Piketty’s Capital in the 21st Century

Summers are meant for reading longish, thick works of non-fiction – correct? Alright, I know I’m so wrong with that take, but if you are an unabashed non-fiction junkie like me, you know there’s simply not enough time for experimenting with mediocre fiction. I remember reading Buckley’s Thank You For Smoking when it came out in the ’90s; a truly hilarious and well-written read that lasted . . . five days. I have read other good fiction since then, but – I got to speak the truth – I’m in the game for the longer haul. Reading great narrative history (Lansing’s Endurance and Branch’s Parting the Waters, as examples) and good social commentary is what we n-f zealots do all year long. Ain’t it a blast! Here’s the latest review of a non-fiction must read (or, at least, of which one must read a few good reviews).

Thomas Piketty is a French economist; his 2013 book Capital in the 21st Century (English translation, Belknap Press, 2014) is a best-seller in the States and Europe. He teaches graduate level economics in France, specializing in economic inequality. He taught for a short while at MIT in the early 1990s and then returned to Paris to continue his teaching career. I knew enough about Capital before reading it to understand that Piketty and I speak similarly of capitalism’s susceptibility to political intrigue and its (potential) consequent propensity to siphon wealth upward, favoring the wealthy classes. For awhile I was thinking that my book, Just a Little Bit More, could be billed as the local, indie, American (and shorter) version of Capital. But then I read Dr. Piketty’s tome – so much for the local indie angle. Just a Little Bit More covers a lot of territory, but it doesn’t do r > g, or other economic equations. Capital, for the most part, is economics through and through.

Piketty states early on that “the history of the distribution of wealth has always been deeply political, and it cannot be reduced to purely economic mechanisms.”* According to Piketty’s work with extensive data, the rate on the return of capital (r) typically exceeds the growth rate of the economy (g), thus r > g. Historically, the interest garnered by accumulated wealth outpaces the gains of economic growth by about 5% to 1.5%. Are you still with me?

Things are the way they are – the rich getting richer in the US, especially in the last thirty-five years – not because it’s naturally intended by capitalism, but because it’s been manufactured. Piketty’s r > g has been buttressed by policy. Income and capital gains tax cuts for the wealthiest among us, along with reduced rates for inheritance taxes, have all contributed to the widening gap between America’s richest and poorest. The United States was founded to be an egalitarian country where primogeniture was not practiced as it was in Europe. Primogeniture – family inheritance passed onto the first born male – enabled Europe’s staid aristocracy to maintain its power and place. The two great democratic revolutions (American and French) wanted to give meritocracy a chance; you move yourself upward economically not by inheritance or family connection, but by hard work, ability, and effort. The good ol’ American Dream: one has to work to attain it.

There’s been a slight uproar this past week (third week of July, 2014) as it’s been revealed that the late actor Philip Seymour Hoffman didn’t want his children to be “trust fund kids.” His estate, valued at $35 million, will go (after a significant tax bit since he was not married) to his partner, the surviving parent of their young three children. As if a cruel fate (I jest), their children will need to forge their way forward more reliant upon their relationship with their mother than with a choice inheritance. The new American Dream: just give it to me. Hoffman was apparently adamant of his conviction; his accountant was not able to convince him otherwise.  The following Piketty comment supports Hoffman’s suspicion of oversized inheritance: “Every generation must in some sense construct itself.”~

Piketty, benefitting from the vantage point of an outsider, recognizes an important attribute of American taxation and its history that many Americans overlook: progressive taxation serves the purpose of reducing inequality. And a society that is more so (than less) economically egalitarian has fewer social problems. (If you missed Wilkinson and Pickett’s The Spirit Level: Why Greater Equality Makes Societies Stronger, put it on your reading list now – Bloomsbury, 2009.) Piketty reminds his readers that the great country that led the way in democracy and egalitarianism – America – was also one of the last Western nations to abolish slavery. US society maintains a certain schizophrenic attitude about equality and inequality – we tolerate and accept both simultaneously. “This complex and contradictory relation to inequality largely persists in the United States to this day: on the one hand this is a country of egalitarian promise, a land of opportunity for millions of immigrants of modest background; on the other hand it is a land of extremely brutal inequality, especially in relation to race, whose effects are still quite visible.”**

Inequalities based on individual talent and effort, Piketty asserts, are quite acceptable in democratic societies. But when the deck is stacked, so to speak, democracy is threatened. Whereas today in the Scandinavian countries, along with France, Germany, England, and Italy, the richest 10 percent own between 50 and 60 percent of national wealth – in the United States, the richest 10 percent claim 72 percent of America’s wealth, with the bottom half (the majority of these being women) holding just 2 percent. These figures for the European nations and the United States are similar to what they were at the end of the Gilded Age, shortly before the intervention of World War I.~~ Piketty also argues that the Great Depression was a similar type of intervention to counter the rising inequality of the Roaring ’20s. What is to intervene now and combat, as it were, this current era’s rising tide of inequality? The 2007-08 recession hurt most everyone’s bottom line, but the inequality gap is unaffected; it’s as wide now as it was before the recession.

Boldly, Piketty calls for an international tax on accumulated wealth. Obviously, as Piketty himself concedes, such a measure is highly unlikely to be implemented any time soon. Nonetheless, let’s have a conversation about it. There has been plenty of conversation about the “size of government” and the need to reign in the excessive growth of the public sector. (I agree; please read chapter 6, “Excess,” in Just a Little Bit More.) Inefficiency, redundancy, and waste – none of these are helping the cause of societal common good. But let us also converse and discuss – with some depth of argument – the plight of citizens living in and among social and economic inequality. Piketty says that inequality in America could reach record levels by 2030 if contributing factors (which include the meteoric rise of top salaries) continue unabated. “The egalitarian pioneer ideal has faded into oblivion, and the New World may be on the verge of becoming the Old World Europe of the 21st century’s globalized economy.”*** A highly inegalitarian society requires more attention (social programs) in order to maintain social and political order. A more balanced and egalitarian society requires less public attention to mend its ills and deficiencies. This angle of the debate on social inequality and social programs needs greater voice. Piketty reminds: “The primary purpose of the capital tax is not to finance the social state but to regulate capitalism.”~~~ In other words, to keep capitalism in check.

As a person of faith and a public religious leader, I understand Piketty’s warning about the perils of continued and increasing economic inequality as crucial and urgent. What kind of society do we want to live in and consequently pass on to those who follow us? One where the uncritical pursuit of more and more is encouraged as a way forward regardless of the increasing gap between the richest and poorest? Revolutions – many violent – have risen from such chasms. I will continue to work that we (and those who come after us) might live in a society where the value of egalitarianism is upheld for its own good and for the beneficial consequences it brings.

 

Just a Little Bit More: The Culture of Excess and the Fate of the Common Good (2014) is available at the Blue Ocotillo Publishing website.

 

* Location 454 (Ebook markings – the first one I’ve read!)

~ Location 1493

** Location 2770

~~ Locations 4409, 4429, 4509 – Piketty claims that the 72 percent figure most likely is underestimated – meaning it should be higher.

*** Locations 4556, 9009

~~~ Location 9073

 

Interested in more summer reading? I also recommend Lawrence Summers’s “The Inequality Puzzle: Piketty Book Review,” available online and in the Spring 2014 edition of Democracy: A Journal of Ideas. A rec and a pun together – how good is that!

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One response to “Piketty’s Capital in the 21st Century

  1. Pingback: Meeting Taylor Branch | Just a Little Bit More - Book Blog

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