Libra Crypto Curreny: The Spanish Prisoner

Seven or eight years ago, I was on a commuter flight, sitting in an aisle seat. Two rows ahead of me, across the aisle on my right, a guy was arguing with his wife/girlfriend. It wasn’t a ferocious argument, but any sort of personal disagreement is noticeable in these circumstances, and it had been simmering since I noticed them boarding the plane.

There were two other things I noticed when they sat down. The wife/girlfriend had the husband/boyfriend’s name – Randy – tattooed on the back of her neck, and Randy had the letters T – R – U – S – T tattooed on the fingers of his left hand. I remember smiling to myself when I saw this. Obviously these two were from a very different background than me, but I really appreciated the public display of commitment they had made by getting these tattoos. I remember thinking to myself that I bet their relationship was a strong one, even though the disagreement seemed to simmer throughout the flight.

The plane landed and we all stood up. And then I saw the letters tattooed on Randy’s right hand.

N – O – O – N – E

All of a sudden, I was pretty sure this guy’s name wasn’t Randy. All of a sudden, I was pretty sure this relationship wasn’t likely to last.

I feel like I have TRUST NO ONE tattooed on my hands today, and if you’ve been working in finance for more than 10 years, I bet you feel exactly the same way.

Used to work for Bear? I know you feel this way.

Used to work for Lehman? I know you feel this way.

Used to work for Citi? I know you feel this way.

Used to work for Merrill? I know you feel this way.

Used to work for Deutsche Bank? I know you feel this way.

Yeah, we’ve all got these tattoos today. We have them as a reminder, as a figurative reminder (or literal in the case of “Randy”), that we really really really shouldn’t trust anyone AGAIN.

Because we need a reminder. Because we want to trust again.

Jimmy Dell is the con man in the 1997 David Mamet movie, played by Steve Martin in his finest dramatic role. In lines like above and below, Jimmy builds a personal trust with the mark by calling his attention to the lack of trust in business relationships. Effective consultants do this a lot, speaking of confidence games.

Jimmy Dell: Always do business as if the person you’re doing business with is trying to screw you, because he probably is. And if he’s not, you can be pleasantly surprised.

That’s the thing about the Spanish Prisoner con. It doesn’t work on saints. It doesn’t work on people who forgive and forget, who turn the other cheek and have an unending reservoir of faith in their fellow humans. It also doesn’t work on sociopaths. It doesn’t work on people who truly trust no one, who can lie to themselves and others without consequence or remorse.

The Spanish Prisoner con works best on smart and accomplished people who think they have TRUST NO ONE figuratively tattooed on their hands, who think they’re too clever to be fooled again, but end up only being too clever by half.

The Spanish Prisoner con works best on coyotes.

Too Clever By Half

Who is a coyote? A coyote is a clever puzzle-solver who really has the best of intentions. Who really wants to be successful for the right reasons. Who really wants to accomplish something of meaning in the world. Who is smart and aware and nobody’s fool. Who has been beaten up professionally a bit and has a healthy skepticism about the business and political world.

And who is just a little bit on the make.

The defining characteristic of the Spanish Prisoner con is that the mark believes he is doing well while doing good. The mark believes that he is doing the right thing, that he’s the good guy in this story. And if the liberated Prisoner is financially grateful, or if the Prisoner’s sister is grateful in her own way if you know what I mean and I think you do … well, that seems only fair, right?

Now the Spanish Prisoner doesn’t have to be an actual person that needs rescuing. That’s a con for the rubes. The Spanish Prisoner is what Alfred Hitchcock called a MacGuffin – anything that serves as an Object of Desire for the mark, anything that motivates the mark and furthers the narrative arc of the con.

In fact, the most effective MacGuffins are rarely simple signifiers of wealth like an rich Spanish dude. No, the most compelling Spanish Prisoners are Big Ideas like social justice or making America great again or resisting the Man. That’s what gets a coyote’s juices going. Especially if there’s also a pot of gold associated with being on the right side of that Big Idea.

The most successful con operators are the Nudging State and the Nudging Oligarchy. Why? Well, partially because you’ve gotta have some heft to credibly commit to rescuing a Big Idea from the clutches of whatever Big Baddie has it now. But mostly because running the con for money is just thinking waaaay too small.

The Nudging State and the Nudging Oligarchy don’t need your money. They already have it!

The con here is to gain your trust – again – so that you willingly hand over your autonomy of mind. So that you accept without thought or reflection the naturalness of your current relationship to the State and the Oligarchy.

You’d never fall for this con if it were part of a straightforward commercial arrangement like a job or a purchase. Please! You’re much too savvy for that. You have TRUST NO ONE tattooed on your hands, remember?

But for the chance to help rescue a Big Idea …

But for the chance to make a few bucks or enjoy yourself a bit more as part of doing the right thing …

There’s not a coyote in the world that can resist that bait. And that’s why once you start looking for the Spanish Prisoner con, you will see it everywhere.

Libra, the cryptocoin promoted by Facebook, is a Spanish Prisoner con.
What’s the Big Idea? Why it’s banking the unbanked. It’s facilitating cross-border remittances. It’s bringing the benefits of crypto to the global masses. ALL OF THIS IS TRUE. So far as it goes.

And if it facilitates e-commerce along the way? if it’s possible to make a few bucks or enjoy some greater conveniences as part of Facebook and its partners executing on this Big Idea? Well, what’s wrong with that?

What’s wrong is that this is how Bitcoin dies.

This is how a censorship-embracing coin replaces a censorship-resistant coin. This is how the State and the Oligarchy co-opt crypto. Not with the heel of a jackboot. But with the glamour of convenience and narrative.

And in a few years it will all seem so natural to you.

Using government-approved electronic money will be the water in which you and your children swim. You will not be able to imagine a world where a censorship-embracing coin is not everywhere.

Libra was designed to co-opt Bitcoin.

Libra was designed to allow government oversight over your economic transactions.

Libra was designed to provide a transparent regulatory window and control mechanism over your money.

Libra was designed for Caesar.

“Boo, terrorists!”

A year from now, the narrative story arc regarding “criminal activity” through cash transaction networks AND censorship-resistant transaction networks like Bitcoin will be louder, not softer. In three years, it will be deafening.

Libra and its e-commerce convenience, together with its Big Idea skin of helping The Poors … that’s the carrot.

The “Boo, terrorists!“ narrative … that’s the stick.

Will Bitcoin itself be outlawed? Maybe. But I really doubt it. It’s too useful as a societal steam valve, now that we’ve got Libra and (soon) other Oligarchy-sponsored and State-supported cryptos in circulation.

What does Bitcoin become in a world where state-approved e-money is in wide circulation?

It becomes an act of effete rebellion, like a non-threatening tattoo on your upper arm that you can cover up with a shirt if you like.

Bitcoin becomes a signifier of Resistance rather than a tool of Resistance.

Owning Bitcoin will make you a Bad Boy! or a Bad Girl! … a safe malcontent that the Nudging State and Nudging Oligarchy are delighted to preserve.

What’s my message to the true-believers who continue to see Bitcoin as a tool for Resistance?

For the next fifty years, you get to play the role of the grumpy old man yelling at clouds.

You know, the role that gold true-believers got to play for the past fifty years.

It’s a miserable way to live.

It’s a miserable way to live for two reasons.

First, and most crucially, this role that the Nudging State is laying out for you is steeped in negative energy. You will find yourself rooting for catastrophe. You will find yourself hoping for decline and collapse. You will find yourself conflating justice with loss and comeuppance. You will take on sadness and schadenfreude as your resting psychic state. Trust me when I say that I know of which I speak. Negative energy is deadly. That is not a figurative statement. It will literally kill you.

Second, you’ll be infested by raccoons, which will be tolerated if not encouraged by regulators, in exactly the same way they are tolerated if not encouraged by regulators in gold-world. Sure, you’ll have the occasional show trial of egregiously aggressive security frauds and Crypto-Funded Criminals ™, but the run of the mill hucksters and con men will walk with impunity.

Because this is what ALWAYS happens.

The money quote from Too Clever By Half:

And that brings me to what is personally the most frustrating aspect of all this. The inevitable result of financial innovation gone awry, which it ALWAYS does, is that it ALWAYS ends up empowering the State. And not just empowering the State, but empowering the State in a specific way, where it becomes harder and harder to be a non-domesticated, clever coyote, even as the non-clever, criminal raccoons flourish.

That’s not an accident. The State doesn’t really care about the raccoons, precisely because they’re NOT clever. The State — particularly the Nudging State — cares very much about co-opting an Idea That Changes Things, whether it changes things in a modest way or massively. It cares very much about coyote population control.

It’s all about coyote population control. It always is.

Is there a way out of this for Bitcoin? No. Co-option by the State and Oligarchy was the Doom of Bitcoin from the beginning.

I mean … I say “Doom” like it’s going to be hurled into the fires of Mordor, but that’s not it at all. There will still be true-believers and raccoons alike generating tradable narratives. You’ll still be able to make money by trading Bitcoin on these narratives (and altcoins, too, I’d expect, although I have no idea how you generate a compelling altcoin narrative these days).

It’s not like Bitcoin is going to go away.

But Bitcoin is going to be permanently diminished in its social importance by the adoption of Libra and other Oligarchy-sponsored and State-embracing crypto currencies. Bitcoin will never again mean what it used to mean.

You know … just like gold was permanently diminished in its social importance by the adoption of Oligarchy-sponsored and State-embracing fiat currencies. Just like gold will never again mean what it used to mean.

I wrote this note six years ago. It was the first Epsilon Theory note to get widespread recognition. You’ll see hints – more than hints, actually – of all the big ET themes over the past few years, particularly The Three-Body Problem.

How Gold Lost Its Luster, How the All-Weather Fund Got Wet, and Other Just-So Stories

The core of this note is a quote by Bob Prince, Bridgewater’s co-CIO and an actual prince of a guy. I just think he’s wrong when he says this:

The relationships of asset performance to growth and inflation are reliable – indeed, timeless and universal – and knowable, rooted in the durations and sources of variability of the assets’ cash flows.

I think Bob Prince is wrong in exactly the same way that JP “Jupiter” Morgan was wrong when he said this:

Gold is money. Everything else is credit.

If you get nothing else from Epsilon Theory, get this:

There are no timeless and universal relationships between asset performance and ANYTHING.

The only determinant of price for a non-cash-flowing thing is Narrative. Actually, the only determinant of price for a cash-flowing thing is Narrative, too, but we can save that argument for another day. And what I am saying about these non-cash-flowing things is this:

The introduction of Libra changes the Bitcoin narrative in exactly the same way that the introduction of fiat currency changed the gold narrative. And by change I mean crush.

That makes me sad. That makes me angry. I am convinced that it is part and parcel of a Spanish Prisoner con game. But I refuse to give into the negative energy of that realization AND I refuse to give up on the Big Ideas that I believe in.

So what do I do?

I con the con man.

I know what Mark and Sheryl and all the other Davos-going Team Elite sociopaths are about.

I see what they are offering me and I TAKE it. Without hesitation. Without remorse. I take it just as they are trying to take from me … in full sociopathic bloom.

And what do I give them in return?

NOTHING.

Do I care about banking the unbanked and cross-border remittances? Yes, I do. Very much. So I will TAKE the protocols and the KYC procedures and everything else Libra offers, and I will USE all of that to further the social justice goals that I maintain. And they will get NOTHING from me in return. I will keep my autonomy of mind. I do NOT forget what they are trying to steal from me. I do not ALLOW them to steal that from me.

I refuse to give them my trust.

And I will look for every opportunity to destroy their Little Kingdom.

Seriously.

Do I really have TRUST NO ONE tattooed on my hands? No.

I trust lots of people. I trust my pack.

But Mark and Sheryl and Christine and Jay and Donald and Barack are not in my pack. And they never will be.

Trust no one? No.

I just don’t trust THEM.

The French Economist Who Helped Invent Elizabeth Warren’s Wealth Tax

To trace the progress of the wealth tax from a fringe academic idea to the center of the Democratic Presidential primary, it is helpful to begin a bit off-center. On September 15, 2008, the day that Lehman Brothers filed for bankruptcy, a twenty-one-year-old student of Thomas Piketty, Gabriel Zucman, started work as a trainee economic analyst in the offices of a Paris brokerage house called Exane. Zucman felt obviously underequipped for the task before him: to write memos to the brokerage house’s clients and traders helping to explain why the very durable and minutely engineered global financial system appeared to be on the verge of collapse. Poring over some of the data he was given, which concerned the international flows of investments, Zucman noticed some strange patterns. The amount of money that had been moving through a handful of very small economies (Luxembourg, the Cayman Islands, the tiny Channel Islands of Jersey and Guernsey) was staggering. “Hundreds of billions of dollars,” Zucman recalled recently, making the “B” in “billions” especially emphatic. Eventually, he would calculate that half of all foreign direct investment—half of the risk-seeking bets, placed from overseas in India, China, Brazil, and Silicon Valley, and of the safety-seeking investments, placed in the United States and Europe and stock indexes—was moving through offshore hubs like these.

Before the financial crisis, the rise of offshore tax havens hadn’t been ignored—one element of the Enron scandal of 2001, for instance, was the eight hundred and eighty-one overseas subsidiaries the company had created, which had helped it avoid paying federal taxes for three years—but those stories took place within a more confined and more frankly moral framework: it was a cat-and-mouse plot, about the mobility of wealth, and the fruitless efforts to pursue it. Zucman’s intuition was that these arrangements did not describe a moral or a legal drama but a macroeconomic one. That much wealth, poorly documented or regulated, might have helped to destabilize the global economy. It also seemed that, if economists were not attuned to the amount of wealth stored in offshore havens, they might also have missed the extent of global inequality, since it was billionaires who stored money in the Cayman Islands, not retirees. “You know, the way we study inequality is we use survey data, state-tax data,” Zucman told me, “and that’s not going to capture these Swiss bank accounts.” After half a year at Exane, Zucman was back in graduate school, working with Piketty on the study of wealth inequality in the United States and Europe that became Piketty’s landmark book, from 2013, “Capital in the Twenty-First Century,” as well as on his own fixation—on how big the island-shaped loopholes in the global economy would turn out to be.

For the next several years, Zucman followed two tracks. The first led deeper into the mists of offshore banking systems. In obscure monthly reports of the Swiss central bank he discovered that foreigners held $2.5 trillion in wealth there (Zucman would eventually calculate that $7.6 trillion, or eight per cent of global household wealth, was held in tax havens, three-quarters of it undeclared) and that these immense sums were mostly being diverted to mutual funds incorporated in Luxembourg, the Cayman Islands, and Ireland. The second track—the work he did first with Piketty and then with the Piketty collaborator and Berkeley economist Emmanuel Saez—mapped the acceleration of inequality around the world and in the United States. The American story was of a snowball effect, as Zucman described it, in which the very high top incomes of the nineteen-eighties and nineties were saved and invested, “and that creates a spiral which is potentially very powerful and leads to very, very high rates of wealth inequality.” The two stories were in fact one. The concentration of wealth in secretive tax havens was an expression of the broader wealth imbalance—the laissez-faire spirit of the Reagan era working its way through the country and then the world. “One thing that became clear in my mind when I did the study of the U.S. wealth inequality is how hard it is to stop the rise of wealth inequality if you don’t have progressive taxation and, in particular, progressive wealth taxation,” Zucman told me. Without it, the snowball just keeps growing.

This work took place during Obama’s Presidency, a period in which, a bit paradoxically, the global populist reaction to accumulated wealth was consolidating even as liberal institutions, belatedly, began to get a handle on the problem. In 2010, early in Zucman’s doctoral work, Congress had passed the Foreign Account Tax Compliance Act (fatca), which required tax havens to share banking information with the United States or suffer significant economic sanctions. The program worked, and, by the middle of the decade, European regulators had compelled tax havens to share the same information with them. “That actually had a very big impact on my thinking, because it showed that new forms of international coöperation can emerge very quickly,” Zucman told me. “In particular, sometimes we have this view that, ‘Oh, we can’t do anything about tax havens. Countries are entitled to their own laws, and, if they want to have a zero-per-cent corporate-tax rate of bank secrecy, that’s their own right.’ ” Bufatca had demonstrated that tax havens were not autonomous zones. “At the beginning of my Ph.D., whenever I or N.G.O.s would talk about having some automatic exchange of banking information, policymakers would say, ‘Oh, that’s a pipe dream.’ And so I witnessed the transition from pipe dream to now everybody does it.” He went on, “It can happen very fast.

As WikiLeaks oriented international relations around a central tension, between transparency and secrecy, similar themes and patterns were emerging in the area of wealth. To parse them required the tools of an investigative journalist, of discovery and cajoling. Zucman is an economist, but he also had some of the qualities—youth and fervency—that investigative reporters often have, and that made him someone people would go to when they thought something was very wrong. A leaked trove of foreign wealth data from the Swiss subsidiary of the banking giant H.S.B.C. made its way to various national tax authorities, and Scandinavian government officials shared it with Danish and Norweigan academics who were collaborating with Zucman. There were limits to what he could see in the H.S.B.C. trove, but it provided a suggestion of how much wealth from Scandinavian countries was being stored away in offshore hubs like Switzerland. In 2015, when the Panama Papers leaked, detailing the evasion efforts of the law firm Mossack Fonseca, it was possible to see the business of tax evasion in action—the lawyers, the pitch decks, the business analysts. Shrouding fortunes was the work of meticulous professionals; when Zucman and colleagues traced this wealth through tax shelters, they found it often was finally invested in ordinary stocks and bonds. “It was very mundane,” Zucman said.

Gradually, Zucman came to see tax evasion differently. “It’s not a psychological thing,” he said. There was a market. The key player wasn’t the billionaire, but the bankers and lawyers who Zucman came to think of as the tax-evasion industry. The professionals in this industry had bosses, and partners or shareholders; they worked within a regulated system. “If you have banks that feel that they are too big to indict then they will continue to commit some form of financial crimes,” Zucman said. “They will budget costs for fines.” In 2009, tax havens seemed like black holes, sucking out so much wealth that it warped the global economy. By 2019, they seemed dependent on the continued dormancy of the great liberal apparatus of international banking regulation, which could be quickly revived. “And the U.S.,” Zucman said, “you know, if there is a U.S. President that is serious about fighting global oligarchy, he or she has a ton of power.”

Zucman works in a small, spare office next door to Saez’s, on the sixth floor of Evans Hall at U.C. Berkeley. The cinder-block walls are undecorated, and the only personal touch I could see, when we met there a few weeks ago, was a small espresso machine. Zucman is fair-skinned, with round cheeks, light brown hair, and a longish nose, and he was wearing a black V-neck T-shirt and jeans. (The next morning, when we met again, he would be wearing a different black V-neck T-shirt and a different pair of jeans.) The scene seemed a bit unadorned for someone who had, this year, been named by Prospect magazine, in the U.K., as one of the fifty most influential thinkers on the planet. He speaks with a French accent and has an outsider’s sweeping, offhand way of talking. For all of Piketty’s fame—and his own, and Saez’s—Zucman mentioned several times that the economics profession had been slow to recognize inequality as a legitimate topic. He still seemed to have the outlook of a less powerful person than he now is.

Saez and Zucman have written a book, published this month, called “The Triumph of Injustice,” which assembles their research into a policy plan. (Its subtitle is the instruction-manual-like “How the Rich Dodge Taxes and How to Make Them Pay.”) One way to understand the book is as marking a new phase in the project that Piketty, Saez, and Zucman share. Having done more than just about any other economists to describe the powerful effect that accumulated wealth has on global inequality, they are now advocating for a solution: a highly progressive annual tax on wealth, an idea that has been adopted by Elizabeth Warren and Bernie Sanders. Zucman is the junior partner in the enterprise, but he has also been its chief propagandist, duelling on Twitter with economists who raise objections or philosophical gripes, and so the wealth-tax cause has come to reflect some of his own attributes: his tremendous explanatory power, his comfort with being an outsider to the establishment, and his great optimism in what government can know and do about the concentration of wealth.

A few weeks ago, Saez and Zucman flew to Washington for a pair of panels at the Brookings Institution presenting their ideas—one closed to reporters, and the other open to them—and at the open session Zucman gave a ten-minute presentation of the book, which, with admirable concision, boiled the essential story of wealth and the tax code down to two slides. The first displayed the results of their study of the aggregate burden of all federal, state, and local taxes after the 2017 Trump tax cuts, which concluded that the United States no longer has a progressive tax system—statistically, the Trump cuts dealt it a death blow. Most Americans now pay about the same portion of their income to the government (the upper-middle class pays very slightly more), and the wealthiest pay less. The slide is titled “A Giant Flat Tax Which Is Regressive at the Top End.”

To explain how this could be, Zucman likes to use the example of Warren Buffett. Forbes had estimated Buffett’s wealth to be sixty billion dollars, which suggested that his wealth was growing by about three billion dollars per year. But Buffett reported to the I.R.S. capital gains of about ten million—based on his sales of some shares in his own company, Berkshire Hathaway. For many years, Buffett has been pointing out that his tax rate is too low—the line has often been that he pays a lower effective rate than his secretary—and urging politicians to turn the screws a bit tighter on the ultra-wealthy. In response, Barack Obama proposed the Buffett Rule, a principle adopted by Hillary Clinton, in which people making more than a million dollars a year would have a minimum federal tax rate of thirty per cent. As of a couple of years ago, this was the frontier of mainstream Democratic tax policy, but, to Zucman, it was outlandishly inadequate. Raising the rate on the ten million dollars that was accessible to the I.R.S. made no statistical difference at all. The issue was the $59,990,000,000 that they could not touch. Apply the Buffett Rule, don’t apply the Buffett Rule; it didn’t much matter. “Functionally, his tax rate is zero per cent,” Zucman said.

The second chart examines the share of wealth held by the Forbes 400, which has mushroomed from one per cent of total wealth, at the outset of the Reagan era, to well over three per cent today. Had Warren’s wealth tax been in place all along, the Forbes 400’s share would now be about two per cent. Zucman and Saez propose a stricter wealth tax (ten per cent annually), which they say would have held the Forbes 400’s share constant, around one per cent. If you wanted something like the more equal pre-Reagan America for which Democratic politicians often grow nostalgic, they suggest, it would take a tax like that.

At the end of last year, Saez got an e-mail from Bharat Ramamurti, a longtime economic policy adviser of Elizabeth Warren’s, who said that Warren was interested in proposing a tax on wealth in some form. Zucman and Saez created a spreadsheet, using their own estimates of wealth, that allowed the Warren campaign to play around with different thresholds and rates for the tax. At first, Ramamurti sketched out a plan that taxed fortunes of twenty million dollars or more at one per cent. But in Saez and Zucman’s analysis—on the spreadsheet—wealth was so concentrated at the highest end that a more radically progressive tax, one which targeted a relatively small number of households, could still generate trillions in revenue. Eventually, the Warren campaign settled on a plan that would tax fortunes over fifty million dollars at two per cent annually, and those over one billion at three per cent, which Saez and Zucman estimated would raise the astonishing sum of $2.75 trillion over the course of ten years. (The entire revenue of the federal government, in the current budget year, is $3.4 trillion.) To Zucman, the choice had the added effect of averting a political problem that had bedevilled European wealth taxes, which tended to start with much smaller fortunes. “Above fifty million, you can’t really argue that these people can’t afford to pay,” Zucman told me.

Something quietly revolutionary was happening in these conversations, in January, between Ramamurti and the Berkeley economists, and between Ramamurti and his boss. For Democratic politicians and policymakers, taxes have generally served as a tool, to fund a program that they believe the people want. When Barack Obama proposed a broad expansion of public health insurance, his advisers developed an intricate, progressive system of taxes to pay for it, but the rates and thresholds for those taxes had been determined by the cost of the program. Ramamurti and Warren wanted to maximize revenue, and they also wanted to reduce inequality, which meant that they wanted a way to make the wealthy give up more of their fortunes. It wasn’t an ideological change so much as a conceptual one—about how pervasive and controlling the effects of inequality are. Taxing wealth to limit fortunes became a goal in itself.

Elizabeth Warren wasn’t the first candidate to consider tackling American wealth in this way. During the 2016 Presidential primaries, Zucman and Saez had an extended conversation with Warren Gunnels, Bernie Sanders’s longtime economic adviser, after Sanders had expressed interest in the idea of a wealth tax. The Berkeley economists scored various versions of the plan, estimating the revenue and economic effects, and eventually Gunnels brought a proposal to Sanders and the campaign. The reaction among his advisers was mixed, and, among the many other policy ideas the Sanders campaign was considering, this one simply drifted away. Sanders was already asking Americans to dream of a socialist society like Denmark’s or Sweden’s, and the wealth tax, which had not succeeded even in Europe, might have seemed especially exotic, and likely to trigger another round of denunciations in the American press.

After Hillary Clinton won the Democratic Presidential nomination, her advisers also spent several weeks considering whether to propose a wealth tax. As a matter of framing, one of her advisers explained to me, “There’s huge merit in the wealth tax—it does bring into sharp focus the inequity in our tax code as it relates to how you treat taxing income to wealth.” The campaign’s policy officials would evaluate how prone it might be to legal challenges, or to the wealthy avoiding or evading it—but it had an intuitive appeal. Because of the concentrations of wealth, the adviser said, “the sheer amount of money you can raise off a wealth tax is staggering.” Clinton herself was intrigued by the idea, and legal experts prepared memos about its constitutional viability, while Saez and Zucman helped Clinton’s tax advisers measure the revenue and economic impacts. But, as with the Sanders campaign, it was never formally proposed. The adviser went on, “It was a pretty exotic proposal. Given the way the election was shaping up, it didn’t seem like the proposal was going to alter the overarching narrative of the race. The reason I keep coming back to is inertia.”

But in 2016 not even the socialists had made the conceptual leap: that a wealth tax could have political appeal separate from, even exceeding, the appeal of the programs it funded. In September, eight months after Warren formally announced her proposal, Sanders introduced a wealth tax that was more extreme still: it starts at a one-per-cent marginal annual rate for households worth more than thirty-two million, and increases steeply, to eight per cent, on households worth more than ten billion. “What we are trying to do,” Sanders told reporters in September, “is demand and implement a policy which significantly reduces income and wealth inequality in America by telling the wealthiest families in this country they cannot have so much wealth.”

As a political matter, those eight months will be hard for Sanders to make up. The tax itself is now Warren’s signature proposal, and she has refined her campaign message around it. At rallies, she asks the crowd how many people own their own homes, and, once hands are in the air, points out that most Americans already pay a wealth tax on their biggest asset, they just call it a property tax. (“Great line,” the Clinton adviser told me. “We didn’t have that.”) “Your first fifty million is free and clear,” Warren likes to say on the campaign trail. “But your fifty millionth and first dollar, you gotta pitch in two cents, and two cents for every dollar after that.” By the time Warren held a rally before the brilliant edifice of the Washington Square arch last month, the crowds had begun to anticipate the line, and, as her speech wound toward the wealth tax, they chanted back at her, “Two cents! Two cents!” In 2016, Donald Trump would test out new lines at his rallies, little lures dropped into the depths of the crowd. Was there a bite? “Build the wall” and “Lock her up” came back at him, and eventually they became the substance of the campaign. Shout a slogan back to a candidate, and you have explained the campaign to itself.

The real resonance between Zucman and Saez’s proposals and the Presidential campaign of Elizabeth Warren, the champion of the Consumer Financial Protection Bureau, may be in their shared optimism about what the modern American administrative state can accomplish. When I asked William Gale, the co-director of the Urban-Brookings Tax Policy Center, what distinguished Saez and Zucman from the center-left policymakers who had preceded them, he mentioned two elements. First, he said, they wanted steeper taxes on the wealthy than even most progressives in Washingtonthey were left, not center-left. The second difference, Gale said, was more pronounced. “What I would describe as the previous center-left consensus is that we ought to raise taxes on the very rich, but that’s really hard to do,” Gale said. “Saez and Zucman come in and say, ‘In fact, it’s quite possible; it’s just a matter of enforcement and getting the taxes right—pushing on both fronts.’ Their policy optimism is very different from the conversations that people had in the Obama Administration, where it was often about how the wealthy had these tax-avoidance strategies, these armies of lawyers, that the administrative problems were extreme.”

As Saez and Zucman’s ideas moved to Washington, they met points of resistance, small and big. Jason Furman, who chaired President Obama’s Council of Economic Advisers, recently suggested on Twitter that the rich paid slightly more in taxes than Zucman and Saez’s graphs suggested. But the broader critiques took aim at their administrative optimism. Since the spring, the former Treasury Secretary Larry Summers and his colleague Natasha Sarin, a law professor at the University of Pennsylvania, have been arguing that Zucman and Saez have radically overestimated how much revenue a wealth tax would generate, and that the more realistic return, based on what the I.R.S. had been able to recoup from the estate tax, might be as little as one-eighth of their projections. Sarin told me, “The excitement around the Warren proposal is that, by taxing seventy-five thousand households and imposing a relatively minor additional tax burden on them, we can pay for just about everything we want. If that sounds a little unbelievable, I think that’s because it is a little unbelievable.”

Zucman and Saez published a full response in June, pointing out that, in several European countries that had tried a wealth tax, as well as Colombia, the average avoidance rate was about fifteen per cent; Summers and Sarin, they argued, assumed tax-avoidance rates of between eighty and ninety per cent. “They start from the premise that the rich cannot be taxed, to arrive at the conclusion that a tax on the rich would not collect much,” Zucman and Saez wrote. Their more colloquial argument was that there was nothing mysterious about wealth. Seventy per cent of the wealth of the top 0.1 per cent, Zucman argued, was in the form of stocks, bonds, and real estate—it was easily valued. More portable forms of wealth, like art or jewelry, could be assessed through insurance estimates. The trickiest form of wealth for tax authorities to value is privately held businesses; Saez and Zucman propose in their book that the I.R.S. could make an assessment, and if anyone disagreed they could simply transfer two per cent of their shares in the business to the government, which would then sell them at auction. Zucman’s deeper theory seemed to be that no strong wealth tax had ever been tried. The European models had very low thresholds (often starting around a million dollars), which made them vulnerable to political attack and legislative exemptions. Enforcement was often nonexistent. The largest economy to tax wealth in recent years is France’s, and that levy, Zucman pointed out, relied on self-reporting. “There was a box on the return for wealth, and you wrote a number in the box. That was all.”

Liberals have been agitating, for many years, for an end to the Reagan regime. Now, in Elizabeth Warren, the Democrats have a leading Presidential candidate who intends to unwind that era, and the question—the anxiety—is about how much might come undone. Natasha Sarin, Summers’s co-author, told me, “There’s another conceptual point that I find interesting. Bill Clinton, when he was running for President, said the world would be better if there were more millionaires. I was kind of stunned when I heard Bernie Sanders say that billionaires should not exist. There is something about that view that seems deeply alien to what many progressives, I think, believe. And, economically, I worry, it is deeply inefficient.” Zucman, by contrast, said at the Brookings conference that Piketty’s next book, due out next spring, would advocate a wealth tax of ninety per cent for billionaires. “Really,” Zucman told me, “you could abolish billionaires if you wanted to.”

From Zucman’s office window in Berkeley, it is possible to see clear across the bay to San Francisco, where the escalating forces of inequality had sent housing prices sky-high and pushed working-class people to the periphery of urban life, as they had in Paris. The formative political event in Zucman’s life was the 2002 French Presidential election, when he was fifteen, in which the nationalist Jean-Marie Le Pen won nearly five million votes in the first round, making it into the runoff, in part because of the sense that all of the gains of society were being hoarded by élites.

“You know,” Zucman said, “when you have the fall of the U.S.S.R., the fall of the Berlin Wall, some people say it’s the triumph of the free-market economy, the end of history, you won’t do better than that. And, especially now, in a globalized, integrated world, there’s no viable progressive platform that’s possible. And the left became discouraged, as it does—you know, ‘This is all a messy failure. It’s game over,’ ” Zucman said. “And now, thirty years later, people are realizing that there are all kinds of contradictions in the way our economies work, and we can do better.” The United States is only four per cent of the global population, he went on, but much of the rest of the world had remade itself in our image thirty years ago, and—if a progressive administration in Washington could implement a wealth tax, and strengthen international coöperation for higher corporate tax rates against tax evasion and offshore havens—maybe it would do so again. “You could change the U.S., but you could also change the world,” Zucman said. “Actually, you could be much more radical.”

Timothy Snyder Speaks, ep. 3: What is Oligarchy?

What does oligarchy mean? In the third episode of “Timothy Snyder Speaks,” historian and author Timothy Snyder explores the meaning of oligarchy, where it came from, how it endangers us — and how it connects the United States and Russia.