Piketty and the inequality zeitgeist

Thomas Piketty.
Friday, November 25, 2016

Dickensian children in factories and coal mines; Karl Marx debunks Capitalism; revolutions and war grip Europe; and inequality casts a gloomy smog over Europe. Ships depart with slaves, convicts and political dissidents bound for the New Worlds, of which Australia is one.

It is the 19th century, the century of capital — a time that will dialectically reverberate shockwaves towards the greatest revolutions, the greatest economic collapse and the greatest bombs.

Thomas Piketty, an economist, stunned the Melbourne audience by saying we are living in a black mirror of the 19th century.

Presenting his first Melbourne lecture “Reflections on inequality and capital in the 21st century”, Piketty declared: "Inequality, in Europe, the United States and the Middle East is reaching 19th century levels".

Referencing Jane Austin and Karl Marx, Piketty said from 1700 to 1900, private wealth was worth seven years of national income. "By 1950, it was worth just two years of national income. Today, private wealth in the US, Britain, and France is worth five to six years of national income."

Inequality

At present, three Australian billionaires enjoy more wealth than the million poorest.

Piketty said: “Australia certainly has a more egalitarian tradition and culture than the United States or Brazil, but relative to this tradition, the country has become more unequal in recent decades.”

The literature-loving French intellectual presented data showing that Australian inequality was at levels similar to 1951 and heading upwards to 1920s levels.

Piketty, in his first trip here, has found himself in the centre of the inequality zeitgeist in Australia — all that disquiet at inequality and the linkage to poverty, jobs, crime and social disengagement. A recent poll showed 78% of Australians agreed that inequality is causing havoc with our way of life.

Thousands of Australians have read, or as the in-house joke goes “attempted to read”, Piketty’s Capital. Overall the book attracted 2.5 million sales globally. That 1500 people from a wide cross-section of generations and socio-economic groups attended the event was significant.

Australia is devolving rapidly, says Piketty, to the 19th century norms. Precarious jobs, high property prices and reliance on inheritance of wealth.

Inheritance, possibly because he is French, was a focus. He optimistically forecasts an inheritance tax in Australia. In comparison to 20–40% tax rates in most of the Western world, “the Australian level is 0%, so [Australia] is very unusual,” he said.

Piketty spoke charmingly and elegantly waved his arms at the rushing workers arriving late to the 6pm event; they would perhaps later travel home to the cheaper outer suburbs. If they have jobs, they are likely to be precarious; only a minority of Australians are in permanent positions.

Outside the Melbourne Town Hall, the intense lived experience of the homeless and unemployed is on the street for all to see. With everybody seated, what is compelling about Piketty’s argument is not its newness but the natural and almost biologically fluid evidence of the graphs substantiating our everyday lived experiences.

Take the fair-minded, graphical overview of the US, Japan, Europe, and Australia. Updated for 2016, the data contrasted the 19th century with the gilded “zero tax” age, of the 1910s and 1920s — the war and post-war period of 85% progressive tax rates and full employment. Then there was the 36-year period of neoliberal radicalisation from 1980 that turbo-charged a rise in inequality.

“It is now the end of the 20th century post-war rules,” said Piketty. “Where is it going to stop? Higher than the Great Depression or higher than the 19th century?”

Of all the graphs and data, the most significant are the links between class, wealth, and education. With the well-off more likely to gain university places and professional employment, even the great leveller of education has become impotent.

Global inequality

Piketty has now set up the “World top incomes database” so the world can see the global inequality data. The data is reminiscent of the correlative spike between carbon output, warmer temperatures and environmental disaster but with one key difference; the inequality data is not disputed.

What is disputed, however, is the narrative of where capital and income circulates — termed downstream and upstream economic effects.

In a public response to Piketty, Australian National University economist and former Royal Bank of Australia board member Warwick McKibbin said: "Everybody (in Australia) had a share in the pie. We don't seem to have income distribution causing problems for growth, when everybody's income is rising.”

Piketty says that with incontestable data, neoliberal economists “need a bit of imagination to justify the current inequality levels”.

Inequality is the capital — the value of all our land, houses, vehicles, iPhones — and its relationship to income — wages, rents, shares, and investment. “Fundamental inequality” occurs when returns and rents for the affluent spike and overtake wage growth.

One thing Piketty consistently points out is that as we spend more on rent and consumer items, we have less to save and invest. The saving rate is 15% for the top income earners, while the majority save 5%, and for the rich this statistic does not include superannuation or property value increases.

To strengthen the facts of our reality Piketty has taken to including the Middle East, South Africa and South America.

“The Middle East is the most unequal region in the world,” he said. “Resources are much worse for equality than even racism. Lessons for emerging countries exist within Western countries.”

Proposals for change

The Piketty solutions canvassed in Melbourne, are coalescing with other economists such as Anthony Atkinson who published a similar book in 1978. He said: “Very different forms of wealth sharing” will need to be combined with different social democratic systems such as mutualism, cooperatives, public ownership and socialisation.

"Unions are by far one of the best ways to tackle inequality," Piketty said.

The orthodox path to equality begins with the basics, “not a complicated science”: a 65% top marginal rate of income tax; progressive inheritance tax; guaranteed public employment; state guidance of technological innovation; and a statutory living wage.

More far-reaching propositions include distributional competition policy; maximum savings per person; state inheritances for all adults; a sovereign wealth fund to invest in public companies; progressive residential property tax; and a return to a universal child benefit.

As the graphs tower and gloom over us all, Piketty cannot escape the explosive graphical deviations in 1914 and 1939. He sees 20th century equality inextricably linked to war and revolution.

Piketty said that “war changed the way we taxed and before World War I and World War II, there was little or no tax. Postwar we even had the United States taxing wealthy Germans at 85%, which was the same as back in the US. The Russian Revolution put useful pressure on western countries to reform tax.”

A self-professed optimist, Piketty hopes that war and revolution are avoidable responses to rising global inequality. The spectres of the 19th and 20th century haunt us no longer, but have appeared, alive and monstrous, before our very eyes.

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