The Economist exclaims best selling author Thomas Piketty’s “Capital”, summarised in four paragraphs. I distill his summary down by 60% in word count to three half paragraphs - pure economic's gold here folks. (Spoiler alert! If you don't want to know how it ends, don't read this summary! (humor alert!)
I'm skipping the first paragraph which introduces French economist Thomas Piketty as "the modern Karl Marx," of the Twenty-First" century, and as someone who may cause a "shift in the focus of economic policy ... towards distributional questions."
The Economist continues:
... In the 18th and 19th centuries western European society was highly unequal. Private wealth dwarfed national income and was concentrated in the hands of the rich families who sat atop a relatively rigid class structure. This system persisted even as industrialisation slowly contributed to rising wages for workers. Only the chaos of the first and second world wars and the Depression disrupted this pattern. High taxes, inflation, bankruptcies, and the growth of sprawling welfare states caused wealth to shrink dramatically, and ushered in a period in which both income and wealth were distributed in relatively egalitarian fashion. ...
Piketty, asserts that these disruptive shocks of the 20th century are receding and the pattern of concentrating wealth is reasserting itself.
Piketty uses the extensive history established in the first part of the book to then derive a theory of how capital and wealth concentration interact.
As a general rule wealth grows faster than economic output, he explains, a concept he captures in the expression r > g (where r is the rate of return to wealth and g is the economic growth rate). Other things being equal, faster economic growth will diminish the importance of wealth in a society, whereas slower growth will increase it (and demographic change that slows global growth will make capital more dominant). But there are no natural forces pushing against the steady concentration of wealth. Only a burst of rapid growth (from technological progress or rising population) or government intervention can be counted on to keep economies from returning to the “patrimonial capitalism” that worried Karl Marx. ...
Critics argue that the law of diminishing returns to factor would suggest that returns to wealth should decline as there is more of if."
I'd like to see the research on that last assertion. How much of the wealth of today's wealthiest was achieved by "work," how much by inheritance,' and how much of that "work" has been very large financial returns due to market dynamics that did not really involve "work" as most people would think of it?... And today’s super-rich mostly come by their wealth through work, rather than via inheritance.
Now that you know how the book turns out in the end, "great wealth has a tendency grow faster than economic growth and therefore concentrates unless "disrupted," or re-balanced, I hope this will not reduce your enjoyment of reading what appears to be an important new work for all progressive Democrats. I'm sure it probably has other worthwhile moments. (Humor alert!)
This finding seems to support our traditional Democratic approach to progressive taxation, especially with regard to inheritance taxes, which we should endeavor to return to traditional pre-Bush-Obama levels if not somewhat higher. Politically, this may be impossible for a decade or more, but if we started with the billion dollar threshold first we might make some progress.
This research suggests we may need some kind of progressive wealth tax to redistribute overly concentrated wealth at the highest levels. For example, perhaps we should consider inheritance taxes of 60% for amounts over $25 million, 70% for amounts over $100 million, and perhaps even 80% for amounts over a billion.
We recently learned that the Koch brothers have a combined net worth of over $100 billion. Would anyone think it an injustice if their children "only" inherited $200 million knowing that economic theory predicts this fortune will grow over their lifetimes faster than the economy?
Maybe the inheritance tax should by 90% on estates larger than $1 billion?
One take away theme which seems to be supported by this book for me is that we need improved ways to redistribute wealth and progressive taxation may be one of the best, although I have not heard Thomas Piketty specifically recommend this, I'm making an intuitive jump which may be misunderstanding his point. Closing tax loopholes for the most wealthy to avoid concentrating it further and having the wealthiest finally pay their fair share for government services seems to be an excellent place to start, IMO.