Hi. Book reviews tonight. Firstly a serious text. Thomas Piketty Capital in the 21st Century. A difficult read but worthwhile. The author chronicles the relationship between changes in wealth between owners of capital and providers of capital in a historical context. His main country of review is France from the time of the French Revolution to the current time. The author is French. Key points: 1. The rate of return on capital is greater than general growth in an economy 2. Compounded over a significant period of time such a trend would result in the rich getting richer and the poor poorer to a degree that would threaten social cohesion 3. The problem is not dissimilair to what was prophesied by Karl Marx. Marx was wrong as he made no allowance for gains in productivity in the workforce nor did he accept that government would be capable of diffusing knowledge/skills/training to workers so that they could improve their lot 4. Prior to WW1 the rates of income tax were very low (about 4%)Death or Estate taxes were introduced at about the time of the War to help fund it. Life for the rich was just like in Downton Abbey. WW1, Estate and income taxes saw to the end of that era 5. Post WWII a number of countries (especially in Europe) were broke. Income tax rates were pushed to punishing rates. The record 97% in the preThatcher UK; the US 93% in the 60s 6. The creation of the Welfare system was aimed to prevent the risk of loss of social cohesion between haves/have nots in the Western world and to counter threats of communism 7. A perceived loss of status in the US and UK in the 80s heralded the reduction of tax rates and global competition for capital by offering the most concessional tax regime 8. As capital is more portable than labour it can be parked in more concessional regimes 9. Accumulated wealth of the top percentile of the population is growing faster than any other segment of the population 10. The 80s saw the rise of the super manager who is on a disproportionate level of income - not holding equity in a business but having an exceptionally high wage 11. Low economic growth in the West will result in those who had accumulated wealth growing their wealth faster (and by compounding) becoming more powerful. It will also mean that self made men will be less likely to make that elite due to that reduced growth The authors solution is not convincing. He proposes a global tax on capital and for such tax to be agreed upon globally or region by region (eg the EU). Such a tax would be an annual collection on reserves held at source It is hard to see how this could be agreed upon. He does conclude that both fiscal inventions of the 20th Century - income tax and welfare were borne from adversity being World War. They are not fixed constructs. The current solution to tax (primarily less mobile) labourers on their consumption is a short term fix Please read the book for more detailed analysis
Posted on: Sun, 19 Oct 2014 12:56:20 +0000
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