Reviewing Lawrence H. Summers's Review of Piketty IV: Combatting Inequality on Many Fronts: Tuesday Focus: May 27, 2014
Lawrence H. Summers: The Inequality Puzzle: "His policy recommendations are unworldly....
Success in combating inequality will require addressing the myriad devices that enable those with great wealth to avoid paying income and estate taxes. It is sobering to contemplate that in the United States, annual estate and gift tax revenues come to less than 1 percent of the wealth of just the 400 wealthiest Americans. With respect to taxation, as so much else in life, the real scandal is not the illegal things people do-—it is the things that are legal. And second, such efforts are likely to require international cooperation if they are to be effective in a world where capital is ever more mobile....
Beyond taxation, however, there is, one would hope, more than Piketty acknowledges that can be done to make it easier to raise middle-class incomes and to make it more difficult to accumulate great fortunes without requiring great social contributions in return... vigorous enforcement of antimonopoly laws, reductions in excessive protection for intellectual property... profit-sharing schemes that benefit workers and give them a stake in wealth accumulation, increased investment of government pension resources in riskier high-return assets, strengthening of collective bargaining arrangements, and improvements in corporate governance... the strengthening of financial regulation... an easing of land-use restrictions that cause the real estate of the rich in major metropolitan areas to keep rising in value...
What policies are necessary to keep us from sliding into Thomas Piketty's high-capital semi-dystopia? Piketty focuses on one tool: A progressive global wealth tax. Summers envisions a much broader-front campaign against the return of Belle Époque inheritance plutocracy:
The war on rent-seeking--in the form of NIMBY urban land-use restrictions, financial regulatory loopholes, corporate control malfunctions, intellectual property, market power, tax-code loopholes, and so forth.
The war for mass middle-class savings--both through tightly-constrained private investments so people don't buy high and sell low, and using the state as an intermediary.
The war for mass middle-class capital ownership--through profit-sharing schemes, unionization, "share economy", etc.
The war for devolution: the return of Andrew Carnegie's effort to make it uncool to let your children become plutocrats, and to make success at social welfare-enhancing philanthropy the principal source of status among the superrich.
The war for worker bargaining-power--via education, unionization, etc.
All of these are certainly well worth fighting. Thomas Piketty, however, would say that your chances of winning any of them are very low unless you start with a highly-progressive tax in order to curb the power of the rich to order politics in their interest. Piketty is, remember, taking the French Third Republic as a model: a strongly egalitarian politics and culture, but no tolerance for taxation of property at all.
Thus Thomas--and I--would say that we don't quite understand the relative lack of enthusiasm. Why doesn't Larry say, strongly and stridently: "A more unequal pre-tax distribution of wealth produces a more progressive optimal tax system, and as our pre-tax distribution has gotten a lot more unequal the optimal tax system has gotten a lot more progressive"?