Suddenly, a new economist has been making waves — and he is not on the right. At the Institute of New Economic Thinking’s conference in Toronto last week, Thomas Piketty’s book Capital in the Twenty-First Century got at least one mention at every session I attended. You have to go back to the 1970s and Milton Friedman for a single economist to have had such an impact.
Like Friedman, Piketty is a man for the times: For 1970s anxieties about inflation, substitute today’s concerns about the emergence of the plutocratic rich and their impact on economy and society. Piketty is in no doubt that the current level of rising wealth inequality — which is set to grow still further — now imperils the very future of capitalism and he has proved it.
It is a startling thesis and one extraordinarily unwelcome to those who think capitalism and inequality need each other.
“Capitalism requires inequality of wealth,” runs this right-of-center argument, to stimulate risk-taking and effort, and governments trying to stem inequality with taxes on wealth, capital, inheritance and property is like killing the goose that lays the golden egg.
Therefore, British Prime Minister David Cameron and Chancellor of the Exchequer George Osborne faithfully tout lower inheritance taxes, refuse to reshape the UK’s council tax and boast about its business-friendly low capital gains and corporation tax regime.
Piketty deploys 200 years of data to prove them wrong, saying that capital is blind. Once its returns — investing in anything from buy-to-let property to a new car factory — exceed the real growth of wages and output, as historically has always happened (excepting a few periods such as from 1910 to 1950), then inevitably, the stock of capital will rise disproportionately faster within the overall pattern of output, so wealth inequality rises exponentially.
The process is made worse by inheritance and, in the US and UK, by the rise of extravagantly paid “super managers.”
High executive pay has nothing to do with real merit, Piketty writes — for example, it is much lower in mainland Europe and Japan. Rather, such high pay has become a Western social norm permitted by the ideology of “meritocratic extremism,” which is, in essence, self-serving greed to keep up with other rich individuals. This is an important element in Piketty’s thinking: Rising inequality of wealth is not immutable. Societies can indulge it or they can challenge it.
Inequality of wealth in Europe and US is broadly twice the inequality of income — the top 10 percent have between 60 and 70 percent of all wealth, but merely 25 to 35 percent of all income. However, this concentration of wealth is already at pre-World War I levels and heading back to those of the late 19th century, when the luck of who might expect to inherit what was the dominant element in economic and social life. There is an iterative interaction between wealth and income: Ultimately, great wealth adds unearned rentier income to earned income, further ratcheting up the inequality process.
The extravagances and incredible social tensions of Edwardian England, belle epoque France and the robber-baron US seemed forever left behind, but Piketty shows how the period between 1910 and 1950 — when that inequality was reduced — was aberrant. It took war and depression to arrest the inequality dynamic, along with the need to introduce high taxes on high incomes, especially unearned ones, to sustain social peace. Now the ineluctable process of blind capital multiplying faster in fewer hands is underway again — and on a global scale. The consequences are “potentially terrifying,” Piketty writes.
DEATH OF DYNAMISM
For a start, almost no new entrepreneurs, save for one or two spectacular Silicon Valley startups, can ever make sufficient new money to challenge the incredibly powerful concentrations of existing wealth.
In this sense, the “past devours the future.”
It is telling that the Duke of Westminster and the Earl of Cadogan are two of the richest men in Britain. This is entirely by virtue of the fields in Mayfair and Chelsea their families owned centuries ago and the unwillingness to clamp down on the loopholes that allow family estates to grow.
Anyone with the capacity to own in an era when the returns exceed those of wages and output will quickly become disproportionately and progressively richer. The incentive is to be a rentier rather than a risk-taker: Witness the explosion of buy-to-let. Companies and the rich do not need to back frontier innovation or even invest to produce, they just need to harvest their returns and tax breaks; tax shelters and compound interest will do the rest.
Capitalist dynamism is undermined, but other forces join to wreck the system. Piketty writes that the rich are effective at protecting their wealth from taxation and that progressively, the proportion of the total tax burden shouldered by those on middle incomes has risen. In Britain, it may be true that the top 1 percent pay one-third of all income tax, but income tax constitutes only 25 percent of all tax revenue: 45 percent comes from VAT, excise duties and national insurance paid by the mass of the population.
As a result, the burden of paying for public goods such as education, health and housing is increasingly shouldered by average taxpayers, who do not have the wherewithal to sustain them. Wealth inequality thereby becomes a recipe for slowing, innovation-averse, rentier economies, tougher working conditions and degraded public services. Meanwhile, the rich get ever richer and more detached from the societies of which they are a part; not by merit or hard work, but simply because they are lucky enough to be in command of capital receiving higher returns than wages over time. Our collective sense of justice is outraged.
The lesson of the past is that societies try to protect themselves: They close their borders or have revolutions or end up going to war. Piketty fears a repeat, but his critics say that with higher living standards, resentment of the ultra-rich may no longer be as great. Yet even with his data under intense scrutiny for mistakes, it has all held up so far.
Nor does it seem likely that humans’ inherent sense of justice has been suspended. Of course, the reaction plays out differently in different eras. I suspect that some of the energy behind Scottish nationalism is the desire to build a country where toxic wealth inequalities are less indulged than in England.
The solutions — a top income tax rate of up to 80 percent, effective inheritance tax, proper property taxes and, because the issue is global, a global wealth tax — are currently inconceivable.
However, as Piketty says, the task of economists is to make them more conceivable and Capital certainly does that.
As it has striven toward superiority in most measures of the Asian military balance, China is now ready to challenge the undersea balance of power, long dominated by the United States, a decisive advantage crucial to its ability to deter blockade and invasion of Taiwan by the People’s Liberation Army (PLA) of the Chinese Communist Party (CCP). America expended enormous treasure to develop the technology, logistics, training, and personnel to emerge victorious in the Cold War undersea struggle against the former Soviet Union, and to remain superior today; the US is not used to considering the People’s Liberation Army Navy (PLAN)
The annual summit of East Asia and other events around the ASEAN summit in October and November every year have become the most important gathering of leaders in the Indo-Pacific region. This year, as Laos is the chair of ASEAN, it was privileged to host all of the ministerial and summit meetings associated with ASEAN. Besides the main summit, this included the high-profile East Asia Summit, ASEAN summits with its dialogue partners and the ASEAN Plus Three Summit with China, Japan and South Korea. The events and what happens around them have changed over the past 15 years from a US-supported, ASEAN-led
President William Lai’s (賴清德) first Double Ten National Day address had two strategic goals. For domestic affairs, the speech aimed to foster consensus on national identity, strengthen the country and unite the Taiwanese against a Chinese invasion. In terms of cross-strait relations, the speech aimed to mitigate tensions in the Taiwan Strait and promote the coexistence and prosperity of the People’s Republic of China (PRC) in China and the Republic of China (ROC). Lai is taking a different stance from previous Democratic Progressive Party (DPP) administrations on domestic political issues. During his speech, he said: “The PRC could not be the
The Chinese People’s Liberation Army is pressuring Taiwan using high intensity tactics to tire out Taiwanese forces and force them into making mistakes, The Economist cited Navy Commander Admiral Tang Hua (唐華) as saying in an interview published on Thursday last week. China is “using an ‘anaconda strategy’ to squeeze the island,” he said, adding that it is “slowly, but surely” increasing its presence around the nation. “They are ready to blockade Taiwan at any time they want,” Tang said. It is welcome to see a high-level official give an interview to international media on this matter. Although Taiwan is one
RSS