Thomas Piketty's new book presents an interesting historical account of aggregate global inequality, but its policy conclusions would spell danger for future economic prosperity.
The basic idea contained in the 696-page tome is that if returns accrued by capital owners grow faster than general growth in the economy, then this sows the seeds for growing income and wealth inequalities.
For Piketty, the basic corrective for such inequalities should be the implementation of steeply progressive income taxes, and wealth taxes that catch excessive capital returns globally. What seems to have been overlooked in the present debate over the book is the similarities between Piketty's thinking and that of John Rawls, whose 1971 book, The Theory of Justice, enjoyed a similar rock star reception.
Piketty argues that "capitalism and markets should be the slave of democracy and not the opposite". Such descriptions are reminiscent of the "property-owning democracy" model that Rawls hinted at in his 1971 work, and explained in subsequent literary efforts, which is conceived as compatible with inequality suppression.
However the problem with these approaches is this: if respect for acquisition and disposal of capital is not entrenched within a regime of protections for basic liberties, the state can redistribute capital at will. And if reducing inequality is the prime concern, as Piketty makes it out to be, then the obvious next step is to elucidate a high-tax policy menu endorsed in Capital in the 21st Century.
Anyone concerned about the material prosperity of all people, including the poor, should be reviled by such grand schemes to impoverish societies. This is because what greater tax burdens do is slow down the rate of economic growth, or in other words stymie our increasing capacity to cooperate in creating value for other people whom we don't know intimately.
To express this somewhat differently, weakening economic growth means lost opportunities to feed, clothe, house, transport, educate, heal, and entertain people.
Now, these statements should not be regarded as a call to dismiss inequality out of hand entirely. Classical liberals castigate income and wealth inequalities engendered by governmental tax and regulatory force, or maintained by discriminatory public sector subsidies, as an anathema to the fair and prosperous society we wish to live in.
Unfortunately, though, self-described socialists such as Piketty fail to see the hypocrisy of tackling inequality by invoking the injustice that is invariably political action itself.
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