Thomas Piketty Thinks America Is Primed for Wealth Redistribution – The New York Times

Source: Thomas Piketty Thinks America Is Primed for Wealth Redistribution – The New York Times

In 2013, the French economist Thomas Piketty, in his best seller “Capital in the Twenty-First Century,” a book eagerly received in the wake of the 2008 economic collapse, put forth the notion that returns on capital historically outstrip economic growth (his famous r>g formula). The upshot? The rich get richer, while the rest of us stay stuck in the mud. Now, nearly a decade later, Piketty is set to publish “A Brief History of Equality,” in which he argues that we’re on a trajectory of greater, not less, equality and lays out his prescriptions for remedying our current corrosive wealth disparities. (In short: Tax the rich.) If the line from one book to the other looks slightly askew given the state of the world, then, Piketty suggests, you’re looking from the wrong vantage point. “I am relatively optimistic,” says Piketty, who is 50, “about the fact that there is a long-run movement toward more equality, which goes beyond the little details of what happens within a specific decade.”

…OK, so you’re saying that the long-term trend is toward more equality. But in 1990 there were 66 U.S. billionaires. Now there are more than 700. Over the last 40 years or so, chief-executive pay is up more than 900 percent, even accounting for inflation. The average worker’s pay over the same period is up only 12 percent. You believe we should be thinking of those facts as road bumps on the path to greater economic equality? 

…Let’s say in the United States the billionaires get sick of being the bad guys and don’t want to be taxed the way Biden is proposing, so they move to Ireland or some other tax haven. Then what happens? But that’s the point: These people don’t live in an autarchy. They rely on the rest of the world, which means that we have to impose rules on the conditions in which they can enjoy these assets — which were produced by the collective. All wealth is collective by nature in the sense that it relies on the work of hundreds, thousands, millions of engineers, technicians, the accumulation of knowledge. Then, private property is a social construction that we invent in order to organize economic and social relations. It’s a very useful social invention as long as you keep under control how much you can accumulate, how much power you can concentrate, etc. But none of these assets are their assets. They are a product of a collective process. No one invented anything by himself or herself.

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People in every time period tend to say today is different, this is big innovation, new wealth, but in a changing economy where we make technological discoveries, you always have this process. But the thing is, if it’s not regulated, if we don’t design institutions in order to spread the wealth — on the contrary, we have an institutional setup where you accumulate wealth by using public infrastructure, public education, the health system, and then once you have accumulated the wealth, you push a button and you transfer it somewhere else. Remember the ProPublica study before the summer of 2021 where they looked at billionaires in the U.S.? They pay almost zero federal income tax,⁶6According to that ProPublica investigation, the 25 richest Americans paid federal income tax at what amounted to a rate of 3.4 percent. That’s compared with a rate of 14 percent for those American households making the median income of roughly $70,000. as compared with their wealth. If you pay no tax, it’s easier to accumulate more wealth, and that’s what continues.

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The big lesson from this is that the period of maximum prosperity of the U.S. economy in the middle of the century was a period where you had a top income-tax rate of 90 percent, 80 percent,⁷7That is, the top marginal income-tax rate, which peaked in the United States at 94 percent in 1944. From 1932 to 1980, the average top rate was 81 percent. Between 1980 and 2020, the marginal tax rate applied to the highest incomes was, on average, 39 percent. and this was not a problem because income gaps of 1 to 100 or 1 to 200 are not necessary for growth. The other big conclusion is that what really matters for economic prosperity is education and relative equality in education.⁸8There is compelling correlation between income inequality and education: Researchers have found that there is a little more than a 30 percent probability of gaining entrance to an institution of higher learning for young adult Americans whose parents’ incomes are within the bottom 10 percent. That probability rises to 90 percent for children whose parents’ incomes are within the top 10 percent. The key reason the U.S. economy was so productive historically in the middle of the 20th century was because of a huge educational advance over Europe. In the 1950s, you have 90 percent of the young generation going to high school in the U.S. At the same time, it’s 20 to 30 percent in Germany, France, Britain, Japan. The story that Reagan tried to tell the country in the ’80s, which is basically forget about equality, the key to prosperity is to let the top become richer and richer — it doesn’t work.

…In the United States, this institutional setup has been reinforced because of Trump’s big tax cut on corporations. There are many dramas we associated with Trump, but part of the drama is that he has been able to tell the middle class and lower middle class, “Look, we are going to continue with tax dumping, but I’m going to protect you in another way by protecting you against Chinese and Mexicans, the Muslims.” He was able to be elected on an ideology where you don’t redistribute between the rich and the poor but rather you protect Americans, especially white male Americans, against anybody who looks foreign. The risk is that neoliberalism is replaced by this form of neo-nationalism in order to avoid redistribution. Sometimes people like Trump can be successful with this strategy because it’s a much clearer message than saying, “Let’s look at the history of progressive taxation.”

…the democratic system is not enabled to have a common-sense reaction to this excessive level of inequality that, in the long run, is not good for U.S. prosperity. Particularly because when other countries get more educated than the U.S., then its economic leadership will be gone forever. U.S. economic leadership came from mass education, not from a small elite of billionaires. They have never been the source of U.S. prosperity, and they will never be.