Inequality and the Fate of Capitalism
From the May 19, 2014, issue of NR

(Thomas Reis)



Thomas Piketty topped the charts in America just shy of 150 years from the publication of volume 1 of Das Kapital.

Karl Marx would have scoffed at the possibility that by the turn of the 21st-century capitalism would produce a society in which books and products of every variety would be available to people of any income almost instantaneously. He predicted that wealth would accumulate and accrue to a shrinking number of people over time, to the point where inequality would destroy capitalism. Now comes Piketty, in a weighty tome titled to evoke Kapital, to warn that the “Marxist principle of infinite accumulation” may not have been completely wrong after all. Levels of wealth concentration today and in the future will not lead to socialism. But they could nevertheless become “socially destabilizing,” he argues, as capitalism in the context of slow growth could lead the wealthy to “ultimately devour all of national income.”

The reception that Piketty’s book, Capital in the Twenty-First Century, has received in the U.S. speaks to the irrational obsession with inequality that has gripped the American Left. A recent New York Times analysis showed that the buzz around the book has come mostly from rich liberal states along the Boston-to-Washington corridor. By contrast, Americans as a whole, in recent polling by the Pew Research Center, ranked inequality third in importance out of four fundamental economic issues, way behind unemployment but also significantly behind the national debt (and ahead only of inflation, which has been at fairly typical levels).

To read the fawning reviews by liberal researchers and journalists, one could be forgiven for thinking Piketty had written a book irrefutably demonstrating that inequality really is, in President Obama’s words, “the defining challenge of our time.” But he has done no such thing.

Capital in the Twenty-First Century describes a past and present that concern the Left, and sketches out a beyond-iffy worst-case scenario for the future that makes progressives tremble with some combination of fear and thrill. It is an important book, but missing from its 700 pages is a serious argument about when and why inequality should be worrisome. Piketty’s wealth- and income-concentration trends are problematic as indicators of rising inequality. And the apocalyptic future Piketty paints as “possible” is an almost laughably rough guess that is the social-science equivalent of the direst scenarios envisioned by climate-change doomsayers.

The bulk of Capital in the Twenty-First Century is devoted to describing and explaining very long-run trends in wealth and income. These estimates were mostly developed by Piketty and his colleagues during the past 15 years and represent an invaluable contribution to the economics profession. Piketty’s discussion of these trends is invariably informative and thought-provoking, even if he often worries about them without much in the way of justification. Scattered throughout are wonky-but-accessible diversions into measurement issues and economic controversies related to labor, taxation, and inequality. You will learn a lot from this book.

But you will also be prodded to believe that capitalism may very well be doomed unless we rein in inequality. This is the thesis in service of which Piketty marshals his impressive data. And, of course, it is why the book has been so heartily embraced by the Left.

Before getting to the details of Capital’s argument, let’s address the Marxism issue. Is Piketty some flavor of Marxist? Paul Krugman and others have mocked conservatives for suggesting it. Piketty is pretty far to the left by American standards: In the book, he advocates a tax rate of 80 percent for income above $500,000. He also advised French presidential candidate Ségolène Royale in 2007, when Royale was the nominee of the French Socialist party. One cannot help but sense some nostalgia in his writing for the severe interventions in the economy, including the nationalization of assets, undertaken by a number of countries during and after World War II. In one passage he describes a debate between socialist and “bourgeois” economists. And Piketty really does believe that Marx may prove prescient in predicting that, unchecked, wealth accumulation will be radically disruptive to capitalism. “Where there is no structural growth,” he writes, and “productivity and population growth . . . is zero,”

capitalists do indeed dig their own grave: either they tear each other apart in a desperate attempt to combat the falling rate of profit . . . or they force labor to accept a smaller and smaller share of national income, which ultimately leads to a proletarian revolution and general expropriation. In any event, capital is undermined by its internal contradictions.

Piketty does not share Marxists’ desire to heighten the contradictions of capitalism so that we can arrive at socialism, but he shares Marx’s hubristic suspicion that capitalism is a threat to itself rather than an engine for broadly shared prosperity through mutual exchange. In this, he is firmly of a piece with the American Left.