After Piketty: Where do we go now?

THE FRENCH ECONOMIST Thomas Piketty’s new 700-page book, Capital in the Twenty-first Century, has become a surprise best-seller and sub­ject of much praiseworthy comment.  Reviewers have called it “semi­nal,” “definitive,” “a tour de force.”  And so it is.

What’s so extraordinary about this tome?  To the extent that it’s possible for a social scientist to prove anything, Piketty has proven that widening inequality is in­her­ent in capitalism and, if unchecked, will lead to perma­nent oligar­chies in America and most other self-styled democracies.  This isn’t a new idea, but Piketty—by turning decades of economic data into clear historical graphs—leaves no room for doubt that it’s true.

And Piketty doesn’t just marshall the evidence; he explains why capitalism works as it does.  The reasons wealth differences inexorably widen under ca­pitalism are that financial capital grows at a faster rate than the econ­o­my as a whole, and that those who are already blessed with lots of capital therefore get ever richer than those who lack it.  Then, thanks to weak in­heritance taxes, they’re able to pass almost all their accumulated capital to their off­spring, who continue the accumulation process.

What’s most surprising about the reaction to Piketty’s work isn’t that it’s being so widely lauded.  Rather, it’s that so many economists are actually surprised by what he’s found.

Thus, Paul Krugman—who’s no slouch when it comes to spotlighting in­equal­ity—admits that, “even for someone like me, it’s a revelation” that inequality is driven so much by capital accumulation and inheritance.  “People like me had stopped talking about [financial] capital because we thought it was all about human capital.  We thought it was all about earn­ings,” he told Bill Moyers.  “But we’re rapidly moving towards a state where inherited wealth dominates.  I didn’t know that.  I should’ve thought about it, but I didn’t.”

NOW THAT Piketty’s work has grabbed our attention, the deeper ques­tion is, where do we go from here?  Piketty’s own solution to capitalism’s ever-widening wealth gap is a global wealth tax and high national income tax rates on the very rich.  He admits these are unlikely to happen in the foreseeable future, but sees no other alternative.

But Piketty’s path—taxing the rich—isn’t the only way to reduce inequal­ity and sustain a large middle class.  And it’s not really a complete solution because it doesn’t guarantee that the collected taxes will flow to the middle class and the poor.  An alternative is to pay everyone dividends from co-owned wealth, as Alaska does with its Permanent Fund.

In my forthcoming book, With Liberty and Divi­dends for All, I argue that such dividends are a more viable solution to inequality than higher taxes.  They aren’t redistri­bu­tion; they’re a way to allocate income fairly in the first place so that there’s less need to redistribute later.  They rest on conser­va­tive as well as liberal principles and can unite our country rather than divide it.

What’s more, like social insurance, a universal dividend system can be built in stages.  It can start with revenue from atmospheric dumping fees and grow from there.  Once all Americans start receiving dividends, they—like Alaskans—will love them.  And they’ll spend them to keep our economy humming.