Of all of the thousands (maybe tens of thousands) of words I’ve read about income inequality in the aftermath of French economist Thomas Piketty’s visit to the United States, the article that resonated most with me has been Tyler Cowen’s review in Foreign Affairs of Dr. Piketty’s Capital in the Twenty-first Century. While acknowledging the significance of Dr. Piketty’s work:
Every now and then, the field of economics produces an important book; this is one of them. Thomas Piketty’s tome will put capitalist wealth back at the center of public debate, resurrect interest in the subject of wealth distribution, and revolutionize how people view the history of income inequality. On top of that, although the book’s prose (translated from the original French) might not qualify as scintillating, any educated person will be able to understand it — which sets the book apart from the vast majority of works by high-level economic theorists.
he finds it, as many commenters have, uneven. It, apparently, is better in vision than in policy prescriptions, in weaving a narrative that supports his views than fleshing out his ideas from a real world perspective.
Dr. Piketty, apparently, largely ignores the role of risk in capital returns. I think he can be forgiven for this because far too many of today’s risks aren’t risks at all. If you act with the reasonable expectation that the central government will step in to indemnify you against risks should your actions lose money, there is no risk.
Something that appears to have been ignored in the popular press is that Dr. Piketty’s concerns about income inequality aren’t focused solely on the ultra-rich, the Warren Buffetts or Bill Gateses, but also on petits rentiers, which includes most of the American professional class.
As I have emphasized here since the very origins of this blog, my greatest concern on this subject is how rent-seeking drives income inequality rather than on income inequality per se. Michael Jordan’s or Tiger Woods’s wealth do not concern me. The Kennedy family trust does. In a society as complex as ours with a government as pervasive as ours these rents take a vast number of forms—they encompass everything from royalty income to physicians’ wages to the subsidies received by bankers or GM executives and workers in the late recession. When you use the wealth you’ve gained through these rents to promote increases in your rents, as the late Sonny Bono manifestly did, it presents an assault on liberal democracy.
If your prescription for ending income inequality is, as Dr. Piketty’s, increased taxes on income and wealth, I challenge you to outline how this will work, recalling that when the highest marginal tax rate was over 90%, effective tax rates were little higher than they are now, i.e. marginal tax rates are virtually irrelevant to income inequality. Also, consider how many millionaires are sitting in the U. S. Congress. Does it actually seem likely to you that Congress will enact a tax on wealth? IMO a significant number of them are there to ensure that such a tax is never enacted into law.
I would be remiss in concluding this post without re-emphasizing that, at least as regards income inequality within the United States, reversing much of the income inequality that has come to pass over the period of the last forty years can be effected by controlling immigration, underwriting depositors rather than bankers, controlling healthcare costs, and emphasizing more jobs over other policy goals. It’s not your priorities that determine what you believe but your subpriorities.