Why Inequality Matters, For Non Economists

1672 Words Sep 9th, 2015 7 Pages
Grasping the Problem: Why Inequality Matters, for Non-economists
Before analyzing Piketty’s global tax on wealth, we must understand the problem Piketty is trying to solve. The central economic dilemma revealed by Piketty’s research is that greater returns (r) on capital investments are outpacing the overall economic growth rate (g), succinctly noted in the form r > g, and the imbalance is driving wealth inequality.
Thus once capital-rich individuals acquire (often through inheritance) large enough capital reserves, Piketty’s model and data suggest the continued higher returns on their capital will cause wealth inequality to grow, concentrating more and more capital into fewer and fewer hands. Piketty’s provides evidence of concentration dynamics in several specific arenas of economic life beyond personal wealth (e.g. the growth of large vs. small university endowments).
Moreover, he suggests that no number of prodigal sons and daughters will counteract the process. Like steam driven ocean liners racing sailed ships, the higher returns on capital carry its owners further and further ahead of those less fortunate souls on leaky rafts taped together by their wages. Finally, according to Piketty, wealth inequality and concentration are exaggerated by the wealthiest individuals and corporations hiding capital from taxation abroad (e.g. Swiss banks), preventing domestic authorities from levying taxes on it.

Piketty’s Argument for a Global Tax on Capital


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