| By Mustafa Cem ACIK Capital, by its definition, has meant inequality since early stages of history where mankind discovered agriculture and value of land. The means of capital has changed as we progressed from agricultural era (land) to industrial and technology (financial instruments) eras, for capital to have any return and therefore meaning it necessities some people to have more and the rest: less. This inequality has been the greatest source of conflict among men / classes and nations. |  |
Lately two books by truly influential economists, Capital in 21st Century by Thomas Piketty and Price of Inequality by Joseph Stiglitz, have approached this ageless concept and conflict from different but complementary angles.
Piketty’s central premise can be summarized in my opinion as: In the new century, we have started experiencing an era of low growth compared to 20th century dynamics, while return of capital has been quite constant through history. This low growth era in fact is not something new, this has been the norm for much of our past and it was the 20th century that was the outlier. And through simple yet effective calculations, Piketty demonstrates that combination of low growth and continued high returns on capital mathematically will result an even worsening of inequality, actually even beyond levels of 19th century British and French Empire times. The concentration of capital in fewer hands will cripple nations both economic activities as well as human norms. The only effective solution the author envisions is a universal progressive tax on capital and clamping down on tax havens.
Stiglitz’ Price of inequality questions the political reasons behind the increase of inequality in US and mostly sums up the culprit as the top 1% effectively running the country on behalf of the remaining 99%. While this is clearly wrong from the democratic ideal of one-person one-vote and working for the greater good perspectives, he also demonstrates that the ‘price of inequality’ is also limiting economic growth and resulting in the whole nation being worse off, which in turn will also hurt the upper 1%.
I admit that no single idea is perfect or without its faults. There are possibly many nuances or exceptions that can be raised about both books and their themes under certain circumstances. Nevertheless, it is my sincere belief that worsening income and wealth inequality is the number one issue that any nation, politician should address for a better future, starting today. In fact the issue actually requires cross-border collaboration, making it even more difficult yet more important to address.
While we should not expect the ‘invisible hand’ of capitalism to correct everything, the over-regulation of socialism has also proven ineffective in stimulating innovation and encouraging entrepreneurial spirit that had fueled much of economic innovation. Perhaps I am biased, but as it is with pretty much every extreme thought, the solution lies in the middle with a correct ‘synthesis’ of both ideals. Without appropriate measures on capital, we go back to nobles & commons class distinctions, under the illusion that we are run by egalitarian democracies and our children, no matter where they are born, will not have a shot at leading a meaningful life. Equally relevant is the fact that without appropriate & fair incentives, innovation and entreprenuerial spirit will not blossom and create a bigger pie for all.
Piketty’s central premise can be summarized in my opinion as: In the new century, we have started experiencing an era of low growth compared to 20th century dynamics, while return of capital has been quite constant through history. This low growth era in fact is not something new, this has been the norm for much of our past and it was the 20th century that was the outlier. And through simple yet effective calculations, Piketty demonstrates that combination of low growth and continued high returns on capital mathematically will result an even worsening of inequality, actually even beyond levels of 19th century British and French Empire times. The concentration of capital in fewer hands will cripple nations both economic activities as well as human norms. The only effective solution the author envisions is a universal progressive tax on capital and clamping down on tax havens.
Stiglitz’ Price of inequality questions the political reasons behind the increase of inequality in US and mostly sums up the culprit as the top 1% effectively running the country on behalf of the remaining 99%. While this is clearly wrong from the democratic ideal of one-person one-vote and working for the greater good perspectives, he also demonstrates that the ‘price of inequality’ is also limiting economic growth and resulting in the whole nation being worse off, which in turn will also hurt the upper 1%.
I admit that no single idea is perfect or without its faults. There are possibly many nuances or exceptions that can be raised about both books and their themes under certain circumstances. Nevertheless, it is my sincere belief that worsening income and wealth inequality is the number one issue that any nation, politician should address for a better future, starting today. In fact the issue actually requires cross-border collaboration, making it even more difficult yet more important to address.
While we should not expect the ‘invisible hand’ of capitalism to correct everything, the over-regulation of socialism has also proven ineffective in stimulating innovation and encouraging entrepreneurial spirit that had fueled much of economic innovation. Perhaps I am biased, but as it is with pretty much every extreme thought, the solution lies in the middle with a correct ‘synthesis’ of both ideals. Without appropriate measures on capital, we go back to nobles & commons class distinctions, under the illusion that we are run by egalitarian democracies and our children, no matter where they are born, will not have a shot at leading a meaningful life. Equally relevant is the fact that without appropriate & fair incentives, innovation and entreprenuerial spirit will not blossom and create a bigger pie for all.
RSS Feed