The policy proposals Thomas Piketty forgot to mention

Suresh Naidu writes:

…let me suggest that if we’re aiming for politically hopeless ideas, open migration is as least as good as the global wealth tax in the short run, and perhaps complementary.One weakness of the book is its focus on the large core economies (the data obviously is better and the wealth is obviously larger). But liberalizing immigration, while not solving the ultimate problem the book diagnoses, can go some of the way by raising growth of both income and population.

Maybe, that will likely improve welfare but in an Alvin Hansen model it can make Piketty-like phenomena (I won’t call them problems) more extreme.  In any case there are more straightforward remedies.  Social Security privatization is another option, if r > g is truly such a likelihood.  Yet Piketty and his boosters won’t mention this.  By the way, I am opposed to social security privatization — scroll down in that link — but I probably would favor it if it my views were closer to Piketty’s.

Here is a somewhat biting paragraph on Piketty and policy from my Foreign Affairs review (use “open private window” in Firefox, if need be):

Piketty also ignores other problems that would surely stem from so much wealth redistribution and political control of the economy, and the book suffers from Piketty’s disconnection from practical politics — a condition that might not hinder his standing in the left-wing intellectual circles of Paris but that seems naive when confronted with broader global economic and political realities. In perhaps the most revealing line of the book, the 42-year-old Piketty writes that since the age of 25, he has not left Paris, “except for a few brief trips.” Maybe it is that lack of exposure to conditions and politics elsewhere that allows Piketty to write the following words with a straight face: “Before we can learn to efficiently organize public financing equivalent to two-thirds to three-quarters of national income” — which would be the practical effect of his tax plan — “it would be good to improve the organization and operation of the existing public sector.” It would indeed. But Piketty makes such a massive reform project sound like a mere engineering problem, comparable to setting up a public register of vaccinated children or expanding the dog catcher’s office.

Here is another:

Worse, Piketty fails to grapple with the actual history of the kind of wealth tax he supports, a subject that has been studied in great detail by the economist Barry Eichengreen, among others. Historically, such taxes have been implemented slowly, with a high level of political opposition, and with only modestly successful results in terms of generating revenue, since potentially taxable resources are often stashed in offshore havens or disguised in shell companies and trusts. And when governments have imposed significant wealth taxes quickly — as opposed to, say, the slow evolution of local, consent-based property taxes — those policies have been accompanied by crumbling economies and political instability.

The simple fact is that large wealth taxes do not mesh well with the norms and practices required by a successful and prosperous capitalist democracy. It is hard to find well-functioning societies based on anything other than strong legal, political, and institutional respect and support for their most successful citizens. Therein lies the most fundamental problem with Piketty’s policy proposals: the best parts of his book argue that, left unchecked, capital and capitalists inevitably accrue too much power — and yet Piketty seems to believe that governments and politicians are somehow exempt from the same dynamic.

And finally the review closes with this:

A more sensible and practicable policy agenda for reducing inequality would include calls for establishing more sovereign wealth funds, which Piketty discusses but does not embrace; for limiting the tax deductions that noncharitable nonprofits can claim; for deregulating urban development and loosening zoning laws, which would encourage more housing construction and make it easier and cheaper to live in cities such as San Francisco and, yes, Paris; for offering more opportunity grants for young people; and for improving education. Creating more value in an economy would do more than wealth redistribution to combat the harmful effects of inequality.

The original pointer to the first link was from Henry Farrell.  And my previous criticisms of Piketty on the analytics are here.  Barry Eichengreen on wealth taxes is here.


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