Capital in the 21st Century
Rarely does a thick tome on economics get noticed by the mainstream press, let alone become a best-selling book that fundamentally shifts political discourse. French economist Thomas Piketty, aided by an elegant English translation, has managed a accomplish that feat.
The groundbreaking statistical research done by Piketty and his colleagues has collated data on income and wealth distribution for the advanced capitalist nations. Using a variety of source documents from government records and sophisticated computerized analysis to align disparate data sets, Piketty traces the concentration of wealth and income over several centuries. The results of that analysis are a direct challenge to the unexamined assumptions of the prevailing Anglo-American “free market” school of economics. Progressive economist Paul Krugman, writing for the New York Review of Books, notes that Piketty “… offers what amounts to a unified field theory of inequality, one that integrates economic growth, the distribution of income between capital and labor, and the distribution of wealth and income among individuals into a single frame.”
Piketty has thrown down the gauntlet to the intellectual defenders of the conservative “free-market” ideological hegemony that now sets the terms for the range of political options available for discussion. That challenge may explain the extraordinarily vigorous attack on the book from conservative and libertarian think tanks, which I take as a sign of the significance of his work. George Leef of the right-wing John W. Pope Center for Higher Education Policy, writing for Forbes magazine, states that: “Rather than going after Piketty’s numbers, we need to go after his philosophy… redistribution of wealth is not a proper function of government… after the redistributive idea takes hold, it grows like an invasive weed… Piketty’s book is a big dose of fertilizer for those weeds.”
The core concept of “Capital in the 21st Century” is that the brief period of broadly-based prosperity from the end of WWII until the 1980s, which saw the rise of a large middle class in the developed world, was an historical anomaly. The norm over the history of capitalism has been a highly stratified income distribution and the concentrated wealth and political power of the 1 percent.
Piketty explains that this is a natural outcome of the fundamental dynamic of capitalism, in which r>g (the rate of return on capital, r, is greater than the rate of economic growth, g). That innate feature of capital accumulation was temporarily held in check by a social and political consensus that arose from the massive shocks of the two World Wars and the Great Depression. The progressive tax and social policies that arose from these extraordinary dislocations were an impediment to the designs of the oligarchic class and their drive to capture ever-larger shares of national wealth. They had to go.
The rollback of the more egalitarian model of “social contract” capitalism began with the conservative counter-offensive during the Thatcher/Reagan era. The policy of progressive taxation on high net worth individuals and corporations, which was a by-product of the political and economic chaos of the mid-twentieth century, came under unremitting political and ideological attack. The socially beneficial phenomenon of rising incomes across all classes was halted. The defining feature of contemporary capitalism is widening income and wealth inequality and loss of social mobility.
The net effect of the corporate “free market” policy regime is a reversion to a quasi-feudal society, in which there is a ‘royal’ class, based on vast wealth and the political power that stems from control of the commanding heights of the banking and energy systems (the .01 percent), an aristocratic class which owns most of the stocks, bonds and commercial properties (the 1 percent), served by their courtiers, known in our time as the professional/managerial class (the 10 percent), and then the rest of us working at low-wage jobs with little security or prospect for career advancement. Back to the good old days of serfs and lords.
Piketty does offer a few solutions to this inexorable drive to concentrated wealth. He advocates, in ironic Gallic fashion, for a global wealth tax to fund social investments to raise living standards. His endorsement of this policy is ironic in that he immediately acknowledges that this proposal is infeasible under current political conditions. The wealth tax solution runs directly contrary to the conservative dogma of lower taxes on wealth and elimination of the estate tax. The global wealth tax would undercut the strategy of off-shoring corporate profits to countries that have legislated low tax rates in order to attract investment. The concentrated political power that concentrated wealth has purchased would muster a massive resistance to that fundamental restructuring of international capital flows.
My hope is that Piketty’s work will open a political space for consideration of alternative economic strategies that might arrest this dystopic trend. We need a full employment economy, accompanied by well-resourced vocational training which would set millions of young people on the path to a stable family life and give hope and purpose to economically marginal citizens.
There is a desperate need to develop the social and political will to put the people to work doing the essential tasks of environmental remediation, public works infra-structure projects, childcare and teaching, nursing and caretaking. This will take money and political commitment in the form of public and private organizations, funded through fair taxes and voluntary donations. That is a more hopeful future than devolution into neo-feudalism.
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I’ve not read far into the book yet — and it is available online as a PDF file — but by the time I was into the first chapter, it was clear that Dr. Piketty’s economic education, extensive as it might be, entirely omitted the ideas of the classical economists who described a 3-factor economy: land, labor and capital. Piketty, like nearly everyone educated in economics in the past 40 to 80 years, writes as if there were only two factors — labor and capital — treating land as if it were a mere subset of capital, with no reason to recognize it as differentiated.
Land — not only urban sites, but also the other things the classical economists would recognize as Land, such as water rights, oil, electromagnetic spectrum (our airwaves which we all say belong to the American people, but which are in reality owned by corporations), landing rights at busy landlocked airports, geosynchronous orbits, urban street parking, the value of dozens of other non-renewable natural resources — is completely different in character from that which is created by labor. To fail to recognize that difference lies at the bottom of our inequality problem.
That which individuals and corporations produce is rightly individual property. That which the community and nature produce is rightly common property, belonging to all of us. Conflating Capital and Land leads us to permit the privatization of that which is rightly our common treasure.
You might be interested to know that the Landlord Game, invented by 1902, was intended to teach this concept. You have probably played Monopoly, which was based on this game, played with very different rules.
Explore the ideas of Henry George. Between 1885 and 1900 or so, everyone knew the name and many well understood his ideas. You might start with “Social Problems” or the more analytical “Progress and Poverty,” or his speeches, “The Crime of Poverty,” “Thou Shalt Not Steal,” among others, online at http://www.wealthandwant.com. See also http://lvtfan.typepad.com.
Dr. Piketty and others whose education in economics has omitted George’s ideas should not be treated as experts; they’ve mixed apples and oranges and not noticed that what they’ve created impoverishes the vast majority of us — and enriches a few. (Parenthetically, consider who donates heavily to our universities.)