Why this economist's warnings on wealth inequality are being highlighted by Covid-19

Author Thomas Piketty's 2014 book flagged up the dangers of concentrating riches among a privileged few

FA6A57 Thomas Piketty, French economist who works on wealth and income inequality, on a visit to Portugal. Alamy
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Against all odds, Thomas Piketty pocketed a small fortune from the publication of a weighty book about the perils of economic inequality and the necessity of wealth taxes.

The money he earned from his 2014 international best-seller, Capital in the Twenty-First Century, he says, only reinforced the French economist's discomfort with the concentration of wealth among a privileged few.

This is a crisis that illustrates a virulent inequality.

Piketty says he paid a 60 per cent tax on his book earnings and spent only a fraction of it to upgrade his lifestyle. The rest he parked in a bank account – waiting, he says, for a political transformation that would lead France to impose a 90 per cent wealth tax on highly affluent people like himself.

“I am already incredibly lucky,” he says from his elegantly white-walled Parisian apartment. “I have enough.”

Piketty's research has helped define a debate about the consequences of concentrating so much money and property among so few. His warnings have arrived at a coincidental moment: the coronavirus has suddenly exposed, in real time, the human impact of the seemingly abstract data and charts his research produced.

Capital in the Twenty First Century by Thomas Piketty, translated by Arthur Goldhammer. Courtesy Harvard University Press

Now, Piketty is out with a new book, a manifesto for political change called Capital and Ideology that was published last month in the United States. Tipping the scales at over 1,100 pages, it argues that any nation's degree of inequality derives directly from political decisions – decisions that can be reversed if governments have the will to do so. It precedes a virtual theatrical release coming Friday, on the Kino Marquee platform, of a documentary film that was inspired by Piketty's previous book.

With stunning speed, the viral outbreak has inflicted disproportionate suffering on poorer communities. Even in affluent nations, a majority of households have become suddenly vulnerable as layoffs mount and savings are drained. All of that is intensifying political pressures as the disease increasingly exposes the scope of inequality from the United States to Italy to West Africa.

“This is a crisis that illustrates a virulent inequality,” Piketty warns.

Delivery workers on bicycles around Paris, he notes, are risking their lives because they need money. Millions of migrant workers in India have been left homeless as that nation's businesses have shuttered.

A central question for Piketty is whether the crisis will prove to be a catalyst that drives policy changes – from paid sick leave to government-provided health care to a reordering of the tax code – that might narrow the wealth gap. Or not.

Economists, including those recently surveyed by the University of Chicago, warn that the outbreak will worsen already high levels of inequality in the US. Even accounting for $2 trillion-plus (Dh7.34tn) in government aid, 84 per cent of the economists surveyed said that low-income workers would suffer a bigger hit to their incomes than more affluent people would.

Separately, 91 per cent said the pandemic would widen the gaps in the quality of education between poor and affluent households. And 95 per cent said that deaths would disproportionately occur among disadvantaged groups such as the working poor and African-Americans.

“This difference would have been less pronounced if the US had universal health care,” says Jose Scheinkman, an economist at Columbia University in New York.

The Trump administration has opposed the use of tax increases on the wealthy to cushion the economic damage to the poor and middle class. The administration has championed tax cuts as a solution to inequality, on the premise that lower taxes will inevitably drive faster growth.

Larry Kudlow, President Donald Trump's top economic adviser, defended the existing structure of the US economy in an interview with FOX Business Network.

“Why do we have to raise taxes?" Mr Kudlow said. "Let’s let people keep their own money, get them a job, have a strong business, let them keep their own money.”

Capital and Ideology by Thomas Piketty, trabslated by Arthur Goldhammer. Courtesy Harvard University Press

Arguing from the polar opposite view, Piketty puts faith not only in a wealth tax but in adjusting property taxes based on home equity. When he talks about “participatory socialism", the French economist is not embracing the idea of public ownership but rather “private property for all". The goal, he says, is to dilute the concentration of real estate in the hands of so few people.

These ideas would upend notions of economic growth that are predicated on low tax rates for capital gains from investments. Yet Piketty argues that much of the economic growth enjoyed in the US arose from its commitment to education that improved the skills of its people, rather than from its tax policies.

It is far from clear that the viral outbreak will force the kinds of political changes in the US and Europe that Piketty envisions. Many working class voters have sided with the Trump administration, favouring an end to low-tariff trade and curbing immigration. And a shift among working class voters to a more nationalist vision of government has emerged in advanced economies such as France and Germany, Piketty noted.

Democratic voters in this year’s presidential primaries bypassed US Senators Elizabeth Warren and Bernie Sanders, both of whom forcefully advocated for wealth taxes. They chose instead former vice resident Joe Biden, whose economic views are more centrist.

Piketty suggests that his survey of history indicates that voters could either shift towards his ideas in the aftermath of a crisis – or reject them entirely and embrace nationalism more fully.

“In these times of crises like the one we have today, there are different possible trajectories that can be taken,” Piketty says. “It could really go both ways.”