The Frenchman Thomas Piketty, currently the world's most famous economist, is now in Australia. Picketty is aptly described as a 'Rockstar economist' by virtue of his 2013 book Capital in the 21st Century which has sold millions of copies across the world and is soon to be made into a feature documentary.
What is all the fuss about? Piketty's central argument is that there is an inherent tendency in market (capitalist) economies to produce an unequal distribution of wealth and power and that this carries heavy social and economic costs that can ultimately undermine democracy itself. The central remedy he puts forward is a global system of progressive taxes: income tax with a top bracket of 80 percent and wealth taxes to address issues such as inherited wealth.
It must be said at the outset, such ideas are hardly new. Institutional and Marxian economists have long stressed that one of the key features of capitalism is its ability to be an inequality machine. Furthermore, the world once implemented rates of taxation in excess of what the Piketty is currently calling for. For example, during the 1950s, the United States had a top rate of income tax that was over 90 percent -- notably, it was a time when the US economy boomed.
Piketty's contribution is nonetheless significant and has been rightly praised for its breadth, depth and eloquence. Its 696 pages draw on diverse sources that range from Jane Austen and Victor Hugo novels to impressive statistical work that reveal capitalism's magnetic north is towards inequality.
Piketty is part of a growing chorus that argues extreme inequality is an extreme problem. The statistics are astonishing. Oxfam recently reported that the wealthiest 62 people in the world now own more than the 3.6 billion poorest people, and over 75 percent of people living in extreme poverty are based in middle-income countries. Ronald Reagan's claim that 'a rising tide lifts all boats' has never sounded hollower.
How did we get here? Part of the explanation lies in the perverse way the economy has come to be understood. A particular intellectual tradition within economics that is characterised by unrealistic assumptions and a disengagement from the insights of other disciplines works in tandem with big business, ratings agencies and employer groups to make it seem that if policies to address inequality were developed (or just simply reinstated) the sky would fall in.
This is not so. In fact, we are holding ourselves hostage to a conventional wisdom that is nothing more than a ruse. A less fearful, distorted and confused understanding of our situation reveals viable and desirable possibilities to address inequality.
In addition to more substantive income and wealth taxes, a 'Tobin Tax' on the largely speculative transactions that occur in stock markets and currency exchanges is an obvious option. We can also learn from other countries. For example, Andrew Scott's recent book Northern Lights: The Positive Policy Example of Sweden, Finland and Norway supplies Australia with detailed assembly instructions of how to furnish ourselves with some of the most successful elements of Scandinavian social democracy.
We can also reducing inequality by simply by recovering important aspects of our own social democratic institutions: quality public education, accessible tertiary education, more public housing and better public health. There has never been such high aggregate level of wealth and income in the country, so the money is there and could be accessed by closing off a whole range of rorts and tax concessions that are currently being exploited by the wealthy.
New policies will also need to be considered for emerging challenges. If technological progress does indeed end up eradicating many more jobs than it creates, the 'Jobs and Growth' mantra will then increasingly collide with jobless growth. It will prove impossible to exclude most of society from a meaningful role and some basic income security.
Addressing inequality is best understood as an opportunity. Evidence from Wilkinson and Pickett's Spirit level: why more equal societies almost always do better shows spreading wealth and income is more about benefits than costs. Moreover, more equal organisations do better at developing the cohesion, cooperation and efficiency that allows them to compete. It is inequality that is unaffordable. It has always been thus. Indeed, hunter gather societies have long embraced a 'fierce egalitarianism' to avoid the distraction and dysfunction that inequality can create.
Piketty's visit to Australia is an opportunity for Australia to wake up from its steady sleepwalk towards an ever more unequal society. A failure to properly heed his analysis, and that of his many fellow travellers, puts us on a trajectory towards US-style society of vicious inequality. One only has to consider the current US election to see the profound problems this can create.