French economist Thomas Piketty's new book, "Capital in the Twenty-First Century," is not only No. 1 on Amazon.com, but is stirring up controversy like few economists ever have.
Just looking at the headlines about Thomas Picketty shows that something is up. The Wall Street Journal says he "Revives Marx." The New York Times calls him a "Rock Star." MarketWatch says he is a "policy challenge." Salon calls him "The right's new public enemy No. 1" who has "conservatives terrified." Time says Piketty's best-selling book, "Capital in the Twenty-First Century" is "Freaking Out the Super Wealthy." Mediapart, a French newspaper, says, "C'est un bulldozer." It is a bulldozer. (Who knew that French for "bulldozer" was "bulldozer?") Bloomberg, tongue-in-an-ironic-cheek, calls his tome "The Most Important Book Ever." Then Bloomberg adds how the book "Is All Wrong." Wealth gap What Piketty has done, according to the official book description on Amazon, is look at the growing economic inequality and concentration of wealth. He examines data from the 1700s and forward and finds social and economic patterns that he says show what is at fault. Modern economics has stopped the nightmare inequality predictions of Karl Marx, but the inherent structures of capitalism are still going to produce huge inequality - and have today. "The main driver of inequality - the tendency of returns on capital to exceed the rate of economic growth - today threatens to generate extreme inequalities that stir discontent and undermine democratic values," the book description says. In other words, capital (investments and the ability to invest) usually grows faster than economic growth, and since the rich are the ones with the most wealth to invest, they will get richer and richer. "But economic trends are not acts of God. Political action has curbed dangerous inequalities in the past, Piketty says, and may do so again." Or, as Thomas B. Edsall in the New York Times puts it, "worsening inequality is an inevitable outcome of free market capitalism." Capitalism always leads to inequality. Edsall also summarizes Piketty's next conclusion: "(Piketty) contends that capitalism's inherent dynamic propels powerful forces that threaten democratic societies." How does capitalism threaten democracy? Entrepreneurs, who own the businesses (i.e. control capital), dominate those who only own their own labor (workers). Edsall then quotes Piketty: " 'When pay setters set their own pay, there's no limit,' unless 'confiscatory tax rates' are imposed." Or, in other words, the rich will make sure they get all the money unless the government stops them. Piketty says, according to Edsall, a "global wealth tax" is a solution. Liberal love As Jordan Weissmann writes in Slate, Piketty has "handed liberals a coherent framework that justifies the discomfort that they probably already felt about the wealth gap." Piketty doesn't focus on income but on wealth, Weissmann says. It isn't about what people make, but about how much they own. The wealthy are not getting rich from their work or talent, but from their wealth, Weissmann says. "And just as the ruthless robber barons of the late 19th century gave way to F. Scott Fitzgerald's boozing heirs and heiresses, today's CEOs and hedge fund managers will give way to a generation of children who simply won the birth lottery," Weissmann explains. "Conservatives have long had an easy framework for their economic ideas: The free market cures all. Liberals, instead of nebulously arguing that they're fighting for the middle class, now have a touchstone that clearly argues they're fighting against the otherwise inevitable rise of the Hiltons." Rana Foroohar at Time says the book is doing well because "it proves, irrefutably and clearly, what we've all suspected for some time now - the rich ARE getting richer compared to everyone else, and their wealth isn't trickling down. In fact, it's trickling up." Foroohar also says that "one of Piketty's biggest messages (is) inequality will slowly but surely undermine the population's faith in the system." Conservative non-love Carrie Sheffield contributed an article at Forbes about how Piketty is giving short shrift to "the stratospheric rise in global quality of life wrought by capitalism." She says his book also "lacks sufficient analysis of equality of consumption." In other words, what is the quality of life people experience at different levels of income? Sheffield also points to an analysis by Washington University professor Mark Rank that shows the top 1 percent (and top 5 percent, top 10 percent and top 20 percent) isn't static. People move in and out of it. "It turns out that 12 percent of the population will find themselves in the top 1 percent of the income distribution for at least one year," Rank writes. "What's more, 39 percent of Americans will spend a year in the top 5 percent of the income distribution, 56 percent will find themselves in the top 10 percent and a whopping 73 percent will spend a year in the top 20 percent of the income distribution." Clive Crook at BloombergView says the "rapturous reception" of Piketty's book shows that it "meets a need." After praising Piketty's ambition and work, Crook says there is almost schizophrenia in how Piketty reaches his conclusions: "In introducing each set of data, he's all caution and modesty, as he should be, because measurement problems arise at every stage. Almost in the next paragraph, he states a conclusion that goes beyond what the data would support even if it were unimpeachable." Crook looks at claims about what will happen when the rate of return on capital is greater than the rate of economic growth, but doesn't find that the historical data backs Piketty's conclusions. Crook says Piketty's book "invites readers to believe not just that inequality is important but that nothing else matters. ... 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." Daniel Shuchman at the Wall Street Journal takes a shot at Piketty's own wealth accumulation: "But (Piketty) believes that no CEO could ever justify his or her pay based on performance. He doesn't say whether any occupation - athletes? physicians? economics professors who sell zero-marginal-cost e-books for $21.99 a copy? - is entitled to higher earnings because he does not wish to 'indulge in constructing a moral hierarchy of wealth.' " Shuchman also explains Piketty's solutions to inequality: "Mr. Piketty urges an 80 percent tax rate on incomes starting at '$500,000 or $1 million.' ... He does not expect such a tax to bring in much revenue, because its purpose is simply 'to put an end to such incomes.' It will also be necessary to impose a 50 percent - 60 percent tax rate on incomes as low as $200,000 to develop 'the meager US social state.' There must be an annual wealth tax as high as 10 percent on the largest fortunes and a one-time assessment as high as 20 percent on much lower levels of existing wealth. He breezily assures us that none of this would reduce economic growth, productivity, entrepreneurship or innovation." Lynn Stuart Parramore at Salon says the criticism comes from fear: "Piketty is scaring the right because he is a serious researcher and a calm, disciplined observer who writes in measured tones. But for conservatives who have based the last several decades of economic discussion on mythology, this dose of reality has come at them like a chilling blast of Arctic air. Let them have their hysteria. It's a testimony to the utter bankruptcy of their ideas. Memo to liberals and progressives: making Piketty into a rock star isn't helping, either. Let's let the facts speak for themselves."%3Cimg%20src%3D%22http%3A//beacon.deseretconnect.com/beacon.gif%3Fcid%3D165032%26pid%3D46%22%20/%3E