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Doubting Thomas

Thomas Piketty (Charles Platiau/Reuters/Landov)

Money

Doubting Thomas

Income inquality may be a problem, but Thomas Picketty’s global tax is hardly the solution

If you want to sound “with it” at elite universities like the one where I teach, drop the name “Piketty” into a conversation involving politics or economics. Piketty is Thomas Piketty, a young French economist whose book Capital in the Twenty-First Century has just been translated into English. Paul Krugman calls it “truly superb,” and other prominent pundits agree that it is one of the best books ever written on income inequality.

Piketty’s is hardly the first book about income inequality. Why all the hoopla? One reason is that Piketty has waded through two centuries of data and compiled a much more complete picture than previous studies. (Full disclosure: I’ve only waded through bits of Capital’s 696 pages.) But it isn’t just the data; it’s also the way the data is packaged. Piketty focuses on capital—by which he means real estate holdings, stocks and bonds, and other property. The rich have a lot of capital, whereas ordinary workers contribute to a country’s overall Gross Domestic Product but do not usually have much capital. Thus, if capital is increasing in value faster than GDP, the gap between the rich and ordinary workers is probably getting bigger. Piketty shows that it is larger now than at any time in nearly a century, and he warns it could get far worse in the coming decades.

Here’s what makes the approach especially daring. Although he insists he is not hostile to capitalism, Piketty is intentionally echoing some of the concepts used by the author of Das Kapital, Karl Marx. It’s not hard to see why this framework would be irresistible to those who see the world in class terms.

Although criticizing the “one percent” has worked well for President Obama, true class warfare is a hard sell in America. Unlike Europe, we have never had a true aristocracy. And today’s rich are quite different from wealthy Americans of the Gilded Age, the last time when income inequality was comparable to today. Unlike the rich of that era, who could be attacked as “the leisure class” because many inherited their wealth, today’s rich generally earned their wealth and are still hard at work.

It is tempting to dismiss the income inequality fad as misguided. Piketty’s favorite solution doesn’t help. He proposes a worldwide tax that would be somewhat similar to the “Buffett tax” that President Obama promoted in the last election. The tax would impose an extra charge on the richest citizens all over the world. Needless to say, it’s a little hard to imagine President Obama and Vladimir Putin hammering out the details.

This doesn’t mean that income inequality is irrelevant, or that there’s no reason for Christians to care about it. After all, Jesus himself warned about the dangers of wealth. But income inequality often is a symptom of something else. In the developing world, it may reflect the stranglehold a small group of insiders have on the nation’s economy. In the United States, the disease is usually more subtle. To give just one example, the government’s decision to bail out big banks in 2008, coupled with the Federal Reserve’s efforts to stimulate the economy, seem to have fueled much of the expansion of income inequality in recent years. The stock market has soared as a result of the Fed’s zero interest rates, which has benefited those who have significant stock portfolios but has contributed to the extremely slow and sluggish economic recovery. A different approach would have meant less income inequality, at least in the United States.  

Giving the government a new pot of money isn’t the best way to address the concerns hinted at in Piketty’s data. It makes a lot more sense to take aim at some of the underlying problems, and let ordinary market forces do the rest.

—David Skeel teaches corporate law at the University of Pennsylvania

Comments

  • Richard H's picture
    Richard H
    Posted: Mon, 04/11/2016 03:15 pm

    That would make sense.  Anybody these days that concludes that more statism is the solution to any purported problem has to be misusing data, whether AGW, Obamacare, education, other created inequalities, etc.

  • Dean from Ohio
    Posted: Mon, 04/11/2016 03:15 pm

    Didja hear folks are now saying he misused his data? It really disproves his thesis. Oops. But unlike the global warmists, at least he made his data available.

  • Richard H's picture
    Richard H
    Posted: Mon, 04/11/2016 03:15 pm

    A global tax would be administered by the UN for bureaucracy building and the remainder for wealth redistribution to 3rd world countries. This is only one method of global taxation to create a sovereign UN with teeth.  http://www.investorsinsight.com/blogs/forecasts_trends/archive/2012/10/16/latest-united-nations-push...

  • Dean from Ohio
    Posted: Mon, 04/11/2016 03:15 pm

    I'm sure that alcoholics would like cases of liquor too, but that doesn't mean we should give it to them.

  • Kingdomnetworker's picture
    Kingdomnetworker
    Posted: Mon, 04/11/2016 03:15 pm

    This article is interesting but leaves the reader with many more questions than answers. What does Piketty propose to do with this global tax? Is his argument convincing? What is our government doing that is making income inequality worse/ better? I would propose that the zero interest policy hits the lower to middle income people much harder that those with more means. A large part of the investment or reserve capital of lower incomes is stuck in zero interest bearing checking and savings accounts. Our 2013 interest on these accounts was $9!! Investing is scary business for those whose monthly income is a little shaky. Secure investments such as savings, etc are needed to help lower income people gain capital.

  • Richard H's picture
    Richard H
    Posted: Mon, 04/11/2016 03:15 pm

    You mention we don't have an aristocracy and we do not.   However, we have become a plutocracy which is not much different for the average "subject of the state."  The plutocracy is nurtured with the public/private partnerships that appear to control the direction of the nation towards total centralization.  Partnerships with the big banks and Federal Reserve, international corporations, unions and NGOs and NGAs such as ACORN, National Governors Association, SPLC, CAIR, etc.  The voice of the citizenry is ignored to a great extent.