By Marc Jampole
The past few
days, OpEdge has been printing excerpts from the article I wrote on Thomas
Piketty’ Capitalism in the 21st Century,
which appeared in the most recent Jewish Currents.
This final
excerpt from the article discusses my criticism of Piketty’s postulation of
r>g as a natural law that over time tends to create ever greater inequality
in capitalist economies.
While Capitalism in the 21st Century is a delight to read and has many important insights, it is not without its
faults. For one thing, Piketty says that r>g is a natural law, meaning it is
not a theoretical construct but a law that describes an inevitable economic
process.
There are two problems with this
assertion. For one thing, Piketty’s history begins only in 1800; the obvious
question is whether his rule applies before the Industrial Revolution. Is it
possible that social breakdowns such as the French Revolution, the fall of the
Tang and Song dynasties, and the decline of the Roman Empire came about because
the rich had finally taken too much from the economy, i.e., r>g
produced such a great disparity of wealth that the economy fell apart or people
rebelled? Did catastrophic events such as the Black Plague or the Little Ice
Age of the 17th century create instant resets that ameliorated wealth inequality?
Barbara Tuchman reports in A Distant Mirror that after the Black
Plague, the price of labor in Europe soared to a record high (still not
surpassed in world history) because of a shortage of workers. All of this
predates Piketty’s history and goes undiscussed.
A more significant flaw in Piketty’s
postulation of a natural law is that it attributes growing inequality to blind
forces inherent in capitalism and market economies. But the increase in
inequality between 1970 and the present day ensued as a direct result of
specific actions by groups of human beings. These actions included: shifting
the tax burden away from the wealthy and placing it on the poor and middle
class; union-busting policies by governments; allowing the minimum wage to lag
behind inflation; privatization of government services and wealth throughout
most of the world; lowering taxes while cutting government spending on
education, retirement and social-welfare programs; and funding wars not through
taxation, but through debt held primarily by the wealthy.
Real people — most of them in the pay
of the wealthy and corporations — enacted these policies. They were not the
result of some natural force, except the natural tendency of humans to think
only of their own short-term interests and not in the long-term interests of
the community.
Most quibbles about Capitalism in the Twenty-First Century are criticisms of Piketty’s unrealistic
solution for reversing the trend to ever-greater inequality of wealth and
income throughout the world. He proposes a worldwide annual tax on extreme
wealth by all governments, plus a very steep, progressive worldwide income tax
on top of current income taxes. Based on his analysis of past income tax rates,
Piketty proposes that we could implement a marginal rate of 70 percent on
income above $500,000 or a $1 million. The government would transfer this
wealth back to the poor and middle class with government programs. Piketty says
that unless all nations of the world agree to these taxes, the wealthy will
transfer their income and wealth to those that don’t agree to the plan. It is,
however, pie-in-the-sky thinking to imagine that all the countries in the world
will get together and suddenly decide to play Robin Hood.
It might be more realistic to take
the same kind of gradualist approach that the wealthy have taken since the
mid-1970s to take a greater share of the wealth-and-income pie. The 90 percent
could grab back a little at a time by gradually changing policies in the
industrialized world. For example, former Secretary of Labor Robert Reich
proposed ten incremental changes we can make in the United States in a recent
article by Robert Reich in The Nation (“10 Practical Steps to Reverse Growing
Inequality”), including raising the minimum wage to $15 an hour, unionizing
low-wage workers, making the tax on Social Security and Medicare progressive,
raising the estate tax, and eliminating big money from politics.
I also believe Piketty is wrong to
view the diminishment of economic inequality as a primary goal of society, as
wrong as those who propose freedom from government regulation as a goal. To my
mind, we would be far better off if we instead based the constraints we put on
the “free market” on the idea that all human beings deserve a minimum standard
of living, which includes free health care and education, a living wage, a safe
work place, an unpolluted environment, and a comfortable retirement.
Certainly, ensuring that we all enjoy
these economic basics will require us to raise taxes on the wealthy. Where else
will we get the funds to do it? But to hold shrinking inequality as a goal in
and of itself doesn’t directly address the myriad problems we face. Martin
Feldstein is right in his criticism of Capitalism in the Twenty-First Century
when he says that the problem is not inequality but the persistence of poverty.
Of course, as a defender of the interests of the ultra-wealthy, the solutions
that Feldstein proposes will only lead to greater wealth and income inequality.
As I write in the article, Capitalism in the Twenty-First Century is a formative and groundbreaking work
that will be studied and cited by economists and will direct the political
discourse in democratic countries for decades to come. I highly recommend to all readers.
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