The year's must-read economics tome, Capital in the Twenty-First Century, deftly argues that economic inequality is the norm. But is there a solution?
Capital in the Twenty-First CenturyPublisher: Harvard University Press
Author: Thomas Piketty
Translator: Arthur Goldhammer
Length: 696 pages
Publication date: 2014-04
"The problem of our age is the proper administration of wealth."
-- Andrew Carnegie, 1889
"The distribution of wealth is too important an issue to be left to economists, sociologists, historians, and philosophers."
-- Thomas Piketty, Capital in the Twenty-First Century
As spring 2014 grumpily unfolded itself from winter’s tight clutch in North America, members of the smart set were finally closing the last page on that copy of The Goldfinch they had been lugging around since Christmas and looking for the next book to at least claim to have read. The New York Times and various fellow travelers gave them one hell of a doorstopper.
The author of Capital in the Twenty-First Century is Thomas Piketty, a French economist who penned this nearly 700-page opus (just under 600 if you skip his voluminous notes) on the distribution of income in the West. He believes it’s a topic his fellow students of the dismal science have neglected and at the ruinous expense of the less fortunate.
He also thinks it’s actually a good thing that economists aren’t treated with as much respect in France as they are in the United States. This refreshing humility doesn’t keep the book from over-relying on a few points and concluding in too narrow a fashion. But Piketty’s conviction that economists normally don’t get it -- in part, he suggests, because many of them are much better off financially than the average citizen -- goes a long way towards attracting a readership that would normally recoil as violently from brick-like economics texts as Fox News viewers would from kale.
Even with Piketty’s occasional stumbles, Capital in the Twenty-First Century is easily the book of the year. With agreeably clear prose and an aversion to orthodoxy, it grapples with mountains of data and wrestles them into a more manageably daunting form.
Before it even had a chance to pile up groaningly on display tables, Paul Krugman, et al, proclaimed this to be the book that they had been waiting for. Op-ed writers and columnists -- not to mention all the ordinary folk who can read not just the number on their paycheck but reports of Gilded Age-level executive pay -- had been buzzing for years about the growing gap of inequality between the wealthiest citizens and everyone else. The likes of Joseph Stiglitz (in 2012’s surprisingly cool-headed barn-burner The Price of Inequality: How Today’s Divided Society Endangers our Future) had been laying out the numbers for how far apart the one-percent to 99-percent gap was growing by utilizing bullet-pointed narratives and a narrow focus to attract a popular audience.
Piketty takes a different tack. He starts in the 19th century with Karl Marx and Jane Austen (more about her later) and runs up to the present. He argues along the way that wealth inequality isn’t a product of the modern age; it’s the way things have been for centuries. To him, only a cluster of wars, economic and political disruptions, and unusually high growth rates for several decades of the 20th century ever changed this state of affairs; wars destroy a lot of capital. In chapter after chapter, Piketty uses acres’ worth of data to prove that some of the nostalgia that leftist economists have lately held for the West’s postwar years when average wages rose and high tax rates kept the wealthy in check, is misplaced and possibly misleading.
In chapter after chapter, chart after chart, Piketty goes a good way toward proving his point. Contrary to the common wisdom of the Forbes crowd, who decry annual growth rates of under three or four percent as stagnation, Piketty posits that one percent growth was the normal growth rate for most of history and is in fact where the world is heading again. At the same time, as taxes have dropped, fortunes have swelled accordingly, following his dictum that “money tends to reproduce itself.” In other words, once a fortune climbs to the multiple billions of a Bill Gates, even the most profligate inheritors would have a hard time blowing it.
In Piketty’s theory, just about the only thing that keeps the wealthy from hoarding an ever larger share of capital and cash are high economic and population growth rates. Both of those are on a downward trend, and the political mood in much of the West has turned against the higher tax rates of the postwar years that kept inequality in check. This leaves the stage set for a return to a world made up increasingly of the stratospherically wealthy and everybody else. To sharpen his point, Piketty predicts that income inequality in the United States will, by 2030, exceed that of France prior to the Revolution.
Although the usual reactionary scolds have made their usual complaints about his ideas, Piketty is no radical. He makes clear early on his discomfort with Marx’s “apocalyptic” narratives and data-poor conclusions, calling himself “vaccinated for life against the conventional but lazy rhetoric of anticapitalism.” None of that matters, of course, to the Wall Street Journal crowd, who mistake any proposal to take one additional penny out of our ruling oligarchs’ bank accounts for a revolutionary’s Molotov cocktail.
But this is a time when the post-Milton Friedman school of economic thought, whose naive trust in the automatic equality of Adam Smith’s “invisible hand” of the market, seems to be the dominant one. So with that as a background Piketty’s arguments for common sense methods to return a sense of order to the ever-more-feudal world may actually qualify as radical.
It’s disappointing, then, that Capital in the Twenty-First Century can’t finish as resoundingly as it begins. After solidly making points about the seemingly inexorable growth of inequality, Piketty’s primary response can be boiled down to suggesting a (hopefully global) tax on capital. Any non-free market ideologue doesn’t need to be convinced that taxes in the United States and much of the West (which is Piketty’s focus, if for no other reason than those are the economies with the best depth of data to study) are unnaturally and unsustainably low. This is well known.
But he articulates the depth of the problem and the power of the forces aligned to keeping it in place so clearly, that it seems clear taxing alone will not be sufficient. Just raising taxes doesn’t ensure that equality-enhancing programs will be created and funded, after all. Not to mention, his grasp of political history can be occasionally too glib; witness his none-too-convincing argument that the anti-tax movement in the United States during the '70s and ‘80s came from fears that the nation’s economy was falling behind the rest of the world.
That being said, Piketty’s fears, which take an uncommonly broad and centuries-long viewpoint, are correctly targeted:
…the world may very well come to combine the worst of two past worlds: both very large inequality of wealth and very high wage inequalities justified in terms of merit and productivity.
He also serves up an appropriate amount of scorn for the self-serving productivity myths of the “supermanagers” earning tens of millions a year or more to supposedly bring many times more that in wealth to their firms.
But by spending so much time delving into proving the rates of income inequality and comparatively no space on illustrating precisely why it’s detrimental to human society, Piketty loses an opportunity to make his book even more relevant than it already is. His concluding arguments about addressing inequalities read as comparatively weak and dry compared with the strengths of the earlier chapters.
Some of the richest parts of the book, curiously, come when Piketty turns to literature. Readers of Austen and Balzac are used to those writers’ microscopic attention to financial matters, and precisely how much annual income is needed to keep their upper-class characters in the proper style of life. This made sense because until very recently in human history, inflation was essentially nil and money had the same value from one decade to the next: “Until World War I, money had meaning.” Modern literature dispenses with such monetary specificity, Piketty argues, because it’s just not as certain how future readers will relate to those sums. But as a result, literature and the broader culture became less attuned to the power of financial matters in culture. “Capital,” he writes, “is never quiet.”
Capital in the Twenty-First Century is a pleasingly vast read that isn’t afraid to repeat itself to make a point. Piketty’s non-academic style aside, it is certainly the kind of thing that will leave some of its more math-phobic audience occasionally puzzled; a basic grasp of some economic and financial fundamentals would serve any reader well here.
No matter how much he knows that the broader audience he’s aiming at will resist his resorting to math, Piketty insists nevertheless on the odd equation. This is not a bad thing. After all, as his quietly thunderous final line concludes: “Refusing to deal with numbers rarely serves the interests of the least well-off.”