I’ve read quite a bit about the book Capital in the Twenty-First Century, by Thomas Piketty, a French economist.
Capital has had an incredible impact
in the worlds of economics, political science, international relations, and sociology,
to name a few. Its main thesis is that because the return on investment of
capital is greater than the rate of economic growth, wealth will be distributed
unequally and democracy will be threatened. To rectify this, Piketty recommends
a global system of progressive, redistributive taxes on wealth, which is
arguably quite extreme.
While studying the Ruggie and Abdelal reading, I came
across a section, starting on page 157, that had an impression on me and
reminded me of Capital. It talked
about the paradoxical “uneasy relationship” between capital and international
capitalism. It recommended that capital be better regulated by both
international organizations and individual countries.
Relative to human history, the existence of capital, and
especially capital flowing across borders of towns, regions, countries, and
continents, is quite new. With the advent of such technologies and structures as
hyper-trading, where algorithms determine which stocks to buy and sell, quick
access to information, and structurally important financial institutions, capital’s
return has grown even greater. This alone isn’t necessarily a bad thing, but
combined with humanity’s inherent greed, leads to high economic inequality
amongst countries and individuals. This concentration of wealth, and therefore
of power, threatens the liberal democratic order by allowing the wealthy to
have ever more power at the expense of the people.
I agree with both of the arguments from Capital and Ruggiet et. al, and I agree
with the latter’s solution, since it seems to have a better chance of success
due to its nature of being relatively amenable to both populists and
financiers. However, I do not agree that a global system of wealth taxes should
be enacted. First of all, this would be too difficult to implement due to the
administrative costs alone. Second, because it is going from zero to 60, in
terms of ramping up of global wealth redistribution policies, it would be
effectively opposed by stakeholders, namely those that it would most heavily
affect.
Your arguments about greater capital controls given global inequality are logical, and I agree that capitalism needs to be made more accountable to more people. How this is to be done though is far from clear. Finding a solution is hard - as your post indicates - perhaps change needs to be incremental, i.e. target particularly egregious issues first: such as offshore, unregulated, tax havens?
ReplyDeleteInteresting topic Ben! Capital is important as it is one of the means of production. Capital, put simply, is any good that can be used to produce other goods/services. Capital investment is important for economic growth, but I have no idea how to regulate capital to prevent the advancement of the "1%" while the lower bourgeois and proletariat suffer. Before Citizens United, we had a safeguard that limited how much corporations were able to finance campaigns. Now, that system has been broken and Will Rogers, a political comedian from the 1920s, would say, "We have the best Congress money could buy". Just a quick question, are the wealth taxes a type of pegouvian tax meant to correct market failures? If they are, then they should be revenue neutral. This means that if the tax is levied, then the income tax or the payroll tax should be lowered. These taxes distort the labor market and with a lower income/payroll tax, more people will be hired and the economy would grow as wages would be relatively higher to the workers and relatively lower to the employers. If this is not a pegouvian tax, then the wealth tax would not work as a revenue neutral tax.
ReplyDelete