In my last Piketty post, I outlined Piketty’s arguments 2E and 2P, namely that patrimonial capitalism generates unjustified inequalities and that a global capital tax will contain those inequalities in a fair and efficient fashion in comparison to various alternatives. Reproduced:

2E. Unjust Inequalities: r > g and patrimonial capitalism generate inequalities of wealth that cannot be justified on egalitarian and/or meritocratic grounds, as these inequalities do not aid the “common utility.”

2P. Rectifying Unjust Inequalities: A global progressive capital tax will reduce unjust wealth inequalities in an efficient fashion, in comparison to socialist, protectionist and other alternatives.

I think both arguments fail.

I. Against 2E – A Dilemma: Populist or Rawlsian?

To begin my critique of argument 2E, recall that Piketty’s master principle, namely that inequalities are justified only when they promote the common utility, utility really boils down to something like the Difference Principle with a deontological rather than a utilitarian foundation. Piketty should have been dramatically clearer about this. But the deeper problem is that his mode of presentation draws him into a dilemma.

Piketty’s justification for his distributive principle seems to be that the principle is implicit in many of our political practices and political documents. So his common utility principle is widely accepted, at least implicitly, by many members of the public. But if his distributive principle is too close to the Difference Principle, this becomes an implausible claim, since the Difference Principle is almost certainly not implicit in our shared political practices and political documents. So either Piketty has trouble grounding his distributive principle on a broadly acceptable basis, or he must give up the sort of specificity that would add normative force to his empirical and theoretical models.

My key claim in this argument is that the Difference Principle and its close relatives are not implicit in our public practices. Argument 1 for this position: Piketty himself admits that the idea was not what the drafters of the Declaration of the Rights of Man had in mind when they spoke of common utility. Instead, he argues that we can somehow draw it out of the Declaration anyway. But how? And with what arguments? We’ve given little help. Argument 2 for this position: the Difference Principle is often rooted in maximin reasoning, which is ridiculously risk-averse, and it’s unreasonable to think all people are committed to that degree of risk-aversion.

Argument 3, a generalization of 2: there’s simply too much reasonable disagreement about distributive justice to think just about any egalitarian principle sufficient to get us Piketty’s conclusions is implicit in our political culture and documents. Importantly, Rawls himself admitted that reasonable people could reject the Difference Principle (Political Liberalism, p. xlvii) and rather accept as a substitute “a principle to improve social well-being subject to a constrain guaranteeing for everyone a sufficient level of adequate all-purpose means.” This latter principle, which Rawls admits is reasonable, holds merely that inequalities should improve well-being and guarantee the least-advantaged needed primary goods. Piketty cannot get his distributive conclusions out of this principle (see three paragraphs downs).

So I think Piketty has to choose: either adopt a controversial and deeply contentious distributive principle or give up his egalitarian condemnation of wealth inequality. Unless someone can run a successful argument that the DP is implicit in our political practice and documents, Piketty must choose, given how he’d like to brandish and ground his conception of distributive justice.

One might reply that we can get a Piketty-lite condemnation of growing wealth inequality without a heavy-duty egalitarian principle of distributive justice. For instance, one could adopt a presumption in favor of inequality and argue that it can be overcome with a modest compression of inequalities or by genuine merit. That may be the way to go, I admit. But going in that direction still requires fleshing out what the principle is and showing its implicit basis in our practices. I’m happy for someone to formulate an alternative.

I think the best formulation of an alternative is this: inequalities of wealth and income must, in general, improve the position of the least-advantaged. But even this principle raises problems. First, it allows for potentially astronomical inequality so long as it helps the least-advantaged. Second, it seems to require the destruction of any wealth gained by some representative group that makes them better off and no one worse off. That is, the principle seems to violate a very attractive Pareto principle for distributive justice: don’t begrudge increases in utility that make no one worse off. In fact, I think that’s going to be a problem for any principle with a presumption in favor of inequality, unless you adopt Rawls’s deeply controversial and underdefended assumptions of chain-connection and close-knittedness.

II. Against 2P – Is a Global Wealth Tax Fair and Efficient?

I think there are fewer problems with 2P than 2E, but there are a number that I should mention. First, Piketty mostly asserts that his capital tax either won’t discourage economic growth or won’t discourage enough for it to matter without defending himself. But surely it’s entirely plausible to think that increasing returns to capital will raise wage rates at some margin, just given standard microeconomic theory. What’s more, capital taxes discourage the incentive to accumulate capital up to a certain level, capital that others can utilize through wages, consumption or their own investments. So surely there will be some costs to the tax, and that will affect the assessment of the efficiency of the capital tax. What’s more, many have pointed to Piketty’s seemingly naïve claim that,

… before we can learn to efficiently organize public financing equivalent to two-thirds to three-quarters of national income, it would be good to improve the organization and operation of the existing public sector, which represents only half of national income … (483).

We might describe this as a “public choice fail.” Improving the operation of the public sector might be extremely difficult due to the (sometimes) self-interested behavior of politicians and strategic difficulties in improving the output and quality of public goods (of which good governance is an instance).

But these are empirical questions that I will leave to economists.

The moral-philosophical problem with 2P is that Piketty makes several morally questionable claims in embracing it. Consider this: “Taxation is neither good nor bad in itself. Everything depends on how taxes are collected and what they are used for” (481). This is, to say the least, controversial. The idea that taxation isn’t even a necessary evil is deeply implausible, since taxation necessarily involves coercion, even if it is justified. Coercion is, all else equal, an evil. Further, the moral assessment of taxation is surely dependent on how high it is. If we taxed global wealth over $1 million at 100%, the rate would be morally relevant, not just the way such taxes are collected and what the proceeds are used for. So in order to show that the global wealth tax is fair, Piketty can’t just assume that there are no moral issues with taxation other than its collection and use. And you can agree with everything in this paragraph without taking on any libertarian premises.

Further, Piketty also argues that “the primary purpose of the capital tax is not to finance the social state but to regulate capitalism. The goal is first to stop the indefinite increase of inequality of wealth” (518). This looks like leveling down. Destroying wealth in the name of fairness seems morally perverse to a great many reasonable people. (If destroying wealth is required for stability, on the other hand, then it’s not leveling down exactly, as increasing stability should make others better off, but I already discussed Piketty on stability.)

III. 2E and 2P Fail

So both of Piketty’s arguments from unjust inequalities fail. 2E fails because Piketty either adopts a controversial distributive principle which he does not defend at all, or he adopts a sufficiently vague principle on which there is consensus but that cannot justify his egalitarian policies. 2P fails because Piketty ignores a variety of economic problems and moral barriers to justifying such high levels of taxation. Next time I’ll focus on Piketty on transparency.