Our wealth gap is unsustainable

Thomas Piketty’s new book sheds light on income inequality.

Ronald Dixon

One of today’s most contentious political issues concerns the impact of wealth inequality and how we can reduce the large gap between the rich and the poor. President Barack Obama made this a central part of his 2012 presidential campaign against former Massachusetts Gov. Mitt Romney. The worldwide Occupy Wall Street movement came out of class warfare, and now a new book is providing an additional surge of energy to this important debate.

Thomas Piketty, a French economist, recently published “Capital in the Twenty-First Century,” a detailed account of wealth accumulations spanning the past few centuries. Piketty calls for a global tax on the wealthy to help combat the rich-poor gap and to develop an even larger, more comprehensive picture of the extent of wealth divisions throughout the world.

It’s no secret that Republicans in the United States oppose many income equality measures, whether they are in the form of public investment or a more equitable tax system. Indeed, they have made it their mission to prevent many measures from passing Congress that would aid those on the lower rungs, such as food stamp legislation and a jobs bill.

Moreover, while obstructing legislation, they have promulgated misinformation about wealth inequality. Some conservatives deny the existence of the rich-poor gap, while others promote it as the key example of how hard-working entrepreneurs are able to become successful while lazy people remain at the bottom. According to some Republicans, any policy to combat these inequalities that economists such as Piketty have been warning us about for years would prevent the “job creators” from expanding their businesses and force the rich to spend less of their money, harming the economy.

The most controversial response to Piketty’s new book came from Chris Giles, the economics editor for the Financial Times. He argued that the data central to Piketty’s arguments was flawed, but Giles’ analysis is fallacious.

When Giles claims that wealth inequality is far smaller than Piketty suggests, he uses a comparison between old data and new data that depicts the wealth of those at the top of the economic hierarchy. That comparison is faulty, though, because Giles took the old data from tax records and borrowed the new data from surveys. The latter, according to
economist Paul Krugman, underreports the true wealth of billionaires. Although tax records do not represent the entirety of the wealth gap, due to loopholes and offshore tax havens, most economists trust them more than self-reported, inaccurate surveys.

The available evidence shows large and unsustainable income disparities, and Piketty’s proposal to implement a global wealth tax would be a step in the right direction. The federal government could also invest in more job creation, rework the tax system in favor of the populace and follow the lead of Seattle by making the minimum wage livable.

Of course, these are just a few routes to take. In order to have an informed debate on the solutions to the problem, we must first agree on the facts, and unfortunately, some refuse to accept our concerning macroeconomic realities.