Portside blog post by Jared Bernstein
Thomas Piketty’s analysis of inequality through the ages kicked off an important debate about the causes of and solutions to the problem of the increased concentration of wealth and income. Central to Piketty’s economic mechanics is his assumption that, barring some cataclysm, wealth will increasingly accumulate to those at the top of scale as long as its rate of return (the rate at which wealth holdings appreciate) exceeds the economy’s growth rate. From this diagnosis, his prescription is redistribution through the tax code. This certainly falls out of his model: once you accept the inevitability of narrowly held wealth accumulation, the only solution is to tax and redistribute.
Note, however, that this is not a onetime solution; it implies consistently ratcheting up the redistributive function to offset relentless accumulation. Moreover, in most political systems I can envision, there’s a fatal flaw here: the increasingly wealthy and powerful won’t stand for it, a criticism Piketty himself of course recognizes (he’s not naïve).
So how should we think about this problem? In fact, some of Piketty’s critics point out that there are actually a variety of ways to alter the distribution of market outcomes, aka the primary distribution of income (in contrast to the secondary distribution after taxes and transfers). These ideas range from more union power to better balance that of capital, higher minimum wages, patent reform, restraints on the financial sector, charging polluters and financial bubble blowers for the negative externalities they generate, direct job creation to tighten the labor market and enforce a more equitable distribution of growth, and more.
But from where I sit in the nation’s benighted capital, the chance that any of these will see the legislative light of day anytime soon is far too low. Not zero, maybe. The President himself, for example, has taken steps to raise the minimum pay of workers on federal contracts and enforce better environmental standards. But neither he nor his successors can make much of a dent in the forces skewing the primary distribution in the face of well-organized and highly effective political opposition.