Why Save the Bankers? And Other Essays on our Economic and Political Crisis
(Houghton Mifflin Harcourt)
US: Apr 2016
Thomas Piketty is the award-winning French economist who earned the unlikely distinction two years ago of hitting the New York Times bestseller list with a 700-page bestseller on economics.
That unlikely hit, Capital in the Twenty First Century, laid out his argument for a global tax on wealth. And it helped make this young economist, whose accolades were long established in Europe, a household name in North America as well.
Those who were daunted by his 700-page tome will be more pleased with his new release, Why Save the Bankers? It only runs to 200 pages, and collects several of the short columns he wrote for the French newspaper Liberation between 2008 and 2015. This period spans much of the ‘economic crisis’ facing the Eurozone (as well as the rest of the world) in recent years, and offers Piketty’s take on the causes, implications and possible responses to the global financial situation.
The essays are varied in focus but overarching themes emerge. On the fiscal crisis: taxes urgently need to be fixed. Piketty has made the point in his previous work and he hammers the lesson in again and again. The wealthy and corporations are taxed too little; when that happens, it’s all too often labor (that is to say, individual workers) who wind up paying the difference. Furthermore, wealth piles up in private hands instead of entering the broader economy where it can do productive good.
President Obama, he notes, still tip-toes around the idea of tax hikes on high incomes in a country “where the right to collect bonuses and golden parachutes in the tens of millions without paying more than 50 percent in taxes has been elevated to the status of a human right.” By contrast, in response to the stock market crash of 1929 “Franklin Roosevelt’s response to the enrichment of the very economic and financial elites who had led the country into the crisis was far more brutal. The federal tax rate on the highest incomes was lifted from 25 to 63 percent in 1932, then to 79 percent in 1936, 91 percent in 1941…For almost fifty years, from the 1930s until 1980, not only did the top rate never fall below 70 percent, but it averaged more than 80 percent.”
Similarly, inherited wealth is becoming a serious problem. More broadly, the rich are developing more and more ways of enhancing their share of the pie, at the cost of both social and economic stability. Statistics used to suggest that rising incomes are unreliable because they don’t show the dramatic increases at the top end of the scale, while average salaries barely keep up with inflation—and often don’t—resulting in reduced spending power for the average household. Corporations are also paying larger percentages of their profits to their owners and shareholders at the expense of reinvesting in capital, which again diverts wealth out of the productive economy where it can help everyone and into private bank accounts where it benefits only a few.
The challenge is one facing America as well as Europe, he warns. “The share of national wealth held by the richest 1 percent in America is approaching the dangerous heights seen in Ancien Regime or Belle Epoque Europe. For a country founded in large part as an antithesis to Europe’s patrimonial societies, it’s a rude awakening.”
Globally, Piketty reminds us, “the biggest fortunes grew at an average rate of 6-7 percent per year between 1987 and 2013, versus barely 2 percent for average wealth worldwide. The risk of a drift toward oligarchy exists on every continent.”
Fiscal and political reform is urgently necessary, he warns, in order to “help democracy retake control of capitalism”.
On Europe, Pinketty advocates a stronger role for the European Central Bank, an enhanced and more democratic, transparent European decision-making body to go with it, and the mutualisation of European debt. He warns that the economic crisis shows the folly of not allowing a strong role for central banks, and that one of Europe’s great challenges is that it has a bank and a currency but no government to back it up with coherent, consistent fiscal policies.
This leads to economically ruinous phenomena like European countries competing against each other to offer the lowest corporate tax rates (or not cooperating to identify and take on tax havens and tax dodgers). The banking crisis in Cyprus, for instance, “illustrates the drama of small countries under globalization, which, in order to save their own skins and find their niche, are often willing to resort to the most ruthless tax competition to attract the most disreputable capital.”
Piketty is an advocate for greater European federalism, for greater fiscal and political union, even if only for the sake of economic stability and democratic accountability. Europe faces a choice, he warns: “Do we want to keep endlessly moving further into a technocratic federalism, or are we finally ready to bet on democratic federalism?”
He showers the French government with plenty of blame for the system. In the early stages of the financial crisis he lambasts Nicolas Sarkozy’s French government for propping up the worst policies of Germany, while in later years he notes that even the Germans have become more progressive than France on ideas of European federalism. He harboured high hopes for Socialist President Francois Hollande upon his election, but quickly sees those hopes dashed and takes Hollande to task, as well. “As for the little game of national selfishness, it’s hard to know who’s the most guilty,” he finally concludes, about the lack of leadership shown by France and Germany.
Ultimately, the question consuming Piketty in these essays is “why, despite all its social, economic, and financial advantages, is the continent failing to overcome the crisis?” His answer (expounded at length in the essays): “Because we continue to be divided over small details, and because we’re content to remain a political dwarf and a tax sieve.”
The book is full of interesting perspectives on the European (and global, but mostly European) financial crisis, but it offers interesting and innovative ideas to ponder as well. Piketty considers the most effective way to implement a carbon tax, and argues for stronger taxes on corporate profits and inherited wealth. He offers different models for European fiscal and policy decision-making, and argues that economists need to replace assessments of a country’s Gross Domestic Product with the more useful and revealing assessment of its National Income.
While his predominant focus in these essays is the political and economic future of Europe, he offers interesting perspectives on other topics, as well: the issue of financial compensation for slavery (those who brush off the idea as unrealistic neglect to realize that former slave-owners already received compensation for theirfinancial ‘loss’ to the tune of hundreds of billions of euros in today’s currency); the impact of inequality on Middle Eastern politics; how to finance meaningful freedom of the press; and the dangerous rise of oligarchy in America.
Part of Piketty’s charm lies in the fact that he doesn’t mince words. On European countries (like Ireland) that try to attract capital by lowering corporate tax rates: “letting countries that grew rich thanks to intra-European trade siphon off their neighbors’ tax base has absolutely nothing to do with free markets. It’s called theft.” On German-French efforts to deal with the Eurozone financial crisis without reforming European institutions: “the disastrous Sarkozy-Merkel directorate is on the verge of blowing up the European project.” On the anachronistic unaccountability and political timorousness of Europe’s Council of Heads of State: “whose members regularly announce at four in the morning that they’ve saved Europe, before people realize the next day that they themselves don’t know what they decided on.” But his blunt statements are tempered with smart, analytical arguments that lay bare many of the inconsistencies, conflicts and crises that Europe must urgently deal with.
The cost of not dealing with these crises for Europe will be high. “It’s a shortsighted selfishness: we’ll all suffer from the Eurozone recession that’s setting in. Not to mention the fact that no one can predict the violent political reactions all this could end up eliciting in southern Europe or elsewhere. At best, Europe will have wasted a decade bickering and not investing in the future. And this despite the fact that we have the best social model in the world, and ought to have the best universities on the planet, to win the battle for knowledge and sustainable development in the twenty-first century.”
Ultimately, the solution really shouldn’t be so hard: “all we have to do is organize things differently.”
Lessons and warnings for Europe, which the entire world needs to hear.
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