I am ultra sympathetic to the liberal position that we can do something about inequality by raising taxes on the highest tax bracket, but ultimately, I think that it is a huge economic and political mistake to identify the entire inequality issue with the tax issue. I think, in particular, that this obscures and allows many of the structural changes that have accompanied the rise in inequality – and that, if not causing it, have provided the supportive context in which it happened. The 2008-2009 period is frustrating for a number of reasons, one of which was that the solution to the Great Recession in the US and elsewhere was, at best, a mitigated form of Keynesian demand management. It was not the spark to kick off the examination of the fundamental changes that occurred in the 70s and 80s that made the financial sector both immeasurably bigger and immeasurably more important to the “productive” parts of the economy. That examination would mean redoing or undoing all the "reforms" enacted in the 70s and 80s, which funneled money into the stock market and set off the explosion in the other financial instrument markets. It is important to see that these reforms weren’t just the result of conservative Reagan. It was ultra liberal Ted Kennedy who, in the 70s, began pushing a very robust de-regulatory program, starting first with the airlines. Yes, airline travel in the US was de-regulated by Ted Kennedy, architected by his aide, Alfred Kahn, as much as by anybody. This was a part of the great avalanche of de-regulatory legislation on finance that, among other things, established the 401(k) – and whichdefinitely had the Carter imprimatur. A recent story about the 401k – a leapforward in regressive taxation – was published in Bloomberg.
The promise of these years, which still crops up as the main rhetorical prop of what happened, was that it was all about “democratizing” finance – allowing you, lucky sovereign consumer, to chose. Now, this rhetoric is about as sensible as saying that everyone should be able to race cars on the Daytona 500. It takes the word choose, weaves around it a groovy ambiance of self-man-manhood, and goes on to promote one of the world historical ripoffs. After 40 years, the reality is that a miniscule proportion of the assets of the income bracket from 0 to 80 percent are in stocks, or bonds, or derivatives. The one thing that did happen, in the best spirit of Keynesian demand management, is that limits on credit and the regulation of credit were lifted or massaged so that these brackets have had greater credit access (for which they have paid) even as their productivity gains were absorbed by the top 1 percent. Although I would never, ever give it a messy, communistic name, this looks exactly like a form of increasing exploitation in the classical manner described by Marx.
It was one of Marx's insights, in fact, that capitalism abolishes private property for the masses, and when one looks at the ratio of debt to assets for the average American, one sees how right he was. This is from the Who Rules America page. The stats are out of date, but I think probably they have worsened:
"Figures oninheritance tell much the same story. According to a study published by theFederal Reserve Bank of Cleveland, only 1.6% of Americans receive $100,000 ormore in inheritance. Another 1.1% receive $50,000 to $100,000. On the other hand,91.9% receive nothing (Kotlikoff & Gokhale, 2000)."
Even liberal economists spend most of their time thinking about redistribution in terms of taxes, rather than what the structure of the economy is doing. It is as if, getting a higher tax rate on the wealthy allows us to keep the system in place. I think the system not only generates the kind of wealth asymmetry that naturally expresses itself in the power system (at an amazingly cheap rate - America's governing institutions are controlled at really bargain basement prices. If a billion dollars is poured into your average presidential election, the ROI is superdelicious) that makes this discussion about tax rates mostly academic. Both branches of Congress are now populated by mostly millionaires, according to recent research. This tells us much more about their politics than party composition.
One of the great things about Piketty's work is that he has pierced the veil of the taxcentric discourse about inequality, raising fundamental questions about the structure of late 20th century and early 21st century capitalism. In the end, it is perhaps illuminating about our present politics that Piketty’s suggestions do not, however, go beyond – changing the tax system.
Which makes me want to end this with the immortal words of Lenny Bruce during the Cuban Missile Crisis, as reported by Don Delillo in Underworld: we are all gonna die!