Wealth in the 21st Century: Piketty economics.
—by John deJong
I admit I’m having a hard time reading Thomas Piketty’s Capital in the Twenty-first Century (2014: Harvard University Press), the much-touted as well as taunted book by the French economist.
I am still working my way through the 577-page volume. I hope you will forgive me if I have to revamp some conclusions after I’ve read and understand the entire work.
The French economist’s work is a monumental undertaking that touches much of economic theory of the last 200 years. I find it difficult to read more than a paragraph before I need to wiki some point of economic theory, or think through the implications for our economic system of some point he has made. I’ve actually found the best way to read uninterrupted is while walking Salt Lake’s long blocks on my way to work. While it slows my pace, it keeps me on task and hinders me from computer-based research tangents.
Reading the book has been like getting the master’s degree in economics I always wished I’d gone back and got.
Piketty begins by decrying the intellectual atmosphere (or more succinctly, lack of oxygen) in academia. The economics sphere, anyway, “in which each camp justifies its own intellectual laziness by pointing to the laziness of the other.” It is Piketty’s desire to “unmask certain preconceived or fraudulent notions, and subject all positions to constant critical scrutiny.”
Piketty’s first conclusion is that wealth tends to accumulate at the top in the normal functioning of capitalism. Everyone knows that, although some of us are in denial, or have been deceived. But Piketty has marshaled the the data to prove it. Further, and more importantly, only wars and revolutions have effectively redistributed wealth, so far.
The right wing knee jerks have held forth from their golden towers and, with a choir-like consistency, condemned Piketty’s book as Marxist or worse. Talk of revolution, even if you are only warning that a continuation of present policies may result in revolutionary upheavals, mortifies what we should call the center right, now that the far right has been taken by people with revolutionary fervor.
Piketty and Marx generally reach the same conclusion: Wealth tends to accumulate at the highest economic tiers. Marx had little or no data to support his thesis and offered no direction as to how an economy without capital, his solution to the problem of wealth accumulation, would function (to many people’s regret). Piketty, on the other hand, has the data and he doesn’t want to do away with capital. His solution would be to tax very large concentrations of wealth and reset the balance between labor and capital. Not a large tax, but enough to keep things fair and just.
Piketty’s most important conclusion is this: “For far too long, economists have neglected the distribution of wealth, partly because of [Simon] Kuznets’s optimistic conclusions and partly because of the profession’s undue enthusiasm for simplistic mathematical models based on so-called representative agents.”
Kuznets justified the perpetual motion theory of economic growth with an unrepresentatively optimistic set of data and got a Nobel prize for it. The resulting “trickle down” theory embraced by Reagan and Thatcher among others essentially says that the microscopic benefits that accrue to the poorest in society justify the unjust accumulation of wealth at the top.
Advocates of the “If you build it they will come (and spend their money)” theory never want to answer the questions “Where will they come from?” and “What other things won’t they spend their money on?” So, every new mall/supermarket/megamultiplex steals customers from all the other malls/supermarkets/megamultiplexes. Downtown Salt Lake City is a testament to that one.
The real work begins with what has to be Piketty’s main point: “Inequality is not necessarily bad in itself: The key question is to decide whether it is justified, whether there are reasons for it.”
Capitalists and economists have had it easy since Karl Marx and his data-free conclusions. Nobody wanted to accept the theory that capital accumulated unjustly or otherwise, so there was no need to examine the details of such accumulation. But now, with Piketty’s data, the sordid details of wealth accumulation need to be examined and evaluated.
In most cases, the inequalities aren’t justified. The reasons only serve the interests of the very wealthy and the wealthcare industry that serves them. Banking and investment regulations that favor the very rich, markets that function as monopolies, usurious interest rates on credit cards and private debt: Whatever it is, our capitalistic economic system is shot through with advantages for the wealthy.
Many capitalists believe that these unfair advantages as essential to the proper working of capitalism, kind of like grease on the great wheel of the economy.
It is Piketty’s desire to avoid Marx’s prediction of “an apocalyptic end to capitalism: Either the rate of return on capital would diminish (thereby killing the engine of accumulation), or capital’s share of national income would increase indefinitely (which sooner or later would unite the workers in revolt). In either case, no stable socioeconomic or political equilibrium was possible.”
There are at least two ways to avoid an apocalyptic end to the story. One would be to impose a world-wide wealth tax, a near impossibility, given the advantages of wealth in our political system. The other would be to eliminate unjustified advantages of capital accumulation. A tedious task but a much more likely prospect.
In future columns I would like to investigate the various unjust advantages that pervade our economic system. And, I’ll keep you up to date on my progress with Piketty’s book.