It is eleven years now since I implemented my decision to retire at fifty. At the time there were two major potential doubts, neither of which I fully thought through.
The first was that I would be bored out of my mind, miss the smart company and intellectual challenge of work, and somehow suffer pain from a bruised ego. Well, as it transpired, I need not have worried about that. I have found plenty to do and enjoyed exploring new pathways without the constraints of an employment contract and salary as primary considerations. I have discovered that people without fancy degrees can be invigorating company as well. And my ego feels just fine, thank you very much.
The second doubt concerned money. Would I run out? Would I have to constrain the lifestyle of my family beyond comfortable limits or even face the indignity of having to seek out paid work again when my peers are starting to enjoy retirement? Well, that one worked out well enough too, at least so far. Contrary to my expectation, I have not become poorer but richer, without putting much effort into it. Just by putting my capital assets to work a little bit I have created an income to more or less cover expenditure.
Thinking about this, it is really a scandal. I suppose I did subject myself to much arduous travel and some corporate indignities in building up my capital, so a bit of income as it gently winds down might be considered a fair return. But it is not winding down. I am living a stress free life, without much attempt to economise and even less effort at hustling, and my capital is not winding down at all. Perhaps this has been an especially lucky decade for my experiment, with no inflation and a long stock market boom, but I sense the exercise would not have led to much hardship in earlier decades either.
My capital grew primarily as a result of pay from my many years at Shell. I have shared before how I benefited from the revolution following the Great Wrong Turning around 1980. In the late 1980’s I regularly found 20% pay rises and stock option grants thrust into my arms, just as Thatcher’s government was reducing the tax burden for higher earners. Then I went abroad, and that continuing effect was multiplied by wildly generous expatriate benefits.
I suppose I worked hard and made a few sacrifices and even learned to be an effective corporate politician and sound manager despite my geeky (marginally autistic?) personality. But I should not polish that ego too much. I got a good job at Shell because I went to Cambridge. My path to Cambridge was eased by my parents splashing out on expensive private schooling. My mum helped further by paying for the deposit on the apartment I bought as soon as I started out in London. I had more than enough of a following wind.
Much is written about inequality of income, and rightly so. I remember a lovely quote from the Thatcher days that it seemed amazing that the prevailing thinking was that the best way to incentivise those on high pay was to give them more, but the best way to incentivise everybody else was to pay them less. That more or less sums up what happened, starting in the USA and spreading everywhere else.
The Economist and others like to point out the inequality of income is not actually getting worse. They show charts that include the effect of government transfers and taxes, and indeed the trend has flattened, especially if you start your time series after 2000 rather than in 1980. It feels a weak argument that something unjust has not become more unjust. As humanity develops, the trend line should be to reduce inequality of income.
But focus on inequality of income, laudable as it is, misses the wider point. Imagine two people with the same income, one with significant capital and the other none or even some debt. The first will buy a house and see its value expand, the second will always rent. The first will live in an area with enough supermarkets, little crime and good schools. The first will have no trouble finding side hustles, taking loans from banks and taking modest risks. The second has no ability to make such long-term choices; making rent is always the primary focus, and a mishap such as a car accident or medical event can be a catastrophe, while our first person can use savings or call in favours from friends to get past such moments.
The income disparity figures are unjust, but the bigger issue is disparity in wealth. And wealth begets wealth. Even if incomes were equalised, the wealthy would get richer and the poor poorer, only not as quickly. The key equation of Thomas Piketty claims that the return on capital will over time exceed the economic growth rate.
This has been my lucky surprise since retirement. I have lived the life of Riley and got richer, while many have struggled mightily and still accumulated no wealth at all. Yet some of my political peers and many of the public cannot see beyond the extensive current job openings and conclude that the poor must be lazy and undeserving.
I find this leads to a clear conclusion in public policy. To really address inequality, the focus must be on taxation of wealth and income from capital. It is true that slavery and Jim Crow and Redlining have locked out much of the population from any chance to accumulate wealth. Reparation in cash or subsidies or quotas will not fix this. The real issue is that the beneficiaries of those injustices acquired wealth, and that wealth continues to grow across generations. It applies to individuals, to communities and to whole nations, and it is unjust.
I am not a communist. I love markets and wealth creation and recognise that these good things have catalysed wonderful human development. Eliminating income inequality entirely would be disastrous, and building capital is a laudable aim. It just should not be so easy.
When I was growing up, taxes on income were too high. But I also recall that taxes on capital were higher still, and this good thing has reversed since the Great Wrong Turning. Even without resorting to trusts and offshore funds and obscure vehicles, capital is now taxed at the same or lower levels than income in many countries.
There are simple fixes available. Land and property should incur a larger share of the total tax burden than today. Capital should incur a tax a few percentage points higher than income, with lower thresholds. Capital should be periodically revalued to enable gains to be taxed more speedily. I can check the value of my shares every day, but do not need to pay tax on gains until I sell them. I would also favour a 3% wealth tax above a threshold. Politically tougher and harder to implement, there should be a global crackdown on avoidance vehicles.
But for me the most important change of all relates to inheritance. My parents gave me plenty of advantages during their lifetimes, starting with a stable home, an expensive education and valuable seed money. Surely that is enough advantage to be gained merely from the biological accident of birth? But one reason my capital has continued to grow has been via an estate legacy from my mother. Now what did I do to deserve that exactly? Perhaps the most invidious campaign by Republicans since 1980 has been to label inheritance tax as a tax on death. It is time for a serious campaign to reverse this.
I love The Economist to death, but they are curiously silent on these matters. Any mention of capital taxes comes with whining about how little they would raise and how hard they are to enforce, along with the trope about disincentives for creative enterprise. Until they and others change their tone on this, I won’t accept that they have really got the message about inequality.
Similarly, it is noteworthy that the biggest roadblocks to Biden’s laudable plan to develop human infrastructure in the US come on the funding side, especially when capital or wealth are involved. Should we be surprised when we observe the average wealth of a congressperson, or of the corporate lobbyists swirling around them? This is a tough pill to swallow, but any talk of true equality of opportunity is empty without it.
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