Lets say you and I are fruit merchants. We both head down to a apple orchard to buy apples for our stores. You have enough capital to buy 10.000 apples, but I have enough capital to buy 100.000 apples. With ten times the capital, I should make ten times the profit, only that not how the economy works. You may be able to rent a smaller truck to carry the apples then I do, but mine wont be 10 times as expensive, and our drivers will cost the same. I may fly first class and stay in a fancy hotel and while expensive, it wont cost ten times your budget flight and motel. The lawyer I hire to draw up the contract wont cost 10 times more then yours. At every turn I am able save money and be more profitable then you. I can use this profit to get richer and import even more apples, or I can lower my prices to the point where I will put you out of business.

I'm not smarter then you, my apples don't taste better, I don't provide a better service, nor have I fallen for the temptation to tell the apple grower that I wont buy her apples, if she also sells to you. All I need to do to beat you is to use a simple fact: money doesn't scale linearly.

If one toilet paper roll costs $1 and a pack of 6 costs $4. Then $4 is worth six times as much as $1, counted in toiletpaper.

The system is rigged, but not by virtue of conspiracies in smoke filled rooms, but by the invisible hand of economics of scale. So we get inequality, but not just inequality, we get ever rising inequality. What ever you may think is the right level of inequality, a forever increasing inequality must to most people seem unsustainable. This is why we need policies that counteract economics of scale and can manage inequality levels, but how do we do this?

Traditionally western societies has seen capitalism as the engine of growth, but capitalism has been around for Millenia, yet it wasn't until it was paired with technological leaps, democracy, individual rights, workers rights and a state that engages in the economy that human development really took off with the industrialization. The true engine of growth and prosperity, has been the raising of living standards for the masses, and free enterprise. They have given us abroad base to grow both our consuption, and given more people the oportunity to innovate. Over the last fw decades, western economies have shifted away from raising living standards in the name of global competitiveness. The west has instead strived for restrained wage growth. China and India with the explicit goals of raising living standards have had much stronger growth.

While the goal has been to increase productivity and effectiveness, the lack of consumption has made companies very inefficient. Todays companies are much less focus on innovation and improving products and services, and much more on sales. It has become trivial to make things and therefor marketing, sales, and branding has become key. Many companies hire more people to sell the products they make then they do to produce them. Many of the truly great successes of the last decade has not been about producing and charging for products, but rather to help other companies who do so to reach customers. Companies like Amazon, Google, Salesforce, LinkedIn and Facebook, all claims to solve the problem of sales, but these companies haven't really helped expand the market and create new consumers, but rather they have become a tax producing companies have to pay in order to be competitive.

Enormous resources and man power are spent on marketing and sales. This has become the byrrocracy of capitalism, and is far larger then any government byrrocracy. In an ideal market the seller would share the cost of finding a buyer equally with the buyers cost of finding a seller. We are very far from this equilibrium. By making the criteria for success your ability to market something rather then making a better product, we have broken the model of the free market that is meant to get us better and better things because anyone has a fair shot at taking on an incumbent, by doing a job better.

Since the market has become so saturated with products, big corporations, try to increase profits by cutting staff, and lower wages. Its a great strategy for one company, but if every company does it, we get even less consumers and it becomes even harder to find customers.

With fewer employees, profits gets concentrated to owners, who cant consume what they make (although they try), so they reinvest. The problem is that without fundamental economic growth, there is little to invest in, so the money either has to fight to invest in the limited amount of real assets like stocks and property that gets inflated values, or invest in speculative paper products with a less then tangible relationship to reality. The last few decades has seen an explosion of financial products without underlying assets trying to capture this wealth. All this poses a huge risk to financial stability, and crowds out investments in the real economy.

When jobs disappear to technology and global trade, some people argue the solution is a basic income. On the surface it sounds like an attractive even utopian idea. If the problem is that we have become so effective at producing all the things we need, that we no longer need people to work, surely this must be a good thing. This assumes there are no improvements left to be made in our society that could use manpower. If we instead of asking if there are enough jobs for everyone, ask if there are things left to do in our societies, the answer is quite different.

With modern technology we may need less people to produce more things, but at the same time, we live longer, need more education to be productive, and the more things healthcare can fix, the more we will want to spend on it. Could we possibly make use of more teachers, medical professionals, scientists or people taking care of the elderly for instance? I think the answer is clearly yes, so its not a question of lack of jobs, but a lack of funding for these jobs. The job of an economical system is to allocate resources in the best possible way, and if it doesn't, it need to be changed.

If we have too much capital in one part of the economy, too few consumers, unemployment or unproductive jobs, and a whole lot of work that needs to be done, then this starts to sound like a solvable problem. Yes I'm talking about taxing the rich to fund expanded government financed services. By expanding the wages and number of people working in the public sector we can engage growth and help companies, by creating new consumers, have a better educated workforce, a focus on science and research.

When we talk about taxing the rich, we should not do so out of envy, or some sense of revenge, but because we have good reason to do so. The first and perhaps most obvious reason to tax the rich is that they do have money to spare, but beyond this we must set out some basic principles of what we want to accomplish with our taxation. Alot of research shows the benefits of a more equal society. Its atractive to think that if we just put a floor under the poor we dont need

Inequality can serve a purpose. The Elon Musks and Steve Jobs of the world have proven that they can create successful enterprises, so it makes economic sense to give them enough capital to start rocket companies or develop animation studios, if they wish to do so.

However It is not immediately clear that providing them with yachts and exotic car collections is very beneficial to society. Its not even clear that it is a very good motivator. Steve jobs didn't come back to Apple because he had his eye on a bigger house and needed the money. He did it because he was passionate about his work and wanted the company he had started to succeed. Most research supports this. We clearly want more wealth put in to personal enterprises and less in to personal luxury. People who do things, dont need to be rich, but they do need to get the resources needed to do what they do.

This brings us to the problem that we don't know who the next Steve Jobs is and the last one is dead. If we don't know who will create the next generation of great products and companies, it makes economic sense to give as large part of the population the tools and the means to try, using education and a financial safety net. It would probably be good to have a fairly large class of people in our society, of makers, experimenters, and scientists who we don't expect will ever produce anything useful, just in case one of them happens to stumble on a breakthrough. In this way society is becoming a lottery, where the goal should be to have as many tickets as possible, to increase the chance of winning, rather then to expect each individual ticket to return its investment.

The vast majority of money being made by the rich is not made from work, its made using return on investments. In the western world capital gains taxes are lower then income taxes. This means that we in our tax code are valuing making money just by owning things rather then making money from work. This disregards if the wealth was made because of some great contribution to society, or just inherited down. This is something most people would disagree with on a moral level. As mush as we may disagree with this, it is this way for a reason. Investment money can easily move abroad if a countries taxes would be significantly higher then other similar countries. Raising capital gains taxes would require all countries to agree to do so at the same time, something fairly unrealistic.

The assumption from politicians has for a long time been that investments are good for the economy, and we should always look to be as investor friendly as possible. I think we need a more nuanced view of what kind of investments we want, and possibly don't want. There are investments with very dubious public good, like when people buy apartments as investments in cities they don't live in that drives up the cost of living, or investing in paper products such as existing stocks or crypto currencies.

I propose switching to a system with two different capital gains rates, one for direct investments and one for indirect investments. Direct investments would be any investment given to a company or endeavor, and where any purchase of an existing asset would be an indirect investment. Buy a stock on the stock market, or buy an apartment, and expect to pay a high capital gains tax. Give a cash injection in to a company by VC, angle or IPO investment, or build a new apartment and expect to pay a lower tax rate on your returns.

The vast majority of investments are about holding existing assets or betting on movements in financial markets. The purpose of capital markets are often described as our economy's mechanism for funding new endeavors but only a few hundred billion dollars of wallstreet is invested in Venture Capital, that is funds that actually invest in new and growing companies. This may sound like a lot. but its not even 1% of our economy. This can be compared to the Futures markets (futures are essentially bets on future market movements). This market is about 400 trillion dollars large. (the GNP of the entire world is about 80trillion annually.)

Investments in paper products are essentially crowding out investments in the real economy, and from an investors point of view it makes sense. Why should I put my money in your risky startup that may go belly up any day when the stock markets have gone up and up historically? This shift away from investments in real assets and wealth creation, doesn't just hurt the real economy, it undermines the entire system, if something goes just a little wrong in the financial market it can easily crush the real economy with its massive size.

By creating a two tear system, we can separate productive investments from non productive investments, and given that the vast majority of existing investments would fall in to the later category we could easily raise taxes on them without harming the investments we want. By creating an incentive to invest in things that our economy and society could use and by discouraging speculation we would create more prosperity and stability. If this incentive could get just one and a half percent of investors to move their money in to venture capital to avoid taxes, we would essentially double the investments in new companies, creating countless new jobs and companies.

This does all sound very attractive but it doesn't solve the way companies are avoiding taxes. Companies are like any machines, they are either a benefit or a hazard, if they are a benefit they are not my problem. Again we have to look at what kind of corporate behavior we want to tax and what kind we want to incentivize. Lets say a company makes a profit and wants to spend it on creating a new job by hiring someone. It first needs to pay corporate tax, then needs to pay payroll taxes, and then the employee has to pay income tax on what they receive. The employee ends up with about a third of the money. On the other hand if the company wants to give the money to its owners, it again pays the corporate tax, and then the owner pays capital gains tax, if and only if there is capital gains tax where the owner is registered. The owner ends up with more then two thirds the original company profit.

This system incentivizes returning profits to owners rather then investing in creating growth, new jobs and being the economic engines we want companies and entrepreneurship to be. It also incentivizes people to move to tax havens.

The solution should be to create a tax that companies pay when issuing dividends to it owners similar to the payroll tax they pay when paying employees. Such a tax would also be tax evasion proof since it has to be payed by the company in the jurisdiction where the company operates, disregarding of where the owners resides. The tax would be applied to any payment to an entity in the same owner structure, making it impossible to transfer profits to other jurisdictions with in the same company group without paying tax. The money raised from this tax could be used to lower payroll tax and corporate tax, to incentivize growth and reinvestment, or to boost public spending.

One could also imagine a progressive corporate tax that reduces (bot not entirely removes) the advantages given by economies of scale to encourage innovation and competition. This would help small companies that are the engine of most hiring. When designing such a progressive tax one must be very careful not to remove the incentive to grow.

The second big way to manage inequality is to tax inheritance. Inheritance tax is very contentious because on one hand we all want to leave as much as we can to our children, and on the other hand we all want a world where everyone has a fair chance. The way most inheritance tax has been implemented is to simply at the point of death, take a percentage of the value of the estate. This sounds simple but presents a number of problems. Most estates are made up of illiquid assets like real estate, privately owned businesses, and personal property. How do you value this accurately? Most people who inherent a private business or real state cant out of pocket pay a big chunk of its value to pay inheritance tax. This may mean that you are forced to move, or that you cant have a generational shift in a family owned business.

What if we instead created a special capital gains tax that applied only to inherited assets. You would pay this tax immediately on liquid assets, but the real-estate and business you could keep without paying any tax until the day it was sold. At that point you would pay inheritance tax on the asset. This would solve both the issue of evaluating the estate, and allowing the heir to keep living in the same house, and take over the family business.

Ever since the economic crisis most of us has had the feeling that there is something wrong with our economy. It is clear that our economic system works for mostly a few where as the many see slipping wages, unaffordable housing and diapering jobs. Economic Laissez-faire liberalism has been discredited, but so has most of the alternatives. This has left most mainstream thinkers and politicians unable to provide any real solutions, and has opened the door to extremists, and populists who claim easy solutions are in reach.

Modern economists are acutely aware of the complexities of our economy. Ask any reasonable economist to make a prediction and they will hide it in a pile of caveats. It has struck me that asking a economist to predict what changes to the tax code will do to the economy, Is a little like asking a geneticist if its a good idea to poke around a bit and make some changes in your kids DNA. The risks are huge and we don't have nearly enough knowledge about a very complex system to be able to scientifically say what the outcome will be. This way of thinking has left economists paralyzed, and unable to come up with new policy ideas.

If we instead ask a geneticist if life will be eradicated from earth from an environmental change, they will almost certainly say no. While a specific individual or species may be very sensitive to change, life as a whole is incredibly resilient and evolves to thrive in almost any environment.

I think our economy, is resilient in the same way, yes we can do harm, but often changes in an economy is as much a boost for new ideas and ventures, as it may be a head ache for the incumbent. Even politicians with the explicit goal of destroying the economy (north Korea and Venezuela comes to mind) has found it exceptionally hard, simply because of the resilience of its people.

We will never know exactly what any reform will do to our economy, and therefor we have no other option then to experiment. If we make careful changes, and ramp them up slowly and predictably we should have an opportunity to make incremental improvements, and to break off in time if something doesn't work. Yes there e risks, but there are also risks with continuing on the current track of ever increasing inequality, anemic growth and lagging productivity. I think especially smaller countries who are more politically nimble should engage in this. If they succeed larger countries will surely take notice. and, if it doesn't work, we should try something different.