Why Inequality Matters, For Non Economists

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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…show more content…
In this section, I summarize Piketty’s arguments and attempt to strengthen the political rationale he offers for a global tax on capital; specifically I attempt to extrapolate the role of wealth in democracy and its effect on transparency. In the next section, I will offer a critique of Piketty’s argument for a global tax on capital, especially his failure to consider the legal and political maneuvering such a tax would require. Piketty makes his point early that “to regulate the globalized patrimonial capitalism of the twenty-first century, rethinking the twentieth-century fiscal and social model and adapting it to today’s world will not be enough.” More specifically, he defines the primary purpose and means of a global tax on capital: “The primary purpose of the capital tax is not to finance the social state but to regulate capitalism. The goal is first to stop the indefinite increase of inequality of wealth, and second to impose effective regulation on the financial and banking system in order to avoid crises. To achieve these two ends, the capital tax must first promote democratic and financial transparency: there should be clarity about who owns what assets around the world.” Before breaking down Piketty’s argument, we must remember that he understands this tax on the capital wealth of individuals (e.g. inherited wealth, stocks,
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