‘Karl Marx wasn’t wrong, just early. Pretty much. Sorry, capitalism. #inequalityforevah”
When trying to condense a sweeping, 700-page analysis of the past, present, and possible future of capitalism into an 85-character tweet, you’re bound to miss a few things. But the above Twitter-fication of economist Thomas Piketty’s much-awaited Capital in the Twenty-First Century captures the gist of the author’s argument.
Piketty thinks the German progenitor of Communism basically got it right. It’s only that his essential insight — private capital accumulation inevitably leads to the concentration of wealth into ever-fewer hands — took a hiatus during the middle part of the last century thanks to depression and war hurting the fortunes of the well-to-do. But now Marxism’s fundamental truth is reasserting itself with a vengeance, a reality borne out in both Piketty’s own meticulously gathered data and in business pages replete with stories of skyrocketing wealth for the 0.001 percent and decades of flat wages for everyone else.
And it’s only going to get worse, Piketty concludes. Sure, the productive and innovative capacity of market capitalism will generate enough income growth for the masses to prevent revolution. He concedes Marx got that bit of apocalypticism wrong. But an “endless inegalitarian spiral” will create such wealth bifurcation that “the meritocratic values on which democratic societies are based” will be undermined. The political process will be hopelessly captured by a tiny elite of rent seekers and trust-fund kids. America (and then the other advanced economies) will become what Occupy Wall Street types and Elizabeth Warren think it already is.
Piketty, a left-wing Frenchman who teaches at the Paris School of Economics, is hardly the only economist arguing inequality is headed inexorably higher. Tyler Cowen, a center-right economist and New York Times columnist, contends accelerating technological change will create an America where nearly all of us have stagnant incomes and serve as valets and massage therapists to the STEM-savvy and wealthy geek-ocracy.
Piketty is making a different and broader argument, one that intentionally rises to the level of grand theory: Embedded within the very fabric of capitalism is a powerful force pushing in the direction of rising inequality. The income generated from owning capital (everything from real estate to financial assets to intellectual property) tends to exceed the rate of economic growth. And when wealth grows faster than output — as it did in the 19th century when Marx was writing and as Piketty forecasts it will again in the 21st — inequality moves toward extreme levels since income from capital is outpacing wages from labor. When capital income gets reinvested, inherited wealth also grows faster than the economy. Even worse, from Piketty’s perspective: Not only will capital owners take more and more of national income, but more and more of labor income will go to a small group of “supermanagers” who rig the executive pay system in their favor.
“Will the world of 2050 or 2100,” Piketty asks, “be owned by traders, top managers, and the superrich, or will it belong to the oil producing countries or the Bank of China?” Actually, the answer doesn’t much matter. Whatever the exact makeup of this global plutocracy, democratic capitalism will be replaced by something more like Putin’s or Xi’s cronyist authoritarianism — unless populist progressive forces can implement a global wealth tax ASAP. And if that can’t happen right away, 80 percent top income-tax rates would be a solid first step.
Two observations: First, Piketty’s case, though well argued, is far from airtight. He makes a number of contestable assumptions, including a) output will grow more slowly than the return on capital, b) the return on capital will stay high despite slower growth, and c) skyrocketing corporate pay doesn’t much reflect how technology and globalization have enabled top executives to manage or perform on a larger scale.
Second, Piketty and fellow French economist and University of California, Berkeley, inequality researcher Emmanuel Saez are arguably the most important public intellectuals in the world today. Their research is driving the economic agenda pushed by Washington Democrats and promoted by the mainstream media. The soft Marxism in Capital, if unchallenged, will spread among the clerisy and reshape the political economic landscape on which all future policy battles will be waged. We’ve seen this movie before.
John Maynard Keynes and Friedrich Hayek famously squared off in the 1930s, Left versus Right. But when Keynes published his revolutionary General Theory in 1936, Hayek went silent. It was a de facto retreat that helped give free rein to anti-market forces — even if that was not what Keynes intended — for decades until Milton Friedman and Anna Schwartz wrote A Monetary History of the United States in 1963 and energized the intellectual fight against statism. Who will make the intellectual case for economic freedom today?
— James Pethokoukis, a columnist, blogs for the American Enterprise Institute.