Penalizing the Rich

James A. Dorn, senior fellow and vice president for monetary studies at Cato Institute, writes that French economist Thomas Piketty’s goal seems to be in penalizing the rich rather than in creating wealth and expanding opportunities for market exchange. In Capital in the Twenty-First Century, Piketty focuses on outcomes rather than on institutions, incentives, and process. As Mr. Dorn explains, Mr Piketty believes more in the power of government than in the power of markets. But history shows that individuals have a natural desire to improve themselves through economic freedom, not from the redistributive state. Read here from Mr. Dorn how economic freedom and limited government increase the choices available to everyone.

In his best-selling book Capital in the Twenty-First Century (Harvard University Press), French economist Thomas Piketty is concerned with equality of outcome, not equality under a rule of law safeguarding one’s unalienable rights to liberty and property.

He finds that inequality of income and wealth is increasing as the return on capital assets exceeds the growth of real GDP.  His policy for reducing inequality is to use the power of government to impose very high marginal tax rates on the incomes of the rich and near rich, and also impose an annual wealth tax.  His goal is “to put an end to such incomes.”

Piketty’s leveling schemes in the pursuit of “social justice” would undermine the primacy of property rights under the U.S. Constitution, adversely affect incentives to save and invest, stifle entrepreneurship, and slow economic growth. He seems more interested in penalizing the rich than in thinking of ways to create wealth by expanding opportunities for market exchange.

Underlying his approach to equality is the false idea that the rich get richer at the expense of the poor.  He ignores the reality that voluntary exchanges in the marketplace make parties to the trades better off—and wealth is created.