In the September issue of Harper's Magazine, Noble Prize-winning economist Joseph E. Stiglitz argues that Thomas Piketty's much-lauded Capital in the Twenty-First Century lands at an incorrect conclusion. Capital, Stiglitz writes, holds that growing inequality is an inevitable outcome of capitalism. But this, Stiglitz says, is not in fact the case. Our system produces such yawning gaps because it isn't truly competitive the way a capitalist system should be — it has, in fact, been engineered by the wealthy to prevent competition and to protect their economic and political power.
But much of the damage done, Stiglitz writes, can be remedied by rethinking the tax code.
A well-designed tax system can do more than just raise money—it can be used to improve economic efficiency and reduce inequality. Our current system does just the opposite. Piketty's proposal for addressing inequality through taxation—a global wealth tax—is a political nonstarter, whatever one thinks of its merits. But there are steps the United States—home to the worst inequality among the advanced countries—can take on its own. With a sensible reform of our domestic tax code, we can simultaneously raise money, improve the performance of the economy, and address some of our biggest social problems—not just inequality, but joblessness and looming environmental catastrophe.
Stiglitz goes on to outline his plan; you can read the essay in full at Harper's (you will need a subscription to log in).
This week's Moyers & Company features an encore broadcast of a conversation Bill Moyers had with Stiglitz soon after his latest research for the Roosevelt Institute — on which the Harper's essay is based — was released. He told Bill:
We have this vicious cycle where economic inequality gets translated into political inequality. It gets translated into rules of the game that lead to more economic inequality, and which allow that economic inequality to get translated into evermore political inequality.
The only way we're going to break this viscous cycle is if people come to understand that there is an alternative system out here. That there is an alternative way of raising taxes, that we are not really faced with a budget crisis. It's a manmade crisis. You know, when we had the government shutdown, we realized that that was a political crisis. That wasn't an economic crisis. And the same thing about our budget crisis, you know. It's not that we couldn't raise the revenues in a way which actually could make our economy stronger. We can.
If we just had a fair tax system, to tax capital at the same rate that we tax ordinary individuals, if we just made those people in that upper one percent pay their fair share of the taxes.