Inequality: what can be done? Quite a bit, it turns out

When French academic and economist Thomas Piketty wrote a 700-page book about social inequality few would have expected it to become a bestseller.

Puzzled reviewers attempted to pin what merited the huge popularity it received. The popular Occupy movement? Moral support for improving human welfare? A gifted writer amongst academics?

Now, another inequality book, also with a red and black cover, has arrived in bookstores. At a much-shorter 384 pages, it’s written by economist Anthony Atkinson, who has been working on the topic of inequality for 50 years. Can lightning strike twice? Inequality, the sequel?

There is good news for those who liked Piketty’s book but didn’t manage to finish it. You can save yourself (and your summer reading list reputation) by just going to page 158 of Atkinson’s book where in one humble paragraph he gives you the answer at the end of Piketty’s universe: r > g.

More importantly, he translates it. The key mechanism governing the distribution of wealth is the difference between the rate of return on capital which is the r, and the rate of growth of the economy which is g. Even better news – you can buy the t-shirt.

Harvard University Press

Inequality: What can be done goes beyond Capital in the 21st Century by offering answers. Answers addressed hopefully to those who are minded to and can do something. A prescription for fixing the ailing patient.

Rather like the prosecution in a court action, the book starts by setting out the case exposing inequality: the evidence. The arguments that follow put aside reasons for action, and instead set out a factual “action to do list”.

The first answers are in part two. It turns out there are already common pills available that could just be done better, progressive taxes and transfers. He adds a call for smaller wage differentials within firms – yes, CEOs could give more back to their workers and slightly less to themselves.

Part three addresses the raised hackles part two always gets, the arguments against the excuses for inaction are given. This is a very valuable rebuttal primer for those that will need to make their case, again and again. Rather like Marie Antoinette, the cake often gets mentioned by opponents objecting dreadfully to the medicines Atkinson puts forward (they plead there will be a shrinking economic cake, but in this case the peasants don’t even get to eat it).

The best part is the eight-page climax: a concise bullet point list. Just right for action-minded readers.

But, what about Australian readers, do we need this medicine? Is Australia a fair society? Go to the index: Australia is listed. Spoiler alert: Australian inequality has risen since the 1980s.

My subtle gripe with the “what to do” answers: even if you get into government and do try to fix things by working through Atkinson’s list, you will need to read another book about “how to successfully do it”, especially if you try the transfers aspect. Something like “How to run a government so that citizens benefit and taxpayers don’t go crazy” by Michael Barber.

Playing devil’s advocate –- if these are the answers, then those minded to could use Atkinson’s list to deliver more inequality, by playing the record in reverse.

Because economics relies on a benevolent leader, the benevolent visible hand of government makes the economy fairer using policy that is in the public interest. A fly in the ointment is when public interest isn’t served, perhaps for re-election motives.

Helpfully, Atkinson’s list diagnoses their sound bytes and the inequality delivered.

Beware reductions of the top tax rate that deliver more inequality (but serve silver spoon lobbyists). Atkinson’s prognosis is progressive income tax rates with a marginal top rate of 65%, and broadening of the tax base.

Atkinson seems tuned in to the politics. “Heavy lifting” he says, falls to all levels of government, not just national!

Beware central bankers pleading efficiency (same old cake argument). Atkinson emphasises that distribution links GDP to citizens' real life experiences.

Firstly, take action! Your choices can change things.

Atkinson’s manifesto argues countries still need investment in health, education and training. Explicit targets for unemployment reduction. A “Public Investment Authority” with a sovereign wealth fund that builds State net worth beyond taxes by investing in property and companies. A substantial child benefit amount paid to all children, but which can be taxed as income. “Social insurance”, with raised amounts and extended coverage – essentially a system of government transfers financed by contributions from employers, employees and government, protecting for economic hazards such unemployment, disability, injury and sickness, or old age.

Other suggestions include a capital endowment paid to all on adulthood (a grant of money that can be invested that gives a minimum inheritance to all). A progressive property tax based on regular valuations. Progressive lifetime capital taxes, with a progressive tax regime applied to inheritances and gifts received during a citizen’s life.

A cynical guess at what readers thought Piketty said that made a bestseller with new audiences? Capital (stocks, shares, real estate), will grow faster than income from earnings. An investment mantra on where your money will grow!