Saturday, August 22, 2015

The Piketty Pessimist

Have a read through:
Felix Salmon

Thomas Piketty's book on Capital challenged that assumption that capitalism is a good thing, by showing that even if everybody plays by the rules, inequality is very likely to increase to obscene levels. It’s not the corrupt and venal robber barons who are the problem, it’s rather that unless we make a concerted effort to impede capitalism’s natural tendencies, the entire middle class is likely to get hollowed out.

And Felix Salmon, in his blog, sets out a summary of the views for and against this argument.
But it is the truth of Piketty's data that is most depressing - capitalism can continue to deliver greater and greater wealth inequality, as it supports individual ambitions to gain short term political power. So there is little incentive to find a solution.

".. right now we’re reverting to a state of affairs which is highly unfair but also both sustainable and, in its own way, unsurprising. Piketty has diagnosed a nasty condition. But I don’t think there’s a cure." - Felix Salmon

Here I disagree. I think that a tax on wealth, by taxing the use of money, could be implemented for two broad reasons.

Firstly - mainstream economics, and the banking industry, do understand the underlying problems with the nature of capitalism; of fractional reserve banking; and of the social problems generated by income and wealth inequality. So while many in these camps and industries will resist attempts to widen the tax base, many will also welcome the chance to be part of the solution.

Secondly - gaining short term political power and ascendancy, quickly pales when it translates into little social good. And much of western democratic government is aware that vested interests and lobby groups currently supply the majority of the data that is used in policy formulation.

So introducing a tax on the use of money is a "saleable" option if the debate focusses on three key points  -  Fair - Efficient - Wise

Fairness is easy to explain, and would be politically a huge bonus in the promise of a tiny tax for low wage earners.

Efficiency appeals to small and medium business, as it makes calculating and paying their tax burden both easy and nearly painless. It also appeals to the banking industry as it adds next to no cost to their IT systems, yet entrenches their interests as a key service supplier to the government.

Wisdom stems from the data that governments can access on the economic activity of their nation.
An insignificant tax on the use of money would be worth implementing for this data alone, any actual tax revenue being a bonus. To be able to drill down to regional and industry data, with next to live feeds, would vastly improve policy making and planning.