Tuesday, 25 March 2014

Money breeds money: Not just common sense

I described in my previous post that the rich tend to get richer while the poor find it very hard to amass any serious amount of wealth. I mentioned several of the processes that are likely to drive this tendency.

Sometimes things that appear to be common sense don't turn out to be true once they have been properly studied: the sun doesn't go round the earth but the earth rotates as it goes around the sun.

However, an economist, Thomas Piketty, appears to have gone to great pains (600 pages!) to provide the evidence for the trends I mentioned in my last post. The fruits of this work is the book Capital in the twentieth century, and his explanations of it and the reviews I have read make me want to read it.

I tend to agree with Piketty's conclusion that this tendency towards concentration of wealth, along with any other fact about capitalism, does not create the need to have a total revolution. Such anti-capitalist conclusions are clearly too hasty; you would need something better to replace capitalism with. But it does remind us of the need for constant efforts at redistribution to check the undesirable tendencies of free markets.

This provides a further argument against libertarianism. Libertarians support free-market outcomes for at least one of several reasons, but as well as attacking those (wrong-headed) reasons we can also point out that their proposals will have poor consequences. Hugely unequal societies in which a larger and larger share of resources are held by a smaller and smaller minority is not many people's idea of a utopia (bizzarro's such as Ayn Rand excepted).

Furthermore, if such a (dis?)utopia came about it may even be worse for those who are very well off, if Wilkinson and Pickett are to be believed. These authors show that more unequal societies are less successful and happy than more equal societies.

My tax proposals are aimed to providing the most redistribution possible commensurate with good economic performance. This is done by taxing those who get unearned income at much higher rates while encouraging economically useful activities, transfers and exchanges.

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