Saturday, May 3, 2014

INEQUALITY



INEQUALITY

Inequality is much in the news these days, and we'll be hearing a lot more about it between now and November--most of it negative propaganda (remember that?).
The recent spike in interest is due to a scholarly work by a French economist, Thomas Picketty. At the end of this piece you'll find links to reviews of his book, Capital in the Twenty-first Century. Each of these, and others I've read, is biased in its own way, but taken together they provide meaningful insight into the man's work (I encourage you to seek out others and to read the book itself if time allows).
Picketty provides historical perspective to the problem of income inequality and the harm that comes from it. He points out that when income from capital exceeds that from labor we have slow growth in GDP, and that we are in such a state now except that it's excessively high salaries to the top earners that creates the imbalance. Either way, there are social, moral and economic consequences.
There should be no doubt as to the seriousness of this problem.
My purpose here is not to criticize Picketty or his work but to point out the impracticality of his proposed solutions (80% tax on incomes of $500K and above, 50-60% on $200K and above, and a global tax on wealth). I believe his book would be more powerful if he had left the solutions to others.
Some of you may be inclined to support his solutions, but how do you suppose this would work here with a federal government totally in thrall to special interests? And how can we be sure that such 'off-the-cuff' solutions won't destroy our economy, such as it is? It seems that scholarship was cast aside toward the end of the book (a temptation I can empathize with).
I won't cop out here, but an effective solution must reflect an understanding of the problem including how we got here. It was not an act of nature.
Recall the housing bubble wherein our government actively promoted the granting of high-risk mortgages, standing by while some reached ridiculous levels. This was coupled to the derivatives market wherein banks (Wall Street) were relieved by government of the need to maintain proper reserves (Thus relieved of the need to have 'skin' in the game, they went for broke.) This was followed by a bail-out program; so successful that Wall Street salaries are back up there in the 1%, where they belong.
But wait, it gets better, we now have Quantitative Easing wherein large corporations borrow huge sums at low cost and use the money to buy back their own stock, pay big salaries, and buy other companies. None of these activities generate new growth or jobs, but executives who are good at it get paid big bucks.
By now, you're probably getting the idea that I don't trust these same 'wonderful folks' with fixing the problem. But it's still there and crying for justice. I believe that we should have a redistribution of cash, right off (a pass-through, not one wherein the pols, in their infinite wisdom, decide how to spend it). The program must be designed so as to prevent long term dependency. It should not (as many of our efforts seem to do now) enable an entrenched underclass.
Better by far, would be the elimination of crony-capitalism letting our economy and our people breathe. In any case, we need to get some growth in the economy, increase the size of the pie instead of concentrating solely on fighting over the size of the slices.

Joe Bakewell 
http://joebakewell.wordpress.com/ 

Capitalism in the Twenty-first Century reviewed: 

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