It’s a long time since the world of economics was shaken up by a Frenchman, let alone one of socialist convictions. But that is the feat pulled off by Thomas Piketty with his new book, Capital in the Twenty-First Century.
Critics have dismissed the work as “an updated Das Kapital, without the call to arms” – and as plain wrongheaded. But Piketty has homed in on the central issue of our age, says The New York Times.
His “bracing” analysis of “inexorably rising inequality” and its impact on Western democracies “puts into question many of our core beliefs about the organisation of market economies” (see below).
Having spent most of his career deep in the archives collecting data, this modest, rather self-effacing professor is “about to emerge as the most important thinker of his generation”, says The Observer.
Piketty’s highly readable survey of economic history gives “scientific” backing to what most of us intuitively knew: that a tiny elite is grabbing more and more of the world’s wealth. “This is why his book has crossed over into the mainstream – it says what many people have already been thinking.”
Piketty describes himself as an Anglophile. But his real influences lie in the French radical tradition. He was born in 1971 in Clichy, near Paris. His parents, members of the Trotskyist party Lutte Ouvriere (Workers Struggle), were active in the May 1968 riots.
Disappointed by the failure of “the near revolution”, they “dropped out to raise goats in the Aude”. Piketty’s own political journey began with the fall of the Berlin Wall in 1989: he was “fascinated by the wreckage of communism” and set out to explore it.
After studying maths and economics at the Ecole Normale Superieure, he did a PhD on wealth redistribution at the LSE, which included a close study of the English system of income tax. But the core of his exhaustive research on wealth initially focused on France, and has only later been extended to include the UK and US.
Piketty says he isn’t political. But that’s somewhat disingenuous. He worked as an advisor to Segolene Royal in the 2007 presidential election and his former partner, the novelist Aurelie Filippetti, is a socialist politician currently serving as Minister of Culture and Communication. Theirs was clearly a volatile relationship.
Piketty briefly became tabloid fodder after an incident in 2009 in which Filippetti accused him of domestic violence, says Le Figaro. She later withdrew the accusation.
Piketty has become a catalyst for action. In 2012, Foreign Policy magazine named him as one of its Top 100 Global Thinkers “for making the graph that occupied Wall Street”. His work is now fuelling a hot debate on inheritance and other wealth tax reforms.
Whether or not he is responsible for “a watershed” in economic thinking, as former World Bank economist Branko Milanovic recently suggested in The New Yorker, he’s certainly making the weather.
A powerful wake-up call
Even before it was published, Capital in the Twenty-First Century ignited fierce arguments on the blogosphere about the dynamics of capitalism and the link between money and power. But “open-minded readers” will acknowledge that Thomas Piketty has written an “extraordinarily important book” of “vast historical scope” whose evidence and arguments cannot be ignored, says Martin Wolf in the FT.
Piketty’s core argument is that the narrowing wealth gap in the 20th century fooled us into believing that free-market capitalism had a “general tendency towards economic equality”.
In fact, the mass redistribution of inherited wealth was sparked by a combination of unique factors: the upheaval of two world wars, several periods of high inflation, and a post-war drive towards more progressive taxation.
With those removed, the long-term trend has reasserted itself. “We are slowly recreating the “patrimonial capitalism of the late 19th century”, with all its attendant ills.
The most powerful factor leading to rising inequality is when the rate of return on capital exceeds the rate of output growth, ensuring existing inequalities amplify.
During the Gilded Age (three decades at the end of the 1800s of great concentration of income and wealth), the stock of the world’s privately held capital amounted to some five years’ worth of global income, by Piketty’s estimate, says Eduardo Porter in The New York Times. “By 1950, it had fallen to below three, but by 2010, it was back at four.” By the end of this century, Piketty projects it will amount “to almost seven” unless governments intervene.
He proposes a global wealth tax, but that would be impossible to agree upon. There’s also an argument that a degree of inequality is not just inevitable, but desirable if it spurs
entrepreneurs to innovate.
Maybe, says Martin Wolf. But there needs to be moderation in all things and “we are not seeing moderate rises in inequality”. The risk of increasingly fractured societies is growing. Piketty’s book is a powerful wake-up call.