Piketty thinks the 1% should cough up 80%. Discuss

This article is typical of those who try to draw attention away from the facts; the rich are getting richer and the poor poorer both on an income and wealth basis.

Well, you're half right. The rich are getting richer, but so are the poor.

Even those on minimum wage have daily access to fresh fruit and vegetables. Only the very richest had access to that 100 years ago.

Even those on minimum wage have a centrally heated home with indoor plumbing. Only the very richest had access to that 60 years ago.

Even those on minimum wage have access to home computers. Only the very richest had access to that 30 years ago.

Even those on minimum wage have access to low cost foreign holiday flights. Nobody had access to that 20 years ago.

The poor have benefitted from advances in transportation, healthcare, diet, the internet.... the list is all but endless. The uber rich of 200 years ago would outright envy the lifestyles of the poor in Britain today.

I've not read Mr Piketty's book. I do rather like his name though. Ignoring the whiff of scandal from racy French politics, Thomas Piketty et Aurelie Filippetti. Piketty Filippetti, Filippetti, Piketty...

Anyway the question I wanted to ask of those who have, is how much has our french friend accounted for emerging markets in his global inequality? For example how many Russian and Chinese billionaires are there, who've got their cash out of the weird and unsustainable way the countries are run. There have been a few billionaire dictators over the years, shoving all the cash into Swiss banks and hideously kitsch palaces (I'm looking at you Saddam Hussein, Yanukovych and Ghadaffi).

But have we ever had the emergence of such a huge class of klepto-billionaires before? Everyone knows about the Russian lot, and to a lesser extent in Ukraine, Azerbaijan etc. But some of the figures for what the top echelons of the Chinese communist party are stealing (not to mention the rumours about Putin) - are truly mind-boggling! Also the wealth built up by a very small group of people in a few oil-rich countries (often with tiny populations) is a relatively recent thing. That together is from multiple hundreds of billions to trillions of dollars of moolah, suddenly in a very few hands - but is also quite unusual. And is enough to have major material effects on any analysis of global wealth inequality.

It's not capitalism that allows single individuals to get rich in these particular ways - that requires government.

Not sure I agree

Your argument about including these things is a fallacy. For example we have not access to pensions until we can recieve them and only if we use them to subsist. Therefore, since we cannot sell, or transfer them they have not monetary value and cannot be wealth, any more than out existance has value. Furthermore, if what you are arguing is that these should not be taken into account for the wealthy either, and they are not unless they can be converted to monetary gain (such as cashing in a pension).

Overall this is a fallacy, this is similar to believing that the child of a millionaire is wealthy, they are not until they have control of something to the extent that it can be turned into monetary gain. Furthermore wealth is not projected into the future, it in a snapshot; so pensions which are only usable as pensions(can't be cashed) are not wealth since they are not presently held.

I'm fine with the wealthy paying a bit more (in the U.S.) than they do now...

Personally, I think that the taxman taking about 40% or 50% of someone's marginal top income is about the limit I am comfortable with. Beyond that, it starts getting expropriative.

In the U.S. though, there are complications because of state-level taxation. In some states (New York, New Jersey, California being good examples) the state taxes are very high. In others like Texas and many mountain or southern states, they are lower. But wherever you live the state take still adds at least 8%-9% on top of the federal take if you are in higher income brackets. I'm assuming that local taxes are roughly the same between the U.S. and UK, but that may not be the case either.

One thing is certain, the U.S. income tax (and state income tax) codes need to be dramatically simplified. However, there are so many goodies in them for various interests that these interests squawk loudly when their exemptions are removed.

Plus I am very concerned that our spending on federal entitlements and state and local pensions is going to be so expensive that even bumping up "rich people's" taxes to 50% of their marginal income is not going to pay the bill. So I expect that over the next 10-25 years we are going to see painful cuts in the U.S. welfare state to keep the programs solvent in the future

data source

Tim, can you point me towards your preferred data sources? I've been using the OECD's Gini (at disposable income, post taxes and transfers) in combination with their data on relative poverty and median incomes from here: http://stats.oecd.org/index.aspx?queryid=46189#

Interesting Analysis Applied to the Wrong Subject

I think Piketty's book was meant to address a capitalistic economy like we have in the US rather than the more socialistic economy of Europe. We have none of the benefits that Tim, rightfully in my opinion, considers important in measuring wealth. Child care, education, health care all have enormous value, but we get none of them. Tim's conclusions are reasonable, just not everywhere.

Why? We have a welfare state, whose aim and purpose is to make us all richer. And, despite the sort of calumnies that people like me occasionally heap upon it, it does just this.

Um....no it doesn't. If the welfare state was making us all richer then the percentile at which the poverty line sits would be reducing. Instead the poverty line rests at a higher percentile every year as more and more people live in poverty.

Not that I'm saying that he's right about taxing the snot out of the top 1%, but you've got this point wrong.

Here's a thought experiment

Small island nation-state with 1000 inhabitants.

999 citizens make $50K a year each.

1 person (rich _internationally_ selling author) has $5M income a year. This is NOT a realistic scenario, but I would strongly question why his income was 100x his fellow citizens if he made it on-island. I oppose very large income variations myself under most conditions, for example CEO pay levels are totally unfair. This is only about taxation redistribution. Nor is it about increasing wealth going to fewer people which we know is happening right now.

Total GDP is thus $55M. Everybody can vote. The state consumes 30% of the small earner's 50M GDP in services (public sector payroll, education, defense, welfare), which works out to $15M or 15K/person in tax (i.e. 30% income tax). The state can't run a deficit.

Mr. Big Shot can't bankroll everything, but if he is taxed at 80% he can cover 4M, thus lowering everyone else's tax bill to $11K or 22%.

Equally obviously, assuming a fair democracy (no lobbying), everyone else might vote for just that.

But it is still quite possible for everyone to be taxed at 30% income and balance the budget. Even if Mr. Big Shot pulled a Google and had his income declared in a Bermuda tax haven.

Questions:

If Mr. Big Shot's wealth is not due to exploiting everyone else, what are his ethical obligations? Pay 15K$, because he ain't costing the state more than anyone else? Pay 1.5M, because that's 30%, like everyone else? Pay 4M @ 80%, because that still leaves him with 1M, which is 20x everyone else's income?

Is it wise for the majority to vote budgets and taxes based on exceptional incomes? What happens if Mr. Big Shot is taxed heavily but then dies or decides to leave the country? But shouldn't Mr Big Shot's exceptional position be recognized and put to service? How not to kill the golden goose then?

Assuming the 999 citizens are willing to shoulder the general burden of the services provided by their government to themselves, how can Mr. Big Shot be more helpful to his countrymen? Charity? Good, but that is totally voluntary, so it might not happen.

Let's add 100 people who need welfare, due to no fault of their own, and can't pay taxes. What about using Mr. Big Shot's 30% (1.5M) to cover them, but leave the middle class $50K folks to cover their own benefits? I.e. what about the average citizen fending for her own taxes, but the rich supporting the poor?

Again, this is isn't about the ethics of income. It is about the practicalities, and ethics, of taxation levels assuming no differentiation between employment income and investment income.

In real life, Mr Big Shot's tax accountant would probably get him way under the 30%, which I think is totally unethical, as Warren Buffett pointed out before the 2012 elections (http://money.cnn.com/2013/03/04/news/economy/buffett-secretary-taxes/).

Let me be clear: I support neither the French model of high taxation for the few. Nor the US model of not caring for the poor. And I most certainly dislike the fact that you pay less taxes on financial/investment income than on employment income, even in France. I rather like the Swedish model, though I am not sure what works in a country of <10M inhabitant scales up and I am even less sure that public sector rent seekers would not guzzle up the bulk of the benefits like they do in France and in the US. Welfare and public spending is important to me.

1) There is vastly more debt than money because of the way debt is created by banks. Without reforming this the idea that 'austerity' and cuts in welfare spending will balance the books is just nonsense. The neo classical model of economics is just plain wrong with regard to debt. See Prof Steve Keen's shredding of that myth.

2) One bus load of the top earners in the world earn the same amount as the bottom 3.5 billion. Is this trend in inequality sustainable ? Not unless they buy themselves a private army and live in a concrete bunker... Having individuals earn more than entire states, when millions are malnourished is morally wrong.

3) Welfare is highly selective in who is supported. If you are male and single, forget welfare helping you out.

4) Work does not pay. Half the people who turn up to food banks ARE in work - but high rents, and rises in the cost of living are causing significant poverty. (I've been volunteering in a food bank and I've seen it first hand. I get fed up with the airmchair know alls, who haven't. Either get out there and see what's happening or shut up).

5) The rise in right wing parties should be a concern. If the gap in inequality isn't addressed we are heading back to the 1930's.

Pinketty understands nothing

Part of political economy is who is in charge and/or well off and who is not. There is no good reason to much care about those.

The guts of it are three simple things: (1) Does the system often intentionally do horrid stuff to people and there is no remedy? Any State-centered regime tends in that direction...(2) Is the system internationally secure and competitive? (3) Do all sorts of folks and the majority of families see (a) opportunity and (b) on the whole increasing prosperity - more ability to choose and obtain desired goods, services, and circumstances?

When the answers are "NO", "YES", and "YES", one has found an exemplary system. Constitutional republican capitalism IS such a system, and so far anyway, the ONLY such system.

Wealth can not concentrate indefinitely...from whom would profits be obtained? Also, for the most part, unusual fortunes may proliferate but they do not tend to stay intact over time. Firms and family fortunes go up and down the relative ladder. Indeed, that is the key to why the constitutional republican capitalist regime is relatively fee, secure, competitive, and prosperous: what currently is valued tends to attract attention and investment, displacing that which has been surpassed in utility.

More class war from the register?

Yes because everyone on benefits gets a mansion in Mayfair while honest working people struggle to buy a shoebox. Read the daily mail by any chance?

"We have a welfare state, whose aim and purpose is to make us all richer."

WRONG ! ! !

The aim of the welfare state is to NOT have ordinary people confronted with beggars and people dying from hunger in the streets.

The welfare state does not solve the underlying problem stated by Pickett

When capital is in the hands of few, then they can make capital a limiting factor in production. As a result, they can increase the return on capital and they hold immense political power (they are "system relevant" and can't go down without pulling the whole system along).

My grandfather came from a German family of serial company founders (pre-3rd Reich). He was of the opinion that every generation required it's own war to re-balance society: the destruction and chaos of war creates opportunities for everybody. Arguably, the US missed their wars in the ate 19th and early 20th century and thereby created the big depression.

The last half century of peace was different: due to the rules introduced after the depression, the capital owners did not manage to dominate the western societies. Many of those rules in the US were removed in the last decades and how the rules will work in China is not clear. It'll be very interesting to see where we are heading now. The welfare state may become the equivalent to the bread and games in Rome, something bankrolled by the rich to maintain the status quo. But Rome definitely relied on wars to create opportunities for their citizens.

An alternate view.

Piketty's theories are based on some fairly fundamental errors in his research that challenge his underlying basis for cause and effect.

http://consultingbyrpm.com/blog/2014/06/full-review-of-pikettys-capital-in-the-21st-century.html

National vs international

I, like lots of westerners, have a lot of sympathy for the moderate left ideal of a system of constrained capitalism with relatively modest wealth imbalances that Pinketty appears to stand for.

There are several practical problems though:

1) All but the widest-eyed idealists acknowledge that there aren't enough resources globally to give everyone a decent standard of living even if we could somehow come to a consensus that we should. Successful lefty economies (of which Scandinavia offers the last unequivocal examples standing) have small, homogenous and highly educated populations and ample natural resources and are very picky about who they let in. To my mind creating small pockets of utopia is no more moral in the wider scheme than the US attitude of letting lots of people in but not giving them much except the knowledge that others before them have carved out a good living eventually.

2) Economic power always follows real power. When wealth gets too concentrated in the hands of people without the real power to protect it either revolution or punitive taxation always changes things. Similarly, and less fortunately, when the value of labour that poor people have to offer diminishes in real terms it becomes politically untenable to have too generous a welfare state without seeing a long run economic decline that makes everyone worse off.

At the moment we're seeing the consequences of a change in the real value of labour (which, sadly, I think is permanent) and a disruption to national politics from internationalisation which is benefitting the rich and well advised and weighing upon the poor and ill-equipped in a way that isn't sustainable. That's pushing the equation so far against the poor (and pushing so many of the middle class into 'poor' territory) that radical nationalism is starting to look attractive to them again.

If I had his and he had more, we'd both be tickled.

The only people worried about differences in wealth are jealouse fools. I really don't care how much anyone else makes. I am focused on what I am making. The trouble I have is that I pay at least half my income in taxes of one form or another. Were it not for the governments and their tax codes, I would be doing far better than I am now.

Here is how I see it. Taxin incomes is both immoral and ineffective. Taxing consumption encourages thrift and is vastly more moral than taxing incomes. Most governments have this backwards, starting with France.