To pick up on just one of Falkenstein’s arguments here, he explains:
Most importantly for [Piketty’s] case is the fact that because marginal taxes, and inheritance taxes, were so high, the rich had a much different incentive to hide income and wealth. He shows marginal income and inheritance tax rates that are the exact inverse of the capital/income ratio of figures, which is part of his argument that raising tax rates would be a good thing: it lowers inequality. Those countries that lowered the marginal tax rates the most saw the biggest increases in higher incomes (p. 509). Perhaps instead of thinking capital went down, it was just reported less to avoid confiscatory taxes? Alan Reynolds notes that many changes to the tax code in the 1980s that explain the rise in reported wealth and income irrespective of the actual change in wealth an income in that decade, and one can imagine all those loopholes and inducements two generations ago when the top tax rates were above 90% (it seems people can no better imagine their grandparents sheltering income than having sex, another generational conceit).
The much-demonized ‘neoliberal’ tax regimes introduced in the 1980s disincentivized capital income concealment. (Falkenstein makes an extended defense of this point.) In consequence, apparent inequality rose rapidly, as such revenues came out of hiding (ἀλήθεια) into public awareness / public finances. The ‘phenomenon’ is an artifact of truth-engineering, as modestly conservative governments sought to coax capital into the open, within a comparatively non-confiscatory fiscal environment.
There are some very significant lessons here, not all of which are easy to rapidly digest. To begin with, Falkenstein reveals the emblematic character of Piketty — as a thinker of the contemporary democratic spirit — who aims above all at a certain public appearance, rather than a real economic outcome. It is utterly naive to understand the ‘equality debate’ as something fundamentally concerned with a real (or super-public) situation. Such an understanding is, in fact, deeply anti-democratic. What concerns Piketty, and those flocking to his banner, is the public spectacle of inequality, as a negative factor for political legitimacy. Beyond the surface of his proposed remedies is a purely political demand that capital should retreat into hiding, in order not to embarrass the governing elites of democratic states. It is not actual inequality that is, in truth, being judged indecent, but its admission into the public square in immodest dress.
The greatest weakness of right wing economic analysis, whether Supply-side Conservative, Libertarian, or Post-Libertarian in orientation, is its incompetence at lies. This becomes important when it interferes with a realistic analysis of the Cathedral State — an expression used in the same way one might use ‘Islamic State’ and with equivalent justification. For instance, as in this case, it tends to exaggerate the dysfunctionality of Cathedral-orchestrated social arrangements by conflating them with their public presentation.
To repeat the more concrete example at stake here, a ‘high-tax’ regime is interpreted by the truth-dupe right as a regime extracting higher taxes, or at least sincerely attempting to (before the attempt is undermined by Laffer-type perverse effects). What Falkenstein’s commentary on Piketty suggests, in contrast, is that such a demand is more realistically understood as a demand for compliance with approved appearances, even if such compliance necessitates systematic ‘non-compliance’ with state tax codes as publicly expressed. Tax policy, in the widest sense, is not, then, to be conceived as primarily revenue oriented, but rather as a set of overt and covert theatrical directions, designed to produce a politically-convenient order of appearances. It is thus, in large part, a gatekeeper, controlling admissions to and banishments from the public stage. When capital disappears back under the burkqa, the ‘problem’ of gaping inequality will be miraculously solved. (In none of this is economics, in any serious sense, even remotely involved.)
This is not economics, but political-religious public ritual, designed — with cynical realism — for mass-enfranchised idiocy and its representatives. Overwhelmingly, that is what ‘political economy’ now is.