Applying Piketty

Five things we can do in Massachusetts to address the concentration of wealth and capital documented by author Thomas Piketty

Thomas Piketty’s Capital in the Twenty-First Century must be taken as a profound challenge.

Piketty’s big thesis is that wealth and capital must accumulate and concentrate—it’s the inherent nature of our economic system. It’s happened before, it’s happening right now, and he proves it. Overwhelming events like world wars, or a great depression, can reverse the flow. So can public policy defined by the belief that, to be a healthy society, opportunity and mobility cannot become a mirage.

The argument is so convincing that those who doubt the crippling effects of a vast disparity of wealth seem akin to those who deny climate change. Which begs the question: Now what are we supposed to do?

As a state senator, Piketty’s multinational solutions, such as a global wealth tax, are above my pay grade. But his approach and conclusions can be translated to the state level, to help redefine a direction and agenda for Massachusetts.

Here are five initiatives we can apply to the Commonwealth, built on Piketty’s thesis. Some steps we can take right now, some are longer term —understanding that it’s taken a generation to get to this point, and may take a generation to repair the damage. I think of them as economic pillars on which we reconstruct our economy, and with which we repair our social compact.

Raise the minimum wage

We have just taken a historic step to make our state’s minimum wage the highest in the nation at $11 an hour by 2017. But let’s keep in mind that our minimum wage has declined 25 percent since the late 1960s, and this hike won’t even get us back to that level. So we need to keep closing the gap between a minimum wage and a living wage.

As we do that, we benefit all of the working poor, stimulating the economy from the bottom up and middle out as we adjust to a rising wage floor. This is the opposite of trickle-down economics; this is welling up.

And when minimum wage workers earn more, they need less government support. Proof positive: The largest single group receiving taxpayer subsidies in our country is Walmart employees. Studies show that in one Walmart store in California employees receive as much as $420,000 a year in assistance. Even working full-time at minimum wage, people remain below poverty level and qualify for housing subsidies, health care, food stamps, and fuel assistance.

Helping people in need is one of government’s most important roles. But what we are actually doing by keeping the minimum wage low is subsidizing the world’s richest people—the Walton family’s net worth is reported at more than $160 billion.

So, as a matter of fairness and economic stimulus, let’s raise the minimum wage to at least $11 an hour and index it to inflation.

Invest in education and infrastructure

We know that quality early education is one of the best indicators of a child’s success. Yet we have 40,000 children in our Commonwealth on waitlists for pre-school programs due to lack of public support. At the other educational bookend, the cost of public higher education drags college graduates into deep debt that cannot be discharged even in bankruptcy. A great public university education that cost $3,800 in 1982 now costs more than $24,000. This is unconscionable, and here’s to Sen. Elizabeth Warren for keeping this issue front and center on the national stage.

The companion investment we must make is in our infrastructure, and the jobs created by rebuilding it. We should have the kind of world-class public transportation that makes visitors from other countries marvel. We need to continue to invest in new energy production and distribution, conservation and renovation that acknowledges climate change. We need to invest in water systems and environmental protection. We need to continue to extend high-speed Internet much like we built the interstate highway system in the 1950s.

The jobs arising from these investments offer enough income to live with dignity, building a shared vision as well as shared prosperity. Juxtapose the future they offer with the hollow promise of casinos and the imperative becomes even more clear.

Pay for the vision

As Piketty has proven, our economy now has concentrated so much wealth and capital that we must build a tax structure reflecting this. A flat, almost horizontal tax code cannot work; the present policies maintain the status quo. Put another way, raising taxes on middle class and working families is unfair, unnecessary, and unproductive. The Massachusetts Tax Fairness Commission’s recent report makes the case in a thoughtful way, and advocates for new tools such as a graduated income tax, an earned income tax credit, smarter capital gains taxes (a local, imperfect version of Piketty’s “wealth” tax), and a reformed property tax.

History proves that a progressive tax structure, which allows us to fund true public works, creates deeper prosperity. We also understand that the way to reverse the trend toward more wealth concentration is through revenue policies that allow us to reinvest. As Piketty explains, we no longer have a population boom that of itself broadened the distribution of wealth. In the next generation, inheritance will make the disparity we see even more pronounced unless we fundamentally transform our tax code.

Bring working people to the table

The Democratic Party claims to speak for people on the front lines, but no political party can substitute for workers having their own voice and independent standing. Labor organizations that express the intellect and spirit of working people, that harness and channel intelligence and experience, are the best (maybe only) counter to the overwhelming influence of big money and special interests in our public and private lives.

There is more than one reason why 35 percent of our private sector workers had a voice through organized labor 40 years ago —when our working and middle class had much more power—and now less than 7 percent of them have that voice. A concerted effort has worked to break their connection to organized labor.

But some of the responsibility must rest with unions that lost touch with rank and file, and narrowed their vision. Unions need to rebuild. A great start would be to organize Walmart, fast-food workers, and other low-wage earners, developing strength from the bottom up. That’s a campaign that shouldn’t be left to union organizers alone; legislators and other public figures should step up as well. And then if there is no seat at the table, public or private, workers will have the power to demand one.

Capitalism: bend it, don’t break it.

In Piketty’s grand spirit, let’s put this big one on the table, too. Our economic system has been the envy of the world, with amazing strengths in innovation and efficiency, but it has relied on extraction and consumption. By extraction, I mean taking and using up human and natural resources; by consumption, I mean depleting the planet.
A flat, almost horizontal, tax code cannot work; it preserves status quo.
We soon will have no choice but to move our economy toward more generative, sustainable goals and tactics. We already have biotech and high-tech companies leading in this direction. We also have better models of ownership: In the financial sector, mutual banks and credit unions are more responsible and responsive than Bank of America. In energy production, cooperatives and municipal utilities create better performance and service than corporate utilities committed to fossil fuel and nuclear power. In the food industry, grow-local and farmer collectives can supplement agribusiness, and provide healthier alternatives. Employee stock ownership strengthens companies—the company I founded, Cape Air, now has more than 1,200 employees and a shared ownership plan.

It’s also crucial that we adopt more meaningful and honest benchmarks for how we’re doing. Defining success by a rising Dow Jones average or gross domestic product ignores Piketty’s truths; all these measurements really show is that there is more wealth to concentrate. Our economists have not been holistic in their analysis, disconnecting “growth” and “profit” from real impact on people’s lives, ignoring fundamental social values.

These five “pillars” respond to Piketty’s challenge. But faced with his overwhelming evidence and painstaking analysis, other questions persist.

Why isn’t there broader understanding, especially in the political system, that wealth and capital have concentrated, and how bad is this for democracy? Why isn’t there more consternation, even outrage? And why haven’t we done more to reverse this?

Answering those questions would take another long book, and in fairness that conversation has been ongoing. What’s the Matter with Kansas by Thomas Frank is one excellent take on why people vote against their economic self-interest. And let’s not forget those visionary rabble-rousers known as the Occupy Movement, whose calling out of “the 1 percent” seemed so radical a short time ago; now their perspective, backed by Piketty, seems mainstream.

For this state senator, the challenge is clear: Use Piketty to help people understand that our economy should be the powerful tool we use to shape the society we want, rather than allowing powerful economic interests to shape and control our lives.

Meet the Author

Dan Wolf

Senator, Massachusetts Senate
Government, at its best, is the civic expression of our collective will as citizens. And so we must use our government to help bring our economy, and our society, back into balance.

Dan Wolf is the Massachusetts senator from the Cape and Islands and chairman of the Joint Committee on Labor and Workforce Development. He is also the founder and CEO of Cape Air.