The big inequality news this week has been the publication of Thomas Piketty’s monumental book about the subject, Capital in the Twenty-First Century. I weighed in with my review in The Washington Monthly here; you can also read a trio of responses at The American Prospect, as well as Dean Baker’s Huffington Post critique. Paul Krugman offers a discussion of some of the book’s technical points here.
This book is making a huge splash, for excellent reasons. Let’s start with its technical apparatus. Piketty, a French economist, has assembled a formidable database on wealth and income from various nations that in some cases goes as far back as the eighteenth century. This has enabled him to conduct a far more rigorous and systematic analysis of the history of inequality than previous generations of researchers.
What’s also exciting about the book is its ambition and moral seriousness. Give the man props for his sheer chutzpah, if nothing else. Piketty has written a 700-page book that offers a grand theory of the dynamics of inequality and capital accumulation and traces it through history. In doing so, he picks up a project much of the rest of the economics profession abandoned long ago. Not since Simon Kuznets and his “Kuznets curve,” a 1950s era model that held that inequality first increased, then decreased as economies grew, has a mainstream economist undertaken such a thorough investigation of inequality.
Certainly, Piketty is more responsible than any living economist for returning the question of distribution back where it belongs: at the center of economic analysis. It is the research of Piketty and his colleagues, such as Emmanuel Saez, who first demonstrated the depth and scope of the economic inequality problem. They also identified the crucial fact that spiraling inequality is mostly being driven by the richest 1 percent of the income distribution. According to Piketty’s most recent data, in the United States, the top 10 percent earned about half of all income, and the top 1 percent earned over one-fifth. Income inequality in this country has reached the highest level in at least 100 years.
It’s well worth noting that during the same decade, while inequality continued to soar, the best-selling economics book of the era, authored by an acclaimed, award-winning young economist, proudly devoted itself to topics no more momentous than cheating Sumo wrestlers. Well, that’s the American economics profession for you.
That Capital tackles a subject that could hardly be more urgent is part of what makes it so welcome. And that Piketty’s unusually lucid writing makes the book so accessible to the general reader—no ugly academic jargon! no impenetrable math!—is especially admirable.
What’s most impressive of all, however, is Piketty’s powerful analysis. The argument of the book, in a nutshell, is this: you know that period of declining inequality we experienced throughout much of the twentieth century, that some of us assumed would last forever? Well, it turns out that period was actually a major exception to history, rather than the norm.
It was an exception because the Great Depression and two world wars disrupted the natural order of things, created the necessity to raise taxes, destroyed (in Europe) a lot of physical capital, gave rise to the creation of equalizing labor market and social democratic political institutions and, in the delightful phrase coined by John Maynard Keynes, “euthanized the rentier class.” This led to an extended period when the rate of economic growth exceeded the rate of return on capital. But that period is no more, and we are fast returning to levels of inequality not seen since the nineteenth century. Since high levels of growth are unlikely to come back, we are doomed to an inegalitarian spiral—unless we do something about it.
The “something” we must do, according to Piketty, is enact a global tax on wealth, an idea he admits is “utopian.” He’s also called for a steep increase in top marginal income tax rates, which I discuss here.
Some liberals of my acquaintance who have read this book are not loving it. They think it’s too deterministic, that Piketty’s vision is too dark. But unless you believe that growth will return to its previous levels—something that even conventional economists like Larry Summers have been casting doubt on of late—Piketty’s argument is hard to refute.
tt’s also true that there are important dimensions of economic inequality that this book doesn’t touch on. If you want to understand the political economy of inequality—how our political system has enabled the rise of the 1 percent—I highly recommend Winner-Take-All Politics, the book by Jacob Hacker and Paul Pierson. And if you want to understand the effect inequality is having on our bodies and our souls, then Göran Therborn’s The Killing Fields of Inequality is the book for you. Where Piketty excels is in tracing the history of economic inequality and analyzing its causes.
In his review, Dean Baker makes the excellent point that wealth or income taxes aren’t the only way to bring the hammer down on the 1 percent. He mentions policy fixes such as weakening drug patent laws, reregulating the cable and telecommunications monopolies, and instituting a financial transactions tax, all of which would also help rein in rent-seeking elites. Those reforms would certainly help, and would be far more politically realistic than Piketty’s global wealth tax. But none of them have its potential transformative power.
According to Piketty, unless fairly dramatic political actions are taken to curb inequality, we face a grim, inegalitarian future. He makes that clear. The policy interventions that he argues are necessary—a global tax on wealth, top marginal tax rates in excess of 80 percent—have been dismissed out of hand by some. “Too impractical!” But as Adolph Reed and others have been arguing lately, it’s long past time for the American left to start embracing utopianism. If we don’t, we may well be consigning ourselves to a dystopian fate.