Piketty's general observations seem correct.
However, I tend to disagree with your remedy and his.
The wealthiest 1% now own as much wealth as the bottom 50%. A trend-line, that can't continue!
I can't see where either prescription has a lot going for it, expect a return to the failed economic conditions they created.
For every effect there is always a cause!
What we need is measure that trims out all the blood sucking parasites, who between them, suck the very life blood from the economy; and or, double the cost of everything!
The entirely unproductive money making enterprises, include too many examples than can be covered here.
We do need to return the seriously white anted pillars, that alone support the economy, to public ownership, on the patently proven grounds, its the least expensive/best economic model.
Other than that, we need reform which rewards endeavor and enterprise, not penalties.
We need huge tax reform that reduces our tax to say just 18% collected, as an impost on all expenditure, and as the revenue numbers increase, allow the rate to further reduce.
This would be just an initial 11% impost in real comparative terms, given what it gives back!
Direct funding models, and almost complete regional autonomy, would reduce the cost of most essential public service by 30%, which could be rolled out as vastly improved coalface expenditure!
Add the cheapest possible energy to the world's real lowest tax, and the world will be beating a path to our door, to set up high tech enterprise here, along with well cashed up self funded retirees, currently in the sights of European administrations.
One can make a case for equal opportunity!
And for removing the economic lead from the saddle bags of the disadvantaged; but never a case for true equality, given there's no such animal.
Rhrosty.

There is an oft-repeated assertion synonymous with the author's "as they enrich themselves they enrich all of us", which may be summarised by the trite phrase "the trickle down effect".

I can't think of any empirical, and even less ethical, evidence to support it.

Mjji

A far more acurate naming is the "Golden shower effect".

Unfortunately, that's almost as indiscriminate as Tomas Piketty's remedies, Graham. Until wealth disparities are seen in terms of the differences between makers and takers we're going nowhere on this. We're failing to discriminate between the 0.1% who capture vast quantities of our community-generated economic rents and the 99.9% who do not.

Curiously, we tax people for working, whilst purposely under-taxing those who speculate in our land and natural resources.

Is it any wonder we currently have so many aspiring rent-seeking investors in property when the tax system tells them that's where they must be if they are to have any chance of improving their lot? ("Just look at the success of property investors!" run the advertisements.)

On the other hand, is it any wonder politicians can do back-room deals with mining companies after they've spent $22 million putting the fear of God into us about what's going to happen to Australia if we try to collect our fair share from mining rents?

Whether or not we can see it at the moment, capturing community-generated economic rents, instead of taxing productivity, is looming as the question of our times. Ken Henry started the debate, but it seems he will be ignored until, like Ireland, Greece and Spain, Australia heads down the gurgler.

Yes, nor will providing welfare for the rich, improve our economy, or the conditions of our most disadvantaged!
We are one nation, one economy, not many nations all competing for a larger slice of a clearly shrinking, virtually two ingredient pie, mining and agriculture; with things like a manufacturing industry, little more than an economic condiment!
What replaces once only mineral exports, when they're gone!?
As always, our best ideas and people, seem to be our most successful exports.
And we can't seem to disassociate foreign capital from the tax avoiding, profit repatriating, foreign control, we just don't need!
Nor can we seem to create enough (any) visionary investment examples, to keep our truly massive super fund, investing here.
Take the musical number, Mexican Hat dance, and replace all lyrics, with privatize/privatize/privatize, and that's the song both sides seems to be singing!?
We continue to import that which we have a wealth of right here.
Arguably, just throwing good money away, and then begging carpet bagging forefingers, for investment capital.
We have the most profitable banks in the developed world, and a super fund over 1.8 billion and rising.
These resources, need to be saddled up with our riders, in our colors and asked to run for us, by providing Government self terminating 30 year bonds, used only to build income earning infrastructure!
All of which will help to increase and add to our economic activity, and export incomes, jobs and wealth growing opportunities!
Our parliaments are filled with people, bereft of real world experience, and who seem to think, that all that matters is the political contest, and retaining government!
Almost like, "infants terrible", competing for tin toys, and king of the castle, in the kindy sandpit.
And when you do tune in very occasionally, doesn't sound just like that!?
i.e., What a fine mess you've got us into now.
It was all your fault, no it wasn't! etc/etc.
And these are the very people that are going to fix things, rather than make them worse?
Rhrosty.

"Rather than equality of opportunity, they are fixated on equality of outcome, despite 20th Century experience in a string of communist countries showing this leads to an authoritarian state where fiscal, political and social powers are all used to brutalise the populace as the only way to keep it in a state of uniformity."

This quote demonstrates the typical approach of the laissez faire politicians and their camp followers. It involves, as here, taking a specific example and then generalizing to the whole world, all the while ignoring the actual evidence.

There are two books that you might like to read Graham before you venture further into an area that you clearly do not understand. They are Pickett and Wilkinson's "The Spirit Level: Why Greater Equality Makes Societies Stronger" and Stiglitz's "The Price of Inequality".

The evidence is overwhelming: there is a direct correlation between the level of equality in a society and their general levels of health and happiness as these terms are measured in a broad sense.

Not that we can expect evidence based policy outcomes from our current government which is one of the most ideologically driven in recent memory, among many failings.

Correction, 1.8 billion should read, 1.8 trillion.
Sincere apologies.
Rhrosty.

As time goes by there will be winding down of the economy and a change
to localisation of everything.
There are pages of waffle published every day about the economy and
how to get an improvement in growth.
Until there is a fundamental understanding of the relationship of
the cost of energy and its availability to the level of economic
activity we will continue to waffle on while the ship continues taking on water.

Localisation of our economies does not mean we cannot live fully happy
and fulfilling lives.
It will be a different life to a late 20th century life but may well
be a more equal and more generally satisfactory.

The difficulty in getting there is that there are many powerful
interests who just cannot accept that such a change is inevitable.
The more they resist the greater will be the trauma of the change.
For a satisfactory change system read up on the Transition Town Movement

Rent seekers and parasites are bringing their worst to the argument, and Piketty is balm to their invidious ideas.

Piketty and his supporters deserve the fate of Ceusescu and Mussolini; their bad ideas have been proven not just wrong, but rancid. They lead to economic misery for the masses.

Trickle down is not a theory it's a sneer. The poor of all the world have been made better off by the innovations of capitalism and world trade, even held in the chains of Government and its parasite classes. Cuba and North Korea remain in poverty to show what Socialism does, but nowhere is there both full economic freedom and sound rule of law to show what people are really capable of.

Leaving Piketty aside -or out completely as largely irrelevant- it should never be forgotten that economics is essentially about scarcity. An 'economical' car for instance is one which uses little (or 'scarce') fuel. Egregious wealth for the precious few may be affordable in times of plenty, but when things get scarce these few can bid up prices to the point where the peasants are left to eat (non-existent) cake.
As for “ethical basis”, there are two ways of looking at wealth creation. If you believe that the creation of wealth is limited only by human imagination, then we are all reliant on those creators. If however you believe real wealth is inextricably tied to availability of resources, then the more one person takes, the less is left for everyone else; particularly as we live in a credit based society, where new money can only be introduced by incurring debt.
IOW, for every new billionaire the world must go into debt for a billion dollars.
While it is certainly true that entrepreneurs create employment, which in turn creates products and tax dollars, far from creating 'wealth' the obscenely rich actually create spiralling levels of debt which is largely carried by future generations, in the form of ongoing inflation.
The world's physical resources are limited. At the same time as we already exceed our resource budget, (http://www.footprintnetwork.org/en/index.php/GFN/page/earth_overshoot_day/) the human population is still growing, and people in third world countries are -not unreasonably- wishing to enjoy the lifestyles of wealthier countries...
Times of growing scarcity seem inevitable.
As to the mention of Communism, this is a bit of a red herring; Party Members invariably managed to do alright for themselves, and China has a remarkable number of billionaires. A truly competitive free market (combined with industrial democracy) should be much more effective at regulation of wealth -if it were not for the anti-competitive practice of buying out (merging with,destroying) competition, thus creating market monsters.

As Tim Worstall has pointed out many times, the figures for income inequality are always quoted on a before-tax basis. Once taxation and welfare benefits are taken into account, they come down to a much more reasonable level. But the proponents of 'equality' never mention this -- I wonder why?

http://www.timworstall.com/2010/10/19/proving-the-hills-report-on-wealth-inequality-entirely-wrong/

If everyone's assets were equalised overnight, discrepancies would reappear by the following morning. A few games of poker, a little bit of prostitution, someone who knows how to make a good breakfast selling the results -- it wouldn't take very long to re-establish a gulf between people whose efforts are worth more than average and the rest. And although the individuals involved might be different, I'm betting that the wealth profile would end up pretty much the same, as it has in every society we have records of since the beginning of time.

Now, of course, our poor live in three-bedroom houses instead of mud huts and bark shanties. The technological development that has made this possible resulted from inequality, among other things. A person who invents a new method or device does so on the assumption that this is going to make them richer than their peers. Remove that, and why should they bother?

As the former citizens of the USSR and its satellites can testify, life without a profit motive is bleak indeed. A world of equality is a world with no motivation to improve.

Graham, you're attempting to defend the indefensible.

There's informative article in today's online Age by Joseph Stiglitz--

"Why Australia must not follow the US"

Neo-liberalism is a toxic ideology imported from the US and serves mainly corporate rentiers, if we apply it in this country, social democracy is dead. Neo-liberalism doesn't even produce improved economic performances, it's the ideology of the plutocrat.

The inequality argument is not really about economics. It is possible to have an economically prosperous society with large inequality. What inequality does is create political instability when those who no longer have opportunity because opportunity requires resources rebel against the continued oppression of those who corral the resources.

History has shown over and over again that societies where a small number of individuals monopolies resources become unstable.

That is not to say that having equality of resources is the answer. It is having true equality of opportunity. If accessing opportunity requires significant resources, it is not equality of opportunity. A good example is the changes to higher education proposed by the current Australian government, which will price a university education out of reach of many Australians.

The only levelling that needs to happen is in the banking industry. They create money from nothing as debt to = growth + inflation of $98 billion pa in Aust. This is the main reason why the planet is so poor and has so much debt.

Private banks should only loan out money that already exists. Govt Banks should create the new money growth + inflation so our taxes become far less.

I was wrong about the growth of the World Derivative Market Graham. It is now $1500 trillion or $214,000 every person on this planet. Why then is half this planet so poor ?

Graham, very brave of you to speak truth on this forum. You knew the envious would be out in force.

Agronomist I hope you are right. With any luck the 30% of university students who could not make change for a bus ticket can be sent off to sell burgers before wasting a lot of our money & their time playing twiddle winks in university.

This envy is sickening. The Rineharts of this world had no need to ever do anything but enjoy their inheritance. Instead many of them risk huge fortunes developing new projects, employing thousands at extremely high wages, paying immense royalties, & generating the export earnings that pay for everyone's cell phones, Ipads, & laptops. Of course they do it for their own satisfaction, but we all benefit hugely.

Yes we could all have a larger share of it, if left in the ground. A huge share of nothing is just that. Or we can all live better wealthier lives thanks to these risk taking investors.

If the greedy envious don't stop screaming, & trying to rob investors of a fair result, that is just what will happen. In fact it is happening now, as we speak. They are going where they are welcomed with open arms. I wonder how long it will take for the greedy, envious white trash of the south Pacific to realise what they have cost themselves?

Talk of envy makes the assumption that this is all about consumer goods. Most of us here in Australia have enough of them to lead decent lives. In fact, in graphs of happiness vs. GDP, happiness stops rising sharply with GDP at the level of the more prosperous Latin American countries.

http://inesad.edu.bo/developmentroast/2013/01/development-goals-wealth-versus-happiness/

Furthermore, most of us recognize that completely eliminating inequality is neither possible nor desirable. The problem is the extent of it.

I don't care at all if Graham has more consumer trinkets than I do, but I care a great deal if the people who have the wealth can use it to buy my government. There are numerous examples where our government has done things that are clearly against the public interest, but very much in the interests of powerful lobby groups, for example, years of foot-dragging on tobacco and asbestos, long after the dangers were well established, and continued foot-dragging on junk food marketing to children, watering down of consumer protection against financial planners, and encouragement of very high population growth, despite the negative effects on the environment and quality of life, combined with the lack of evidence of any significant per capita economic benefit.

The US provides a good counterexample to Graham's idea that making rich people richer benefits everyone else. The US has had decent economic growth over the past 40 years, even in per capita terms, but the majority of American men are earning lower real wages than in 1979, and even most of the top 20% have only gotten a few crumbs.

http://www.stateofworkingamerica.org/chart/swa-wages-figure-4c-change-real-hourly-wages/

These graphs show how the ratio of CEO pay to average pay has exploded since 1965, and how productivity gains have far outstripped wages.

http://www.stateofworkingamerica.org/chart/swa-wages-figure-4-ceo-worker-compensation/

http://www.stateofworkingamerica.org/chart/swa-wages-figure-4u-change-total-economy/

This graph shows inflation adjusted US household incomes for the top 1% and the rest since 1979

http://lanekenworthy.net/2010/07/20/the-best-inequality-graph-updated/

The Americans have certainly had more inequality, so why isn't the average American better off?

I quite like the recent essay by Nick Hanauer titled The Pitchforks Are Coming For Us Plutocrats. It gives a much more interesting perspective on this topic.

The total turnover pa of the share market, currencies and derivatives in Australia is $135 trillion = $ 135,000,000,000,000.Just a 0.1% tax or $1 in $1000 tax, will raise $135 billion which could pay off our debt in less than 6 yrs.Cannot the super rich afford a 0.1% tax ?

We don't need the GST which targets workers and the middle class but a small turnover tax on all transactions just like credit cards and we get almost everyone.