Hey Hey Hey, gang, yes, it’s your faithful old hound doggie, Buster here. My old pappy and I are not reminding you of all the skullduggery that goes on amongst our finance wizards and their closely aligned political pals just to scare you into jumping off the Brooklyn Bridge (though we’ve heard that Homeland Security has been a tad lax up there of late). No, No, No! We’re hoping that if enough of you Champions of Liberty and good craft beers out there begin demanding better behavior from your elected legislators, this dear old country of ours can get back on track!
In that regard, today we’ll mention a few prominent folk who are already at least cheering for solutions to our mire of problems. First though, just a word on another of our “Too Big to Fail” banks — dear old Bank of America. This big old bad boy, as several before him have done, is seeking to atone for his past transgressions (in the form of “securitizing” real bad mortgages and selling them to “unsuspecting investors”) as well as to avoid the jailing of any of their guileless executives and directors. Betcha none of those rascals do any hard time either!!
Well, let us see what some skillful thinkers might have to say about all this folderol.
First, there is the now renowned French Economist, Thomas Piketty, who seems to have caused quite a bit of excitement for a fellow with such a gentle sounding name. This industrious young fellow has put together a history of Economic Inequality from around 1700 AD up until the last year or two and called this little tome, “Capital in the 21st Century.” “Tome” may be understating Monsieur Piketty’s one-volume work since it weighs in at about six pounds and runs some 700 pages. His little gem wasn’t doing much in his native France until it sort of caught fire here in our good old U.S. of A, probably because the book discusses wealth and income inequality (currently a topic here in our brave new world).
Anyway, old pappy read a review in one of his favorite mags which concluded that “Capital” was really about wealth inequality, not income inequality, but of course the two are symbiotically related. It appeared to old pap that the reviewers may have scanned the introduction and, skipping over the rather weighty guts of the work, zeroed in on M. P’s conclusion, which can be briefly stated as the rate of return on private property, or Capital, can be much higher for long periods of time than the rate of growth of income and output. This situation implies that wealth accumulated in the past grows more rapidly than output or wages causing increasingly greater inequality in both wealth and income.
Editor’s note: M. P points out that wealth can be accumulated over time by savings, but throughout history the predominant method of obtaining it is by inheritance. Or as my old pappy has maintained for some time now, the surest way to success is to choose your parents with great care!
Again, as M. P explains, the continually growing inequality of wealth in recent times has only been temporarily interrupted by the two world wars which wiped out great stories of capital. Old pap believes that the Great Depression between the wars also had a marked effect in reducing wealth. At any rate, the inequality in wealth is back to growing at a probably unsustainable rate both in the more and less developed countries of the world. Unfortunately, M. P’s main suggested solution is a global progressive annual tax on capital which of course would require agreement and coordination from all nations of our world. He must realize that such a solution is practically impossible, especially considering that we’ve never even been able to stop killing each other over such esoteric matters as religion.
There is a great amount of useful information in this substantial work, and even though Mr. P’s main solution may be illusory, this book delineates the relationship of wealth and income, pointing out that income from accumulated wealth will always outstrip income from the wages of labor, a process which cannot be sustained forever.
Additionally, he spends considerable space discussing progressive income taxes and the fact that top marginal rates were much higher during the world wars and continued very high through the 50’s, 60’s, and 70’s. The lower marginal rates of today, particularly in the U.S., combined with dubious tax avoidance measures used by the wealthy are exacerbating the problem of wealth and income inequality. In fact, M. P even opines that the low rates on high income has accelerated the explosion of executive salaries, and finds that neither seem to have stimulated productivity enough to be statistically detectable. In other words, paying CEO’s outrageous sums does not seem to lead to a better economic outcome, particularly in our good old U.S. of A.
Another interesting item uncovered in his research is that assets hidden in tax havens around the world may represent as much as 10% or more of global GDP. This discovery probably means that wealth inequality is understated and growing faster than ever thought because of untaxed income.
His final statement in the book is quoted here for your contemplation, “It seems to me that all social scientists, all journalists and commentators, all activists in the unions and in politics of whatever stripe, and especially all citizens should take interest in money, its measurement, the facts surrounding it, and its history. Those who have a lot of it will never fail to defend their interests. Refusing to deal with numbers rarely serves the interests of the least well-off.”
So, as President Obama has stated, is “income inequality the defining challenge of our time”? Well, there are plenty of people saying, “Is the old Prez kidding, we have so many other more pressing problems?” However, when you look at the big “pitcher,” it is money that causes most of the grief in our tired old world, from family disputes to wars fought over economic imbalances.
Then, there are those who contend that maybe inequality is growing in the developed countries, but looking at the whole world you see a more equalizing effect. This argument fails to convince pap and me. Since capitalism has been replacing communism, at least as an economic factor, in both Russia and China, as well as the really less developed world, the wealth and income inequality is just being continued with newly minted oligarchs taking the major share of the new wealth in those places.
Old pap and I would say yes, it has been a defining challenge for all of history and unless we as a world can cooperatively find better means of allocating national incomes, we’ll all eventually wind up at the Bastille again!
While “Capital in the 21st Century,” essentially an economics history lesson, is certainly not for the faint of heart, you may find it to be a good read which will place you securely in slumberland quicker than downing a six pack of frosty brewskis.
Next week we’ll take a closer look at Wall Street — ugh!
Yours truly, Buster