Is Income Inequality Solved by the Tax and Transfer?

Everyone would agree that income inequality is a problem. But what is the solution?

Thomas Piketty would argue in his book Capital in the Twenty-First Century that the solution to the obvious income stratification is “a global system of progressive tax and transfer to create greater equality and avoid concentration of wealth in the hands of the few.”

But Dr. David Cowan, author of Economic Parables: The Monetary Teachings of Jesus Christ, disagrees. He wrote in an article “The Spiritual Reflection of Economic Inequality” for The Center for Christian Business Ethics Today, “By all accounts, the book is well researched in terms of the data, but like Marx himself, having understood the problem, he is fantastically wrong about the solution.”

Cowan argues that the solution actually lies in promoting policies that support entrepreneurship, not “hollow idealism.” But while disagreeing with Piketty’s solution, Cowan does not deny the problem of inequality.

He believes that the economy is “a reflection of our human endeavors and puts a number on what we are really like… We do not treat each other equally, and this shows up glaringly in the economy, it puts a number on it.”

He does not think the answer to income inequality lies in taxing, but that we must look to ourselves and to the teaching of Jesus Christ.

He continues this argument in his book Economic Parables: The Monetary Teachings of Jesus Christ. To read more of Dr. David Cowan’s writing, read the article here, and check out his book.

 

 

One Response to “Is Income Inequality Solved by the Tax and Transfer?”

  1. Randy Hoagland

    I don’t know if anyone actually reads these comments, but nevertheless, I’ll take a few moments to comment on Cowan’s article referenced above.

    Here’s his opening salvo:

    “I could score a cheap point and say it’s always nice to see an anti-capitalist book create and exploit a market for handsome remuneration, but this is not to take the book seriously enough.”

    And yet he takes the “cheap point” anyway. More importantly, though, he characterizes Piketty’s book as being “anti-capitalist,” when one could argue quite forcefully that this isn’t the case at all. One could argue that in order *sustain* free markets one must curb policies that actually inhibit broad economic growth such as the natural tendency towards the creation of monopolies or the tendency towards plutocracy in which economic capture is institutionalized via low tax rates on the rich and, consequently, the establishment of a class that no more *merits* its status than a cow merits its bovine nature. If you want to “oppress entrepreneurial power” it’s difficult to think of a better way of doing it than allowing capital to sit idle in the hands of idlers who produce *nothing* through the financialization of a deregulated market. Yes, there is a place for venture capital, but it tends to be corrupted via short-term speculation that inhibits sustained, long-term investment. Recall the tech-bubble of the late 90s?

    Cowan continues:

    ” It is being widely-bought, though how widely read is another matter. The book is going into a second print run at Harvard University Press, and no doubt Mr Piketty’s speaking fees will rise in value. Then again, it was Karl Marx who coined the term “Capitalist” in the first place.”

    Rather than take yet another lay-up at Piketty’s expense, maybe Cowan should consult the book and determine if Piketty is, in fact, a crypto-Marxist hypocrite. I hardly think so. A more charitable interpretation could easily be had, but Cowan’s preaching to the choir.

    Cowan::

    “However, in America the book is creating great excitement. Piketty argues the conclusion that wealth will accumulate if the rate of return on capital is greater than the rate of economic growth, which in the long term leads to the concentration of wealth and economic instability. It comes as no surprise that Piketty proposes a solution: a global system of progressive tax and transfer to help create greater equality and avoid concentration of wealth in the hands of a few. By all accounts the book is well-researched in terms of the data, but like Marx himself, having understood the problem he is fantastically wrong about the solution.

    The great Chicago economist Frank H. Knight, a co-founder of the so-called Chicago School of economics, noted in the 1920s that inequality is a concern in capitalism. It is, as Piketty’s research suggests, an inherent problem. But what Knight saw as the outcome of the problem is that large-scale inequality will lead to “reformers” like Piketty, people who will say more government and more taxation are the answers to the problem.”

    Cowan does Knight a disservice here. Even after a cursory examination of Knight’s reasoning, one can rightly determine that Knight was a very close thinker indeed. He pointed out the excesses of laissez faire, and also the problem of government meddling. more to the point, though, Knight was willing to tolerate less than conservative moves if the alternative to those moves was worse. And Cowan’s alternative to progressive taxation is much worse. More on that in a moment.

    Cowan:

    “The problem such knee-jerk reactions create is the path that is well-trod with good intentions. It, in fact, leads to a depression of the dynamics that create markets and growth. Some inequality is a necessary outcome of markets, and attempts, however well-intentioned, to erase it are a fool’s errand.”

    Again, Cowan fails to read Piketty charitably and produces a straw man. No reasonable person would attempt to “erase” inequality completely. Here, again, Cowan is projecting his Marxist fears on to Piketty’s work. Why is it so unacceptable, so taboo, to try and ameliorate inequality through a more progressive tax? Is he concerned, as was Knight, about the pernicious, moral effects of economic policy? What are *those* supposed to look like? Laziness? Entitlement? If so, Cowan will have to tell us *why* these potential, moral hazards are acceptable, apparently, at the top of the economic ladder and unacceptable at the bottom.

    Cowan:

    ” Concentration of power, hand in hand with government, will oppress entrepreneurial power which is in fact the driver of the economy. We need policies that will promote entrepreneurship, and bring confidence back into the economy, which in turn will reduce inequalities.”

    Too right, but not in the way that Cowan seems to think. There is indeed a “concentration of power” that is “hand in hand with government” and that power is the direct result of the corruption of the democratic process through financial interests. Where Cowan sees a too proactive government in setting economic policy, I see a government that is more akin to a somnambulist, having the appearance of consciousness, but yet asleep to the gob-smacking fraudulence perpetrated on working people by economic predators. There are good reasons why markets ought to be heavily regulated, because without them, without the necessary checks on greed and theft, no healthy, capitalist system can long survive.

    Cowan:

    “Economics is a hard task and the economy a hard task-master, and Knight was a great prophet of economic realism, something which has been lacking for some time in our troubled economic times. Change is not achieved by hollow idealism, and Knight was always suspicious of do-gooders in the economy.”

    What could be a more “hollow” ideal than telling us, as Cowan does, that the answer to inequality resides in following Christ? Does he not know that the U.S. is a pluralistic society? Does he not realize that there a whole range of economic agents which do not accept the teachings of Christ? Shall we wait until everyone has been inducted into a theocracy before inequality will magically vanish?

    Cowan:

    ” I argue along similar lines, in my book Economic Parables, that the economy is a reflection of our human endeavors and puts a number on what we are really like.”

    Nope. That’s just false. Cowan seems to forget that the status of an economy is a reflection of those who have economic power. What “we are really like” could only be ascertained if everyone in the economic system could participate in it in equal measure. This is not the case.

    Cowan:

    “This applies to inequality. We do not treat each other equally, and this shows up glaringly in the economy, it puts a number on it.”

    I take it that this is really what Cowan is up to: He wants to imply that all top-down solutions, as it were, are of no use, that the only viable solution is a bottom-up strategy in which the majority of individuals must treat others as equals. Problem solved! Nope. Not only is this panglossian in the extreme, it fails to consider the *real* effects of economic policy NOW.

    Cowan:

    “Thankfully, we are equal before God in all ways, and we are called in discipleship to treat others well. Our economic success or failure will not matter a jot to our welcome in heaven, but how we behave economically does reflect the state of our discipleship here and now. Our dealings in money and attitudes toward consumption tell us a lot about our spiritual as well as financial balance sheet, and it is no surprise that we all fall short to varying degrees, but we strive.

    The more who strive the more we will see economic change for the better, it will be part of the measured economic output. However, the economy will only measure and reflect this, it will not make it happen. Knight was regarded as the economist of original sin, and I agree, the economy measures us as we are, not as we would like to be. Piketty’s book has found the numbers and measures us how we are, but he does not give us the answer, we have to look to ourselves and ultimately to Christ for that.”

    There you have it, we must “strive” more. Tell that to the person making minimum wage and has to work two or three jobs at once to make ends meet. Tell that to the adjunct professor paying off student debt with no tenure or benefits while the administrators haul in huge salaries. Tell that to the college student who was bamboozled into a for profit “college” only to be left with a worthless “degree” and a huge debt that will follow them for the rest of their lives. Tell that to the school kids who look for food scraps at school because they don’t have enough to eat. Inequality is not a measure of who “we” are, but a measure of who “they” are, those at the top who justify their crass makers and takers trope by telling us, wrongly, that 47 percent of Americans don’t pay taxes when, in fact, the top 1 percent avoid paying a great deal of taxes through carried interest or offshoring their money to tax free havens. By all means we should strive more, but to what end? Strive more to be more like Christ? Will that do it? Even the proponents of Christ, his followers, seem to be more interested neo-liberal tropes than in actually helping people. The Keating Center is a prime example, by the way.

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