Tuesday, July 22, 2014

Thomas Piketty: "Capital in the Twenty-First Century": in short, tax accumulated (but idle) wealth as well as income


Author: Thomas Piketty, with translation from French by Arthur Goldhammer
  
Title:Capital in the Twenty-First Century
  
Publication: London and Cambridge: Belknap Press of Harvard University Press, 2014. ISBN 978-0-674-43000-6; 685 pages, hardcover, 4 parts, 16 chapters, Introduction and conclusion, heavily end-noted and indexed
  
Amazon link is this

This was a heavy book to carry around on the Metro, when I would have time to read it.  (There is a Kindle version that is still pretty expensive.)  A man (probably pretty much from the Obama Left himself) at Union Station (DC) said he thought that the book was hard to get, but it came immediately from Amazon to me.
Piketty develops his thesis in steps, with plenty of data and comparative histories from various societies, mostly European and pre-WWII US.  The four parts start with the concepts of income and capital, then the capital/income ratio, then “the structure of inequality”, and finally his proposals for regulating capital.
Capital is accumulated wealth.  If one has enough of it, one can live off it without working.  That makes one a “rentier” – although “rents” could come from work one has done (like use of patents and copyrights), which of course invokes well known controversies (like trolls) particularly with the Internet economy today.  The problem is that return on capital tends to exceed economic growth rate (the “r/g” ratio) particularly as its owners age.  That’s the fundamental source of chronic or intractable inequality.
  
Piketty proposes what he admits are Utopian solutions with democratic entry points.  That is, income taxes of increasing progressivity, particularly on income from capital.  And finally, he suggests a global tax on excessive capital, starting at certain levels, although it’s hard to see how the granularity would be defined.  Furthermore, doing so would require systems of financial surveillance even beyond what the NSA can do today!
  

A major goal of such a measure, however, is not just growth itself (although encouraging people to keep on inventing and not to coast on wealth sounds good).  It’s mainly that gross inequality is morally inexcusable and, as we know from history, leads to instability and unsustainability.  Piketty mentions that fortunes were sometimes destroyed, as in wars, and sometimes even taken by expropriation (after “revolution”).  Generally, as a result, wealth has tended to spread more from just generational dynasty to fortunes actually earned in some sense, often with super salaries, and a middle class has become able to have and own capital (and become “patrimonial”).   All of this is somewhat close to the thinking in my “DADT III” book, where I maintain that some inequality is necessary for innovation that benefits the common good (mostly everyone in time) but the inequality also leads to instability.  But what concerns me more is the moral position it puts individuals in.
  
Piketty skirts around individual morality pretty much, although he cites some literary and fictional treatments to make some points, particularly Honore de Balzac’s “Le Pere Goriot” (1835). Balzac, by the way, would use characters he had introduced in other books, a practice I have toyed with in some of my fiction manuscripts and screenplay treatments (on my Wordpress blogs).  

I’ve been around people, though, who see getting and keeping “unearned” wealth as a crime, ripe for expropriation, or who see the salaried professional middle class as “parasitic” on lower wage workers, a belief system that borders on Maoism.  Seeing “unearned” wealth may communicate the idea that the “rules” don’t make sense and simply perpetual privilege that could be taken away by force.  There have been some in the past (like the “People’s Party” in the early 1970s) who wanted just a “single tax”, that is, an income tax, but who also wanted maximum personal incomes (that is, marginal rates of 100%, above the all time high of 98% -- and Piketty sees the high marginal rates of some periods in the past as rather successful.  


Update:  Nov. 14, 2014

Vox has a set of cards on inequality (both wealth and income), and examines the "guaranteed income" proposals of the 1960s (even Nixon wanted to do it).  Vox makes the interesting observation on Card 7 about "the fundamental nature of capitalism", that Piketty thinks the relative equality of the mid 20th century needs explaining, not inequality;  follow the subordinate link. Yes, the superstar effect has gotten bigger.



Update: April 2, 2015

MIT graduate student Matt Rognlie, 26, has published a paper "Deciphering the fall and rise in the net capital share" (link, published by Brookings), to answer some of Piketty's analysis of wealth inequality.  He seems to take the libertarian-Cato position government policy, especially in proping up real estate, is responsible for some of the distortions. I don't think that's the case in my own life.  My own family's "wealth" came from conservative, compound-interest-sensitive investment by my father, and a gas well on the mother's side of the family, when prices were higher (the gas well paid for a lot of eldercare).  Vox has analysis by Matthew Yglesias here

No comments: