We don't need 19th century inequality to achieve 21st century growth

From his more productive tunnelling through 200 years of meta-data, Piketty has emerged with the following dramatic propositions:

• There is no general tendency in market economies towards equality. The reduction of inequality after the second world war was caused by enlightened policy including progressive taxation. The erosion of progressive taxation in which the rich pay proportionately more than the poor, has in effect recreated the conditions for the return of the domination of inherited wealth of the 19th century. A new domination by dynastic wealth.

• The drift back to extreme inequality is apparent in all of the advanced industrial countries, particularly the US and UK. Picketty demonstrates that while in the US the richest 1% of households took 22.5% of total income in 2012, what is even more worrying is the trend since: “the richest 1% appropriated 60% of the increase in US national income between 1977 and 2007.”

• Accelerating this trend towards increased inequality is the rapid inflation in the reward of top executives in the US and the return of the system of inherited wealth of patrimonial capitalism in Europe.

• These tendencies are worsening as the accumulation of capital continues to grow while Western economies have slowed in recent decades. The return on capital has outpaced the growth in economic output.

• Piketty’s policy recommendations hark back to a different era – the democratic reformist zeal of the post-war period when higher marginal tax rates for the rich, and inheritance taxes were seen as essential to economic progress, not punitive.

• The alternative we are now facing is the return of plutocracy, as Piketty comments: “Inequality is fine as not long as it is not completely excessive. At the end of the day, it’s hard to make democratic institutions work if you have 95% of the wealth in the top 10% of people".

• Assumptions that inequality is necessary for economic growth are largely groundless: a more unequal society fails to deliver economic growth.

• Austerity measures simply focused on reducing national debt, by reducing the capacity of other essential services such as health, education and social support, can compound inequality and further restrain growth.

Where will this extreme inequality end? A recent Oxfam report suggests the richest 85 people in the world — the likes of Bill Gates, Warren Buffett, and Carlos Slim — own more wealth than the roughly 3.5 billion people who make up the poorest half of the world’s population.

Inequality is not an accident, it is a result of the way we run our government and economy. Hockey claims this budget (and his budgets to come in the medium term when the more serious cuts will be made) is directly focused on removing the fetters on economic growth. In reality it is focused on removing the fetters on increasing economic inequality.