Commentary: Policies Will Widen The Wealth Gap
It probably says something about our times that the book that’s sold out on Amazon is not the latest Twilight thriller but a dense, 700-pager by a French economics professor: Capital in the Twenty-First Century by Thomas Piketty. He’s also making the rounds of TV talk shows like an A-list actor promoting a new movie.
Pikkety’s sudden rise to fame is atypical but well deserved in that his book is a profound historical treatise on the causes of wealth inequality in society. Its central thesis is that we’re returning to a time when inherited wealth rather than raw talent determines your place in society. This claim is backed up by 300 years’ worth of data that spans the entire developed world.
Pikkety’s data show that wealth grows faster than the economy. Since 1700, the pre-tax return on wealth globally has outpaced average economic growth. As a result, wealth becomes more concentrated and social inequality increases. Furthermore, as the wealth gap widens so does the potential for social unrest.
Finally, wealth has a tendency to perpetuate itself. Today’s Bill Gates and Warren Buffetts are like the John D. Rockefellers and J.P. Morgans of the last century. Vast sums of money are passed from one generation to the next. The future, according to Piketty, sounds like the world of Dickens and Les Miserables: the super-wealthy few living off of inherited wealth while the vast majority barely scrapes by.
In Missouri, the situation regarding inequality is no better than the overall U.S. picture. According to the Center of Budget and Policy Priorities, Missouri is among the top 10 worst states for increases in inequality between the late 1990s to mid-2000s. While the state’s richest 20 percent saw a 6.9 percent increase in income, the middle and poorest income groups actually lost ground. Even more impressive is the growth in the incomes of the richest families in the Show-Me State between the 1970s and mid-2000s. Incomes for the richest Missourians grew by 67 percent, while middle-income earners saw growth of only 27 percent during the same time.
Missouri policymakers’ response to the inequality gap is to pass laws to make it worse. The Missouri Legislature overrode the governor’s veto of an income tax cut that reduces tax rates on the state’s wealthiest taxpayers. It also gives a large deduction for business income reported on individual tax returns. Apparently, the millions spent by the Missouri Club for Growth to pass the tax cuts were well-spent; it only took them two years and one governor’s veto to get it passed.
Actually, the Missouri Legislature has proved another one of Piketty’s claims. He says that “economic and political changes are inextricably intertwined.” Bad public policy has contributed to the growing wealth disparity and one needs look no further than what happened in Jefferson City this year to understand that.
Robert A. Cropf, Ph.D., is a professor of political science at Saint Louis University.