Review: Capital in the Twenty-First Century, by Thomas Piketty

 Thomas Piketty is a French economist, whose book "Capital in the Twenty-First Century" is a great analysis of the history of wealth, economic inequality, and taxation through the past two centuries, focusing especially on Europe and North America.  

I highly recommend this book.  It is very long and detailed, and much of it is hard to understand fully for a person not experienced in economics or finance.    For a brief introduction to Piketty's work, there is a good documentary with the same title, which is also worth watching.  But the documentary does not contain nearly as much detailed analysis of the problems and proposed solutions, compared to the book.  

This book is important to read, to become familiar with these issues.  We all pay taxes, and most of us complain about them, but few of us understand the history of taxation, and the reasons why taxes are the way they are.  Even for those who are experts in the area, it seems to me that relatively few people (such as economists) have a good understanding of economic history.  

Piketty shows that income inequality was extremely high in the 1800s in Europe, leading to some people with enormous estates, while much of the population lived near or below the poverty line.  Most of the wealth in the society was owned by a very small number of people.   This changed dramatically mainly as a result of the world wars, and the resulting policy changes after the wars.  

Prior to the wars, those with enormous wealth paid very little tax, and this wealth was also passed through inheritance with very little tax either.   After the wars, progressive taxation of income and estates led to a large improvement in this type of extreme inequality, and allowed a much larger number of people (such as those in the middle class) to own a larger portion of national wealth.   

Interestingly, the United States in the 1950s-1970s had one of the most fair and progressive taxation schemes in the world, leading to improvements in economic inequality, before regressing substantially in the 1980s and beyond.  

Piketty shows that there are not only political and social consequences of having a society allowing extreme wealth to accumulate for a small number of people, without those people having to earn this wealth through work, there is also an economic consequence, since economic efficiency is not well-served or incentivized this way.   

His suggested solutions to this problem include having a progressive income tax, a progressive tax on estates & inheritance, and a progressive tax on capital or total personal wealth.  By progressive, he means paying a higher rate for higher levels of income, and a lower rate for lower levels.  At present, there are many examples Picketty shows where the system is not progressive, but regressive--that is, people with extreme levels of wealth actually pay an overall lower marginal rate on their vast incomes, compared to those in the middle class.  

The main barrier to a progressive tax on capital (i.e. a tax on invested fortunes), is that such investments are often hidden; many extremely wealthy people hide their wealth in offshore banks, etc. so it is hard for governments to understand how much wealth there is.  These are so-called "tax shelters."  In order to solve this problem, governments across the world would have to come together and cooperate with sharing banking information, to create a type of global wealth census, or "cadastre."  

How is this relevant to psychiatry?  Economic issues, including poverty, are extremely important in the causation and management of mental health problems.  Universal health care, and universal comprehensive education (including university  college, or other training) is possible in all countries, and can be improved where it currently exists, such as in Canada.  But health care is expensive, and needs to be fairly subsidized.  Taxation issues obstruct the provision of efficient social services, including health care.  

Also, greed in general, without a principle of making social or community contribution, is a factor contributing to declining mental health, and to more social problems including crime.  

I did not find Piketty's analysis or recommendations to be "radical" at all.  They are not in opposition to free-market economics, but rather are supportive of a system where markets could be free for all, without rapidly escalating and uncontrolled excesses.