Scrooge McDuck talk is quackers

I must have missed it in my childhood for, despite liking cartoons, I do not recall ever coming across Scrooge McDuck. I certainly did not expect that many years later I would be alerted to the existence of the richest duck in the world by a billionaire fund manager.

Bill Gross, the founder and chief investment officer of Pimco, brought the Disney character to world’s attention in the November edition of his Investment Outlook. He also later appeared onBloomberg Television to elaborate his thoughts on the subject.

Despite Gross’s bird metaphor his article was making a serious point. In his view the privileged 1% in America – the Scrooge McDucks in his colourful terminology – should be prepared to accept the burden of higher taxes. In broad terms he was following Stanley Druckenmiller and Warren Buffett in arguing that capital and labour should be taxed at the same rate. In other words capital gains tax in America should be readjusted to existing marginal income tax rates.

No doubt many readers will recoil against his policy conclusions – although it is worth noting that the Economist also favours a narrowing of the difference between taxes on Labour and taxes on capital – but his argument still deserves to be probed more deeply. Gross’s case for narrowing inequality rests on the self-interest of the super-rich rather than altruism. In his view the American economy is likely to suffer over the longer term as the Federal Reserve as a result of it bolstering speculation in financial assets:

“The U.S. economy – thanks to the Fed – has been operating a $1trn dollar share buyback program nearly every year since late 2008, buying Treasuries but watching much of that money flow straight into risk assets and common stocks instead of productive plant and equipment.”

It would be far better, Gross argues, if there was more investment in the real economy. In the long run that would lead to more dynamism and faster economic growth.

It is not necessary to agree with all of his arguments to concede that Gross has a point. It is certainly true that the main effect of the Fed’s quantitative easing programme seems to be to shore up asset prices. There is also no doubt that investment in the real economy is central to long-term growth.

Whether Scrooge McDucks can lead the way in tackling these problems is doubtful. For a start many of them benefit from inflating asset prices even if they can are not necessarily in the interests of society as a whole.

It is also notable that talk of higher taxes on billionaires all too easily morphs into a discussion of “shared sacrifice”. Gross does not use the term but his fellow billionaire tax campaigner, Warren Buffett, is keen on the concept. Indeed the Sage of Omaha has done a double act with Barack Obama in which they have both argued that everyone, from billionaires downwards, should be prepared to make do with less.

Putting the rest of us in the same economic bracket as Scrooge McDuck: that really is quackers.

This comment was first published on Friday on Fundweb.