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Thought provoking visit to Ireland by Thomas Piketty

Date Released: 27 June 2014

In scenes slightly reminiscent of the papal visit to Ireland in 1979 the departure of what the media has styled ‘rockstar’ Thomas Piketty has left a curious void. Was it a temporary mid-summer event to fete the fascinating and seductive ideas of a left-leaning French economist while regretting all the time ‘but that would never work here because ….’? We belong to a world where tax is viewed as a ‘burden’ and we wonder why the French ‘tolerate’ such high taxes (and yet, ironically, wonder at their public infrastructure, health system and early childhood provision).

I love the French term for a wealth tax: ‘Impôt de solidarité sur la fortune’ It means, literally, ‘Tax of solidarity on fortunes’. In the English language we use the term ‘tax burden’ to refer to taxes. They are conceived as a burden – to be minimised and avoided as much as possible.  According to this political and ethical philosophy the individual stands outside and alongside the collective.  The rights of the individual and the collective are seen as more or less mutually exclusive. The collective – very frequently, is seen as a means towards the vindication of particular individual rights. ‘Particular’ because these rights relate to unfettered freedom to own and dispose of property.

As stated in a previous Monday blog (‘PIketty on inequality’) Piketty has shaken the cage of the normally monological, consensus-laden landscape of political economy discourse such as it is in Ireland.  In a way, people felt safe to discuss Piketty, his evidence and his ideas (even if it is doubtful many actually read his book entirely) because it didn’t necessitate radical change in social or tax policy in the here and now. It was pitched very much at the global level or at the level of ideas and long-term goals. ‘Equality is good. Let’s have more of it. Everyone is a sort of social democrat now’ seems to be the underlying sentiment among at least some economists and commentators. Or, perhaps, a more realistic perspective borrowed and adapted, inappropriately from St Augustine, ‘Make us more egalitarian but not yet’. We just have to pass through another decade of two of mild prolonged austerity during which we get our public finances in order, pay down most of our debt and ‘reform’ (a wonderful term to mean many different things to different people but in this context ‘reform’ = ‘freer’) product, service and labour markets. Put bluntly, ‘Piketty is accepted as largely right but the world is the way it is and we have to muddle along as best as possible until better times return – hopefully times more hospitable to the implementation of the Great Moderation in Inequality (GMI) that largely ruled from about 1920 to 1980 in the evidence reviewed by Piketty for the major capitalist nations.

Recent decades have been characterised – broadly – by the following trends:

  • A rising share of national income going to capital and not labour;
  • A rising inequality in income to labour (before taxes) with a developing culture of super salaries and bonuses in both public and private sectors;
  • A transfer of wealth from the public to the private domain running alongside higher returns to some forms of capital (the socialisation of banking debts, perversely, is part of a privitisation of public assets as publicly acquired private losses are turned into income streams for private rentiers lending to governments).
  • A predilection for more risky financial assets and property over productive assets correlated with periods of boom and bubble to be followed by bust .

The productive state assets and social services as an example. Piketty depicts a hypothetical world which begins to look less hypothetical (page 542):

‘According to the national accounts of the various European countries, the proceeds from selling all public buildings, schools, universities, hospitals, police stations, infrastructure, and so on would be roughly sufficient to pay off all outstanding public debt. Instead of holding public debt via their financial investments, the wealthiest European households would become the direct owners of schools, hospitals, police stations, and so on. Everyone else would then have to pay rent to use these assets and continue to produce the associated public services. This solution, which some very serious people actually advocate, should to my mind be dismissed out of hand.”

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