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Piketty

Blogging has been slow here, as I've been occupied making my way through Thomas Piketty's Capital in the 21st Century, attending conventions (still not finished with those), and watching episodes of Doc Martin on Netflix.

I finished Capital today. (*Doc Martin* will take a little longer) It's an easier read than one might think. No real math is required; the formula to which he constantly returns amounts to this: capital, especially the capital owned by the rich, “earns” returns greater than the rate at which the economy grows, ineluctably leading to greater inequality since this implies a transfer of wealth from bottom to top, with inherited wealth predominating. We will soon be ruled by a class of people such as the Kochs, born (if I might steal and elaborate on a great line) sliding into home thinking they hit a homer.

I came of age at a time that was in fact an aberration. The shock of the two world wars and the Depression had destroyed many large fortunes and had induced or reinforced the propensity of governments to raise both income taxes and estate taxes to confiscatory levels, where they belong. Piketty says that high levels of inequality were, before the wars, the norm, and that we have, to a certain extent, simply been returning to the norm, with the process getting a terrific shove from the likes of Reagan and Thatcher, who reduced income taxes on the rich and, perhaps even more critically, reduced estate taxes.

In essence, he proves with statistics what we all already knew: the rich get richer and the poor have babies, though, ironically, according to Piketty, the fact that they're having fewer babies actually accelerates the process of wealth transfer.

The takeaway is that we're probably doomed to a future resembling Medieval times more than the postwar period, unless there's another shock to the world economy equivalent to two world wars. My guess would be that climate change might administer such a shock, but of course there's no guarantee that the reaction would be similar to what happened during and after the wars and Depression, or whether the rich would use the shock to further entrench themselves.

Piketty proposes a global tax on capital as the solution, while admitting it is unlikely to happen. He points out that nations, just like our states and localities, engage in a race to the bottom by offering ever more generous tax breaks to corporations, making it hard for any nation to effectively tax corporations. The latest example of that, which hits close to home here in Connecticut, is Pfizer's attempt to become a corporate citizen of Britain. A global tax would address such problems, but what are the odds?

Still, he says that the U.S. is in a better position than the small countries of Europe to take some effective action, assuming it had the political will to do so. Short of the global tax on capital, he points out that 1) an increase in tax rates on top earners (endlessly advocated here) would be effective in combatting inequality ,and 2) it is feasible to impose taxes on capital based on the “location of the corresponding business activity or company”, rather than the residence of the taxpayer. This would require “automatic sharing of bank data to allow the tax authorities to assess complex ownership structures”, but once that sharing of data was put in place unilateral action could be effective, though not as effective as the global tax.

One's immediate reaction is to dismiss the chance for any such international cooperation out of hand, and it's probably true that it's not going to happen. But, let us not forget, our own government has negotiated a host of multilateral “free trade” agreements designed, consciously or not, to funnel money to the corporations. The “Trans Pacific Partnership”, being the latest, and let us be thankful, failed attempt. It is at least possible that some future President Warren could advocate for a “free information” agreement, enabling us to follow the money and tax it here, where it's reaped. Don't hold your breath, of course, but one never knows. Maybe the NSA could work on the problem. If something like that doesn't happen, prepare your kids for a life “in service” to The Lord of the Manor. (My spell checker must be religious, it just automatically capitalized “The Lord”)

2 Comments

  1. Fred Shortz wrote:

    Thank you for the summary. Piketty is still in my amazon cart, and I have no realistic expectation of reading it anytime soon.

    Monday, May 19, 2014 at 1:36 am | Permalink
  2. Duncan Schweitzer wrote:

    I am half way through “capital…” And am a bit dismayed by the unrelenting march toward capital accumulation his data shows and his demonstration of Marx prediction as a special and unlikely case.
    I ,as a unwilling army veteran, have written our representatives suggesting a special tax on all corporations with holdings oversea to equal the cost of all our military locations and deployments since the so called national interests of all these adventures are really corporate interests.

    Thursday, May 22, 2014 at 6:38 am | Permalink

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