Piketty's Progressive Economic Policies Fall Flat

French economist Thomas Piketty was the darling of the Left last year as the champion of progressive policy proposals — including an "80% tax rate on high incomes and progressive tax on great wealth" — to eradicate economic inequality.  He may have sold a lot of books, argues Michael Barone, but "his policies don't seem to be selling well anywhere."

There were no campaign ads calling for Piketty taxes this fall. Raising the minimum wage got some attention, but, writes Barone,

It is only slightly hyperbolic to say that an increased minimum wage is a transfer of income from fast-food customers to fast-food workers minus those who are replaced by kiosks. That's not a very effective way to sock it to the top 1 percent. ...

America already has lots of economic redistribution. American voters evidently sense that more redistribution would sap economic growth. They're willing to throw a little to minimum wage earners, but they don't want to kill the geese laying the golden eggs.

Piketty's progressive policies are faring no better in other nations.

Even in Brazil, with near-zero growth and mush greater inequality than the U.S., incumbent President Dilma Rousseff saw her percentage slip from 56 percent in 2010 to 52 percent this October.

In Britain, facing an election next May, there are calls within the Labour Party to oust leader Ed Miliband, who has called for freezing energy prices and a tax on "mansions," which would hit Londoners hard.

Piketty confesses he has seldom left Paris in his adult years. But even there his policies are in trouble. The job approval of Socialist President Francois Hollande, who imposed a top income tax rate of 75 percent, currently hovers just above 10 percent.

Politicians opposing massive economic redistribution have a hard time coming up with appealing rhetoric. But there seems to be something more powerful working in their favor — a widespread if 8unspoken understanding that government attempts to "spread the wealth around" (as candidate Obama once told Joe the Plumber) tend to destroy it instead.

Myth of "Increasing" Economic Inequality

"The growth in [economic] inequality in America is illusory, a mirage," writes Diana Furchtgott-Roth, a Manhattan Senior Fellow and former chief economist for the U.S. Dept of Labor. "[B]y some measures economic inequality is no greater now than it was in the 1980s."

Studies that do find income inequality often rely on "pretax income" only, while ignoring government program payments, food stamps, rent supplements, Medicaid funded health care, subsidized school lunches, and other social programs.

Furchtgott-Roth evaluates spending instead. Why?

Spending is vital because it is the principal determinant of standard of living.

So what does the analysis of spending reveal?

• Government data on individual spending patterns show that the ratio of spending between the top and bottom 20 percent of the income distribution, measured on a per person basis, was essentially unchanged between 1985 and 2010. In 1985 people in the top quintile had spending that was 2.5 times that of people in the bottom quintile. By 2010, this ratio was 2.4.
• Spending per person by income quintile shows how individuals are doing over time both in absolute terms and relative to those in other income groups. These data can be calculated from the government's Consumer Expenditure Survey. An examination of these data from 1985 through 2010 shows that inequality has declined rather than increased.
• The average annual spending for a household in the lowest quintile in 2010 was $12,325 per person. In contrast, the average spending for a household in the top quintile was $29,022 per person.
• On a per-person basis, Labor Department data show that in 2010, households in the top fifth of the income distribution spent 2.4 times the amount spent by the bottom quintile. That was about the same as 25 years ago. There is no increase in inequality. In addition, the overall level of inequality is remarkably small. A person moving from the bottom quintile to the top quintile can expect to increase spending by only 140 percent.
• But compared with 1985, the big winners are the lowest-income group, whose expenditures per capital increased by 6.5 percent in constant dollars. In contrast, spending per person in the top income quintile increased by 1.5 percent. This shows that even though the income spread from top to bottom might be larger, those at the bottom are doing better than they did 25 years ago because they have greater spending power, after adjusting for inflation. This is important for the bottom quintile—economically, socially, psychologically.

"Much 'inequality' in the United States is a problem in search of reality," concludes the author, "caused by writers who know a certain storyline will sell to an audience anxiously looking for additional reasons to have the government inject itself even more into the lives of ordinary Americans."