Yesterday, I attended a talk at the Old South Meeting House, sponsored by the Patriotic Millionaires, about rising inequality. Senator Elizabeth Warren and French economist Thomas Piketty spent an hour answering questions from Ryan Grim, Washington Bureau Chief for The Huffington Post. I’ve watched Elizabeth Warren for years. She is extremely bright and provides a needed counter balance to well-funded lobbyists for corporations and financial institutions. She recently published her memoir, A Fighting Chance. I know less about Thomas Piketty. He came to my attention when his book, Capital in the Twenty-First Century, became a best seller.
I’ll summarize my impressions from today’s discussion. Due to where I was sitting, varied speaker volume, noise, and distractions, this is not a comprehensive report. Often, I was able to hear Warren’s comments more clearly that Piketty’s. So, I apologize to both speakers in advance if I missed some of their points.
Piketty’s thesis about inequality: All economic systems have some inequality. What Piketty showed is that inequality has a natural tendency to grow to unacceptable levels in capitalist systems unless government plays an active role. Left unchecked, rising inequality creates social problems and stifles innovation. Warren summarized this simply as, “the rich get richer.” In his book, Piketty showed that capital income dominates over earned income as a driving force of inequality, especially as the rate of economic growth slows. He compiled an astonishing amount of historical data from all over the world to back up his conclusions. Warren added some color to the discussion, saying that Piketty’s ideas prove that “trickle-down” economic theories are nonsense; wealth “trickles-up.”
Tax System Reform: This topic came up throughout the hour, and is a central issue. Warren observed that other forces drive inequality, including education, taxes and government policies. She questioned the tax system’s integrity: lobbyists modify tax codes to favor large corporations, which puts small businesses at a disadvantage. She said that the current tax system is riddled with loopholes, and that this encourages everyone to cheat. The speakers briefly touched on Piketty’s proposal for a global wealth tax, as well as estate taxes. Piketty pointed out that current federal taxes on property are not progressive. Nevertheless, most of the discussion focused on reform of our current income tax system. Warren advocated for a “work hard, play by the rules” economy, where everyone has a fair chance for success. She spoke about how the “game in America” today is rigged, which undermines confidence in our system. She called this a profound danger. Warren asserted that cleaning up the tax system to remove loopholes is step number one.
Critics: Ryan Grim asked about “unexplained errors” in Piketty’s data, an allegation made by Chris Giles, economics editor of the Financial Times. Piketty replied that there should be no concern about transparency because his data is openly available. Further, his book is not the issue, rising inequality is the issue.
Inclusiveness: The speakers advocated for increasing the chances of individual success through improved education and infrastructure. Warren argued that government policies now favor the rich. For example, she says, the Ryan budget provides loopholes and tax cuts to the top earners, but, at the same time, cuts investments in infrastructure, education and research. Instead, we need policies that offer a foundation for the middle class and small businesses to succeed.
Climate Change: Ryan Grim read a question about how climate change would contribute to inequality. Piketty say this as an important, but separate, issue. Warren saw this as a symptom of the same problem, specifically that the rich are able to rewrite rules of government for their own benefit. For example, companies can pollute, make short-term profits, but can avoid paying the real cost to the environment, which impacts everyone else.
Student Loans: Warren provided sobering statistics on the number of people (40M) burdened by student loans, as well as the considerable amount of debt ($1.2T outstanding). Student dept has grown 70% in the last decade. This is a problem that is dragging down the economy due to reduced spending and inability to start new businesses. We need to cut interest rates, but the government can’t refinance loans at this time. As it turns out, the government needs the money ($66B in profit), which should come from another source. The solution is to enact the “Buffet rule” that closes loopholes so millionaires pay at least the same tax rate as secretaries. She is working on a bill to offer students debt relief.
Labor: Piketty explained why organized labor was not a central topic of his book. Warren described how labor unions have played a role in building America’s middle class. For example, they fought for medicare and civil rights reform. In the long run, she says, the resulting changes aided everyone.
President in 2016? Warren did not directly answer this question. She did advocate for an inclusive economy where values, voices and votes trump power and money. Warren concluded that we must decide who we are as a nation and fight for what we value.
In summary, both speakers clearly articulated why government, driven by democratic values, has a role to play in shaping an economy, based on values and integrity, where everyone has a fair chance of success. Further, they explained why inequality, if allowed to grow unchecked, becomes counterproductive for everyone, rich and poor alike. Capitalism, which will continue to be the driving force of our economy, needs to be managed if it is to be inclusive. My only caution is that we need to clearly understand how the nature of labor will change as technology advances and adopt policies with this future in mind. Twentieth century solutions may not work without some change.
I look forward to continued debate on these topics. The site moveon.org will post a video of this event at 8:30 EST Mon June 3.