Sunday, December 21, 2014

Capital In The 21st Century At The Bank of England

Thomas Piketty has done his job.  His book raised enough questions about inequality to bring the issue to one of the pillars of capitalism.  The BOE invited four prominent economists to present their reactions to his book.  They all agreed that Piketty had provided a great service by making the historical data on income inequality widely available.  Most of the comments were about the economic growth theory that Piketty relied upon to reach his policy conclusions.  Piketty responded to the comments by agreeing that his conclusions were open to debate.  The BOE plans to post these discussions on its website after they have been edited.  Let the game begin.

One of the more provocative perspectives presented at the meeting was about the impact of inequality on democracy.  Joseph Stiglitz, among others, has argued that rising inequality has a corrupting effect on democratic governance.  Implicit in this perspective is the assumption that the middle class is an essential pillar of democracy.  One of the presenters rejected that assumption.  He argued that the median voter does not have much of an impact on governance.  He argued that all societies are governed by interests of the top 10%.  He seems to agree with the "Iron Law Of Hierarchy" that has a long history in political science.  Elections are for show.  Their primary purpose is to provide legitimacy for government.  That conclusion makes sense when the political debate in many countries is between the center left and the center right as it is many Western nations.  Political debates in that environment are primarily about fine tuning the system and settling disputes among the powerful.

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