Piketty’s Capital

Review of Thomas Piketty’s Capital in the Twenty-First Century

So this is the book Nobel Prize winning economist Paul Krugman lauds and billionaire apologists decry. No need for such drama, though. This book – a close reading of the historical trajectories of capitalism with special attention to things like growth and inequality – is no call to storm the walls of capitalism. Indeed it is a reformist attempt to save capitalism from its own excesses, to save it from the kind of sweeping revolution that Russell Brand heralds.

Of course, Piketty, unlike Brand, is a professional economist, more wonkish than visionary, and still working in the Adam Smith to Karl Marx tradition of homo economicus, which presents homo sapiens fundamentally as economic units and human relations fundamentally as economic relations (compare to the dramatic conclusion of my “Taxes, Private Property, and the Age of Aquarius). But Piketty, with his line graphs and tables, his sorting of economic laws that are mathematically fixed from economic laws that are subject to political intervention, is like a hungry badger digging into the internal mechanics of today’s capitalism. At least he seems a good “inside game” player to liaise with our visionaries when the Aquarian revolution comes.

Indeed, in his appetite for detail, the hungry badger sometimes seems unsure of his audience. He wants to pitch to a general audience, which means high-level narrative instead of “showing your work,” but, always aware of the secondary (academic) audience, he gets bogged down for pages on disclaimers, caveats, apologies for methodological imprecision, etc., that really just bore the general reader. And although the stats and charts are great for the most part, here also he sometimes gets bogged down in the numbers. It reminds me a little of Darwin’s 200-page digression (or so it seemed) on the tail feathers of the rock finch in Origin of Species (a book that was otherwise quite compelling for the average reader).

What the wonkish Piketty can and does give us, however, is a layman’s way into one of the basic problems in the trajectory of capitalism: Since return on capital always outstrips growth (r > g), the tendency is toward greater inequality (the capital/income ratio increasingly favors capital). This inexorable feature of capitalism was temporarily obscured by the shocks of the 20^th century (1914-1945 and a recovery period through the 1970s). This period was anomalous in two ways: (1) growth of 2-3% came to seem normal (Piketty’s centuries of data show that 1% is actually robust growth in long run); (2) those shocks and after effects reduced the role of capital/inherited wealth, so it seemed capitalism was on a “natural” track toward increasing meritocracy and diminishing importance of inherited wealth. Now that the shock waves are over, both trajectories have returned to normal – growth is coming down and will probably level out at about 1%, and the role of capital/inherited wealth is concurrently going back up. Some of Piketty’s points are debatable, but the overall argument is compelling and the urgency real.

So how do we check the underlying forces of capitalism now pushing toward a renewed importance for inherited wealth and increased inequality? State expropriation of private property has been tried and failed to deliver on its promises. National taxes on capital won’t work because today it is too easy for the wealthy to relocate resources. Only an annual global tax on capital will do the trick, according to Piketty, and that means greater financial transparency and greater cross-national political collaboration. So he may not see beyond the age of homo economicus, he may not see into a future where self-actualization is detached from purchasing power and from the age-old struggle for resources, but if he develops his thesis with the restraint of a reformer, these final recommendations reveal a little bit of the visionary idealist in Piketty after all.