Feb
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Blog Post #3- Nick Djamalidinov
February 4, 2015 | Leave a Comment
Today’s articles focused on Thomas Piketty’s bestseller Capital in the Twenty-First Century. It discusses the income inequality the world is facing, describing it as a crisis that is due to reach 19th century European levels of inequality. These articles have actually made me very curious about this book because they clearly explain the ideas of the book and show that the premise of the book is pretty sound and has extensive research.
The first Economist article gives a simple summary of the book. One of the main points is the role wealth and capital play in income inequality. I never actually considered wealth to be such an instrumental aspect of inequality because I had always assumed income inequality to be solely based on the wages we earn, which I mistook to mean income. His data definitely showed how powerful wealth is. The graphs from the New Yorker article do a great job at explaining the seriousness of the situation. The second graph shows how the 1% does not control as much of the wage income and it is relatively stable but the capital gains income is much higher and accounts for most of the income inequality. The article mentioned how in particular America is struggling with this. Piketty puts the blame on the government because the U.S and Western Europe both have unequal income from market activities but Western Europe uses all sorts of taxes to narrow the gap which the U.S does not use. Also in the U.S capital gains have are taxed very lightly which I can see how it contributes to a widening income gap.
Piketty explains the pervasive power of wealth as inherent in capitalism. He says that usually the rate of return on wealth is higher than the rate of economic growth which leads to income inequality. The way I see it works is that if the economy is growing, the wealth already created loses its value because the individual value of a dollar decreases and the supply of wealth itself increases, driving down the value (I would love some more explanation if I am misunderstanding it). I think it is very insightful and the data Piketty collected supports his assertion. The nybooks article seems to certainly agree. Paul Krugman heavily focuses on this idea and even plays down Piketty’s other assertion that wage income disparity has a had a major role in income inequality. Krugman overall though had a positive reaction to the book and praised Piketty.
The “Modern Marx” article in contrast had a lot of criticism. While praising his research, he questioned Piketty’s projections and disagreed with his proposed solutions. He remains skeptical that the world economy is reverting back to a time of great inequality such as 19th century Europe. It was a common motif in the articles that kept popping up and I am glad that Piketty addressed this as well as the articles. Piketty conceded that the world is different today than it was centuries ago. It is why I was a bit skeptical of Piketty’s assertions. However, as he explained, the world economy today has a lot of money in capital gains, which is the new wealth. Also the wages of the top CEOs and company directors have increased tremendously even though real wages for workers barely increased. He attributes this a loosening of morals brought on by the huge gain CEOs could have due to the tax system in the U.S. I have heard a lot of criticism of the U.S tax code centered around the lack of taxes on wealth. I think it makes sense that if you change the tax code so it is no longer beneficial for CEOs to write themselves bigger checks then they will cease to do it.
My question for this would be how feasible are Piketty’s proposed solutions? The “Modern Marx” article attacked them, calling them socialist and claiming that he is ignoring a lot of issues that wealth redistribution causes. I wonder if a global tax on wealth and more severe capital gains taxes would help in curbing the power of wealth and whether such legislation could even pass.
