Can economic growth overtake rising inequality?

The French economist Thomas Piketty has a strong and obvious argument as to why the rich usually get richer and the rest of us not.

He points out that so long as the return on assets—of whatever kind—is at a higher rate than the rate of economic growth, wealth and income will flow to owners of capital, not to wage-earners.

If you see gross inequality as a problem, there are two possible solutions:

  1.  Raise the top tax brackets to reduce the share of the capitalists.
  2.  Increase the rate of economic growth to increase the share of the workers.

An economist named Gerald Friedman concluded that Bernie Sanders’ economic policy would produce 5.3 percent annual economic growth.  Other economists say that is over-optimistic to the point of being crazy.  But even if Friedman is right, it would still be less than the historic rate of return on capital.

If Piketty is right, it means economic growth alone will not stem the growth of economic inequality.  It will be necessary to reduce return on capital, not to zero, but to a rate less than the rate of economic growth.

One way to do this is to raise upper-bracket taxes to 1950s levels.  Regulation of interest rates and subprime lending would help.  Prosecution of financial fraud and enforcement of antitrust laws might have an effect.

Historically, as Piketty noted in Capital in the 21st Century, there have been other ways in which concentrations of wealth have been destroyed.  They have been destroyed by means of wars, revolutions and devastating economic depressions.

LINKS

Empirical test of Piketty’s r>g coming by Ed Walker for emptywheel.

Under Sanders, income and jobs would soar, economist says by Tami Luhby for CNN.

An Open Letter to Senator Sanders and Professor Gerald Friedman by four former chairs of the Council of Economic Advisers.

Worried Wonks by Paul Krugman for the New York Times.

Economist Gerald Friedman Says Bernie Sanders Can Bring 5.3 Percent Growth by Chris Matthews for Fortune.

What would Sanders do? Estimating the economic impact of Sanders’ programs by Gerald Friedman of the University of Massachusetts at Amherst.

Wealth Inequality in the United States Since 1913 by Emmanuel Saez and Gabriel Zuchman for the National Bureau of Economic Research.

Tags: , , , , ,

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: