Billionaire philanthropist Bill Gates essentially concurs with French economist Thomas Piketty's landmark book on income inequality, according to a review Gates published on his own blog Monday.
"I agree with his most important conclusions, and I hope his work will draw more smart people into the study of wealth and income inequality -- because the more we understand about the causes and cures, the better," Gates writes.
Those "most important" conclusions? High levels of income inequality are bad, capitalism cannot fix inequality on its own, and government action can help break the vicious cycle in which inequality begets more severe inequality.
Piketty's book, Capital in the Twenty-First Century, rocked the economics profession this past spring, piecing together hundreds of years of disparate economic data to argue that capitalist economies lead inevitably to severe income inequality under which nearly all wealth is inherited. The rate of return on capital, Piketty concludes, is always higher than the rate of economic growth, meaning that those who receive income from capital (the wealthy) generally outpace those who rely on the growth of the overall economy (most workers). Absent cataclysmic events to reset the process -- a world war, for instance -- inequality is always getting worse.
It's appropriate that Gates reviewed the book, because he and his philanthropic foundation are actually mentioned to buttress Piketty's argument. After he became a very, very rich man, Gates stopped laboring and focused instead on giving away his money. Yet, more than a decade later, his wealth has actually skyrocketed. In 1998, Gates' net worth was valued at $50 billion. By October 2014, that number had increased nearly 60 percent to $79.3 billion, despite his having given away tens of billions of dollars.
While Gates agrees with Piketty's broad points, however, the multibillionaire is careful to distance himself from populist critiques of the current economic climate in the United States. Gates argues, for instance, that the U.S. remains very far from Piketty's dystopia in which nearly all wealth and prosperity is inherited rather than earned since, by Gates' estimate, about half of the 400 richest American billionaires are entrepreneurs who didn't inherit their vast fortunes. He also thinks that Piketty doesn't give today's rich people enough credit for donating their wealth.
"Philanthropy also can be an important part of the solution set," Gates writes. "It’s too bad that Piketty devotes so little space to it. A century and a quarter ago, Andrew Carnegie was a lonely voice encouraging his wealthy peers to give back substantial portions of their wealth. Today, a growing number of very wealthy people are pledging to do just that."
Few policy experts or economists focus on philanthropy as a solution to social ills, because simply asking the wealthy to solve public problems isn't particularly effective on a macro scale. If the wealthy want to fix many things, they can. But we wouldn't be worried about inequality, and there wouldn't be so much of it, if rich people were already giving away enough of their wealth to mediate the problem.
Ultimately, like Piketty, Gates calls for higher taxes to combat inequality -- taxes that would not be necessary if the wealthy were dumping their fortunes. He lauds the estate tax and only quibbles with Piketty's call for a global tax on wealth by suggesting that a consumption tax might be more effective. He would also like to see more data on consumption. That would indeed be a nice supplement to Piketty's historical data set on income.