How much of the equality about which we nowadays talk is inherited or passed down, and how much is temporary and inter-generational?
On Friday 19 December, I attended a seminar at London Business School where Thomas Piketty discussed his work on inequality with challenges from Gavyn Davies and the chair of the debate, Matthew Bishop of the Economist.
Piketty’s arguments, summarising his book, seem to be twofold. First of all, he shows that income and, more importantly, wealth inequality, have been increasing since the immediate postwar period and, what’s more, neither inequality shows any sign of falling. He attaches more importance to wealth than income inequality because the former is more persistent. Although you know this is coming, his second, and separate, argument is that this is bad thing and public policy makers should respond, in particular, through wealth taxation.
Gavyn Davies’ critique was, to my ear, also twofold. First, he used Piketty’s charts to show that the increase in inequality since the mid-twentieth century low point was, with a historical perspective, a return to normal. So, while you might want to do something about inequality, you cannot argue that you should do so because the current levels of inequality are unusual. Second, he argued that the recent increase in wealth inequality was coming to a natural close. The sharp rise in wealth inequality was largely due to the fall in the risk free rate and the concomitant rise in asset values. This was temporary.
Michael Bishop’s contribution was more anecdotal but he seemed to be saying that the rise in billionaire philanthropy, particularly in the US, meant that the wealthy were voluntarily reducing inequality by giving their wealth to good causes.
What none of the speakers helped me understand is what part of the income and wealth inequality that we see is persistent and which temporary. What part of the sum of inequality reflects the persistent income and wealth poverty of social groups, which is passed from parents to children, and what part reflects inequality between generations. Through our lives, most of us occupy at different times different points on the income and wealth distributions.
My sense is that part of the rise in inequality comes from the intersection of greater longevity, low inflation and interest rates and the privatisation of education. Longevity means that death-based taxation has steadily lesser impact on wealth distribution; an estate, be it modest or large, is taxed less often. Low inflation and interest rates protect financial wealth. And young people who self-finance their way through higher education emerge with negative wealth and low income, which is temporary.
What you do about inequality is another matter. You might care as much about inter-generational equality as inequality between social groups. But it is probably fair to say that the policy measures are likely to be different.
The Oblique View 