Thomas Piketty is a rock-star economist — can he re-write the American dream?
When the movie
is made about the fall of Western capitalism, Thomas Piketty will be
played by Colin Firth. Piketty, whom the Financial Times called a
“rock-star economist”, isn’t a household name — but he should be, and he
has a better shot than any other economist. He is the author and
researcher behind a 700-page economic manifesto, titled Capital in the
21st Century, that details the path of income inequality over several
hundred years.
This sublime nerdishness is,
somehow, a huge hit. It is now No 1 on Amazon’s bestseller list and sold
out in many bookstores. When Piketty spoke on a panel this month at New
York’s CUNY with three other economists — two of them Nobel-prize
winners, Joseph Stiglitz and Paul Krugman — the Frenchman was the
headliner. The event was so packed that the organizers had to create
three overflow rooms. Weeks after the release of Capital, intellectuals
are still salivating, even calling Piketty the new de Tocqueville.
This
is quite a burst of stardom for a man who, despite his understated
Gallic charm, is very much the bearer of bad news. Piketty’s sublimely
nerdy book, packed with graphs, statistics and history, is all evidence
for an immensely depressing theory: that the meritocracy of capitalism
is a big, fat lie.
Piketty’s research, which
is immaculate, reaches back hundreds of years to establish a simple
thesis: the American dream — and more broadly, the egalitarian promise
of Western-style capitalism — does not, and maybe cannot, deliver on its
promises. That, he writes, is because economic growth will always be
smaller than the profits from any money that is invested. Economic
growth is what we all benefit from, but profits from invested money
accrue only to the rich.
The consequences of
this are clear: those who have family fortunes are the winners, and
everyone else doesn’t have much of a shot of being wealthy unless they
marry into or inherit money. It’s Jane Austen all over again, and we’ve
just fooled ourselves that the complicated financial system has changed a
thing.
This is a deep point. Many American
households, if they are lucky, will grow their wealth at the same rate
as the economy. But, because the wealthy are growing their fortunes at a
much faster rate, no one else can ever catch up.
Let’s repeat that: no one else can ever catch up.
This
is where Piketty adds more nuance: it’s not just inequality of wealth
and income that we’re struggling with, but inequality of opportunity.
That’s of far more concern. In essence, he is saying, we’re lying to
ourselves if we believe that hard work will lead to wealth. Mainly,
wealth reliably leads to wealth. Everything else is chancy. The middle
class is playing the economic lottery to improve their lot in life,
while the wealthy have a sure thing.
This is clearly fraught — and to some, like the New York Times columnist
David Brooks, it sounds like class war (he calls it “angry
progressivism”). Piketty’s purpose is not to point out that inequality
exists, or that it’s growing — both of which have been established ad
nauseum by everyone from President Obama to Pope Francis. Piketty’s
point is that we are actually doomed to inequality.
It’s
hard to argue with this, really — Piketty’s research is too good, too
sprawling, too complete. It’s as good as fact. It codifies what many
suspected. Piketty’s point is accepted wisdom in most of Europe, where,
in France and Germany, the morality of capitalism is regularly
questioned.
But there remains a lot of
controversy anyway. Why? Because Piketty wants to change the lever on
income inequality by putting a tax on wealth — not on income, which is
the stuff of the middle class, but on fortunes themselves, on the money
that is invested and reinvested and compounded and grown....
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