Inequality is endemic to any capitalistic system. Unchecked over time, wealth will accrue to a set of financial winners. One of government’s chief responsibilities is to balance fairness with efficiency. Redistribution is thorny but it is a necessary component of the system.
The rich world debate on wealth and income inequality has been largely powered by Thomas Piketty, a leftist French economist that rose to global prominence with his surprise 2014 global bestseller Capital in the Twenty-First Century. He gave rise to the 1% vs. 99% framing. Since, he’s argued for more aggressive governmental intervention.
That case includes Time for Socialism, a collection published last year of his columns from 2016-2021. The collection read more like day-old bagels than I expected; It felt very much like an effort to capture the attention of Piketty’s .Still, there were points I found compelling. I’ve shared my notes from the collection below.
- “History shows that inequality is essentially ideological and political, not economical or technological.”
- Over the last century property has gotten more evenly distributed – though primarily for the development of the middle not lower
- Before WWI, the world’s 1% richest owned 55% of global wealth; Now that’s just 25% (the World Wars destroyed a lot of wealth)
- The world’s poorest income has grown, far more than their share of wealth
- The Collapse of Soviet communism finished any push for collective planning
- Piketty argues for minority worker board seats on companies akin to mid-century Germany. He thinks even small companies should be compelled to follow this policy
- Argues minimum annual inheritance of at least $180k at age 25
- Replace GDP with national income (delete capital consumption including natural capital)
- He demonstrated something close to an iron law of capitalism: Wealth concentrates because the return on capital tends to exceed the general rate of economic growth. Since income broadly tracks wealth, economies become relentlessly more unequal over time. Piketty demonstrated this pattern in all major nations and at all historic periods for at least 200 years, with one notable exception — the mid-20th century, when income and wealth in Europe and the United States became more equal.
- In explaining this anomaly, Piketty pointed to the great wars of the last century. Wars tended to wipe out riches. Given that wealth was disproportionately held by the wealthy, the result was a leveling. The trouble was that the wars had different impacts on different nations. Both World War I and World War II indeed destroyed wealth in Europe, which Piketty knows best. But they were bonanzas for the United States. Neither conflict was fought on American soil, where war production created vast new riches.
- However, postwar Europe and America did have one thing in common. Governments in the West changed the dynamics of political power. The great crash and the legacy of the New Deal left American capitalists with less wealth and power than usual.
- After 1973, Piketty’s pattern of deepening inequality returned, and has been worsening ever since.
- Looking at the limits of taxing and spending, Piketty concludes that “educational equality and the welfare state are not enough” and that power relationships need to be transformed, beginning with greater worker representation in the governance and wealth sharing of corporations.
- What is the legacy of the 2018 French wealth tax repeal? The rich got richer (but wealth taxes have not been easily administered anywhere)
- “Figure 15. Composition of property (France 2015). In France in 2015 (as in most countries where data are available): Small fortunes consist primarily of cash and bank deposits, medium fortunes of real estate and businesses, and large fortunes of financial assets (mainly stocks).”
- Big theme that education ought not reinforce inequality
- Argues that GDP per hour worked is similar between United States, France and Germany: Higher GDP per capita from United States comes from more hours worked, he argues
- US was more egalitarian than Europe from 1800s until mid 20th century but Europe caught up