Is Thomas Picketty Right About The Causes of Inequality?

[Jefferson23]

Economist Michael Hudson discusses the popularity of French economist Thomas Picketty's recent book and says his work fails to link the financialization of the economy to the ascent of the 1% - 1 hour ago

Full transcript and video at link.

Now joining us is Michael Hudson. Michael is a distinguished research professor of economics at the University of Missouri-Kansas City. His two newest books are The Bubble and Beyond and Finance Capitalism and Its Discontents.

Thanks for joining us, Michael.

MICHAEL HUDSON, PROF. ECONOMICS, UNIV. OF MISSOURI, KANSAS CITY: Thank you, Jessica.

DESVARIEUX: So, Michael, this week we're going to be talking about the very popular book by French economist Thomas Piketty. It's a 700-page book that takes on the topic of income inequality. Why do you think so many people are talking about this book? What's in it that has people buzzing?

HUDSON: Statistics. It shows that wealth inequality is actually much wider than income inequality, because if you earn income, you have to pay taxes on it, and rich people, the 1 percent, don't like to pay taxes, so they basically expense most of their income. They expense it as interest, they expense it as depreciation. There are all sorts of expenses. But he shows statistically in almost every country not only that income and wealth are getting wider and wider apart, the 1 percent versus the rest of the economy--but it's not just the 10 percent of the population that's richer than the bottom half or the bottom 20 percent; it's the 1 percent that has the vast majority of the wealth and controls the world's stock markets of the bond markets. And since 1980 there's been quite a turnaround. And the 1 percent have bought government as if government were sort of like a factory that you can make profits on. And you can get much more profits by buying a government than you can ever get by buying a property or real estate. And so what we've been turning into is an oligarchy.

Well, a lot of people saw this, but what Piketty did was show that in every country since 1980, since Reagan and Margaret Thatcher had the whole neoliberal revolution, the revolution that's now being supported by the U.S. government, by the eurozone, by the international monetary fund and the World Bank, that all of this neoliberalism and so-called free markets is really just a property grab by the rich. And he shows that given this grab, you're not going to be able to get more equality as long as all of this wealth that's accumulating at the very top among the 1 percent is inherited and passed down and grows and grows. And so, basically, he's described the symptoms of what's wrong. And people are very glad that at least he's described the symptoms that everybody knew but nobody had spent the three or four years that it took to make all of the charts charts that he's made.

DESVARIEUX: So it also sounds like he's focused on the 1 percent specifically. What about the 99 percent? What do you think is missing in Piketty's argument?

HUDSON: Well, the one percent have got rich by holding the 99 percent in debt. Basically, you have an economy where governments and businesses, homeowners, credit card users, and people getting an education all have to run into student debt, mortgage debt, credit card debt, government debt, corporate debt, all to the 1 percent. So the 1 percent wouldn't be making all of this income and concentrating all this wealth if they didn't hold the bottom 99 percent in debt to itself. So you have a polarity. You wouldn't have the 1 percent getting rich if they weren't--if it wasn't in an exploitative way, making the 99 percent more dependent on them.

Now, if the 1 percent made their money--you know, they call themselves job creators as if they're creating the prosperity, but they're not creating the prosperity, because what they're getting is interest and economic rent much more than profits. They're getting rich in an exploitative way, not in a productive way that helps the economy grow and raises living standards.

DESVARIEUX: What are some of the solutions that Piketty proposes?

HUDSON: Well, the first solution he proposes is that the people are--all this wealth at the top is being inherited. And since the Reagan and Thatcher revolution, they've got rid of inheritance tax. The 1 percent says, think of the small families that want to give a little bit of property to their children; let's not tax them. And by the way, let's make us completely tax-free for all of our billions of dollars, just so the middle-class families can maybe end up with their house or so. So they've hidden behind the middle-class to, really, abolish the effective inheritance tax. And so this wealth is being inherited to grow and grow. So the first thing he wants is an inheritance tax.

The second thing he wants is more problematic. He said, well, maybe there can be a world tax on wealth, because after all, the rich families in America hold their money offshore or in Swiss banks or in the Caribbean. So he wants a general wealth tax. And that's what he's been criticized for, because he hasn't really gone to the root of what is creating this polarization.

DESVARIEUX: And, also, how would you even implement something like that, Michael?

HUDSON: Well, that's why the neoliberal's love Piketty. It's why Krugman loves baby and others. You can't implement it. So he's produced a book without any solution, and the free enterprise boys like that. The 1 percent don't mind being criticized as long as there's no solution to their problem. And that's what the critics have come out saying: wait a minute, there are a lot of solutions. For one thing, some kind of wealth is better than others. You don't want to tax people building factories and improving living standards like the one percent pretend that they do, but what you do want to tax is unearned income, economic rent, capital gains. Right now, the capital gains tax, most people, rich people, make their money not buy earning income; the naked on capital gains, on stock markets going up, on bond prices going up, on all of the asset prices that the Federal Reserve's qualitative easing has been just flooding the market with. So the first thing to do is to raise the capital gains rates much higher, closer to 100 percent, because that's unearned. These are inflationary gains. Right now, the economy's all about capital gains, so if you make $1 million like--as Warren Buffett said, he makes hundreds of millions of dollars. He pays a lower tax rate than his secretary. So the tax system is all wrong.

http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=11788

[TreasonousBastard]

1. Well, I have the book, but haven't...

gotten far enough into it to comment.

But, anyone who wants to tax unearned income has my blessing.

[Jefferson23]

2. I have not read it, so please share your thoughts when you're done.

Hudson does not feel it goes far enough..I believe Hudson was Kucinich's economic
advisory when he was running for POTUS years ago.

Thanks for the post.