Beyond Piketty
September 9, 2014

THE FRENCH ECONOMIST Thomas Piketty’s new 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 book is that, to the extent that a social scientist can prove anything, Piketty has proven that ever-widening inequality is in­her­ent in the current design of capitalism.  This isn’t a new idea, but Piketty—by crunching decades of economic data—leaves no room for doubt that it’s true.

And Piketty doesn’t just crunch the numbers; he explains why capitalism inexorably concentrates wealth.  The reason is that financial capital grows faster than the econ­o­my as a whole, and as a consequence, those who are already blessed with lots of capital get ever richer than those who lack it.

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 smart people are  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…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 obvious 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 taxing the rich isn’t the only way to reduce inequal­ity, and not necessarily the best.  Aside from its poor political prospects, it’s not a complete solution because it doesn’t boost the incomes of 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 latest book, With Liberty and Divi­dends for All, I show that dividends from co-owned wealth are in fact a more viable remedy to inequality than higher taxes on the rich.  (Not that we shouldn’t raise such taxes.)  Dividends of this sort aren’t redistri­bu­tion; they’re a way to allocate income fairly in the first place so 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, a universal dividend system can be built in stages, just as social insurance was in the 20th century.  It can start by charging polluters for using our atmosphere, or banks for using our financial infrastructure, and returning the revenue to all of us equally as co-owners of the underlying assets.  Over time, such dividends could rise to about $5,000 per person per year, or $20,000 per year for a household of four.

Consider what $5,000 per person per year would mean.  If a child’s dividends were saved and invested starting from birth, they’d yield enough to pay for a debt-free college education at a public university.  In midlife, $5,000 per person would add 25 percent to the income of a family of four earning $80,000 a year.  In late life, it would boost the average retiree’s Social Security benefit by about 30 percent.  All this could happen without raising taxes or expanding the size of government.

The key is to recognize the immense role played by co-owned wealth in our economy, and the fact that corporations don’t pay to use it.  If they did, our present winner-take-all economy would become an everyone-gets-a-share economy — still capitalism, but a fairer and more inclusive version.