Feb
5
Blog Post #3 – Capitalism – Tiffany Fan
February 5, 2015 | Leave a Comment
From reading about Thomas Piketty’s point of view in Capital in the Twenty First Century, he believes that the issue of the increasing income gap is due to capitalism. Also, economic growth declining and becoming less than capital returns is causing wealth inequality and income inequality. And this income gap would only increase in the future as demonstrated by Graph 6 (Cassidy). This is opposite of the article we had read previously where Milanovic believed that some amount of being a capitalist would be beneficial to the issue and where hard work leads to wealth.
One of aspects leading to a wider income gap that is explained by Piketty is due to inherited wealth, which I never thought about. I was appalled by the statistic, “Money passed on to the next generation accounted for 20 to 25 percent of annual income; the great bulk of wealth, around 90 percent, was inherited rather than saved out of earned income” (Krugman). For me, it sounds like a way of containing wealth from centuries past. He argues that capitalism needs to fixed and redone in order to lessen the issue. Instead of earning their wealth, people are gaining wealth due to their personal connections, which would eventually cause for an oligarchical society.
The idea of inherited wealth and capitalism reminded me Anton Chekhov’s “The Cherry Orchard,” where an aristocratic family that passed on their wealth didn’t know how to perform tasks and relied on the slaves to do so. Paul Krugman’s “Why We’re in a New Gilded Age” states “The current generation of the very rich in America may consist largely of executives rather than rentiers, people who live off accumulated capital, but these executives have heirs.” For this, I would have to disagree with Piketty. If this were the case, then the aristocratic family would not have lost their cherry orchard and their dominated role in society. In the case of Chekhov’s short novel, it made capitalism seem beneficial in forming a larger middle class and distributing wealth more equally. The wealthy was not able to relax and rely on their inherited wealth since the rentiers became more powerful. Thus, should inherited wealth really be focused on when it comes to a wider income gap?
Piketty often compared the United States to France, but the success seems to have a bigger outcome and reaction in the United States. Moreover, to compare the United States to other countries would be difficult and also to compare the 18th century and 19th century to modern day. This could be change in education, our way of life, and the ability to do tasks with freedom. In addition, the wars and the impact from the war affect countries differently. “The Cherry Orchard,” which speaks about Russia’ aristocratic society and where inherited wealth wasn’t permanent in the past, demonstrates how countries and time react differently to changes over wealth. Thus, it would be difficult to conclude that the historic past would be repeating itself in the future.
A possible solution proposed by Piketty is progressively taxing the wealthy, which tops at 80 percent. Moreover, 80 percent tax on $500,000 sounds ridiculous and would cause a decrease in investments. So what would be that bright line that would signify that the percentage is too high? Since capital returns are surpassing economic growth, why not tax capital like how income is taxed? Or possibly taxing inherited wealth and estates greatly? There is more than one aspect in solving an issue in response to time.
