In last week’s blog, I focused on Piketty’s book and my reading of it. As I mentioned there, the volume of responses to the book was overwhelming. Some of the responses focused on the book, but many of them tackled the issue itself. Not surprisingly, there was a considerable amount of repetition in the responses. As I promised last time, this blog will summarize some of the main issues that they raised. Because this blog is focused on public responses, I have compiled excerpts of responses, mostly as posted in the “New York Times,” my main source of information on current events.
I will start with the obvious: Nicholas Kristoff’s Op-Ed in the “New York Times,” (July 24, 2014) entitled: “An Idiot’s Guide to Inequality.”
He starts with restating the observation that Frank Rich made (see last week’s blog) about the book’s low score under the “The Hawking Index.” Here are his exact words:
We may now have a new “most unread best seller of all time.” Jordan Ellenberg, a professor of mathematics at the University of Wisconsin, Madison, wrote in The Wall Street Journal that Piketty’s book seems to eclipse its rivals in losing readers: All five of the passages that readers on Kindle have highlighted most are in the first 26 pages of a tome that runs 685 pages.
Unlike, Frank Rich’s, which reviewed Hillary Clinton’s book, Kristoff’s Op-Ed zeroes in on Piketty’s book. As a remedy for the book’s low readership, he introduces us to the “Idiot’s Guide to Inequality.” Here are the elements of his “guide”:
First, economic inequality has worsened significantly in the United States and some other countries. The richest 1 percent in the United States now own more wealth than the bottom 90 percent. Oxfam estimates that the richest 85 people in the world own half of all wealth. The situation might be tolerable if a rising tide were lifting all boats.
Second, inequality in America is destabilizing. Some inequality is essential to create incentives, but we seem to have reached the point where inequality actually becomes an impediment to economic growth. Certainly, the nation grew more quickly in periods when we were more equal, including in the golden decades after World War II when growth was strong and inequality actually diminished. Likewise, a major research paper from the International Monetary Fund in April found that more equitable societies tend to enjoy more rapid economic growth.
Third, disparities reflect not just the invisible hand of the market but also manipulation of markets. Joseph Stiglitz, the Nobel Prize-winning economist, wrote a terrific book two years ago, The Price of Inequality, which is a shorter and easier read than Piketty’s book. In it, he notes: “Much of America’s inequality is the result of market distortions, with incentives directed not at creating new wealth but at taking it from others.”
Fourth, inequality doesn’t necessarily even benefit the rich as much as we think. At some point, extra incomes don’t go to sate desires but to attempt to buy status through “positional goods” — like the hottest car on the block.
Fifth, progressives probably talk too much about “inequality” and not enough about “opportunity.” Some voters are turned off by tirades about inequality because they say it connotes envy of the rich; there is more consensus on bringing everyone to the same starting line.
One might think that since Standard & Poor’s is a rating agency, it doesn’t have a political agenda, yet – for the first time – they have identified that inequality is causing slow economic growth. Here is their reasoning, as reported by Neil Irwin in the “New York Times” (August 6, 2014) in his article, “A New Report Argues Inequality is Causing Slower Growth. Here’s Why It Matters”:
I asked Beth Ann Bovino, the chief U.S. economist at S.&P., why she and her colleagues took on this topic. “We spend a lot of time trying to think about what the economic outlook is and what to expect ahead,” she said. “What disturbs me about this recovery — which has been the weakest in 50 years — is how feeble it has been, and we’ve been asking what the reasons behind it are.” She added: “One of the reasons that could explain this pace of very slow growth is higher income inequality. And that also might also explain what happened that led up to the great recession.
”From my research and some of the analysis I saw from others, when you have extreme levels of inequality, it can hurt the economy,” she said.
Because the affluent tend to save more of what they earn rather than spend it, as more and more of the nation’s income goes to people at the top income brackets, there isn’t enough demand for goods and services to maintain strong growth, and attempts to bridge that gap with debt feed a boom-bust cycle of crises, the report argues. High inequality can feed on itself, as the wealthy use their resources to influence the political system toward policies that help maintain that advantage, like low tax rates on high incomes and low estate taxes, and underinvestment in education and infrastructure.
As I mentioned last week, one of my main reservations about Piketty’s book was his use of the word, “global,” when he mainly looked at France, England and the US, only occasionally mentioning other countries, most of which are already developed. Piketty recognizes this deficiency, but has argued that he lacks sufficient data about developing countries to continue his studies there. Here is what the “New York Times” wrote on this issue (July 20, 2014) in an article titled, “Income Inequality is Not Rising Globally, It’s Falling”:
Income inequality has surged as a political and economic issue, but the numbers don’t show that inequality is rising from a global perspective. Yes, the problem has become more acute within most individual nations, yet income inequality for the world as a whole has been falling for most of the last 20 years. It’s a fact that hasn’t been noted often enough.
Inequality is rising because the return on capital is considerably larger than that on labor; Piketty’s solution is to “simply” tax capital above a certain threshold. He recognizes that the taxing would have to be global because otherwise people with capital will run to the nearest tax haven or area with the lowest tax rates (The new term for this, when applied to this phenomenon in business, is “inversion.”). The “New York Times” (July 21, 2014) addresses this issue as well:
Sean Hannity, the Fox News prime-time host, threatened last month to leave New York for a tax haven down south. Tiger Woods transplanted himself from California to Florida for the same reason. The actor Gerard Depardieu decamped from France and sought citizenship in Russia after complaining that 85 percent of his income was consumed by taxes.
“I can’t wait to pay no state income tax down in Florida or Texas,” Mr. Hannity, who lives in Nassau County, said. “I haven’t decided yet, but I’m leaning Florida because I like the water and I like to fish.”
But a new analysis being released Monday undermines the frequent assertion that wealthy people reflexively flee New York City — where Mayor Bill de Blasio campaigned to raise taxes on those who make more than $500,000 — for low-tax states.
The study, by the city’s Independent Budget Office, found that the share of higher-income households that moved from the city in 2012, 1.8 percent, equaled the share of lower-income households that left.
Next week, I will leave off of Piketty, but not the issue of inequality. I will cover the May 23rd “Science” magazine dedicated to inequality, which – in a sense – suggested (to me) a stamp of approval for incorporating inequality into the sciences.
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