Thomas Piketty, in his Le capital au XXI siècle (Capitalism in the Twenty-First Century), copyright 2013, Editions de Seuil; 2014 edition published by The Belknap Press of Harvard University Press, Cambridge MA and London, England), gives powerful evidence for the likelihood of an ever widening gap in the course of the 21st century between the very wealthy and those of middle income and below. In the absence of governmental policy correctives, Piketty forecasts social disorder as real wages for those other than the very wealthy decline, and as conditions become especially desperate for individuals and families of very low income.
My persistent message is that from the late 1960s forward, public education has suffered generally and that the education provided to impoverished students living at the urban core has been abominable. Overhauling K-12 education to provide knowledge-intensive, skill-replete education for students of all demographic descriptors is imperative to give all citizens prospects for culturally enriching, civically active, professionally satisfying lives. When those whose families have been mired in cyclical poverty for decades, and in many cases centuries, break through the cycle of poverty to attain that level of life satisfaction, they will also be in a position to understand the reasons for the gap between the very wealthy and those of middle income and below.
Unity between impoverished and middle class people in promoting an economically more just society will be necessary to pressure politicians to make dramatic changes in the United States system of taxation; having among the leaders of such a unity of interests those who possess abundant knowledge of economics, government, and history will be necessary to achieve the needed change. And over the long term, with the provision of knowledge-intensive, skill-replete education to citizens of all demographic descriptors, all of the nation’s people will have the information necessary to understand their predicament and the need to act so as to induce politicians to enact legislation for the good of all.
We must overhaul K-12 education so that all of our citizens become readers of serious nonfiction such as the superlative Piketty work, with the capability of analyzing the material for policy implications.
Herein I provide an overview of Piketty’s work of seminal significance.
Two laws of economics are much emphasized by Piketty:
The First Fundamental Law of Capitalism
a = r x B
(as close as I can get to the Greek script)
Where
B is the capital/income ratio
r is the rate of return on capital
a the share of capital in national income
The Second Fundamental Law of Capitalism
B = s/g
Where
s is the savings rate
g is the growth rate
Another important simple equation is
by = u x m x B
Where
by is inherited gifts as a proportion of national income
u is wealth at the time of death/average wealth of the living
m is the mortality rate
Piketty sees market economies as having forces for convergence (narrowing so as to produce equitable distribution of national income) and divergence (widening of the gap between
highest and lowest earners). Most powerful forces for convergence are equitable provision of knowledge and skills; for divergence, the fact of r > g, that rate of return on capital is greater than growth (both per capita Gross Domestic Product [GDP] and demographic [population] growth).
He assesses and synthesizes economic forecasts to project global economic growth in the 21st century at 1.0% to 1.5%, with rate of return to capital at 4-5%, thus concluding that the fact and prospect of continuing r > g is the central contradiction of capitalism. With such a larger rate of return to capital over economic and demographic growth, wealth inequality will grow.
Furthermore, inequity is magnified with the growth of corporate executive salaries (in the absence of any justification in terms of marginal productivity); and even more--- much more--- by the fact that unearned wealth on capital already saved and increasing exponentially via investment puts ever greater distance between those in the upper-range wealth and income groups and those in the lowest.
Piketty discusses how at times inflation can be counted on to narrow the wealth and income gaps; and that this narrowing may occur, too, during spans of deflation, negative growth, or stock market decline (as in the Great Depression and the Great Recession). A he notes that progressive income taxes combined with substantial taxation of corporate profits can ameliorate income gaps by sustaining the social state (his preferred term, rather than “welfare state”)--- but how over time, under projected conditions in the 21st century, these measures will be insufficient.
Piketty’s opreferred policy measure is a progressive annual tax on capital, with rates as follows:
>>>>> 5.0% to 10.0% for those with capital wealth of several million or (at the very top) billion euros
>>>>> 2.0% for those with capital wealth of 5-10 euros
>>>>> 1.0% for those with capital wealth of 1-5 million euros
>>>>> 0.1% to 0.5% for those with capital wealth under 1,000,000 euros
Piketty argues, and establishes convincingly, that immense inequality of wealth has little to do with entrepreneurial spirit, and that it is of no use in promoting growth--- or, in the phraseology of the The Declaration of the Rights of Man and the Citizen (1789), such maldistribution of wealth has “no common utility.”
He admirably avoids classifying himself politically; he is a capitalist who for pragmatic and ethical reasons promotes the importance of an equitable distribution of wealth and national income. He clearly favors the continuance of the social state while arguing that inequality of wealth will continue, even under conditions of the social state, in the absence of a progressive annual tax on capital. And while China and the United States are large enough in population and territory to advance the needed measure nationally, Piketty argues that the European Union must become much more integrated politically as well as economically; and beyond national affiliations, the nations of the world are going to have to act with unprecedented cooperation to agree on tax levies and to eliminate tax havens, jointly agreeing on a system that eliminates loopholes and the phenomenon of the tax haven (in Bermuda, Switzerland, and the like).
Piketty argues (and presents abundant factual and statistical evidence to establish) that growth rates of 5% or more in emerging nations or in catch-up situations such as the postwar (1945-1970) West are historical anomalies that are not being and will not over time be sustained. Thus, a return to the 1.0% to 1.5% range (and with projected 4-5% returns on capital) will always be the tendency, promotive of economic inequity with dire implications for social justice and for the public order.
In that sense, taxing wealth at the high end is both socially just and necessary and intensely pragmatic; not doing so will at a high level of likelihood bring social turmoil ranging from rebellion to revolution.
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