Poverty's Inequality Theory

1595 Words7 Pages
In Mankiw, Goldin and Katz’s case inequality is considered harmful only to the extent to which it destabilises growth, investments, and suitable conditions for the reproduction of capital. But this is a morally shallow treatment of harms of inequality, and prematurely brackets off the extent to which capitalism is itself to blame for the inequality with which they are concerned. Building upon research on tax return he previously did with Emmanuel Saez, Thomas Piketty provides a long view of the changing shape of income distribution and exploitation. One element traces the already well-known relative rise and fall of incomes over time, and their political influences thereof, ranging from unionization to re-regulatory exercises. The highlight…show more content…
Firstly, that the return on capital is higher than the growth of income; the notable r>g phenomenon, a “process by which wealth is accumulated and distributed.” Put another way, the determinants of inequality and the concentration of wealth are that returns on assets exceed the growth rate. This is not some “market imperfection,” Piketty argues, conversely “the more perfect the capital market (in the economist’s sense), the more likely r is to be greater than g.” So the share of global wealth held by a tiny fraction of the population rises much more rapidly than average global incomes. Similarly, retirees’ pension plans accumulate at the rate of assets. All of this factors into the flow of inheritances, a kind of distribution of asserts through time, that further exacerbates the concentration of wealth. There are demographic changes that Piketty does not address, such as declining birth rates amongst the wealthy that compound the concentration of…show more content…
Even famed calls to return the taxes of 80% on annual incomes over $1 million neglects that this system was fraught with loopholes. With more advanced techniques for laundering money developed since then, returning to these rates will not adequately address the problem Piketty has identified. If the problem is that the rate of return on private assets is too high, then it would more desirable to lower this rate by raising minimum wages, supporting unionization and collective bargaining, and including dividend yields as personal capital gains. These actions would lower the return on investments that exploit labour. Other options range from the creation of public leaders and savings accounts to the enforcement of anti-trust laws to break up cartels and collusions.
Piketty’s work additionally suggests extending estate tax, not as a source of state revenue nor to directly hamper outsized fortunes, but, rather, to block the formation of family dynasties. As a subsidiary benefit, an estate tax tends to foster conspicuous philanthropy that directs wealth to public and social goods. In that way it helps fund civil society and the workers whose services seek to advocate and improve public life in one way or another, improve standards of living, as well as provide some

More about Poverty's Inequality Theory

Open Document