Here’s a good six-minute primer on Piketty’s new book and the progressive praise for it:
The full transcript of Krugman’s interview is here. Ryan Avent, also a fan of the book, fisks Clive Crook’s critique of Capital in the Twenty-First Century. His broader view:
Why do we care about inequality? We care about it because we are human, and we can’t help but be concerned about matters of fairness, however much economists might wish that were not the case. But what Mr Crook seems not to understand is that we also care about it because we care about living standards.
Mr Piketty’s book does an able job showing that high levels and concentrations of capital have not been a necessary or sufficient condition for rapid growth in the past, though they have often sowed the seeds for political backlash that is detrimental to long-run growth. His argument is that the living standards of many people around the rich world are now unnecessarily low, because of the nonchalance with which elites have approached distributional issues over the past generation, and that continued heedlessness of this sort will ultimately undermine the growth-boosting institutions of capitalism.
Dean Baker shares Piketty’s perspective on inequality but suggests that his global wealth tax isn’t necessary:
In Piketty’s terminology cutting back these rents means reducing r, the rate of return on wealth. Fortunately, we have a full bag of policy tools to accomplish precisely this task.
The best place to start is the financial industry, primarily since this sector is so obviously a ward of the state and in many ways a drain on the productive economy. A new I.M.F. analysis found the value of the implicit government insurance provided to too big to fail banks was $50 billion a year in the United States and $300 billion a year in the euro zone. The euro zone figure is more than 20 percent of after-tax corporate profits in the area. Much of this subsidy ends up as corporate profits or income to top banking executives.
In addition to this subsidy we also have the fact that finance is hugely under-taxed, a view shared by the I.M.F. It recommends a modest value-added tax of 0.2 percent of GDP (at $35 billion a year). We could also do a more robust financial transactions tax like Japan had in place in its boom years which raised more than 1.0 percent of GDP ($170 billion a year).
In this vein, serious progressives should be trying to stop plans to privatize Fannie and Freddie and replace them with a government subsidized private system. Undoubtedly we will see many Washington types praising Piketty as they watch Congress pass this giant new handout to the one percent.
Jeff Faux, writing in The Nation, nevertheless shrugs at the idea of a global wealth tax:
[H]e argues that the tax is technically feasible and could be gradually adopted region-by-region. Here Piketty seems out of his political depth. In order to avoid Marx’s apocalyptic conclusion, he skips around a central implication of his own analysis: that the upward redistribution of wealth also generates an upward distribution of political power that perpetuates inequality. An enforceable global tax on capital ownership would require dramatic political shifts to the left within the major economies—at least the United States, Europe, China, Japan—and unprecedented cooperation among these economic rivals to face down transnational capital and force the rest of the world to accept it. Eyes will roll.
Still, Piketty’s proposal sets a realistic marker for the level and scope of radical change necessary to deal with the grim conclusion of his quite credible economic analysis. The analysis makes hash of the conservative claim that there are “market solutions” to inequality, as well as the liberal hope that small-bore reforms will eventually achieve social justice on the cheap.
From James K. Galbraith’s lengthy review of the book:
In any case, as Piketty admits, this proposal is “utopian.” To begin with, in a world where only a few countries accurately measure high incomes, it would require an entirely new tax base, a worldwide Domesday Book recording an annual measure of everyone’s personal net worth. That is beyond the abilities of even the NSA. And if the proposal is utopian, which is a synonym for futile, then why make it? Why spend an entire chapter on it—unless perhaps to incite the naive?
Piketty’s further policy views come in two chapters to which the reader is bound to arrive, after almost
five hundred pages, a bit worn out. These reveal him to be neither radical nor neoliberal, nor even distinctively European. Despite having made some disparaging remarks early on about the savagery of the United States, it turns out that Thomas Piketty is a garden-variety social welfare democrat in the mold, largely, of the American New Deal. …
Piketty devotes only a few pages to the welfare state. He says very little about public goods. His focus remains taxes. For the United States, he urges a return to top national rates of 80 percent on annual incomes over $500,000 or $1,000,000. This may be his most popular idea in U.S. liberal circles nostalgic for the glory years. And to be sure, the old system of high marginal tax rates was effective in its time. But would it work to go back to that system now? Alas, it would not. By the 1960s and ’70s, those top marginal tax rates were loophole-ridden. Corporate chiefs could compensate for low salaries with big perks..
In sum, Capital in the Twenty-First Century is a weighty book, replete with good information on the flows of income, transfers of wealth, and the distribution of financial resources in some of the world’s wealthiest countries. Piketty rightly argues, from the beginning, that good economics must begin—or at least include—a meticulous examination of the facts. Yet he does not provide a very sound guide to policy. And despite its great ambitions, his book is not the accomplished work of high theory that its title, length, and reception (so far) suggest.
Check out the book for yourself here.
The Dish 