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Why Piketty is right and yet wrong

   The first "World Report on Inequality" predicts social and economic disasters unless a remedy is found for the growing inequality. Thomas Piketty, author of the bestseller "Capital in the 21st Century", and his co-authors have presented massive data documenting the increasing excesses of wealth in the face of poverty and impoverishment. In extreme cases, in the Middle East, the ten percent of the best earners together allegedly earn 61 percent of total income.

   As much as one would like to agree with the authors that a growing income gap between the top and the bottom seems threatening, the reasons are not clear why this trend rules today's capitalism unless powerful countermeasures are taken.

  Here Iam offering an unorthodox attempt of an explanation which leads to a concept for action which runs contrary to that of Piketty’s followers. And which has a lot to do with trumpism.


A day like any other

Two messages arrived today:

1: In Brescia, an industrial town in northern Italy, a 14-year-old was caught by police with three kilos of cocaine in his school bag. At home, he owned another 12 kilos of the drug. The backpack also contained a precision scale, which he needed to sell the goods in the train station district of Brescia.

2: Ayrton Little, a 16-year-old African-American in Louisiana, has been admitted to study at Harvard Elite University. Huge joy for friends and family.

   Two different attempts by young people to break through the traditional age pattern of human life and to force success long before it is granted to their co-eds. Early entrepreneurship, early talent combined with diligence; by no coincidence that might think of famous prodigies of our days: France's President Emmanuel Macron, for instance, or Austria's Prime Minister Sebastian Kurz.

But how does that relate to Piketty's theorem?

   Pretty well, in my opinion.

   Why are the top ten percent so successful worldwide, while the ninety percent are also diligently struggling but in vain? Are the ten percent more talented, hardworking, inherently more gifted? Maybe. But this does not quite suffice to explain why their share of national income is growing. Talent, diligence, home advantage could explain why there are in each generation and each country again ten percent more successful than the rest. This combination of advantages ensures them a disproportionate share of total income - but not the growing share that Piketty claims. There must be something else.

   But what?

   Let us imagine the standard course of a human life in today's economy as an obstacle course. As soon as you have learned to read, write and think you find yourself locked up with many stupid people in a school that steals an enormous amount of time, hates creativity and only leaves you two escape routes: down (type Brescia) or up (type Harvard). Once you have survived school and perhaps military service, the path to life is finally open.

   The untiring will choose further education and specialization that once again steals a lot of time and often only provides a degree instead of useful knowledge. Others seek their way directly up to the zone of ten percent and are confronted with a thousand obstacles: Jobs that can only be practiced if you have a degree or are admitted. Credit that can only be obtained if you are licensed and can offer securities.

   Once you have finally found a lucrative niche by overcoming all obstacles, and if you are already scratching at the lower limit of the ten percent sphere, you run the risk of being sorted out because of advanced age. Still a few years later you are menaced by the final job loss, called retirement. At what is often the most productive male or female age, you are stamped as commercial waste. Tax or pension regulations might block you from continuing to work.

Against a standard life

   The standard program of life for the 90 percent is therefore a sophisticated system of preventing social and economic advancement. Compulsory education, studies, vocational training, qualifications, admission, examinations, certificates, diplomas, pension certificates and cemetery fees are instruments of a repressive social system which prevents the individual from developing, so that it does not disturb and harm the community.

   Illiterates, corner cutters, self educated people, dreamers are not desired.

   To rise to the ten percent, an individual needs either to be born with a high enough social status which protects from the instruments of torture of modern, capitalist society and the associated loss of time, or to be unusually strong enough to assert oneself against the torture.

   So far, so good. But why do the ten percent continue to obtain a growing share of the cake? Quite simply because the instruments of torture used by society gradually become ineffective and irrelevant as individuals progress on their way up to the ten percent zone. Nobody checks whether the boss of a successful craftsmen company can read and write. He's got people doing this for him. A successful banker does not need to show a degree in business administration or banking, perhaps not even a high school diploma. You don't ask a lady speculator or investor whether she is beyond retirement age. That would be rude.

No obstacles for the successful

   The higher the ten percent rise, the more easily the obstacles that society has put on the course tilt away, thus reducing the loss of time and power caused by society with its rules. This advantage produces a turbo effect which allows the ten percent to playfully maximize income and assets compared to 90 percent: they are also permitted to continue working to the grave or dementia.

   Something else distinguishes the ten percent centers from the 90 percent: In a competitive economy, it can be assumed that maximizing income and wealth is the main driving force of the economically most successful. This, however, is not necessarily also the driving force of the 90 percent. Compare, for instance, the cased of German Chancellor Angela Merkel and Turkish President Tayyip Erdogan -- two politicians who have held office for a similar length of time: Chancellor Merkel will retire well-off but not rich; President Erdogan and his family have accumulated a huge fortune, allegedly billions; they have fully succeeded in joining the 10 percent.

   Merkel’s example shows that among the obstacles which society has established there are also incentives which deviate the aspiring young people from striving for ascent to the 10 percent layer. Society offers all possible demotivating goals: servicing the country, the party or the working class, celebrity, human or animal love, resource protection, scientific or sporting success: a myriad of goals that compete with maximizing income and wealth.

Or happiness in the afterlife?

   Important, if not dominant among the competing goals is religion. The less religion allows to combine the pursuit of success in this world with the pursuit of happiness in the hereafter, the more the 90 percent will be distracted from maximizing prosperity. The mendicant monk, the nun and the Islamic suicide martyr are only extreme examples.

   Logically, it is particularly easy for the 10 percent in strongly religious societies to rise economically over the 90 percent. An exception to the rule is offered by Calvinism-Protestantism which allegedly regards economic success in this world as hinting at happiness in the hereafter. It is often claimed that Calvinist thinking has now permeated all of Christianity and has made possible the enormous economic growth of recent decades.

   In the early days, an individual’s pursuit of maximizing income was considered objectionable in itself. Europe's elite, sought fame in fighting, heroism, ownership of property, slaves or subjects, poetic or artistic fame. A person aspiring to join the ten percent was often mocked or insulted, labeled a nouveau riche or a profit grabber.

Poor performance

   When society puts offers a young person the obstacle- and temptation-filled concept of life it should not be surprised if the economic performance of the ninety percent remains puny.

   Anglo-Saxon countries traditionally view the widening gap between the incomes of ten and ninety percent as a quasi-natural development and do not consider this trend particularly reprehensible. Continental Europeans, on the other hand, do not like this trend and try to counteract it -- see Piketty & Company.

   The classic leftist reaction calls for a more repressive response to the problems created by the repressive instruments of society. The instrument of choice: raising taxes for high incomes and wealth, combined with a balancing social policy. A bonanza for the bureaucracy.

   The classic right-wing reaction of the US Republicans and their president would be to abolish or mitigate the instruments of society that have been recognised as repressive. Example: home schooling instead of compulsory schooling. Abolition of all types of retirement age regulations. Exemption from compulsory insurance and compulsory membership in professional associations. Abolition of master craftsman titles, diplomas and other conditions of professional practice. First of all: elimination of income tax progression. Free ride for the talented and brave, if necessary at the expense of society.

   Every country must find its way between the extremes.

Heinrich von Loesch

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