25 Jul 2014

Why the Super-Rich need Governments. (from Social Europe Journal)

Dani Rodrik

The very rich, F. Scott Fitzgerald famously wrote, “are different from you and me.” Their wealth makes them “cynical where we are trustful,” and makes them think “they are better than we are.” If these words ring true today, perhaps it is because when they were written, in 1926, inequality in the United States had reached heights comparable to today.
During much of the intervening period, between the end of World War II and the 1980s, inequality in the advanced countries was moderate. The gap between the super-rich and the rest of society seemed less colossal – not just in terms of income and wealth, but also in terms of attachments and social purpose. The rich had more money, of course, but they somehow still seemed part of the same society as the poor, recognizing that geography and citizenship made them share a common fate.
As the University of Michigan’s Mark Mizruchi points out in a recent book, the American corporate elite in the postwar era had “an ethic of civic responsibility and enlightened self-interest.” They cooperated with trade unions and favored a strong government role in regulating and stabilizing markets. They understood the need for taxes to pay for important public goods such as the interstate highway and safety nets for the poor and elderly.
Business elites were not any less politically powerful back then. But they used their influence to advance an agenda that was broadly in the national interest.
By contrast, today’s super-rich are “moaning moguls,” to use James Surowiecki’s evocative term. Exhibit A for Surowiecki is Stephen Schwarzman, the chairman and CEO of the private equity firm the Blackstone Group, whose wealth now exceeds $10 billion.
The venture capitalist Tom Perkins and Kenneth Langone, the co-founder of Home Depot, both compared populist attacks on the wealthy to the Nazis’ attacks on the Jews.
Schwarzman acts as if “he’s beset by a meddlesome, tax-happy government and a whiny, envious populace.” He has suggested that “it might be good to raise income taxes on the poor so they had ‘skin in the game,’ and that proposals to repeal the carried-interest tax loophole – from which he personally benefits – were akin to the German invasion of Poland.” Other examples from Surowiecki: “the venture capitalist Tom Perkins and Kenneth Langone, the co-founder of Home Depot, both compared populist attacks on the wealthy to the Nazis’ attacks on the Jews.”
Surowiecki thinks that the change in attitudes has much to do with globalization. Large American corporations and banks now roam the globe freely, and are no longer so dependent on the US consumer. The health of the American middle class is of little interest to them these days. Moreover, Surowiecki argues, socialism has gone by the wayside, and there is no need to coopt the working class anymore.
Yet if corporate moguls think that they no longer need to rely on their national governments, they are making a huge mistake. The reality is that the stability and openness of the markets that produce their wealth have never depended more on government action.
The super rich are now more separated from the rest of society than ever before (photo: CC 4WheelsofLux Photography on Flickr)
In periods of relative calm, governments’ role in writing and upholding the rules by which markets function can become obscured. It may seem as if markets are on autopilot, with governments an inconvenience that is best avoided.
As former Bank of England Governor Mervyn King aptly put it in the context of finance, “global banks are global in life, but national in death.”
But when economic storm clouds gather on the horizon, everyone seeks shelter under their home government’s cover. It is then that the ties that bind large corporations to their native soil are fully revealed. As former Bank of England Governor Mervyn King aptly put it in the context of finance, “global banks are global in life, but national in death.”
Consider how the US government stepped in to ensure financial and economic stability during the global financial crisis of 2008-2009. If the government had not bailed out large banks, the insurance giant AIG, and the auto industry, and if the Federal Reserve had not flooded the economy with liquidity, the wealth of the super-rich would have taken a severe blow. Many argued that the government should have focused on rescuing homeowners; instead, the government chose to support the banks – a policy from which the financial elite benefited the most.
Even in normal times, the super-rich depend on government support and action. It is largely the government that has financed the fundamental research that produced the information-technology revolution and the firms (such as Apple and Microsoft) that it has spawned.
It is the government that enacts and enforces the copyright, patent, and trademark laws that protect intellectual property rights, guaranteeing successful innovators a steady stream of monopoly profits. It is the government that subsidizes the higher-education institutions that train the skilled work force. It is the government that negotiates trade agreements with other countries to ensure that domestic firms gain access to foreign markets.
If the super-rich believe that they are no longer part of society and have little need of government, it is not because this belief corresponds to objective reality. It is because the prevailing story line of our time portrays markets as self-standing entities that run on their own fuel. This is a narrative that afflicts all segments of society, the middle class no less than the rich.
There is no reason to expect that the super-rich will act less selfishly than any other group. But it is not so much their self-interest that stands in the way of greater equality and social inclusion. The more significant roadblock is the missing recognition that markets cannot produce prosperity for long – for anyone – unless they are backed by healthy societies and good governance.

8 Jul 2014

YESTERDAY'S RUBBISH..why is a minimum wage different from Free Trade?

Andrew Watt
Andrew Watt
Germany’s first post-war Chancellor Konrad Adenauer is usually held to be the origin of an often-quoted phrase „Was kümmert mich mein Geschwätz von gestern?“. Roughly: why should I be concerned about the rubbish I talked yesterday? Whatever the rights and wrongs of this attribution, the phrase – used to draw attention to someone who places political flexibility over intellectual consistency – has occurred to me numerous times over recent months in the context of Germany’s debate over the introduction of a statutory minimum wage.

The statutory minimum wage in Germany

The decision was finally taken yesterday in the Bundestag. Germany will, for the first time in its history, apply a statutory minimum wage of EUR 8.50 to almost all workers from the start of 2015. It is estimated that up to 3.7 million workers will benefit, and given very pronounced wage inequality at the bottom of the German labour market, the wage rises for some workers will be substantial. There is a two-year transition phase for pre-existing sectoral collective agreements. A number of groups of workers have been excluded, some permanently the majority for a transition period, from the minimum wage requirement, which has given rise to an intense debate in the country.
This debate about exemptions, as with the battle over the minimum wage more generally, has centred, unsurprisingly, on possible negative employment effects. Once the minimum wage has been introduced it will be possible to analyse its employment effects, even if this will be difficult because its impact will not be easy to disentangle from that of other factors happening at the same time. For the moment, one has to rely on studies focusing on past minimum wage introductions and increases in other countries. The thrust of that literature is that, provided the minimum wage is at a “reasonable rate”, it is very hard to identify negative employment effects in the aggregate. (For a discussion of whether EUR 8.50 is “reasonable” in the German context see here.)
What we will see though is a lot of “argument by anecdote”. Firm A in region B has been forced into bankruptcy by wage increases necessitated by the minimum wage. Worker C in city D was happy about the minimum wage when it was being discussed, but now he is furious because instead of a job paying EUR 6.50 he is unemployed. Indeed, we are already seeing this argument being deployed in the form of threats and predictions. Handelsblatt, the German business daily, recently had a piece whose title asks whether the minimum wage will lead to bankruptcies (“Pleiten dank Mindestlohn?”, Handelsblatt, 15.05.14). The article answers the rhetorical question in the affirmative, based on the opinions of the director of the hotel and catering lobby organisation, the board chairman of a chain of hairdressers, and the president of the German employers association BDA. And this concern has been expressed by many liberal economists, by employer-linked think tanks such as the Initiative Neue Soziale Marktwirtschaft[1], and, not least, by the German Council of Economic Advisers.[2]

Political flexibility or intellectual consistency?

What I find interesting here is less the specific arguments put forward (which are rather weak) than the fact that the basis for the arguments is completely at odds with the way that employers’ representatives[3], and certainly liberal economists, normally position themselves. It is as if, on the issue of the minimum wage they are collectively saying: why should I be concerned about the rubbish I talked yesterday?
Consider the debate on free trade. A country has tariffs that protect a sector of its economy. They are removed, leading to job losses and bankruptcies in the least productive firms in that sector. Do employer representatives and liberal economists favour an anecdotal approach here and call for the reimposition of tariffs in order to protect jobs and companies? On the whole they take a very different line. The production and employment protected by the tariffs is “inefficient”. Free trade brings a welcome does of competition. It enables higher incomes and a shift of production to areas in which the country has a comparative advantage. Workers who lose their jobs move to more productive occupations or regions and everyone is better off. (At least, the more sophisticated would add, this is the case after an intervening adjustment period.) Focusing on protecting “old” jobs is a barrier to productivity and progress. One cannot judge from individual job losses that the overall employment level must fall.
A similar argument is put forward with respect to technological change. Yes, some workers are thrown out of work when new, more efficient machinery and production processes are introduced. Others have to adjust through training. But here, too, the overall impact is beneficial (after a lag), because lost employment can be recouped elsewhere in the economy, as higher-productivity jobs pay higher wages that in turn expand employment opportunities for workers in other parts of the economy. If you are against technological change you are a Luddite and economically illiterate.
This begs the question why different standards seemingly apply in the case of the minimum wage. Firms facing a rise in labour costs in the wake of its introduction have a number of ways to adjust. (These are not mutually exclusive in practice but can be separated for expositional purposes.) They can increase prices. Given that the minimum wage applies across the whole economy (i.e. will not just affect individual firms) this is likely to happen. Relative prices will adjust: the prices of goods and services produced with the use of large quantities of low-skilled labour will increase relative to those using more high-skill labour and capital. The economic (not technical) productivity of the low-wage workers will rise, thanks to higher product and service prices, to match the increase in their wages. Or firms can raise their productivity (in the technical sense), through innovation and reorganisation, just like a firm facing a dose of wholesome foreign competition because tariffs have been cut. Companies may also accept a lower profitability, and the wage share would rise somewhat. (If nothing else, this would make Thomas Picketty happy).
But, undoubtedly, in some firms these adjustment strategies may not be practicable or sufficient. Some may lay off workers and others be forced to close. This is the basis for the anecdotal argument. But surely, given their normal argumentative pattern, business representatives and liberal economists should be vociferously pointing out that this is actually not a problem, certainly not an inevitable one. For as we have seen a minimum wage has very similar effects to a bracing dose of foreign competition or the “creative destruction” associated with technology. Induced productivity gains and higher wages generate additional income that sustains employment in firms across the whole economy. Those employers that cannot keep up are forced out of business. And the labour that is displaced will, or at least should[4], be rapidly deployed to other regions or sectors where it can be put to more productive use.

Yesterday’s rubbish?

From the macroeconomic point of view it makes no sense at all to lock a large proportion of the workforce into low-paid, low-productivity jobs. If they were consistent, liberal economists and employers’ front organisations should be making that point. But they are not. It could be that they have suddenly abandoned liberal views as yesterday’s rubbish. This is implausible, however. The argument still applies in other areas; see for example the salutatory effects that such commentators ascribe to the TTIP (Transtlantic Trade and Investment Partnership).
Rather the discrepancy is presumably because the same effect is produced by two different causes: trade or technological change, on the one hand, which are seen as market outcomes, and the minimum wage, on the other, which is perceived as an market intervention. This dichotomy is wrong, or at least oversimplistic, of course. Trade and technology are also highly regulated, while many economists argue that the minimum wage (at a reasonable level) is correcting a market imperfection that gives undue power to employers. But even those who believe in it should be aware of the inconsistency of using anecdotal argument from individual companies as a stick with which to beat the minimum wage.
It will be quite some time before careful studies, with all the required controls, are made of the employment impacts of the introduction of the statutory minimum wage in Germany. Until they are done, expect a lot of heart-rending anecdotal argument about job losses and bankruptcies. And when you hear or read them, remember to confront those making such arguments with Konrad Adenauer, or whoever it was who said: Was kümmert mich mein Geschwätz von gestern?

[1] In its „eight facts about the minimum wage“ the INSM states baldly (translation mine) „ The introduction of a minimum wage, whatever ist level, destroys all those jobs that no longer pay. And a job no longer pays when the employer gets less from it than he pays the worker. And so it is clear: the higher the minimum wgae, the greater the job losses.“
[2] In their annual report 2013/2014. It is worth emphasising that one of the „Five wise persons“, Peter Bofinger, dissented from the majority view on the minimum wage issue.
[3] The following may not apply to heads of individual companies, who can be very protectionist, but it usually does to those representing employer interests at national level.
[4] The word “should” here can be understood in the sense that redeployment will happen if appropriate measures are in place to maintain aggregate demand and smooth the adjustment process through active labour market policies. And of course provided the increase in the minimum wage is “reasonable” so that the employment reallocation system is not completely overwhelmed.

7 Jul 2014

Robert Reich on the 7 big lies told by neo-liberal politicians.

This video is worth watching and listening to as Robert Reich exposes the fallacies that underpin the neo-liberal economics so beloved by John Key and his asset stripping cronies.


27 Jun 2014

The Herald and Key duck, scuttle and run as Donghua Liu story loses credibility

The anatomy of Dirty Tricks.

It looks like the powers that be on the Herald's editorial board are starting to realise that being a paid shill for the Key owned National Party is not as wise a move as they thought. Particularly as the realisation that the allegations fed from John Key and  those around Donghua Liu are proving to be a quicksand that is sucking the already doubtful credibility of the paper as a crusading, principled record of fact away from it.

The self parodying editorial (27.6.14) was the beginning of the duck strategy and, today, the normally rabid Key adoration puffer, Fran O'Sullivan, began to drop the blame for the fiasco on Key's desire to extract utu on Cunliffe for daring to reveal the extent to which National Party cabinet ministers have been prepared to go in the quest for largesse from foreign property speculators and "investor immigrants". Her comments that:

It was lack of discipline when he recently fuelled the journalistic flames on the so-called Donghua Liu donations scandal from the comfortable distance of the US.
He appeared to have forgotten a basic rule of politics — don't fan the flames of scandal unless you are sure where it will finish up. It's understandable that Key was tempted to indulge in some gotcha politics himself after a torrid month where he had to put Judith Collins on Cabinet leave after the Oravida affair and ask for Maurice Williamson's ministerial resignation after he intervened in a police matter involving the Chinese business investor.
It must have been pure utu to watch while the proverbial was thrown back all over Labour after Immigration Minister Michael Woodhouse informed Key there was an 11-year-old pro forma letter in the files that showed Cunliffe wrote to authorities on Liu's behalf over his residency application.
The Prime Minister wasn't the direct source of the Liu "revelations" (I use that word advisedly as many of the more hyperbolic Liu claims have since proved to be a mirage).
Herald investigative journalist Jared Savage, who broke the story which led to Williamson's resignation, had already sought Liu's immigration file under the Official Information Act. But it is instructive in that it was sources close to National who shopped the story of Liu's anonymous donations to Labour elsewhere after Woodhouse had accessed the file.
National has not played a straight bat on this story.
Woodhouse has yet to explain why he initially told porkies by denying he had informed Key about the Cunliffe letter — something that may have been literally true but skated over the fact he had told the prime minister's staff about the letter (and one from former Labour MP Chris Carter) and his office had provided both letters to Key's office.
While Cunliffe was obviously stitched up over the Liu letter, the political donor's subsequent "misstatements" have left thoughtful people wondering whether it was indeed Labour that had proven tricky — as National's meme invites us to believe — or the governing party.

reveal some deep disquiet emerging within the party political PR machine behind Key and the National Party.

"Smile, Wave, brain-fade, scuttle and run" The stategists in confrence?

The history of the Donghua Liu scandal is revealing, as commented on in earlier postings and by other commentators, because of its obvious links to the scandal spreading blog sites closely connected to the Ninth Floor of the Beehive and the readiness of The Herald to swallow without due diligence the statement given it by, to quote Fran O'Sullivan, those close to National ... after Woodhousehad accessed the file. 

And, now, as the allegations begin to unravel and there is colder, closer and more focused examination of the apparent deliberate anti-Labour campaign being waged by the opinionista in The Herald the classic Key strategy of "smile, wave, brain fade, scuttle and run" is being followed in an attempt to extricate the news-sheet from the  mess it helped create.

24 Jun 2014

The Ground gets boggier under Key's shifting feet

The Donghua Liu saga has just got even more dangerous for the  John "drop the insinuation then duck" Key as The Herald is forced to publish an altered statement from Mr Liu that changes much of his original statement.

It now appears that Mr Liu is claiming to have donated $2000.00 to the Hawkes Bay Rowing Club Branch of the NZ Labour Party and $60,000+ to The Yangzte Concrete Factory Branch of the NZ Labour Party to give the "honorable members a luxury cruise as a reward for their hard work making concrete for honorable building projects."

The claim that he purchased a bottle or bottles of wine  at a Labour Party Auction on June 3 2007 has also been shot down in flames as searchers have now identified the auction being one run by The Midland's Hawkes Bay Wine Charity at which no wine was sold at the inflated price Mr Liu claims to have bid. The Herald's new story now has Rick Barker receiving the bottle of wine from Mrs Liu rather than, as was originally alleged "giving it to her." The Herald is certainly back tracking all over the place on this story.
I look forward to the front Page apology to David Cunliffe, the NZ Labour Party and the long suffering NZ public who have had to put up with irresponsible reporting from the paper for far too long.

Left, Rick Barker receiving a bottle of wine from Donghua Liu's (top right) partner Juan Zhang. Photo / Supplied, NZ Herald

Left, Rick Barker receiving a bottle of wine from Donghua Liu's (top right) partner Juan Zhang. Photo / Supplied, NZ Herald

The questions need to be asked loudly, clearly and many, many times to John "Scuttle and Run" Key, Cameron Slater, Jami-Lee Ross and others close to Maurice Williamson and Donghua Liu "Who wrote the original statement for Mr Liu and who fed it to Key and Jared Savage?" and "Did Mr Liu really understand what he was signing  because, as Mr Williamson claims Mr Liu speaks and reads minimal English?"

POST SCRIPT: 1) The Fairfax stable is now asking questions about the Herald's reporting and the Key involvement in the Donghua Liu situation. About time the blow torch was applied to the links between The Herald and the Ninth Floor of the Beehive.
2) Radio New Zealand  Morning Report Political journalist declares that the Liu story doesn't stack up (27.6.14).
3) NZ Herald attempts to back off from its inept reporting by lampooning itself in an editorial claiming to be a crusading, reputable news-sheet and reducing the alleged "donations" from Liu to $38,000 in a series of anonymous donations over several years to different un-named MPs. 

22 Jun 2014

Murkier and murkier - What happened on Sunday June 3rd 2007?

The latest "revelation" dropped from the PR machine employed by the National Government is classic Bellmanism.
For those unaware of the Bellman's persuasive technique it can be summed up as: "I've told you three times so it must be true." And so it is with the National Party-Liu connections and the allegations that Liu was "generous" to the Labour Party one Sunday evening (3 June 2007). (Addendum: The Herald is now claiming the escape clause of an American date writing (appropriate since Key sold the country to the USA over the past week) so the fund raiser could have been held on Tuesday the 6th of March 2007. A date that would be as highly unlikely as the Sunday event as, in my experience, the major fund raisers are invariably Friday or Saturday events in order to maximise attendance. - Yet another example of slack investigation by the Herald hacks.)

The question that should be raised is: "What is the difference between a bid at an auction for an item and a donation / gift of money to the National Party?

The answer is that a bid at an auction is not a donation even though the bid price accepted may result in an artifically high price. A donation / gifting of cash is a transaction in which one party accepts a sum of money from another without ostensibly purchasing anything tangible.  On this basis a journalist would recognise the difference and realise that they're being spun a line and not reporting accurately.

But, No, the journalists accepted the story that, according to Mr Liu there was a large fundraising wine auction that Sunday at which he bid crazy money for a signed bottle of wine and a signed biography of Helen Clark.  Apart from the unlikelihood of a fund raising event being held on a Sunday the claims of crazy money bidding for a bottle of wine and a biography have a distinctly invented look to them.

Despite all enquiries and dredging the memories of any body involved with fund raising in 2007 no one has identified a fund raiser held in June 2007 that resulted in such a large sum of money. As Martyn Bradbury says if such an event with single bids like those alleged by Mr Liu then the story would have been member talk almost immediately and been common talk for months and months but he had never heard any amazed talk in all his involvement within the Party.

An alert reporter / editor would ask the question: "If Mr Liu claims he paid $100,000 for a bottle of wine at a Labour Fund Raiser in 2007 surely we would have heard about such ridiculous money being bid for abottle of wine because such a sum would have been buzzing around the newsrooms at the time. Didn't we write up a sensational headline back then about the Labour Party having money being rained upon it? We'd better search the morgue to find the story all the better to substantiate Mr Liu's allegation." Obviously there was no report or rumour on record within the Herald's story morgue or else they would have republished their sensational rumour of 2007.

Again, an alert Editor would have noted that Mr Liu also claimed that the staff function he invited Rick Barker to on his visit to China was to be seen as a "donation" to the Labour Party. Again, an alert and responsible editor would've recognised such a claim as being (a) an invention in order to create the illusion of an $150,000 "donation" and (b) a deliberate attempt to confuse a previously arranged staff function to which he invited Mr Barker into a luxury cruise perk to give the PR company a further spin point for the lazy MSM to fasten their word processors to.

There are so many inconsistencies in Mr Liu's statement that any reporter / journalist worth his or her salt would have checked, checked and checked again before accepting the rumours dropped from the lips of John Key while he was muppeteering in America as being gospel.

 The whole story stinks of Crosby-Textor dark ops aimed at distracting from an election fought on policies to one fought on innuendo.

19 Jun 2014

Thomas Piketty on why Austerity & wealth Inequality is bad for the economy.

 Here's a good thinking person's article to give further ammunition as to why a Labour vote is important this year.

Five minutes with Thomas Piketty: “We don’t need 19th century-style inequality to generate growth in the 21st century”

In an interview with EUROPP’s editor Stuart Brown and British Politics and Policy at LSE’s editor Joel Suss, Thomas Piketty discusses the rise in income and wealth inequality outlined in his book, Capital in the Twenty-First Century, and what policies should be adopted to prevent us returning to the kind of extreme levels of inequality experienced in Europe prior to the First World War. Professor Piketty recently gave a lecture at the LSE, the video of which can be seen online here.
Your research has shown that inequality is rising and that without government action this trend is likely to continue. However, are we correct to assume that inequality is a fundamentally negative development in terms of its consequences on society?
There is no problem with inequality per se. In actual fact, up to a point inequality is fine and perhaps even useful with respect to innovation and growth. The problem is when inequality becomes so extreme that it no longer becomes useful for growth. When inequality reaches a certain point it often leads to the perpetuation of inequality over time across generations, as well as to a lack of mobility within society. Moreover, extreme inequality can be problematic for democratic institutions because it has the potential to lead to extremely unequal access to political power and the ability for citizens to make their voice heard.
There is no mathematical formula that tells you the point at which inequality becomes excessive. All we have is historical experience and all I have tried to do through my research is to put together a large body of historical experience from over twenty countries across two centuries. We can only take imperfect lessons from this work, but it’s the best that we have. One lesson, for instance, is that the kind of extreme concentration of wealth that we experienced in most European countries up until World War One was excessive in the sense that it was not useful for growth, and probably even reduced growth and mobility overall.
This situation was destroyed by World War One, the Great Depression, and World War Two, as well as by the welfare state and progressive taxation policies which came after these shocks. As a consequence, wealth concentration was much lower in the 1950s and 1960s than it was in 1910, but this did not prevent growth from happening. If anything, this probably contributed to the inclusion of new social groups into the economic process and therefore to higher growth. So one important historical lesson from the 20th century is that we don’t need 19th century-style inequality to generate growth in the 21st century, and we therefore don’t want to return to that level of inequality in Europe.
How would you respond to those who doubt whether there is sufficient evidence to draw this kind of conclusion?
This will always be an imperfect inference because we are in the social sciences and we should not have any illusions about what is possible. We can’t run a controlled experiment across the 20th century or replay the century as if World War One and progressive taxation never occurred. All we have is our common historical experience, but I think this is enough to reach a number of fairly strong conclusions.
The lesson we have already mentioned – that we don’t need the kind of extreme inequality of the 19th century in order to have economic growth – is simply one imperfect lesson, but there are other important lessons if you look at, for instance, the rise of inequality in the United States over the past 30 years. For example, is it useful to pay managers a ten million dollar salary rather than only one million dollars? You really don’t see this in the data: the extra performance and job creation in companies which pay managers ten million dollars rather than one. In the United States over the past 30 years almost 75 per cent of the aggregate primary income growth has gone to the top of the distribution. Given the relatively mediocre productivity performance and the per capita GDP growth rate of 1.5 per cent per year, having nearly three quarters of that going to the top isn’t a very good deal for the rest of the population.
This will always be a complicated and passionate debate. Social science research is not going to transform the political conflict over the issue of inequality with some kind of mathematical certainty, but at least we can have a more informed debate using this historical cross-country evidence. Ultimately that is all my research is aiming to do.
What specific policies can be used to prevent us returning to the kind of extreme levels of inequality you have discussed?
There are a large number of policies which can be used in combination to regulate inequality. Historically the main mechanism to reduce inequality has been the diffusion of knowledge, skills and education. This is the most powerful force to reduce inequality between countries: and this is what we have today, with emerging countries catching up in terms of productivity levels with richer countries. Sometimes this can also work within countries if we have sufficiently inclusive educational and social institutions which allow large segments of the population to access the right skills and the right jobs.
However while education is tremendously important, sometimes it’s not sufficient in isolation. In order to prevent the top income groups and top wealth groups from effectively seceding from the rest of the distribution and growing much faster than the rest of society, you also need progressive taxation of income and progressive taxation of wealth – both inherited and annual wealth. Otherwise there is no natural mechanism to prevent the kind of extreme concentration of income and wealth that we’ve seen in the past from happening again.
Most of all, what we need is financial transparency. We need to monitor the dynamics of all of the different income and wealth groups more effectively so that we can adapt our policies and tax rates in line with whatever we observe. The lack of transparency is actually the biggest threat – we may end up one day in a much more unequal society than we thought we were.
A video of Thomas Piketty’s recent LSE lecture is available here
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Note: This article gives the views of the interviewee, and not the position of EUROPP – European Politics and Policy, nor of the London School of Economics.
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