Thomas Piketty’s analysis of inequality through the ages kicked off an important debate about the causes of and solutions to the problem of the increased concentration of wealth and income. Central to Piketty’s economic mechanics is his assumption that, barring some cataclysm, wealth will increasingly accumulate to those at the top of scale as long as its rate of return (the rate at which wealth holdings appreciate) exceeds the economy’s growth rate. From this diagnosis, his prescription is redistribution through the tax code. This certainly falls out of his model: once you accept the inevitability of narrowly held wealth accumulation, the only solution is to tax and redistribute.
Note, however, that this is not a onetime solution; it implies consistently ratcheting up the redistributive function to offset relentless accumulation. Moreover, in most political systems I can envision, there’s a fatal flaw here: the increasingly wealthy and powerful won’t stand for it, a criticism Piketty himself of course recognizes (he’s not naïve).
So how should we think about this problem? In fact, some of Piketty’s critics point out that there are actually a variety of ways to alter the distribution of market outcomes, aka the primary distribution of income (in contrast to the secondary distribution after taxes and transfers). These ideas range from more union power to better balance that of capital, higher minimum wages, patent reform, restraints on the financial sector, charging polluters and financial bubble blowers for the negative externalities they generate, direct job creation to tighten the labor market and enforce a more equitable distribution of growth, and more....
Surely part of solving the inequality problem will require reducing the outsized political power of those with the most resources (and to be clear, I’m arguing that their usual dominance is highly amplified and uniquely unopposed in our current politics). If I’m right about the role of economics today in supporting capital and opposing labor, then part of winning that fight requires a new economics that encompasses a much broader scope of human and societal well-being, that more readily sees market failures, more accurately gauges and fairly judges reactions to policy changes, and places a much heavier weight on shared prosperity, and not solely through redistribution, but through market outcomes.Bernstein recognizes the problem but in the end caves to the market. Let's see the plan.
Why is capital stronger than labor. Because this is capitalism. Capitalism considers capital to be the most important factor of production and privileges capital with dominance over workers and the environment. Doh.
On the Economy
Why is Capital So Much Stronger than Labor?
Jared Bernstein
1 comment:
"Note, however, that this is not a onetime solution; it implies consistently ratcheting up the redistributive function to offset relentless accumulation."
Not really, one thing Piketty argues is that in societies that use the tax system to confiscate excessively high incomes, the incentive to obtain those incomes is reduced. He argues that in the US, pre-tax income inequality was much lower when we had very high marginal income tax rates (which the US actually pioneered). I think the same is true of capital gains taxes and estate taxes. If for example, a wealthy individual is forbidden from handing on more than a certain moderate amount to descendants, then they will accumulate less to begin with.
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