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Extremely Growing Inequality Destroys Democracy

by Albrecht Mueller Thursday, May. 28, 2020 at 10:57 PM

When one percent have half of the wealth, mistrust and cynicism drown out public spirit and trust between the generations. A fair tax system means ending tax havens, micro-second trading, stock buybacks and insider trading.

Extremely growing inequality destroys democracy

by Albrecht Müller

[This article published on 5/25/2020 is translated from the German on the Internet,]

The French economist Thomas Piketty speaks of an "inequality regime". This is admittedly an unwieldy term. But it is clear what Piketty means. He describes the deterioration of the situation as follows: 10 years ago, the top billionaires each had around 30 billion, 5 years earlier around 5 billion, today they each have around 100 billion. This growth is not coming from anywhere. The wealth is missing from the rest. 90% only hold about 20% of total assets. One percent owns about half. - Wealth distribution improved between 1900 and 1980. Then there was a break. This marked the beginning of the rule of neo-liberal ideology. Piketty's response to this appalling state of affairs is, for example, to suggest that the richest people should give away up to 90% of their assets. Others answer with the "neither left nor right"? Anyone who wants can do so. I see it differently. But we shouldn't argue about these two terms any further. Albrecht Müller.

On Swiss radio SRF Kultur, Yves Bossart interviewed the French economist and author for almost an hour on March 30. The occasion was his latest book entitled "Capital and Ideology". The theme of the program: "Thomas Piketty: Inequality destroys democracy". It is good that such a knowledgeable and prominent economist and political person says this.

It is worth watching this program if you want to recognize our situation and learn how to act. It is worth it, even if you cannot agree with everything Piketty says.

10 observations based on it and subsequent observations on the distribution situation and the consequences:

The distribution of wealth and income is scandalously bad. It is beyond all proportion.

The distribution of wealth was even worse in the 19th century and until 1914. Between 1900 and 1980, and especially between 1930 and 1980, distribution became somewhat fairer, somewhat less scandalous. See the following figure by SRF based on the work of Piketty.

Around 1980 the break came. The distribution of wealth became worse, in Europe, in the USA even more marked. There the situation is even approaching that of the turn of the century from the 19th to the 20th century.

The era around 1980 was the time when Reagan and Thatcher took power. In Germany, this period is associated with the change of government from Schmidt to Kohl, and on the level below it was determined by Otto Graf Lambsdorff and Hans Tietmeyer and by the Deutsche Bundesbank. For the sake of historical accuracy, it should be noted that neoliberal ideology had already triumphed in Chile in 1973. The Chicago School won with the help of the dictator Pinochet. An omen until today.

Inequality of income distribution is an important basis for the worsening of wealth distribution. The following graph from Piketty's new book shows the share of the top 10% of income earners in the national income. The changes are described in the text below the graph. Here, too, the development in the USA is even worse than in Europe.

Piketty points out the concrete current situation in the interview at about minute 13:15. High net worths achieve 7, 8 or even 9 % return on investment in real terms due to their better investment opportunities including tax avoidance. Who invests 5000 €, gets nothing.

The second important factor for the deterioration (or improvement) in the distribution of wealth is tax policy. The improvement between 1930 and 1980 has been helped by a progressive income tax and more effective inheritance and wealth taxes. The top income tax rates, for example, during the period of improvement between 1930 and 1980 were significantly higher than today's rates in all four countries observed. In the USA they were 81%, in Germany over 50%. Progressive income taxation reached its peak in the middle of the last century. In Germany, this phase is known as the "economic miracle".

Unlike the advocates of inequality with their so-called Trickle Down theory or the horse-apple theory, inequality is not productive. Societies with a fairer distribution of wealth and income are more productive. According to Piketty, this is shown by the history of income and wealth distribution that he is investigating. To explain: The horse droppings theory is called that because its proponents assume that if you feed the horses properly, there's plenty left for the sparrows.

The risks to the existence and viability of democracy posed by an excessively unequal distribution of wealth and income are manifold. For example: the super-rich directly determine politics. They do well-equipped lobbying and they make opinions. I recall one of five observations that is formulated at the beginning of my book "Opinion Making":

Those who have a lot of money and/or journalistic power can massively influence political decisions.

We can observe the correctness of this observation again and again. Piketty, in my opinion, has not correctly and completely recognized this danger. But that does not diminish the clarity of his statements:

Inequality is a social problem and a major political one. It goes to the heart of the matter. The term "inequality regime" characterizes this danger quite well. So in the future, please do not speak of "Western community of values" but of "inequality regimes" when we compare our so wonderful world with the so-called autocratic or totalitarian regimes.

What does this mean for the political agenda of the next decade: freedom and control of power demand the fight against inequality.

Piketty brings in his book as well as in the video linked above some suggestions for the correction of the distribution of wealth (Approximately from minute 36:00.): Strongly progressive taxes on income wealth and inheritance. Co-determination. Rethinking property. Temporary ownership. –

These are proposals for a party programme that are worth discussing.

How the practical policy to break the inequality regime is then called in the conceptual world of political geography is something that each and every one of us may decide for himself or herself.

Addendum: Jens Berger has published in his earlier book "Who owns Germany" important findings on the topic, especially with regard to Germany; his new book "Who protects the world from the financial corporations" also contains important data and thoughts on the topic.

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