Howard Davies on Piketty's Capital & Ideology

Howard Davies writes in the Literary Review of Piketty's Capital & Ideology

 what is Piketty’s main thesis? It is that the sharp growth in inequality of income and, especially, wealth we have seen in most Western societies in recent years is unsustainable.

No growth trend known to Economists is sustainable. This is scarcely news. Sadly, this does not mean that most people who currently think of themselves as 'one percent' will remain so. But such has always been the case.

Furthermore, our traditional political parties find it impossible to engage with the problem. Taking the UK as an example, he argues that the two main parties are now led by the ‘Brahmin Left’, with Labour having become the party of the highly educated, its working-class roots withered, and the ‘Merchant Right’, who cling to the belief that loosely regulated free markets will deliver prosperity for all, one day. He argues that the trickle-down theory on which that latter assumption is based has given way to a trickle-up phenomenon, with the rich getting richer and the incomes of the middling sort stagnating.

Thanks to Tony Blair, everybody is 'highly educated'- except those with useful skills or those who aren't utterly stupid. The young voted for Corbyn. The old could not be fooled. They trust the Tories to pay their pensions and fund the NHS. They don't trust Corbyn to order a doner kebab.  It remains to be seen whether BoJo can get the young to pay for the entitlements of the old in some glorious new free enterprise Britain.

The Class struggle is over. Capitalism is the 'Bank of Mum and Dad'. All we have now is generational conflict- or rather its surprising lack.

So, as Lenin asked, what is to be done?

Kill nutjobs like Lenin. If the Law won't permit your killing Lenin, make sure he has to have a PhD in some worthless shite before he can start babbling about Capitalism. That way everybody will dismiss him as a Varoufakis like narcissist.

The last section of the book presents a detailed manifesto for change, under the slightly clunky heading ‘Elements for a Participatory Socialism for the Twenty-First Century’. He wants more open access to higher education for poorer people,

Though a third of males in the UK have the same or lower life time earnings as a result of higher education. Male arts graduates earn 14 per cent less than the average male non graduates. Even with free tuition and maintenance grants, College reduces earnings at the margin. 'Open access' means Degrees not worth the paper they are printed on.

and other slices of motherhood pie. But the core of the case is more hard-edged. Essentially, he argues that property and capital (he adopts a very broad definition of capital, including within it a workman’s tools, for example) should be seen as temporary, not permanent. So an entrepreneur can legitimately accumulate capital during her lifetime, but eventually much of that capital should return to society as social property.

So, make your money in one place and retire somewhere else. Or don't make money and hope to leach off the young.

The mechanisms for achieving this transfer involve the aggressive use of income, wealth and inheritance taxes.

But without draconian capital controls, these things can be easily evaded. On the other hand, guys doing crypto-currency will make a killing.

Income tax, he claims, should be much more progressive than it is today in Europe and the USA, reaching 90 per cent for the highest earners.

So the best surgeons spend a lot of time golfing and attending bogus conferences so as to keep their taxable income down. Then suddenly it turns out that they have a Family Trust in Dubai or Shanghai or wherever which funds their retirement. The good news about a high tax regime is that the only thing that matters is trust. Did you go to the right schools and colleges? Are you 'one of us'? If so, you have a wonderful life and the leisure to enjoy your expense account while an offshore Trust Fund is replenished in an occult manner.

He argues that we have experienced similar rates in the past and that in such times economic growth was higher than it is today.

And managerial elites lived high off the hog. But that was before you had a really effective Income Support system for the poorest and most vulnerable Once the upper working class had to pay for their more unfortunate- or feckless- brethren, they voted for Thatcher and Reagan and so forth. The Marginal rate of tax came tumbling down. The managerial class was under pressure from the institutional investor. Prices fell, services improved, immigrants and women started breaking glass ceilings, tech entrepreneurs and hedge fund guys made out like gangbusters. The working class was cool with this. They figured a Bill Gates or a Warren Buffet was like a rockstar or top football player. So long as he was on our team, it was in our interests that he got paid mega-bucks to win rather than throw the game.

Wealth taxes should be introduced where they are not in use (Piketty sees the wealth tax in France as far too low to achieve his purposes).

France's 'solidarity wealth tax' was low but it did lead to sufficient emigration so as to end up costing the exchequer and lowering GDP. Hollande's 75% 'super-tax' was even more lethal. Its yield was paltry and thus it was abandoned after a couple of years. It is unlikely that the French will be stupid enough to try anything like this again.

Perhaps most importantly, inheritance tax on the largest family fortunes should also be 90 per cent.

So they cross the border to Belgium and take their Income with them. Under current EU rules, they get to have their cake in France and to eat it in a low tax country.

Piketty plays down the potentially disruptive effects of this programme. After all, he argues, many wealthy folk have far more property than they need.

But they also have smart accountants and lawyers who are competing to save them money and to put their family assets beyond the reach of any predatory Government.

How would all these additional tax receipts be used? He favours a version of universal basic income, guaranteeing every citizen an income of 60 per cent of the median wage, rain or shine, work or play.

Wonderful! Guess how many immigrants that would attract! You live in France and have the State pay for your housing and your kids schooling and so forth. You also trouser your 'pocket money'. But you pop across to Germany or Belgium or wherever they need skilled craftsmen. Then you kit out your house with cool stuff. Go on vacation somewhere nice two or three times a year.
C'est la bonne vie till suddenly the Government is strapped for cash. Savers take a haircut. State Pensions are pared to the bone. Schools and Hospitals and roads and bridges start falling apart. Suddenly, you realize you have been led down the garden path and change your vote accordingly.

And each person reaching the age of twenty-five would be given a capital endowment to use as they wish (he proposes a sum of around £100,000).

Oddly this is exactly the amount required to get a Doctorate in Socioproctology which guarantees you an income of 1,000,000 pounds a year as well as more hot sex than you can handle.

At a time when the major political parties in the UK and elsewhere in Europe go into election campaigns with firm commitments not to increase the basic rate of tax, and a couple of months after a far less radical programme than that put forward by Piketty was roundly dismissed by the UK electorate, it is tempting to cry ‘forget it’ and move on.

It is also tempting to keep breathing rather than to hold your breath till you die of asphyxiation.

But there is a problem, and the first nine hundred pages of his book cannot be so easily ignored.

Unless you know a little Econ or have some common sense.