June 28, 2005

Latin American Zillionaires:

An Indian reader draws an analogy to South Asia:

India has extreme inequality and one of the reasons for it is that capital is a lot less mobile. People don't pay taxes honestly (partly because they can get away with it and partly because there was a time when Taxes were extortionately high). The result is that there is a huge pool of money swimming around which in India is called "Black money". "Black money" is a very broad term and includes all kinds of money - from the proceeds of crime to simply money on which Tax has not been paid. This money is obviously less mobile than legitimate money (which in India is called "White money") because it doesn't get channeled as easily into the economy.

The result is that there are vast fortunes of hidden wealth often behind the facade of middle class mediocrity. And because it is hidden wealth and the owners of the wealth do not trust anyone but their immediately family and cousins, the wealth tends to remain concentrated in the hands of those families in a way that prevents it from being used productively (which would give the opportunity to others to make money and become wealthy or better off).

So it is not uncommon for business families to be sitting on vast fortunes that are completely invisible to the Taxman. I suspect the same thing is in play in Latin America because a lot of the "wealth" in Latin America is from illegitimate businesses or activities.

The only way to create a better future for everyone in such countries is by reducing the size of the illegitimate economy and bringing as much wealth as possible into regular capital investments. But thats a hell of a lot easier said than done when you have centuries old traditions of not trusting anyone.

One of Mexico's worst problems is the difficulty the government has in finding taxable income. Vast amounts are hidden so the government sets tax rates high to get more out of what income it can find, which just encourages more people to evade taxes. So, the government doesn't collect enough money to pay for decent education.

My published articles are archived at iSteve.com -- Steve Sailer

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