Piketty argues that this is bad for democracy and should be countered by taxing the very rich until their pips squeak.
None of this strikes me as breathtakingly original, but his argument struck a chord in a world still reeling from the global financial crisis and understandably resentful of the corporate greed and dishonesty that caused it.
Such books seem to come along every few years, each one being rapturously acclaimed as exposing the iniquity of capitalism. A few years ago it was The Spirit Level: Why More Equal Societies Almost Always Do Better – a book that was similarly concerned with inequality, and made just as much impact.
The British academics who produced that tome are still dining out on its popularity. Only last month they were in New Zealand for a series of lectures at the University of Auckland, during which they preached to the converted about the corrosive effects of income disparity.I have no doubt there is some truth in what they say. It seems obvious that a relatively egalitarian society – the type that New Zealand once took pride in being – will feel more cohesive than one in which there’s a yawning gap between those at the top and those at the bottom.
As I was writing this, I happened to hear a radio interview with the proprietors of a Hawke’s Bay game farm where the rich go to shoot pheasants. The fee: $2750 per person, per day. It sounded more like the England of Downton Abbey than the New Zealand I grew up in.
The conventional view is that this inequality is the outcome of a rapacious, winner-takes-all economic system. But the crucial point, surely, is how well the majority of people are doing. And my observation is that most New Zealanders enjoy a vastly higher standard of living now than they did, say, 30 years ago. They live in better houses, drive better cars, eat out more often and think little of taking an overseas holiday.
Internationally, too, statistics show that more and more countries are being lifted out of poverty. And though it may be hard for the Left to swallow, the inconvenient truth is that it’s happening as a result of global capitalism.
What’s more, “poverty” in New Zealand is measured in relative terms. It’s defined not by people’s ability to afford the necessities of life, but by how well they are doing compared with the majority. So there will always be people who are considered hard done by, no matter how affluent society as a whole becomes.
That doesn’t mean we shouldn’t be seriously concerned about the minority of people trapped at the bottom of the heap, but it does highlight the fact that a degree of inequality is built in to the way we measure things.
But back to Piketty. His solution to the supposed problem of inequality is as unoriginal as his explanation for the cause.
Imposing huge taxes on the rich will certainly punish them for their wealth, and thus give satisfaction to the many people who believe that anyone who is rich must also be evil.
But is that a sound basis, either morally or economically, for creating a fairer society? Are the people at the bottom of the pile, or even the great number in the middle, helped by the simplistic act of transferring wealth from those at the top, with the attendant risk of suppressing the economic activity that creates prosperity for everyone?
From what I’ve read of it, Piketty’s book consists of familiar old resentments dressed up in new garb. It’s underpinned by the discredited belief that an omniscient and benevolent state, through taxation and other instruments of control, can produce a society where everyone is better off.
I’m all for a more equal society, but my fear is that Piketty’s proposed medicine could be far more damaging than the illness.
Karl du Fresne blogs at karldufresne.blogspot.co.nz. First published in the Nelson Mail and Manawatu Standard.
6 comments:
Poster Boys and others.
I must put hand up for not reading this bestselling book “Capital in the Twenty First Century” by Thomas Piketty. In fact I make a point of avoiding books with the label “Best Sellers”; they seem to turnout like sequels to famous first books.
My first venture into this sort of subject reading matter was F. Engels “Conditions of the Working Classes in England” 1844. (It was recommended by our Form Master as suitable holiday revision for sixth formers) I recall feeling after reading this book, a great urge to rectify at once, the inequalities of the age we lived in!
Fortunately my Father informed me that 1944 was not 1844, and that I would be a deal more happy using the school holidays by cycling off and extending my knowledge of the countryside we lived in. (He was of course as usual, quite right).
Regarding the vision of equality, or an equal society.
I think it was Oscar Wilde, who when asked what he thought about England being made a more equal society said “He thought the present society was bad enough without the conversion”! One of the troubles with equality is that it generally means “I am more equal than you”.
It is fortunate that we have Thomas Piketty, Thomas Carlyle and Karl Marx coming along every now and then, just to keep us mindful of what sort of a world we might live in if they had the running of it.
They do not, and we would do well to remember that it is not the political activists which move a society but authors such as Charles Dickens whose book “Hard Times” resonated so strongly in the 19th century with the conscience of the time, that it promoted a real change in the aspects of poverty.
Brian
I've also read a few reviews, and not the book itself. As usual that won't stop me from commenting.
I have a few thoughts of interest here.
Firstly, considering the occurrence of inequality. I think it's generally accepted that some level of inequality is necessary for the system to function - if some things aren't less rewarded than others then how would you chose what work to undertake? In a market economy equality is of course in-built.
In an economy with increasingly frictionless delivery of services the rewards will disproportionately accumulate to the few - why would you pay to see NZ's best tennis player when you can watch Roger Federer? Why would you listen to some also-ran musician when you can listen to the artist of the moment. Why would you get maths tuition from someone who just barely passed math when you can see the Khan Academy on youtube? So I think there logically will be some level of increasing inequality, although not necessarily for the reasons that Piketty thinks.
Next, on the question of the problems that might cause. There seems to be suggestion that inequality causes societal problems, and I can see two potential avenues for those problems. The first is that the wealthy have money that the poor need to survive. Which isn't really true in most western countries. The second is that we get societal unrest because of envy. This one interests me more, because in times gone past (say, in old England) the wealthy had long learned that you shouldn't flaunt your wealth or else the proles will get upset and behead you like they eventually did in France. So perhaps, it's not inequality itself that is the problem, but rather that people know about it. So perhaps the answer isn't to remove the inequality, but rather to ban conspicuous consumption - no more stupid reality TV shows, flash harry cars etc etc. It's a plausible answer to the supposed problem.
Finally, on the wealth tax. This I actually agree with, but with a different logic path. NZ, like most western countries, as a progressive tax system. We've already decided, as a nation, that we'll tax those with more money a greater proportion of their income, and most of us think that is fair. But at the moment that structure is inefficient - we are trying to tax those with a lot of money, but we're actually taxing those with a lot of income. The two are not the same - you can be rich but have a very low taxable income. A wealth tax would, to my mind, more directly target the thing we as a society agreed to tax. Of course, wealth taxes are quite difficult to implement, so you couldn't try to shift entirely from an income tax to a wealth tax. But you could shift the relative contribution - introducing a tax on land (over and beyond the local govt rates bills), introducing a tax on cash and share holdings. It could be at quite a low level so as not to encourage avoidance. And, conceptually at least, I can see an inheritance tax making some sense.
I am old enough to remember when the UK had Supertax (although not to remember quite when this was) Income over some level was taxed at 105%. The result - anyone good enough left to the US or somewhere with lower taxes (like anywhere). Those left were those not good enough and resulted in the UK falling behind much of the world because of poor management.
So this is not an answer, but I do think salaries have gone out of all proportion and (from a less wealthy perspective!) I can imagine people getting (let's not say earning) say 5 million having bonfires of $100 bills.
PaulL,
your ideas are as confused as Piketty. "Conspicuous consumption" tells you very little about an individual's net worth. Someone driving the latest BMW my be leasing it while the guy cruising around on a Vespa may own the bike and several large commercial buildings. I'm sure you can see that any proposed ban on these activities is preposterous, not to mention draconian. When the masses are driving entry level BMWs your system would involve banning anyone from driving a Bentley. Perhaps you should look more closely at the ideas and conflict created by most politicians and special interest groups with their claims about "the top 1%", "the rich paying their fair share", and so forth in attempt to gather votes.
Piketty does not appreciate that capital accumulation is a prerequisite for increasing standards of living. It is the reason we have seen steadily increasing standards of living in most places on the planet for a couple of centuries now. His prescription is for taxation of capital which would lead us back to the dark ages with a cascade of consumption and economic destruction. His claim that saving and capital accumulation does nothing to increase wages and productivity is reminiscent of Marxist theories.
The act of taxation is a zero sum exchange AT BEST and usually much worse (disutility from a non-contractual coerced exchange and lost opportunities, not to mention government inefficiency in the transfer process). It is only through voluntary exchanges (i.e. more than a zero sum exchange) that true wealth can be increased in society.
Perhaps you have been taken in by one of the greatest hoaxes of all time i.e. that taxation is required for society to function. In fact the relationship is the complete opposite: a government requires society to act as a host for its parasitic relationship. It doesn't matter what kind of tax you propose PaulL (and there are many essays about what constitutes a "just" tax), they all involve confiscation and criminalisation of those attempting to defend their private property. Taxation cannot be justified by any moral principle, only political decree and arbitrary "law".
M Bailey: I think actually that you are the one confused!! There is no real chance that we're going to have a society with no taxation, no matter how much you believe that to be a good idea.
It is a matter of fact that our society has decided to impose progressive taxation. The argument for that taxation is broadly marxist in nature - i.e. from each according to their abilities. I don't necessarily say I agree with all this, but once we as a society agree that we have some public goods that we'd like govt to provide, I would broadly agree that a progressive tax system is the best way to fund that.
My point is that a progressive tax system is generally understood to mean taxing the wealthy more. Taxing those with high income more is simply a proxy for that. To the extent that we could instead directly tax wealth, that would (to me at least) be more in keeping with the general concept of progressive taxation.
In terms of the conspicuous consumption, that was more tongue in cheek. All the arguments I've seen about why inequality is bad (other than where those at the bottom genuinely don't have enough to live - i.e. well below the level of welfare in most first world countries) all come down to how it makes people feel bad when other people are richer than them. I.e. conspicuous consumption is the problem. If that is what is worrying all these sociologists, then logically we should directly outlaw that instead of trying to eliminate a proxy (the wealth itself). It doesn't matter whether that BMW is bought using a loan, apparently it makes people feel bad when other people have a BMW and they don't, and it causes crime and all sorts of other bad things. Clearly we just need to stop people having BMWs.
PaulL, your claim that "there is no real chance that we're going to have a society with no taxation" is not a logical proposition and provides no justification of how taxation is either ethically or economically justified. The confusion remains well and truly in your court.
"It is a matter of fact that our society has decided to impose progressive taxation" is as justified as saying "It is a matter of fact that the Nazis decided to impose x,y, and z on a minority group". It seems that you are satisfied that part of the population are justified in imposing their will (and desire to confiscate private property) as long as they have a majority at that moment in time? No signs of a free society here!
It is a clear cut dichotomy: you either support private property rights and the non-aggression principle or don't. If you don't then you are left with unresolvable conflicts about who are the victims and beneficiaries of legalised stealing and how much of it takes place. (i.e. modern social democracies)
Perhaps your most amusing claim is "but once we (who?) as a society (there is no collective consciousness, we are individuals) agree (by voting with the majority?) that we have some public goods (who decided what these are?) that we'd like govt to provide (govt provides nothing: it redistributes private property by coercion), I would broadly agree that a progressive tax system is the best way to fund that." (why is it the best way? is this a new theory that redirecting efficient uses to capital to less efficient ones results in higher standards of living? that is what we are discussing here in regards to Piketty's work)
I've got no problem that perhaps you aim for a lower standard of living but envy or "feeling bad" is not a justified reason for imposing restrictions on others pursuing their own goals through peaceful means. Additionally, have you considered that taking wealth by force off those who earned it through their own efforts might make them "feel bad" too? The arbitrary nature of your proposals is also completely untenable in a constantly changing world.
I suggest you examine the validity of these sociologist claims you mention - most of the work I've seen relates to claims about causality when all they have is associations and unknown confounding factors. The methodology is often inappropriate for the subject material and like your statements is heavy on non sequiturs and emotive opinions but light on logic.
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