Piketty: The Super-Rich Will Own Us
By Shlomo Maital
Thomas Piketty’s new book Capital in the 21st C. (Harvard/Belknap) should get him the Nobel Prize. It won’t because it is basically just carefully-built data. But the data are shocking. And it took a French economist to do it; except for Paul Krugman it seems that the collective brains of the American economic establishment have shut down for good.
Piketty’s book is 700 pages long. Few will actually read it. But the fierce and growing inequality he documents has already drawn huge media attention, and even the IMF is in on the act, with Christiane Lagarde (IMF Director-General) announcing that the IMF believes inequality is bad for growth, and pro-equality policies can actually stimulate economic growth.
I will save my readers the time and effort of reading this huge book, by summarizing it. Piketty says, there is “an oligarchic type of divergence, in which the rich countries would come to be owned by their own billionaires…or in which ALL countries would come to be owned by the planet’s multi-millionaires and billionaires…. All the ingredients are in place for the top centile and thousandth of the global wealth distribution to pull farther and farther ahead of the rest.”
This has already happened, to a large degree. Oligarchs run Russia. They own the media in my country, Israel. They are powerful in America. They are powerful in China.
Why is this happening? Simple. If you have great wealth, you can earn on average 6.8 per cent annual return (above inflation). This doubles your wealth every decade, without your having to really do anything. And you can keep the profits, because the wealthy easily find tax havens. If you have little wealth, you earn maybe 1 per cent, and then you get taxed. When the wealthy double their wealth every decade, in 30 years it is 8 times what it was at the start. Great wealth confers huge political power. You can buy the media, you can buy lobbyists, and you can, yes, you can buy politicians.
Karl Marx got one thing right, and one thing wrong. He said that wealth would become more and more concentrated, under capitalism. Right. He said that the people (the government) should confiscate national assets and run them. Wrong. Governments can’t run businesses.
Piketty’s solution is very French – perfect, optimal and utterly impractical. Impose a global wealth tax. What are the chances this will happen, when the oligarchs already wield immense political power? If one country does it, the money will flee to another, happy to welcome it by offering tax havens.
Either there will be enormous social upheaval, to bring the oligarchic wealth back to where it belongs, and decades of suffering and instability, or we the people will find some clever way to deal with this ‘doom loop’, which is leading us to destruction. The current situation cannot continue. And Occupy Wall Street was largely ineffective, like the Arab Spring, because it brought passionate protest, it brought attention to a critical problem – but offered no creative solutions.
The solution? To be presented in a future blog.