Facing Inequality

Few subjects stir up and polarize national discussion quite like capitalism in general and inequality in particular. Recent evidence is the English-language publication of Capital in the Twenty-First Century, which has ignited a firestorm of opinion and debate. The new book, by the French economist Thomas Piketty, is hailed by some as “a masterpiece” and criticized by others as “seriously flawed.” Paul Krugman, the Nobel Prize-winning economist, wrote in The New York Review of Books (5/8) that the book “will change both the way we think about society and the way we do economics.” At the very least, the book has made everyone with a stake in capitalism sit up and take notice. Why all the hype over this 700-page tome?

Mr. Piketty offers a far-reaching analysis of modern economic trends, especially as related to inequality. His central observation: In modern capitalism, over the course of three centuries, people who own “capital”—assets like businesses, housing and land—are able to reinvest profits at a higher rate than overall economic growth. The rich get richer, while many others struggle in minimum wage jobs, if they are employed at all. The rise of a strong middle class and the convergence of incomes and living standards in the mid-20th century were historical exceptions, not the rule, he says. In modern capitalism, according to Mr. Piketty, the “forces of divergence” tend to concentrate wealth in the hands of a very few, and he fears we are moving toward a future with “levels of inequality never before seen.”

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Not everyone is buying it. Critics of the thesis say that the overall gains of the capitalist system eventually reach every person, even if some benefit more than others. They point, for example, to the significant drop in extreme poverty around the globe in the past 40 years. Vast income inequality is not the problem, they say.

In an interview with The New York Times (4/20), Mr. Piketty agreed there is nothing inherently wrong with inequality, which can spur initiative and help create wealth. But the benefits of wealth, he explained, need to extend to a larger group. To that end he proposes a global tax on wealth and steeply progressive tax rates on large incomes.

Such measures are fiercely opposed by those who demonstrate an intense concern for the rights of individuals to make money and pass it to their heirs with little or no government interference instead of defending the rights of the poorest Americans to basic necessities like food, shelter, health care and education. President George W. Bush signed legislation to lower the top tax rate on dividends from 39.6 percent to 15 percent and to completely phase out the estate tax. Congressman Paul Ryan has proposed a more radical plan to eliminate all taxes on interest, capital gains, dividends and estates. In Capital, Mr. Piketty expresses concern about the increasing percentage of wealth that is inherited, not earned. He calls it a system of “patrimonial capitalism,” and argues that it undermines the role of merit in democratic societies.

This analysis should challenge Americans to rethink our notions of wealth and poverty and whether any semblance of “equal opportunity” actually exists. Who is the “taker”—someone who gets $133 each month to buy food, or someone who inherits a multimillion-dollar fortune from his or her parents? Is the opportunity for the American dream equal for a child who grows up in one of the poorest areas and one from a wealthy suburb? Of course not.

The true test of any economic system is whether it protects human dignity and provides for the basic needs of every member of society, especially the most vulnerable. In “The Joy of the Gospel,” Pope Francis denounced an economy of “exclusion and inequality” and asked why it is news when the stock market drops two points but not when an elderly homeless person dies of exposure. The promotion of justice in society, he wrote, requires “decisions, programs, mechanisms and processes specifically geared to a better distribution of income, the creation of sources of employment and an integral promotion of the poor which goes beyond a simple welfare mentality.”

What policies will reduce inequality rather than exacerbate it? Though little can be expected of Congress these days, they would be right to increase the federal minimum wage, expand the Earned Income Tax Credit and reinstate the tax rates of the 1990s, which would decrease dependence on public assistance and strengthen the safety net for those who still need it.

The questions, problems and solutions regarding the use and abuse of capitalism are as varied as the think-tanks, position papers and experts who study them. Mr. Piketty has made an important contribution. His book prompts the discerning person to evaluate anew the human and social costs of capitalism. The creative thinking of citizens is now required to combat the ills he has diagnosed.

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J Cosgrove
4 years ago
people who own “capital”—assets like businesses, housing and land
From what I understand this is not the real source of wealth in recent years. The much derided inequality has mainly come from equity ownership, primarily the stock market. When the stock market falls, the inequality index gets less extreme. Is this real wealth? In the short term for an individual, the answer is yes because it can be turned into money and all it can buy but if all decided to cash in, the stock market would drop like a rock and so would all the so called wealth inequality.
What policies will reduce inequality rather than exacerbate it?
Is reducing the inequality the objective if it makes the people poorer? What the advocated policies should be is what will reduce the plight of the poor and raise the well being of the population in general. To that end there has never been anything as effective as free market capitalism. And remember many forms of capitalism are not the free market strain and will actually inhibit growth. So the editors should instead be focusing on how to make capitalism more free. There is nothing in free market capitalism that is opposed to a safety net for the unfortunate but the driving power in the economy should be innovation and efficiency so that the desired goods can be distributed at less expense.
Mr. Piketty has made an important contribution.
No, he has muddied the waters by suggesting a counterproductive approach to the distribution of goods. The editors should be all over this because Mr. Piketty's solutions will worsen the plight of the poor, not help them. I have to wonder why they even consider it an alternative to be considered. It certainly will not help the poor. Here are some articles within the last 2 weeks on this topic: http://www.telegraph.co.uk/finance/economics/10796532/Thomas-Pikettys-bestselling-post-crisis-manifesto-is-horrendously-flawed.html http://blogs.telegraph.co.uk/finance/andrewlilico/100027182/inequality-isnt-a-problem-its-a-driver-of-progress/ http://www.realclearmarkets.com/articles/2014/04/23/piketty_and_krugman_admit_the_laffer_curve_is_real_101017.html
Chuck Kotlarz
4 years ago
If one regards the GOP as the standard bearer of free market capitalism, please note eight of the worst economic crises since 1857 (panics, depressions, etc.) have all had a Republican controlled Senate, seven had a Republican controlled House of Representatives and six had a Republican President. Economic crises severely impacted business. A thirty per cent contraction in business activity was not unusual. After Social Security, economic crises became less severe. Social security spending of retirees provided a substantial cushion against economic free fall. In the last thirty years the three worst recessions occurred during the Presidencies of Reagan and Bush II.
J Cosgrove
4 years ago
eight of the worst economic crises since 1857 (panics, depressions, etc.) have all had a Republican controlled Senate, seven had a Republican controlled House of Representatives
From Wikipedia:
However, since 1980 there have been only eight periods of negative economic growth over one fiscal quarter or more, and four periods considered recessions: July 1981 – November 1982: 14 months - Republican Senate and Democratic House July 1990 – March 1991: 8 months - Democratic Senate and House March 2001 – November 2001: 8 months - Divided Senate and Republican House December 2007 – June 2009: 18 months - Democratic Senate and House
http://en.wikipedia.org/wiki/Recession
In the last thirty years the three worst recessions occurred during the Presidencies of Reagan and Bush II.
This is cherry picking at its best. Reagan forced the recession in 1981 along with Paul Volcker in a successful attempt to reign in inflation which was approaching 15% during the late Carter presidency. I suggest anyone who is interested read "The Great Inflation" by Robert Samuelson. http://www.amazon.com/The-Great-Inflation-Its-Aftermath/dp/0812980042 This recession was a necessary cure for a very bad economy that Reagan inherited. It is not often that we have a president that forces a necessary bit of harsh medicine on the country. The "Great Recession" 0f 2007-2009 took place after the Democrats won control of both houses of Congress in 2006 and starting writing the budgets. So if anyone wanted to put blame on anyone, it is possible to single this out. However, it wasn't who controlled the Senate and House that caused the Great Recession. It was a housing bubble that started with Democratic policies in the early 1990's to redistribute wealth through housing. This bubble started a few years later as housing prices started to accelerate as mortgages became easy to get. We could go on and on and analyze each recession since the 1920's and will see that nearly every one was the result of government intervention in the economy. I am not sure what the other recession referred to was but one happened as Bush II took over from Clinton and the recession was essentially in progress as he took over. Another mild recession happened during Bush I when he allowed the Democratic congress to raise taxes. The Housing policies were an attempt to decrease inequality and look what happened. Also, the greatest surge in inequality took place during the late 1990's during the internet bubble when the stock market rose at unprecedented rates making billionaires and multi-millionaires out of tens of thousands. Do we want to blame Clinton for this increase in inequality. This increase in wealth was not an increase in wealth in the traditional sense as these people did not control land or even methods of production. Current inequality is again being fueled by equity ownership and the stock market has been the main beneficiary of the 0% interest rates orchestrated by the Federal Reserve. The Fed has been pumping about $85 billion every month into the economy and the country has seen little in return for this except for higher stock market prices. So is Obama and his economic team the cause of the latest surge in inequality. If so, then his campaign against inequality is one of the most disingenuous and cynical aspects in American history.
Chuck Kotlarz
4 years ago
Marriner Eccles felt the Federal Reserve alone was not capable of preventing booms and depressions. A properly managed plan of government expenditures (social security, unemployment insurance, etc.) was essential. So too was a system of taxation conducive to a more equitable distribution of income. Reagan named the Federal Reserve Building in honor of Marriner Eccles.
John Moynihan
4 years ago
Jack Moynihan; 5/15/2014 According to the editorial information, Mr. Piketty is providing a welcomed challenge to the existing dominated and dehumanizing economic system. Any discussion on the rectification, in a substantial manner, of the grave problem of world inequality requires that the participants have a lived experience or a sincere involvement with the world’s “have nots,” seeing reality from their point of view. This would be a great help in understanding that authentic development is not by any means primarily an economic affair, rather it is an affair of human integral progress which enables people to live in a humanly dignified and responsible manner. To continually have some few ‘elite’ people designing, and yes, actually imposing development planes based on economic growth criteria such as the inexcusable pretext that everyone will be able to have a certain share in all the resulting benefits by reason of the trickle down affect, is a reality that requires a complete change for the good of humanity and all creation. It is also important to mention that free trade agreements, in spite of all the rhetoric concerning them, are powerful contributors to the enhancement of the global inequality process.
Chuck Kotlarz
4 years ago
"The "Great Recession" of 2007-2009 took place after the Democrats won control of both houses of Congress in 2006…However, it wasn't who controlled the Senate and House that caused the Great Recession. It was a housing bubble that started with Democratic policies in the early 1990's to redistribute wealth through housing." Federal bailout money to “fix the crisis” perhaps should have gone to housing bubble homeowners facing foreclosure. Instead, bail out money went to “too big to fail” financial institutions. "Too big to fail" takes us to Glass-Steagall banking regulation. Citibank (called National City Bank in 1929) got rid of Glass-Steagall in 1999. Federal bailout money went to Citibank in 2008. In November 1929, Senator Carter Glass, co-author of Glass-Steagall, said of Charles Mitchell, National City Bank’s president, "Mitchell more than any 50 men is responsible for this (1929) stock (market) crash." PIMCO’s Chief Investment Officer, Bill Gross, suggested the 1999 repeal of the Glass-Steagall Act -- which erected a wall between investment banking and commercial banking, and prohibited commercial banks from speculating with depositors' assets -- may have been a mistake. PIMCO is one of the largest bond investors in the world
Mike Van Vranken
4 years ago
Why has it become ok to equate equality with income? We are all created equal. I wish we had leaders who would start talking about our human equality. Then, and only then, will people with wealth have a greater desire to share. We can tax the wealthy and just take if from them. Or, we can teach the wealthy and inspire them to give. I don't remember any stories where Jesus wrestled the rich people to the ground and took their money to give to the poor. I do remember his being a leader by teaching how we are all created equal and how to love each other. It's about teaching the love of Jesus to each other. It's not about passing another tax law. Those tax laws have not worked very well in the past with regards to causing anyone to be personally generous to those in need. Let's teach love, not taxes.
Steven Reynolds
4 years ago
It seems to me that all the editors have proposed are three specific policy measures that are properly seen as moderate political positions. They don't expressly endorse Mr. Piketty's specific policy proposals, which are obviously not politically viable, but, as they should, the editors remain us of Catholic social teaching and call us to consider that teaching, presented so clearly by Pope Francis, and the Gospel message. Jesus did not command higher taxes, and did call us to love, but he also warned of the consequences of neglecting the poor (e.g., Lk 16:19-31, MT 25).
Chuck Kotlarz
4 years ago
"Render unto Caesar the things that are Caesar's…” comes to mind. Up to $32 trillion in offshore tax havens perhaps would leave Caesar in a tenuous position. $32 trillion, if correct, is twice the annual US GDP.
Vincent Gaitley
4 years ago
Capitalism? Where is capitalism in full flower today? All, absolutely all, of the economies of the earth are of a mixed nature of statism and welfarism, monopolists, or those charming kidding communists of China and North Korea. Complain if you must about the status of the poor, but don't blame earnest business folk competing against government run monopolies, propped up banks, etc. Blame corrupt governments, e.g. Nigeria, holders of vast resources but only the few thrive and they are also the ones in power. The failures that Piketty studies are actually the shortcomings of the new feudalism, not capitalism. If you wish to combat poverty, encourage political liberty and let the people create wealth and keep it. Everything else is baloney.
Chuck Kotlarz
4 years ago
Electing a democrat to the White House perhaps is a simple way to combat poverty. Since 1947, increases in median income have overall been over four times better with a Democrat in the White House.
Tim O'Leary
4 years ago
Chuck - when it comes to macro-economic events, there is often a lag in the effects of policy, and the US Congress and foreign events play a major role in policy. For example, you have probably heard the statistic that all major wars of the 20th century except the Persian Gulf Conflict were initiated by Democratic Presidents (WWI-Wilson, WWII-Roosevelt, Korea-Truman, Vietman-Johnson, Gulf-Bush). But, it would not follow that Democrats were necessarily against peace. Median income is likewise driven by many things far more influential that the President in the White House.
Chuck Kotlarz
4 years ago
“Median income is… driven by many things far more influential than the President in the White House.” The Senate and House of Representatives perhaps should be included. For example, the eight worst US economic crises since 1857 (panics, depressions, etc.) all had a Republican controlled Senate, seven had a Republican controlled House of Representatives and six had a Republican President.
Tim O'Leary
4 years ago
So, Mr. Piketty concedes there is nothing inherently wrong with inequality. But, he also wants a global wealth tax. I wonder who would get to administer such a totalitarian monstrosity? Talk about taxation without representation. This would result in a massive increase in power inequality, away from families and toward states. As with most of these efforts in the 20th century, it would hurt the poor and aggrandize a new political class. If his thesis were correct, then China and India should never get richer than the US and Europe. But they are heading that way! There shouldn't be a middle class in those countries, and global inequality shouldn't be dropping, but it is, at an unprecedented rate (See this chart http://www.aei-ideas.org/2013/11/actually-global-income-inequality-seems-to-be-on-the-decline/) whereas the inequality that is rising is within certain nations and is due to the rising disparity in education, and work skills (related to weakened family structure and culture). Let's focus on the real needs of the poor, and not on a comparison of their wealth with rich people. Policies that result in less human suffering of the poor (my idea of a preferential option for the poor) should be the Catholic focus: 1) they should to be safe from violence (strong legal framework, law and order), 2) have access to basic health (support CRS and Catholic hospitals) and 3) solid education in a moral culture (support truly Catholic schools and colleges), 4) encourage self-reliance, discipline and access to entry-level jobs (minimize any obstacles to hiring low-skilled or inexperienced workers). 5) Increase tax incentives for works of mercy (double the current US deduction) and keep it the current level for education, the arts etc. I note that the Obama administration often talks about inequality and attacks the very rich, but they then had an invitation-only event of their children to the White House - 100 young heirs to billionaire family fortunes. Doesn't seem like equal access to me. Some called it a field trip for the 1% (or the 0.00001%). Of course, if there was a massive inheritance tax, none of these true "you-didn't build-it" kids would be able to become philanthropists.
Joshua DeCuir
4 years ago
For once, I think I'm with the Obama Administration: "There is no sign [of] embracing the more radical solutions for rising inequality that Mr. Piketty recommends, such as drastically higher taxes on income in the highest brackets or a global 2 percent tax on wealth. For now, wrestling with the ideas contained in “Capital,” rather than the policy proposals, is the best that Piketty fans are going to get from the Obama administration." http://nyti.ms/1kLXXbh Of course, the piece (as well as this Editorial) also fail to mention Pres. Obama's proposal to cut, rather than raise, the corporate tax rates.
John Walton
4 years ago
Let's not bury Mr.Pikkety too quickly -- the book is full of factual and methodological errors. Here's a fact -- and my source is one of the economic writers at the not-conservative NYTimes -- don't hang me on this but the article is archived on my other computer -- of the top 1% income earners, about 35% are company management and entrepeneurs, another 30% are in law, finance and banking, 5% to 10% in entertainment and sports and the balance Pikkety's "rentiers". The rentier "class" disperses wealth relative to the entrepreneurial class! Indeed, how many Rockefellers are in the top 500 wealthiest? How did a Hungarian refugee start Intel, how did a guy who worked the deli become the head of SAP? When throwing a brick at capitalists, it's important to analyze ones' self and personal motivation. Not only are gluttony and avarice "cardinal" sins, so is jealousy.
Chuck Kotlarz
3 years 11 months ago
A February, 2014 NYT article noted the banking, venture capital, and financial sector is in charge of allocating the economy’s investment resources. They decide which companies and industries will shrink and which will grow. According to the Economist, the top twenty-five hedge fund managers make more money than all the CEOs of the S&P 500 combined. At what point does hedge fund investment allocation become centralized control of capital? Perhaps it already is. Centralized control of capital failed in Communist Russia.
Aaron Kennedy
4 years ago
I get the distinct impression this comment thread is being paid a lot of attention by those with a vested interest in discrediting the Piketty book. Only natural to expect extreme opposition to his ideas in the major economic power in the system he is critiquing. Sad. As catholics we cannot beat around the bush about care for the poor. It is mandated explicitly in the gospel. It is at the centre of our faith.
J Cosgrove
4 years ago
Sad. As catholics we cannot beat around the bush about care for the poor. It is mandated explicitly in the gospel. It is at the centre of our faith.
That is why I object to anything like what Piketty is recommending. His recommendations are a formula for impoverishing billions. Nothing has helped the poor more than free market capitalism. It has been the greatest creator of jobs and wealth the world has ever seen. Until it started being practiced on a wide scale in England, Holland then in the US, most people in the world were barely getting enough to eat. There is nothing in the concept of free market capitalism that prevents helping the poor. Free Market Capitalism is what the editors should be recommending to help the poor. Sad that some would even consider what Piketty is recommending.
Chuck Kotlarz
3 years 11 months ago
The impoverished already exist. The poorest 3.5 billion, or half the world’s population, have as much wealth, as the world’s 85 wealthiest people according to Oxfam, a global anti-poverty group. Do 3.5 billion have a free market or do 85 people run half the planet?
Joshua DeCuir
4 years ago
I don't see anyone "discrediting" his book, merely questioning (largely) his proposed solutions - which thus far have shown little traction even among liberal Democrats. His proposal of a major global tax on capital faces significant implementation questions, etc. Frankly, the proposition of a "global" solution to inequality has always struck me as a bit of a fools' gold given the complexity of it; again, as folks like Thomas Edsall & Larry Summer have stated there are very significant implementation & enforcement burdens. I think that a fair criticism whether Piketty proposes it, or Pope Benedict does. I think the Church's support of such a problematic solution weakens its credibility on this important topic. Be that as it may, the book is a work of economic theory, not a doctrine of the Church. I think it fair to ask whether his solutions are workable or not. You are correct that care of the poor is at the heart of the Gospel; but it is silent as to whether a global capital tax is the most efficient means of addressing poverty. Thus far, based on the reactions of policy-makers from diverse ideological backgrounds, it would seem it isn't.
Anne Chapman
4 years ago
I seldom agree with the views of several of those who have made comments. However, the subject under discussion is really a matter of economics, rather than theology. How best to serve the world's poorest of the poor? It is a subject dear to my heart. As an economist who spent about 20 years of my career involved in research related to international economic development, I fear those who condemn capitalism without caveats and nuances, and seek simplistic solutions to poverty, and especially to perceived economic inequality. Imposing a global "wealth tax" is a political impossibility. Individual countries may try it, but they had best be very careful. Some may forget the children's fable about killing the goose that lays the golden egg. Jealousy and resentment of the uber-rich do not make good economic policy. And as pointed out by someone, most of those who are now among the richest in the world did not come from wealth. They had ideas that turned into businesses that became very successful. They became wealthy - but they also created jobs by the tens of thousands, they paid millions and millions in corporate and personal taxes. The very rich may own a seemingly disproportionate amount of the wealth, but they also pay the vast majority of taxes. Corporate taxes in the US are higher than in most of the "socialist" European countries. The Scandinavian countries (especially Sweden) also have many, many tax breaks for entrepreneurs, supporting them in every way they can. Is capitalism flawed? Yes because the people involved are flawed. No economic system ever tried has not been flawed. There are many distortions to pure capitalism, some come from government, some from the banks, financiers, investors etc. But in spite of the un-evenness, no other economic system has had the success that capitalism in various versions has had in lifting the poorest of the poor countries out of extreme poverty. Younger people do not remember when Asia was poor instead of [now mostly] rich. They do not remember when Latin America was also mostly poor. The growth of wealth in the countries of these regions has also meant the birth of a middle class and less income inequality, instead of the extreme inequality that was characteristic of all of them. Even in China and India, the middle class is growing quickly. China was forced to adopt some aspects of capitalism in order to fend off disaster for its huge population. There is still too much poverty and defenders of capitalism should not be knee-jerk in response to proposed policies that will help the poorest of the poor in the world. But simplistic attacks on capitalism if implemented into policy could be an enormous set-back to countries still struggling to bring more of their people out of extreme poverty. Progress in Africa has been slower than in other parts of the world, and many problems remain to be resolved there. Capitalism must always be adapted to local cultures and mores. It is a continuing challenge, but now is not a good time to kill that goose. There are always people who fall through the cracks, who do not benefit from the general improvement in the economic development of their countries. They must always be cared for by those who do. But utopian solutions don't work and in the long run, it is still better to teach those who are able to fish, to fish (another of those very true sayings).
Chuck Kotlarz
4 years ago
“Jealousy and resentment of the uber-rich do not make good economic policy.” There is a flaw in the capitalist system that allows wealth and power to consolidate once it's acquired. Regardless of whether a corporation or an individual acquires capitalism’s flaw, the economics term is monopoly, not jealousy and resentment. “Fixing” a monopoly requires breaking it up. “…most of those who are now among the richest in the world did not come from wealth.” One family related to Sam Walton (1918 – 1992) controls more wealth than half the US combined. “The very rich…pay the vast majority of taxes.” Walmart’s 700,000 low wage employees (under $9/hour) pay nearly $1 billion in Social Security and Medicare taxes. The top ten US hedge fund managers in 2012 on their combined $10 billion income paid less than $100,000 in Social Security and Medicare taxes. Hedge fund managers perhaps paid federal income tax on $1 billion and put $9 billion in offshore tax havens. “Corporate taxes in the US are higher than in most of the "socialist" European countries.” According to the Congressional Research Service, the United States has an effective corporate tax rate of 27.1 percent, compared to an average of 27.7 percent in the other large economies of the world. Real corporate tax rates are near a 60-year low; corporate profits are near 60-year high. Corporations are sitting on almost $2 trillion of cash.
Joshua DeCuir
4 years ago
I find many of these reponses to be a bit too neat & tidy, & obscure much of the gray area. First, while capital returns have outstripped the overall rate of growth, what is not mentioned is that capital is now more largely diversified & de-centralized. Home ownership is still probably at its highest, & of course most American workers now have significant stock holdings via their 401(k) plans, etc. The idea that somehow capital has been consolidated in a small caste is not totally accurate. Moreover, while certain families remain wealthy, what you fail to mention is that much of that wealth is tied up in foundations, endowments, etc. (See, e.g. Bill Gates, Warren Buffet, the Waltons). All of these vehicles are tax advantaged, but they also do a significant amount of good. Finally, the growth in executive pay in some measures has resulted in drastic shifts of capital (whether those shifts are good or not can be debated, I suppose). Thus, the annual pay of Mark Zuckerberg & the founders of Chipotle is far higher than that of "blue-chip" companies like Ford, etc. Secondly, this diversification of capital has lead to the effort to maximize shareholder return above all. The hunt for returns leads to all sorts of consequences, some good, others bad. But let's be clear: the higher returns benefits all those who hold capital, which is one of the reasons that unions & university endowments are some of the biggest players in private equity & other alternative investment vehicles. Finally, your comments about the corporate tax rate & off-shore profts misses some key points. Yes, the "effective" corporate tax rate is (probably) lower than the statutory 40% rate (how much lower is not easy to determine). But you what don't account for is that if US corporations were to bring those profits back to the US, & then distribute them as either dividends or otherwise invest them, they would be subject to another tax at the individual level (the problem of so-called "double taxation"). This double taxation means that the effective tax rate would be much higher (especially so if various proposals to increase the capital gains rate were to be implemented). I think everyone agrees shareholders, and workers, of US companies would be better off with $2 trillion invested or otherwise deployed in the US, but coming up with a solution on how to get there is tricky. This is why, for example, Pres. Obama has consistently proposed cutting corporate tax rates. Economic data is inherently relative; it's easy to pick out numbers or facts to support one's position, but the meaning & import of the facts are only fully gleaned by looking at them in comparison with other data, especially historical. This also means we have to ask what the relative tradeoffs are of various proposed solutions. Yes, there are real economic problems facing the middle class & poor in the US, primarily in the form of stagnating wages. Michael Barberi also rightly mentions the many other social problems cropping up (problems which you don't hear many on the left addressing). But the balance in finding solutions to those problems is complicated & messy, & don't lend themselves to neat & tidy responses.
Chuck Kotlarz
3 years 11 months ago
If earlier comments were "neat and tidy", try the following: "Inequality Kills," by Stephen Bezruchka, a former emergency room physician who is now a professor of public health at the University of Washington.
Michael Barberi
4 years ago
I have not read Mr. Piketty's book but watched a few news programs that attempted to briefly explain it. What I found interesting was that the rate of return on capital has been greater than the rate of economic growth, although there were a few exceptions. Thus, the people with the capital to invest in businesses, etc, have seen their capital increase (they are getting richer) and the people without any capital (e.g., the poor and perhaps the lower middle class) are setting in low paying jobs that are not keeping up with inflation (assuming they have a job). Mr. Pittney argues that economic inequality will continue. His solutions are not very practical and they are largely academic. What is missing here is other solutions to the obvious causes of inequality. There are many and no one seems to be willing to do something about them. > About 48% is the birth rate of out-of-wedlock women in the U.S. > About 70% is the birth rate of out-of-wedlock African-American women > Most of those in poverty do not have a college education. A significant percent of the unemployed only have a H.S. education and no licensed professional skill (e.g., a master plumber) > The unemployment rate is significantly greater for low income workers and those with no professional and technical skills than the general population. The questions are these: 1. Is the lack of higher education and/or professional skills a cause of income inequality? If yes, is there equal educational opportunity for all? If not, what are the costs of solutions? 2. What percent of people who are poor, near poor and in the lower middle class desire a higher education (e.g., 4 year college degree)? What percent qualify for, attend and graduate college or professional-technical school? What percent cannot afford college even with existing grant programs? What are the costs of solutions? 3. What can and should be done about teaching basic morality and/or the availability and proper use of contraception to those who are single and not married (to significantly reduce out-of-wedlock birth rate)? Would this be part of the income inequality solution? 4. Is increasing the tax rates for rich the answer? Is increasing the tax rate for corporations the answer? Is raising the minimum wage the answer? What are the potential negative consequences? 5. Would economic policies that motivate companies to create more jobs and higher paying jobs be the focus of a solution to income inequality? 6. How do we balance the needs of the poor with all other priorities that compete for monies in a fixed budget? What do we eliminate or cut, and where should the money be spent?
Chuck Kotlarz
4 years ago
American corporations have $2 trillion in offshore tax havens. The virtual capital equivalent* of the soon to be world’s largest economy (China) resides in tax havens avoiding taxes. Here are two questions for you. Other than avoiding taxes, what is $2 trillion in tax havens doing? Is it starving America of capital (and tax revenue) until America is the size where it can drown in a bathtub? *China’s stock market, the Shanghai Stock Exchange (SSE), has a market capitalization of about $2 trillion. Take a corporation’s stock price times the number of outstanding shares to get its market capitalization. Adding up the market capitalization of every SSE listed corporation comes to $2 trillion.
J Cosgrove
4 years ago
If true, what has any of this to do with creating inequality. It should do just the opposite. It sounds like a strategy to reduce inequality world wide as these corporations invest this money outside of the US where it could have greater value and help poorer countries. If it comes back here it will just be wasted on inefficient government projects. Good for them. It is the Catholic and Christian thing to do,
Michael Barberi
4 years ago
Chuck, I agree with J Cosgrove's comments. What does your comments have to do with inequality? Moving capital from the U.S. to a poorer country or a developed country helps the economy of that country. The issue is how does each country share its wealth and income with its citizens? This is a highly complex problem. The book under consideration in this article, talks about some type of global tax as one possible solution. At what point is taxation equitable? For example, is 50% of a person's annual income a fair tax in the U.S., or 85%? What about 45%? Should the taxation rate on the rich vary based on whatever it takes to provide more income to the poor, near poor and lower middle classes? What is the equitable income redistribution strategy? Should this income redistribution strategy take into consideration the many causes of inequality? If so, what are the causes? As you can determine by my questions (and my earlier ones), income inequality and its solutions are highly complex and no simple solution exists. As Catholics we can vote for the representatives who reflect our values especially in terms of income equality. However, a representative is not defined solely by his or her position on a specific issue. A person's good judgment about taxation or income redistribution must take into consideration many factors. Unfortunately, income inequality will be with us for a long time as we make progress towards eliminating or minimizing it. In the meantime, new studies and books about this issue enlighten us until we discover that the proposed solutions may not be as practical or feasible as we have thought.
Chuck Kotlarz
3 years 11 months ago
Half of US wage earners are at or near poverty wages. Ramen noodles on a dinner table is hardly a hot bed market for entrepreneurship and innovation. Federal Reserve economists Sánchez & Yurdagul tell us corporations were sitting on corporate cash at an all-time high, at nearly $2 trillion, in the 3rd quarter of 2013. Is a $2 trillion cash hoard perhaps the largest entrepreneurship and innovation boneyard in recorded history? As Piketty would say, “When inequality gets to an extreme, it is completely useless for growth.” The "die hard capitalists," in their quest for money and power, perhaps are only good at destroying things. America’s middle class, once the workhorse of the world’s greatest economy, withers away from years of trickle down, Bush tax cuts, sequestration, federal government shutdown, etc.
Joseph J Dunn
4 years ago
"American corporations have $2 trillion in offshore tax havens." Actually, American corporations have $2 trillion in foreign countries, where the money was earned. Most of these countries are not "tax havens" and have already collected their income tax on those profits, just as the U.S. collects income tax on profits of foreign-based corporations earned in the U.S. (e.g., Bayer, BMW, Toyota, etc). But here is the important point: If BMW, as an example, then moves the already-taxed (by the U.S.) profits back to Germany, the German government does not tax those profits again. However, if General Motors (as an example) brings into the U.S. profits that were earned in and taxed by Germany, the U.S. government would tax those profits again at the U.S. income rate as soon as the funds are repatriated. Note that the United States is the only OECD country that taxes repatriated profits. If, for example, Singapore taxes GM on its profits there (earned making and selling cars to Singaporians), GM pays an additional tax on those profits if they are repatriated to the U.S. However, after BMW pays the Singapore tax on its profits earned there, it will pay no tax to Germany when the money is repatriated. The archaic and non-competitive U.S. law has three effects: (1) U. S. firms leave their money overseas where they invest in new facilities, equipment (read: Jobs) there, rather than bringing it home to be taxed again and thus have less value here (2) U.S. firms that try to sell to overseas customers from their U.S. bases are less competitive since they must deal with extended transit times, compared to firms that are located in the country or region of their customers (3) the "repatriation tax" forces some distortions in capital uses, such as Apple's recent borrowing of tens of billions of dollars to raise cash in the U.S. to pay dividends and buy back shares, when (if the U.S. tax laws were sensible), Apple could have simply brought foreign profits into the U.S. to meet these expenses. Sadly, few people besides business execs and accountants understand this U.S. tax anomaly, and many politicians use terms like "offshore tax shelters" to confuse the issue. So the $2 trillion is overseas. If we want that money to come back, we simply have to have tax law that replicates that of every other OECD nation, and extend to our own corporations the same treatment that all other OECD countries grant their own corporations. Not all the foreign profits would come back, as some is legitimately needed for investment overseas. But a major part of $2 trillion, coming back into this country would be a significant positive for our economy.
Paul Stolz
4 years ago
The idea of "patrimonial capitalism" your suggestion that a child who inherits wealth is a taker concerns me. Personally I come from a blue collar home, dad, a disabled unemployed factory worker, mom worked 3 part time jobs to keep our heads above water. So while I did not benefit from "patrimonial capitalism" i do not begrudge those who do. Dont parents work hard and sacrifice to care for their children? In some cases to leave a legacy of some sort? thanks to parents who at least encouraged me I now have a well paying job and some assets. Is it wrong to want to pass those on to my children? Dont I have an obligation as a Father to care for my family, even in my death? Does the church teach that the family is the "cell of society"? Isn't it kind of harsh to call my children "Takers" if they gratefully receive what I give them? Whether I give them hundreds, thousands or millions why would you begrudge them that? Your promotion of class envy concerns me America editors....
Marie Rehbein
4 years ago
People don't need to be equal in assets or income, but they do need enough of both so as to have enough to eat, a safe, comfortable home in which to live, and decent clothes to wear. I believe most people would no more want to trade places with the very wealthy than with the truly poor.
Tim O'Leary
3 years 12 months ago
A rather devastating critique of Piketty's analysis comes out today from the UK's Financial Times, typically leftist on most issues. Here is a quote: "A Financial Times investigation, however, has found data problems and errors in Prof Piketty’s work. These include unexplained entries in his spreadsheets, cherry picking data sources and transcription errors. Taken together, these problems seem to undermine his conclusion that wealth inequality is rising in the US and in Europe." This agrees with Martin Feldstein's "The numbers don't add up" piece in the WSJ (http://online.wsj.com/news/articles/SB10001424052702304081804579557664176917086) and Larry Summers criticisms (Harvard, ex-Obama and Clinton Admins - http://www.democracyjournal.org/32/the-inequality-puzzle.php?page=1)

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