May 21, 2017

Since reading Thomas Piketty’s Capital in the Twenty-First Century,” (C21) I have been waiting for a good rebuttal to these realities described in his 2014 book:

• We are experiencing high inequality in the US and elsewhere.
• There is no evidence for the foreseeable future that a return to somewhat greater equality will develop, without intervention.
• The development of inequality is not a natural phenomenon. To quote Piketty:”…it took violent political shocks, wars, and revolutions in order to force Western elites, and particularly the French, German, and British elites, to accept fiscal and social reforms that they largely refused until WWI, and that finally led to a prolonged compression of inequality in the postwar period.” This comment is in regard to the relatively egalitarian period introduced by government policy, between WWII and the late 1970s.
• Finally, rising inequality is not a necessary phenomenon. There is a wide spectrum between total equality and total inequality. We are steadily advancing into the realm of extremely high inequality. Some adjustment, using a few of the many interventions available to us, is a good thing. Continued undeterred advancement toward even higher inequality is a very bad thing.

I read a flurry of critical responses to C21. None of them answered the questions I repeat above. I read arguments quibbling with the economic model or the math, or the data, but never arguing that inequality has not increased or is not a problem. I have seen arguments that we need sufficient incentive for creative individuals to enrich themselves. I have seen arguments that government should not intervene in the free market. I have seen arguments that almost every form of intervention suggested will bring undesired side effects. Possible interventions including funding education, infrastructure, health, and certainly any form of greater tax on high incomes or wealth–there are objections specific to each. I haven’t yet seen any arguments squarely addressing the above questions. Whether one agrees with Piketty’s explanation or his emphasis, or has a different explanation, I am still waiting for dispute of the above which I consider realities.

Honestly, I believe there is just as much bias and jealousy in the economics profession as we find in business or politics. Economists are often skilled at “damning with faint praise.” Marshall Steinbaum makes this case rather well in the Boston Review of May 12, 2017.

Today, I am reading After Piketty, a compilation of essays edited by Boushey, Delong, and Steinbaum, just released. I thought Piketty’s 800 page Capital in the Twenty-First Century (“C21”) was so good that I read it twice.  That was 2014. Three years later, I feel  certain that the essence of what Piketty explained (and forewarned) is all the more correct and relevant.

This volume includes 21 current focused critiques on the 2014 volume, plus a response from Piketty to the observations of the writers.

Let me describe the attitude taken by Piketty, both in the 2014 book and in his essay here, in reply to others. He does not present himself as having all the answers. He invites others to show where he is wrong. He makes multiple admissions that his earlier work fell short of sufficiently considering many factors mentioned by the other distinguished economists and authors in this book. The very fact that he encouraged this kind of collective set of constructive criticisms speaks to his integrity. Yet, he holds (rightly in my opinion) to the powerful essence what he described in C21. This is truly the mark of a great scholar.

I’m stopping part way into reading this captivating book because I must share a few passages.

Piketty: “…the main reason capital values and capital shares are both relatively high in the late twentieth and early twenty-first centuries is that institutional and legal systems have gradually become more favorable to capital owners (both owners of real estate capital and owners of corporate capital) and less favorable to tenants and workers in recent decades.”

Piketty: “…I note the gaping hypocrisy of contemporary meritocratic discourses. For example, the average income of parents and students at Harvard University currently corresponds to the average income of the wealthiest 2 percent of Americans.”

He notes the hypocrisy of countries like Germany and France, which never repaid their debts from the World Wars, demanding full repayment of debt with interest from Greece and others today. This is among a multitude of examples of political actions which affect inequality somewhere in the world.

As to the future, Piketty recommends: “Democratic institutions must be continually reinvented.” Forms of ownership must be altered. There must be full accounting and financial transparency, but that alone is not sufficient: “…the concrete institutions in which democracy and capitalism are imbedded  need to be reinvented again and again.”

I will end with a comment by Arthur Goldhammer in the book: “…Piketty’s analytical political-economic case looks to us to have been greatly strengthened by Trump’s presidential election victory.”

Regarding my questions at the top of this post–I am waiting for cogent arguments refuting any of the above assertions which are made by Piketty and agreed to, in only different words, by Krugman, Solow, Milanovic, Saez and others in this book. If you have seen such, I will greatly appreciate being directed to them.

I’m not finished. I return now to read other chapters of this excellent volume, which I recommend to all.