French economist Thomas Piketty, author of Capital in the Twenty-First Century, just released the English edition of the book, previously covered on the Dish here and here. In a companion post, Piketty puts forth his panacea to “the world’s spiralling levels of inequality”:
The ideal solution would be a global progressive tax on individual net worth. Those who are just getting started would pay little, while those who have billions would pay a lot. This would keep inequality under control and make it easier to climb the ladder. And it would put global wealth dynamics under public scrutiny. The lack of financial transparency and reliable wealth statistics is one of the main challenges for modern democracies.
Clive Crook surveys reaction to the book:
Martin Wolf of the Financial Times calls it “extraordinarily important.” Paul Krugman, writing in the New York Review of Books, says it’s “truly superb” and “awesome.” Branko Milanovic, a noted authority on global income disparities, calls it “one of the watershed books in economic thinking.” Even John Cassidy, in a relatively balanced appraisal for the New Yorker, says “Piketty has written a book that nobody interested in a defining issue of our era can afford to ignore.”
But Crook isn’t onboard:
This book wants you to worry about low growth in the coming decades not because that would mean a slower rise in living standards, but because it might cause the ratio of capital to output to rise, which would worsen inequality. In the frame of this book, the two world wars struck blows for social justice because they interrupted the aggrandizement of capital. We can’t expect to be so lucky again. The capitalist who squanders his fortune is a better friend to labor than the one who lives modestly and reinvests his surplus. In Piketty’s view of the world, where inequality is all that counts, capital accumulation is almost a sin in its own right.
Douthat is also critical of the book:
[A]s the Manhattan Institute’s Scott Winship has pointed out, Piketty’s data seems to understate the income gains enjoyed by most Americans over the last two generations.
These gains have not been as impressive as during the post-World War II years, but they do exist: For now, even as the rich have gotten much, much richer, the 99 percent have shared in growing prosperity in real, measurable ways. Winship’s point raises the possibility that even if Piketty’s broad projections are correct, the future he envisions might be much more stable and sustainable than many on the left tend to assume. Even if the income and wealth distributions look more Victorian, that is, the 99 percent may still be doing well enough to be wary of any political movement that seems too radical, too utopian, too inclined to rock the boat.
Robert J. Samuelson adds to the objections:
[Piketty’s] economic analysis sometimes seems skewed to fit his political agenda. Take his tax increases [roughly 80 percent on incomes above $500,000 or $1 million]. He doubts that they would hurt economic growth. This seems questionable. Incentives must matter, at least slightly. Or consider his predicted slowdown in the world economy. This seems possible, but if it happens, capital owners would likely suffer lower returns. As for the power of the super-rich, they hardly control most democracies. In the United States, where about 70 percent of federal spending goes to the poor and middle class, the richest 1 percent pay nearly a quarter of federal taxes.
Cowen piles on:
Overall, the main argument [of the book] is based on two (false) claims. First, that capital returns will be high and non-diminishing, relative to other factors, and sufficiently certain to support the r > g story [where wealth (r) is greater than the rate of growth (g)] as a dominant account of economic history looking forward. Second, that this can happen without significant increases in real wages.
Still, it is a very important book and you should read and study it! But I’m not convinced by the main arguments, and the positive reviews I have read worsen rather than alleviate my anxieties.
Cowen elaborates on those anxieties in Foreign Affairs. Related Dish on confiscatory taxes here.
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