Piketty’s tome on rising inequality is an unlikely hit
Thomas Piketty is a French economist whose book “Capital in the Twenty-First Century” has fueled fierce debates about inequality.
The New York Times
Economist Thomas Piketty
Born: May 7, 1971
Education: Mathematics, École Normale Supérieure; doctorate in economics, School for Advanced Studies in Social Sciences and the London School of Economics.
Career: Taught economics at the Massachusetts Institute of Technology; now professor at the Paris School of Economics
Thomas Piketty turned 18 in 1989, when the Berlin Wall fell, so he was spared the tortured, decades-long French intellectual debate about the virtues and vices of communism. Even more telling, he remembers, was a trip he took with a close friend to Romania in early 1990, after the collapse of the Soviet empire.
“This sort of vaccinated me for life against lazy, anti-capitalist rhetoric, because when you see these empty shops, you see these people queuing for nothing in the street,” he said, “it became clear to me that we need private property and market institutions, not just for economic efficiency but for personal freedom.”
But his disenchantment with communism doesn’t mean that Piketty has turned his back on the intellectual heritage of Karl Marx, who sought to explain the “iron laws” of capitalism.
Like Marx, he is fiercely critical of the economic and social inequalities that untrammeled capitalism produces — and, he concludes, will continue to worsen.
“I belong to a generation that never had any temptation with the Communist Party; I was too young for that,” Piketty said, in a long interview in his small, airless office here at the Paris School of Economics. “So it’s easier in a way to reopen these big issues about capitalism and inequality with a fresh eye, because I was too young for that fight.”
In his new book, “Capital in the Twenty-First Century” (Harvard University Press), Piketty, 42, has written a blockbuster, at least in the world of economics. His book punctures earlier assumptions about the benevolence of advanced capitalism and forecasts sharply increasing inequality of wealth in industrialized countries, with deep and deleterious impact on democratic values of justice and fairness.
Remarkably for a book on such a weighty topic, it has already entered The New York Times’ best-seller list.
“Capital in the Twenty-First Century,” with its title echoing Marx’s “Das Kapital,” is nothing less than a broad effort to understand Western societies and the economic rules that underpin them.
And in the process, by debunking the idea that “wealth raises all boats,” Piketty has thrown down a challenge to democratic governments to deal with an increasing gap between the rich and the poor — the very theme of inequality that recently moved both Pope Francis and President Obama to warn of its consequences.
A top student, Piketty took a conventional path toward the French elite, being admitted to the rarefied École Normale Supérieure at 18. His doctoral dissertation on the theory of redistribution of wealth, completed at 22, won prizes. He then decamped to teach economics at the Massachusetts Institute of Technology before returning two years later to France, disappointed with the study of economics in America.
“Very quickly I realized that there was little serious effort at collecting historical data on income and wealth, so that’s what I started doing,” he said.
As he extended his work on France to the United States in collaboration with Emmanuel Saez, a professor of economics at the University of California, Berkeley, he saw that the patterns of the early 20th century — “the top 10 percent of the distribution was full of rental income, dividend income, interest income” — seemed less prevalent from the 1970s through the early 1990s.
“It took me a long time to realize that in effect we were returning slowly in the direction of the previous equilibrium, and that we were part of a long transitory process,” he said.
His findings, aided by the power of modern computers, are based on centuries of statistics on wealth accumulation and economic growth in advanced industrial countries.
They are also rather simply stated: The rate of growth of income from capital is several times larger than the rate of economic growth, meaning a comparatively shrinking share going to income earned from wages, which rarely increase faster than overall economic activity. Inequality surges when population and the economy grow slowly.
The reason that postwar economies looked different — that inequality fell — was historical catastrophe.
World War I, the Depression and World War II destroyed huge accumulations of private capital, especially in Europe. What the French call “les trentes glorieuses” — the roughly 30 postwar years of rapid economic growth and shrinking inequality — were a rebound. The American curve, of course, is less sharp, given that the fighting was elsewhere.
A higher than normal rate of population and economic growth helped reduce inequality, along with higher taxes on the wealthy. But the professional and political assumption of the 1950s and 1960s, that inequality would stabilize and diminish on its own, proved to be an illusion. We are now back to a traditional pattern of returns on capital of 4 to 5 percent a year and rates of economic growth of around 1.5 percent a year.
So inequality has been quickly gathering pace, aided to some degree by the Reagan and Thatcher doctrines of tax cuts for the wealthy. “Trickle-down economics could have been true,” Piketty said simply. “It just happened to be wrong.”
Inequality by itself is acceptable, he says, to the extent it spurs individual initiative and wealth-generation that, with the aid of progressive taxation and other measures, helps makes everyone in society better off. “I have no problem with inequality as long as it is in the common interest,” he said.
But like the Columbia University economist Joseph E. Stiglitz, he argues that extreme inequality “threatens our democratic institutions.” Democracy is not just one citizen, one vote, but a promise of equal opportunity.
“It’s very difficult to make a democratic system work when you have such extreme inequality” in income, he said, “and such extreme inequality in terms of political influence and the production of knowledge and information.”
Published a year ago in French, the book is not without critics, especially of Piketty’s policy prescriptions, which have been called politically naive.
Others point out that some of the increase in capital is because of aging populations and postwar pension plans, which are not necessarily inherited.
More criticism is sure to come, and Piketty says he welcomes it. “I’m certainly looking forward to the debate.”