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A review by nicturner89
The Economics of Inequality by Thomas Piketty
4.0
A nice little primer which has finally been translated from the French on the back of the stunning success of [b:Capital in the Twenty-First Century|22156879|Capital in the Twenty-First Century|Thomas Piketty|https://d.gr-assets.com/books/1408470492s/22156879.jpg|26224121]. The thesis of the book is actually very simple. Having established that there is, and always has been, a need for an ongoing transfer of capital from the capitalist to the worker, Piketty asks: Which is better, fiscal or direct redistribution? Direct redistribution is making the capitalist give up his wealth to the worker, through increases in the minimum wages etc, whilst fiscal redistribution is the state taking the money from the capitalist and giving it to the worker through benefits, pensions and other welfare payments.
Most people would have thought this was an obvious choice. Raise the minimum wage and cut welfare payments. Why have the state as a costly and blundering middleman? For Piketty the answer is not so clear cut. Fiscal redistribution, through taxing profits, breaks the link between the the labour market and taxes paid by the employer. An increase in the minimum wage or payroll taxes can be counteracted by the employer either lowering wages or sacking workers (and thus counteracting the effect of the wage hike). By raiding profits the capitalist cannot reduce his liabilities though moving to less labour intensive modes of business. In fact, if he increases his profits by doing so he will just pay more tax. The money can then be redistributed to the worker through welfare payments.
There is unfortunately a slight problem with all this. The labour market no longer functions as a closed system in which, say, French workers compete with other French workers for jobs. In the modern globalised world they compete with German workers, and British Workers and Slovakian workers and even Chinese and Vietnamese workers. The restriction of the elasticity of the labour market in France is only effective if the capitalist cannot seek to reestablish his ability to respond to high business costs by shedding labour by moving to a place where he can do just that. In practice this is called taking your factory to Indonesia or Mexico.
Piketty is well aware of this (he isn't stupid) and concedes that there would be a degree of international cooperation required. In this we can see the same flaw which is more fully developed in Capital, his plan is utopian. It requires the unilateral surrender of comparative advantage by nations who exploit the fact that they (in the case of many developing nations, on of the few they have.) Having secured this miracle, Piketty would then have us use this to coordinate a tax upon the profits of corporations to allow the adequate funding of social transfers whilst protecting employees from the wrath employers. Isn't that a bit boring? If you have managed to secure this international cooperation is this really what you would do with it? Is not installing a more benevolent class of capitalists, or nationalising the global means of production not a better and more radical project?
This critique is not as problematic as it is in Capital but it is on the horizon. But that is not why this book is important. This translation is timely because we find ourselves in the midst of this very question. George Osborne is hell bent on removing the low-wage high tax credit economy with a high wage low tax credit one. At the moment the debate rages about whether the new level of the minimum wage will compensate for the loss of taxpayer support for low earners. Completely absent from the current discourse is the question of whether the change is a good idea in the first place. Piketty investigates these questions in this readable interesting little tome, it should be read by all and the issues he raises should inform our debate.
Most people would have thought this was an obvious choice. Raise the minimum wage and cut welfare payments. Why have the state as a costly and blundering middleman? For Piketty the answer is not so clear cut. Fiscal redistribution, through taxing profits, breaks the link between the the labour market and taxes paid by the employer. An increase in the minimum wage or payroll taxes can be counteracted by the employer either lowering wages or sacking workers (and thus counteracting the effect of the wage hike). By raiding profits the capitalist cannot reduce his liabilities though moving to less labour intensive modes of business. In fact, if he increases his profits by doing so he will just pay more tax. The money can then be redistributed to the worker through welfare payments.
There is unfortunately a slight problem with all this. The labour market no longer functions as a closed system in which, say, French workers compete with other French workers for jobs. In the modern globalised world they compete with German workers, and British Workers and Slovakian workers and even Chinese and Vietnamese workers. The restriction of the elasticity of the labour market in France is only effective if the capitalist cannot seek to reestablish his ability to respond to high business costs by shedding labour by moving to a place where he can do just that. In practice this is called taking your factory to Indonesia or Mexico.
Piketty is well aware of this (he isn't stupid) and concedes that there would be a degree of international cooperation required. In this we can see the same flaw which is more fully developed in Capital, his plan is utopian. It requires the unilateral surrender of comparative advantage by nations who exploit the fact that they (in the case of many developing nations, on of the few they have.) Having secured this miracle, Piketty would then have us use this to coordinate a tax upon the profits of corporations to allow the adequate funding of social transfers whilst protecting employees from the wrath employers. Isn't that a bit boring? If you have managed to secure this international cooperation is this really what you would do with it? Is not installing a more benevolent class of capitalists, or nationalising the global means of production not a better and more radical project?
This critique is not as problematic as it is in Capital but it is on the horizon. But that is not why this book is important. This translation is timely because we find ourselves in the midst of this very question. George Osborne is hell bent on removing the low-wage high tax credit economy with a high wage low tax credit one. At the moment the debate rages about whether the new level of the minimum wage will compensate for the loss of taxpayer support for low earners. Completely absent from the current discourse is the question of whether the change is a good idea in the first place. Piketty investigates these questions in this readable interesting little tome, it should be read by all and the issues he raises should inform our debate.