Roth than you’d have had if you’d left the money there.

    (A short and not very well-written explanation. I hope it makes some sort of sense. 🙁 )

    At least your kids inherit tax-free whatever’s in the Roth at your bug-out time. They do pay income tax on whatever they withdraw from what you left them in your IRA.

  • All I wanted was some eggs

    Hopefully not two-dozen.

  • But that is exactly the deal with an IRA

    Never make deals with terrorists 😉

  • bobby b

    OT, but . . .

    Avoid the Roth.

    There’s going to be a huge bubble of money sitting there in a decade or two, causing salivation among all sorts of needy government agencies.

    The chances of governments allowing that bubble to slip through their fingers untaxed is getting slimmer every day.

    At least with regular IRAs, government would have to mess with general tax rates to take more from them. Roths will be subject to their own treatment, and thus vulnerable to that treatment.

  • staghounds

    I’m rather surprised that the Boomers haven’t gotten something passed that eliminates their taxes on IRA withdrawals.

  • Julie near Chicago

    Don’t kid yourself. There is plenty of work going on aimed at filching IRAs right out from under their “owners.” Very Progressive, not to mention thieving. This work is, currently, largely done by “boomers.” The Boomer generation is, currently, the very flowering of Progressivism.

    And not all “boomers” are libruls or Proggies. That’s a rather disgraceful canard.

  • Julie near Chicago

    Perry: Good point. LOL

  • Paul Marks

    Right you are Laird.

    Julie raises the demand to loot the wealthy old to provide for the old who are poor – and for the poor generally.

    As a practical matter one can say “who would save if they knew their investments (their land, or gold, or whatever) was going to be looted?” – but such an argument will not sway those who believe in “Social Justice”, the “fair shares” doctrine.

    F.A. Hayek taught that human nature was innately collectivist – as humans evolved in hunter-gatherer packs dominated by the “Social Justice” “fair shares” concept.

    Only an act of Free Will (in which Hayek did NOT believe – he was not a libertarian) could allow humans to rise above the tribal instincts of the hunter-gatherer pack. But this moral agency (reason – the reasoning “I”) can be overturned by the emotions of the savage hunter-gatherer pack, the work of thousands of years can be overturned, and destroyed, in a single day.

    Education both formal and informal (what Hayek would have called “cultural evolution” – an unusual name for what is a conscious process) was supposed to guard against this emergence of the savage “social justice” beast. However, for many decades now – education (both formal – and informal by the media and so on) has not guarded against the instinct of “Social Justice” – on the contrary it has tried to stimulate the savage “Social Justice”, “fair shares” instinct and overthrow moral reason. The “intellectual” should be the chief guard against the doctrine of looting – but sadly (and for a very long time now) the “intellectuals” have been pushing for looting.

    Pope Francis is a obvious example – he stands amazed when people in his native Argentina (and elsewhere) loot supermarkets and so on, seemingly unable to understand that his own “Social Justice” sermons and writings lead to this. Why wait for the government to enforce “Social Justice” why not do it yourself?

    This is the, not unreasonable, conclusion of the mob – and not just in Latin America.

  • Nicholas (Unlicensed Joker!) Gray

    Hayek was right. Here in Australia we sometimes have successful Aboriginal artists, and as soon as they get any money, hordes of relatives descend on them and insist in sharing all the ‘luck’. Tribal law allocates meat, and windfalls of other natures, according to dreamtime customs. In a poor society without farming, or other ways to store food for later, this makes some sense, but doesn’t leave much room for individual skills (Though I suppose praise from the tribe for being a good hunter might keep some people going).
    It’s a shame they try to hang on to those customs in modern times.

  • Paul Marks

    That is sad Nicholas.

    Of course if we just have our “instincts” and “culture” (in a rather weird and wrong definition of the word “culture”) then there is no way out of such horrible situation.

    Only if people can used their reason (can make real choices that are NOT “illusions”), is there are way out of this.