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Sunday, 11 January 2015

Piketty in Context

A huge amount of interest has been shown, in most countries of the world, to the writing of the French Economist [really, a Political Economist] Thomas Piketty. By massive statistical work, he has shown that income and wealth inequality between individuals in every country that he can assess has increased in the past decade.

For a considerable part of the twentieth century the extremes of income between the rich and the masses were coming closer together. There were many explanations available for this equalisation of access to the good things of life: including progressive income taxation. But the trend ended and disparities of wealth have subsequently become extreme.

Picketty's primary solution to this is to impose a global wealth tax on large fortunes, with appropriate accompanying taxation of incomes. It appears to be the case that rising rates of income tax for greater incomes can advance to 50% on the top tranche of higher incomes without any detrimental effect on investment and thus on the growth of the economy. The practical problems of getting more than 150 states to come into line on the principle of such taxation, let alone of implementing it simultaneously and to the same standards, are surely insurmountable. So the proposed solution - like the earlier proposal for a global levy on transactions in the financial sector - is just a wonderful work of imagination.

Meanwhile the real and worldwide growth of inequality proceeds apace, expanding the gap between the politics of the right and of the left and demonstrating that politicians and Economists are stumped by the situation. The rich are increasingly able to buy political influence, while the masses experience alienation from political rhetoric from all sides. The few who seriously embrace fringe parties - as distinct from the many who temporarily allocate their votes to such parties - usually are types who alienate rather than attract their fellow citizens. Where an attractive or dynamic personality appears in the leadership role, as Nigel Farage has appeared in the United Kingdom Independence Party, the number of votes released to such a party can increase significantly; especially if the less attractive members are unrecognised in the media.

Picketty's analysis of economic inequality is first rate: but he has not exposed the real causes for the recent rise of inequality. I plan to fill that gap in the coming weeks: watch this space!

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