Piketty in Washington: How to Reverse the Increasing Concentration of Wealth

https://www.commondreams.org/view/2014/04/16-0



French Economist Thomas Piketty, author of the best-selling “Capital in the Twenty-First Century,” came to Washington DCon Tuesday for a series of discussions with other economists and the public. The book itself, whose author has made enormous contributions over the past 15 years analyzing the distribution of income and wealth, is very rich in historical and data-driven economic analysis and has been widely reviewed. It could very well become one of the most influential books on economics in decades. This is not a review but rather a brief commentary on some of the extraordinarily interesting discussion – not often seen in “This Town” – that Piketty’s visit inspired.

One of Piketty’s main concerns is the increasing concentration of wealth that has characterized the past few decades, in the United States and other developed economies. He describes this phenomenon in great detail but also abstractly and usefully as r > g; in other words, the more that the rate of return on capital exceeds the rate of growth of the economy, the more wealth is concentrated at the top. Piketty noted a number of times, in response to questions, that he sees – as do many Americans – the main problem with inequality reaching what he called “extreme” levels is that it makes it “impossible to have proper functioning of democratic institutions.” His principal proposal for reversing this trend is a progressive tax on wealth.

At the Tax Policy Center, a joint venture of the Urban Institute and Brookings Institution, my colleague Dean Baker strongly agreed with Piketty’s proposal to tax wealth, but argued for a “Plan B,” among other reasons because Plan A may prove to be politically difficult or impossible for some time to come. Baker’s proposals were interesting in that they were designed to lower “r” while at the same time raising “g.” He went through several sectors of the economy where there are large “economic rents” that can be captured through taxation or other reforms, while at the same time increasing the overall efficiency of the economy and therefore the growth of output. The financial sector is obviously target number one, where even a small financial transactions tax could capture tens of billions of dollars of annual revenue while reducing wasteful and even harmful trading (Baker referred to Michael Lewis’ “Flash Boys” as a prime example). Then there are patents, where we in the U.S. pay $380 billion per year for drugs whose price is composed of something like 80 or 90 percent monopoly rents – about 2 percent of GDP lost to the non-super-rich; plus the impediments to the advancement of medical science and actual harm to human health, as pharmaceutical companies hide their data, lie about their results, and promote the use of patented drugs for inappropriate purposes. (As one critic of the pharmaceutical industry put it, there are a lot more healthy people than sick people out there, so if you are a pharmaceutical company with a patented drug, you want to get some of those healthy people into your market).

Then there are the “too-big-to-fail subsidies” which the IMF recently estimated as 20 percent of after-tax corporate profits in the euro zone. Baker also briefly discussed anti-trust policy, corporate access to resources (such as airplane space at airports) that could be auctioned, and privatization of services such as health care that are more efficiently delivered in the public sector as examples of places where “r” could be reduced as “g” is increased.