Bill Gates is one of the richest people the planet has ever seen and for many years has been ranked as the wealthiest American. He with a few friends founded Microsoft in the early days of the personal computer and through a series of events arguably well planned, arguably accidental but probably a combination of both managed to take Microsoft from being a small upstart to the dominant company involved in computing for the past few decades. Forbes estimates his current worth at $82 billion US.
He is obviously someone with compassion. Since 2000 through the Bill and Melinda Gates Foundation he has given away $30 billion to causes including the eradication of polio, malaria and ebola in the third world and he has also set up scholarships for education of poor American citizens through the United Negro College Fund.
His wealth would suggest that he would not be in agreement with Thomas Piketty, a respected economist who has argued that the concentration of wealth in the hands of the few is an inevitable feature of the capitalist system. Pitketty’s book Capital in the Twenty-First Century argues that when the rate of return on capital is greater than the rate of economic growth in the long term then inequality and attendant problems such as social and economic instability increase.
The book has been well received, it was the top selling hardback non fiction book on the New York Times bestselling list shortly after its release. As Ben Clark has described the book has caused consternation amongst the right who in that particular right approach to things want to undermine Piketty’s theory because of their fear that trickledown will once and for all be shown to be a fallacy.
Piketty argues that the consequence of capitalism is decreasing social mobility and potential democratic upheaval. The only answer is State intervention. From Wikipedia:
Piketty bases his argument on a formula that relates the rate of return on capital (r) to the rate of economic growth (g), where r includes profits, dividends, interest, rents and other income from capital; and g is measured in income or output. He argues that when the rate of growth is low then wealth tends to accumulate more quickly from r than from labor, and tends to accumulate more among the top decile and centile, increasing inequality. Thus the fundamental force for divergence and greater wealth inequality can be summed up in the inequality r > g.
Gates in a reasoned personal blog post agrees in part with Piketty’s analysis. He encourages others to read the book. He had the ability to ring Piketty and discuss his conclusions with him. He agrees generally with Piketty’s theory concerning inequality:
I very much agree with Piketty that:
- High levels of inequality are a problem—messing up economic incentives, tilting democracies in favor of powerful interests, and undercutting the ideal that all people are created equal.
- Capitalism does not self-correct toward greater equality—that is, excess wealth concentration can have a snowball effect if left unchecked.
- Governments can play a constructive role in offsetting the snowballing tendencies if and when they choose to do so.
He questions Piketty’s r > g equation and notes the academic debate about the data. He also says that the use the wealthy put to their capital is important, and a benefactor and business creator can be beneficial whereas an idle rich consumer is not. While this is undoubtedly true it does not address the problem of inequality which capitalism inevitably creates. The best intentions of the wealthy may not assuage the problems caused by inequality.
He also questions the concept of wealth being inherited and points out that in the United States wealth was often “created” by luck and hard work as opposed to England where it tended to be inherited. He also points out that consumption data as opposed to income may give a better indication of the wealth of a person. He advocates for a consumption tax a la GST and he is also a large believer in an inheritance tax.
Gates’ post is an interesting contribution to the debate on inequality and given his position and status his concessions that capitalism is currently causing inequality and that the state has a constructive role to play in lessening the effects are noteworthy.
To visually back up Piketty’s theory the following is a graphic printed in the New York Times a few years ago.