Surviving Automation In The 21st Century — Part 2

Note 1: I’ve recently landed in Brussels, so if you read this blog and are around Brussels (or the whole of Belgium, really), mail me, let’s grab a coffee.

Note 2: I promise this is getting to a point and not just complaining about tax systems, but just bare with me, feel free to skim the first heading if you can’t stand it.

Let’s talk a bit about taxes.

I want to start with a question:

i — Are European Countries Aristocracies?

We are trained to have bad associations with the word aristocracy and with aristocracies as a system. The root of that stems from two systems of thought:

  • Aristocrats are unequal to the rest of us, inequality is bad, thus this bad — it’s more sophisticated but ultimately boring to me, I can’t empathize with it at the root level, my morality is formed around suffering (or rather, the lack thereof) not social hierarchies
  • Aristocrats consolidate power in a small group and thus lack the ability to implement good ideas by tapping into the long tails of intelligence/creativity/dakka. If an aristocracy is imperfect it will also face contenders, sink most resources into the zero-sum game of preserving wealth, and stop positive-sum games.

The prime example of an aristocracy is something like pre-revolution France, where you could reach a certain amount of power, usually by birth, but sometimes by accumulating wealth, and you’d get a series of privileges. The important one is exceptions from paying any taxes(*).

This led to smaller and smaller strata of the population paying taxes in order to support government projects, usually related to funneling more money/power to the aristocrats.

This manifested in the obvious way of peasants and poor city dwellers did not have enough food to survive, thus revolting. But, more importantly, it manifested in the temporal equivalent of the “middle class” being trapped under impossible fiscal conditions, and thus either fleeing or choosing to revolt.

Blood war ensued for a century, and we reach modern-day France with a tax code that imposes upon all.

Except that… of course not. For example, at a high-but-not-astronomical salaried income of 200k, a Frenchman would pay 50% in taxes, a Belgian 56%. This excludes VAT, property taxes, and inflation (i.e. roughly translated into money flowing from government to special interests). Assuming an average VAT of 10%, inflation of 10%, and a property tax of ~2000eur/year on their house; You’d reach numbers around or above 70% in most European countries. Probably higher if you include the fees one pays to use other “government-provided” services like water, electricity, and roads, but it doesn’t matter that much.

But that’s fine because everybody pays it, and the tax balances out part of the exponential wealth gain wealth beget. Except that of course not, rich Frenchmen live in Monaco, or Andora, or Lichtenstein, or use complicated tax vehicles to turn their income into various types of investment income that are taxed laxly. For Belgium, it’s even easier, where under <fuzzy decision criteria> once simply doesn’t pay any tax if they can justify income as a certain type of capital gains. Add to that the fact that inflation is felt by the richer as “government investing into their assets” rather than “everything becoming more expensive due to money devaluating”.

The situation is similar in most, if not all, European countries. In Switzerland, taxes are actually fairly high even in the most economically friendly cantons, especially if you count employer taxes, reaching the 40–60% range, besides the private services one needs to pay for out-of-pocket, and of course, there’s the property tax, the VAT, fees for using roads and public transport and so on. What about if you’re very rich? Oh, then you can negotiate your taxes, or move to Lichtenstein and pay 8%.

There are, of course, countries in Europe that can be fiscally fair for those that aren’t rich. Romania, Bulgaria, Portugal, and Montenegro can all provide taxes <10% when all is said and done… but even there, this applies if your income is in the 50–500k range, and you can afford accountants and lawyers to help you structure it in an optimal way.

Consider that the average salary in those countries is somewhere between 10–30k (official stats here are not that useful, since most of the low-mid income economy is fiscally illegible, due to insane taxation), and that for a “normal” works taxes also break above 50%.

So really the only thing that you’re talking about here is that the bar for being in the top 1% is much lower, but the taxation problem is the same.

So in my simplified picture of taxation we’re left with something like this:

Or, if we take into account governments funneling money to the least fortunate vis social security and to the most fortunate via inflating their assets with subsidies:

ii — Are Aristocracies Bad?

a — The Communal Perspective

One way to think about it, that I noticed in most intelligent people I know, which are aware of this issue but unbothered by it, is that it’s an intermediate state in the wrong direction.

That is to say, taxation is reaching higher and higher and touching more and more people, tax havens are getting less eligible and more legible, and taxes are reaching uniformity between countries.

Soon we’ll all be working in salary brackets, or better yet living on UBI and working for pleasure, with all the wealthy people driven out, and all the wealth is controlled by the government and distributed based on need.

The in-between has some intermediary states with some disillusioned and scared people trying to gain more money and aristocrats holding tightly to theirs, but ultimately, as the quality of living increases, society starts valuing money less or even looking down upon it, these last holdouts will break, together with the corrupts politicians and bureaucrats deriving wealth from all of this.

This perspective is the most hopeful to me, but I can’t help but feel its awfully indistinguishable from the creepier perspective of

b — Permanent aristocracy

As the tax wall is erected higher and higher fewer and fewer people control any real wealth, maybe a few dozens of times Dunbar’s number per country, maybe not even that.

They control law, production, and most importantly, armies and other violent enforcement, which by now could be fully automated or at least mostly automated, controlled by a loyal managerial class.

This is certainly how corporations end up looking, though the starting point encourages that more. It’s also how pre-revolution European countries looked and it resembles the soviet model.

But…

c — Why does it matter?

So fine, the top 0.1% of Google controlled all the power, do you mind being an engineer there, earning a fortune, working 6hr days in a nice office with friends and all comforts of modern life?

Similarly, European societies might get utopic enough such that further aristocratic consolidation of power might not be an issue. There will be prosperity enough so that this doesn’t matter, after all, power is and always will be a zero-sum game, and resources aren’t.

In a time of abundance controlling power might come to be viewed as a burden, and whatever aristocratic calls consolidated it might come to be seen as noble wardens, struggling to pull new people out of the utopia and into their ranks, at least until AI gets to a point where it can replace them all, and they themselves can rest.

Of course, the underlying assumption here is progress.

d — Won’t progress stop?

There’s certainly a narrative that once wealth generation is no longer possible, progress stops due to a lack of incentives. Prima facie this seems true, autocratic countries are poor and not for lack of resources or trying. Even China, the poster-child of communist economies, has often been blamed for being able to scale but not create, and for failing to build the more difficult of industrial projects our modern age needs (rockets, fusion and fusion reactors, chips).

But to that narrative, I say… why is all wealth generation focused in California?

California with its insane property prices and European-level taxes.

If the US has more innovation because it’s a friendlier business climate than Europe, why is that innovation happening in the least business-friendly states?

Conversely, why are all the tech companies not housing themselves on libertarian islands with no taxation or in countries that would offer them a similar deal?

Couple this with how much innovation is non-profit or driven by academia, how much of that still happens in Europe, or has people funneled into it from European upbringings and academic backgrounds, and the narrative of wealth generation as the engine of progress certainly has holes in it.

e — Do taxes even matter?

On the flip side of that coin, even assuming wealth generation is an engine of progress. There are certainly still ways for wealth to be untaxed while it’s working towards positive-sum games.

The argument I’ve heard from tax-aware California founders has always been along the lines of:

Ok, so say for the sake of argument California raises its taxes more, and when I cash out I end up paying 99% to the government, lawyers, and accountants. I want to build a company that will hit 100 billion in valuation and I want to change the world, I’m doing this 33% for the money, 33% for the power trip, and 33% because I enjoy it. At the end of the day, if by a sliver of a chance I succeed, I’m rich enough to have all of the material comforts I need, even if I end up actually having 0.01% of the total profit I helped generate, that’s enough money to last me and everyone I care about a lifetime. And in reality, I’m getting much more than that. So I’ll gladly take 2x or even 5x the taxes if that means I’m working in a more comfortable location, because my plan is exponential growth, and no matter how high taxes are, they are linear.

But of course, this leads to the other problem with aristocratic means of wealth preservation

f — Regulation

The one problem faced by exponential growth is regulations.

Regulations can mean anything from “in order to start you need x qualifications and have to wait y years for approval” to “for every factory you build you must support the cost of inspections and wait for them to be done” to “every product you sell must have x set of features and pass through y quality control processes”.

Regulations are in part used to preserve power, since they can be skirted with government backing and you can be stonewalled by bureaucrats forever provided you don’t come from the right ingroup.

They also take the form of government-enforced arbitration laws that force companies into negative sum games, with patents as a prime example.

But, of course, regulations turn out to be a net positive in the “benevolent aristocracy” scenario, where they are used to stop zero-sum fights, relaxed for companies playing positive-sum games, and enforced strictly once businesses scale in order to align them with the population’s interest.

iii — Navigating All Of This

The end result is that, for me, it’s hard to figure out a set of laws that make a country a good place for doing business or working. Whatever that set of laws is might be antithetical to the set which makes that country not-a-dystopic-hellhole taking into account the acceleration of market forces via automation.

For now, we non-aristocrats living in “the west” certainly do live in systems that cap wealth generation via punitive taxation and regulation, for all but a small class of endeavors with exponential growth.

The only solution for wealth generation is to live on the fiscal outskirts, at least while they last, or to get into those exponential growth endeavors, at least while they are possible. But this, of course, is a great limiter upon other preferences.

The worst-case scenario with this approach is that we strive to accumulate wealth and, when all is said and done, it becomes useless and we feel silly for having done this instead of more readily participating in the march for progress as part of the aristocratic utopias.

The best-case scenario with this approach is that wealth ends up mattering a lot, aristocracies turn dystopic, and it becomes our only vehicle for living meaningful lives in an ever-shrinking “free world”. But, if the US and Europe take that dystopic turn, I find it hard to imagine where that free world might even be, or how worthwhile living in it might be.

It’s really in the muddy middle where trying to generate wealth works best, it’s one of many levers of optionality that you can pull on in a complex world.

A simpler approach would be to move to the most socially secure country you can and pursue a very pro-social job, one that brings status, fuzzy feelings, and generous government pay. Work with orphaned children, research medicine, be a doctor, ideally the kind that works with the most disadvantaged of society, donate all your wealth and start a non-profit.

You won’t be able to accumulate, but you’ll feel nice and you’ll have nice social circles of altruistic people. You will be among those that help bring along the utopic equalitarian society by working toe-to-toe with the aristocratic model, not caring about all the barriers because your goal was never wealth generation, you like working within the system and begging it for scraps in order to pursue your projects.

You will survive automation, all things going well, and you will have the most refined form of meaning possible, the kind bought about by having followed your code of ethics, the kind derived out of friendship and generosity. Whatever fame you may or may not have will not matter, and whatever material comforts you might miss will be irrelevant. Better to live in a small apartment surrounded by people you love than to live alone on an island villa like those libertarian nut heads.

But something about this sounds too good to be true for me, I can’t quite place my finger on what it is, it might be that all people I’ve met who somewhat fit this mold radiate a deep existential unease and hidden sorrow, though that might simply be the generator that makes one seek this kind of life. It might be that it sounds too naive, and I’ve been often burnt by naive narratives I couldn’t disprove until hopping on; in this case, it doesn’t just sound naive, but it’s the kind of naivete that relies on government benevolence, which for someone raised in eastern Europe is a concept much more foreign than relying on sonar to navigate the world or operating an extra set of limbs.

I think there are ways to avoid the failure modes of both approaches, without meeting in the middle. Ways to skirt around high taxes by carefully placing yourself and your business around the “Western world”. In such a way that you can still enjoy a meaningful life and contribute to society, while at the same time keeping optionality.

But that is wishful thinking and not something I’ve managed to do.

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George Hosu

George Hosu

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You can find my more recent thoughts at https://www.epistem.ink | I cross-post some of the articles to medium.