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Capitalism and Wealth Inequality

2014-03-11

There is not enough public understanding of the levels of wealth inequality that are present today.  Surveys of conservatives and liberals show that all groups believe in a much more equitable distribution of wealth than exists today, and no group realizes how severe the inequality is presently.

Wealth inequality currently is at approximately the levels that were present just before the stock market crash of October 1929.  Inequality was much reduced, particularly after World War II, and partly by the destruction of capital that occurred in the war.  In addition, after WWII, capital was heavily taxed in the US, and this led to a more equitable distribution of income and relatively improved levels of wealth inequality.  After the election of Ronald Reagan in 1980, taxes on capital (and income in general) were dramatically reduced.  This has led to dramatic increases in wealth inequality, to repeat, up to levels not seen since 1929.  That these levels of inequality coincided with economic crashes may or may not be a coincidence.

There is an economist named Piketty who has written a 700 page book on this subject, with massive amounts of data and analysis.  His conclusion:

“Piketty’s key message is both simple and, once understood, almost self-evident. Under capitalism, if the rate of return on private wealth (defined to include physical and financial capital, land, and housing) exceeds the rate of growth of the economy, the share of capital income in the net product will increase. If most of that increase in capital income is reinvested, the capital-to-income ratio will rise. This will further increase the share of capital income in the net output. The percentage of people who do not need to work in order to earn their living (the rentiers) will go up. The distribution of personal income will become even more unequal.”

This quote comes from an article in the American Prospect that lauds Piketty’s work.  To read the full article: http://prospect.org/article/piketty%E2%80%99s-triumph   There is also an article in the New York Times online that discusses Piketty’s book and concludes that things are likely to get worse: http://www.nytimes.com/2014/03/12/business/economy/a-relentless-rise-in-unequal-wealth.html  It is clear from Piketty’s and other works that wealth inequality is currently severe and heading towards extreme.  This is not consistent with societal stability, because the mass of people living in poverty have become increasingly disillusioned and militant.   The rage of the poor and oppressed at seeing the wealthy exercising their privileges will become uncontrollable, especially when they realize that they have no chance of “bettering” themselves under the current system.  The logical conclusion to this trend, if it is not reversed, is that there will occur a revolution similar to the French Revolution, which  was notoriously bloody and prolonged.

The way to reverse this inequality is to tax capital, that is, inheritances and capital gains.  Piketty concludes that, if all industrialized countries instituted such a tax, only modest percentages would be needed: starting at net worth of 1.4 million dollars, a one percent tax would progress to 2 percent at levels of over 6.8 million dollars.  This degree of taxation seems very modest and is certainly sustainable–that is, rich people could easily afford to pay such taxes.

Even though the affordability of such a tax is undeniable, the degree of opposition from rich people is likely to be extreme.  Organized opposition is likely to include manufactured lies and pressure tactics that will be very well funded based on the amounts of money that are at stake.  However, it would appear that in a democratic country, even violent opposition from the moneyed classes will not be sufficient to overcome the votes of the middle and lower classes.  After all, those affected by the taxes would represent less than ten percent of the people.  Even a supermajority or two-thirds of the people could theoretically be voting in their own interests to institute such taxes.

Part of the problem is that people are not aware of the severe levels of inequality currently obtaining.  It will be necessary to expose the people to all the facts and refute the lies of the wealthy opposition.  Even more important will be the need to puncture the myth that people continue to cling to: the idea that they personally will have their incomes rise to the level that they will be affected by these taxes.  The truth is that social mobility has been reduced over the last hundred years to a level that corresponds to the levels of wealth inequality.

Another important obstruction to the peaceful, democratic institution of the appropriate taxes on capital is the fact that election to public office is a sure-fire way to obtain millionaire status.  Wealthy people can anonymously campaign for and contribute to the individual wealth of office-holders.  This issue is a major stumbling block to the passage of laws that would redress inequality.  Laws that divorce office-holding from wealth, by strict ethics and campaign finance controls, would be most helpful in this regard.  It should be noted that campaign finance controls have been going in the opposite direction, particularly with the Supreme Court decision in the Citizens United case.

The fact is that American and even European society is dominated by a tiny percentage of super-rich people who are able to control public opinion and superficially democratic government with propaganda, lies, bribes, and myths.  The US Congress is full of millionaires, and even those who are not rich when they are elected quickly become rich with the help of their wealthy patrons.  This situation has contributed to the severe wealth inequality that currently obtains, and will contribute to the destruction of the US government if it continues.

The only hope for peaceful redress of wealth inequality is truly democratic government: without it, another French Revolution is waiting in the wings.

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