Monday, May 19, 2014

Piketty and the one per cent solution

Thomas Piketty, a French economist, has written a new book on the ills of Capitalism, Capital in the Twenty-First Century. Alone among 700-page works on economics, it rose to the top of the New York Times best seller list. The terms used by Piketty to describe inequality of wealth—one per cent and ten per cent—have come into common usage.

Piketty views the concentration of wealth with alarm. Such concentration is hardly a new story, but prevailing belief has held that a concentration of wealth, like the one we are currently experiencing in the U.S., is a temporary condition to be rectified shortly by increases in productivity. Piketty says it ain't so. Wealth inequality, he says, will increase as long as the money earned on capital (interest rates) is higher than the growth rate of the economy in general (GDP).

Piketty points out the obvious. Inequality began to increase when Ronald Reagan began lowering taxes on the wealthy. Conservative dogma preaches that low tax rates on the wealthy will bring prosperity to all of us, saying, a rising tide lifts all the boats.

Guess what? It hasn't happened that way. The top ten per cent of Americans now own 70% of the wealth. Piketty says they will soon have more.

Americans seem willing to tolerate the wealth of entrepreneurs like Bill Gates and Warren Buffett. They should not be so tolerant. Bill and Warren were clever handicappers. They were able to pick the companies and ideas that would be successful in the late 20th Century. But they did it through luck and clever ruse, not hard work, unless you count the work of thousands of engineers at Microsoft who contributed to Gates' windfall.

Americans seem willing, for the most part, to tolerate the inherited wealth of folks like the Rockefellers and the Kennedys. We can only hope they feel less generous toward Paris Hilton and the Kardashian sisters. Let us not forget the Koch Brothers, who inherited their wealth as well. 

What a crew!

Picketty suggests imposing a tax on wealth, a proposal which has the one percent protesting against the unfairness of it all. I think we should have a tax on wealth for that very reason, and the following taxes:

  • A confiscatory inheritance tax for the wealthy. Their heirs did nothing to earn that money.
  • A law that forbids companies from paying their employees with stock options instead of cash.
  • A steeply progressive income tax.
  • Higher property taxes on luxury homes and second homes, including yachts.

There are plenty of ways to narrow the gap between the one per cent and the rest of us. We should make this a high priority, starting now.

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