The New Yorker magazine had a description of the crowd waiting to hear Thomas Picketty speak at the City University of New York (CUNY) Graduate Center. Three Nobel laureates, Paul Krugman, Edmund Phelps and Joseph Stiglitz were part of the welcoming party, although nobody seemed to know how to pronounce the speaker’s name. Downstairs a capacity crowd of tenured academics were waiting patiently while the overflow of adjuncts and teaching assistants stood outside the door waiting for a glimpse of the great man. Okay, that’s exaggerated, but it was a remarkable turn-out for the author of a book that was published by a university press (Harvard), then became such a hot item that it was was back-ordered at Amazon, and expects to sell over 200,000 copies (NB – for anybody seriously planning to read the book, an e-book version is available. The shipping weight of the hardcover edition is 2.6 pounds. This is not a light read.)
Prof. Piketty’s book, Capital in the Twenty-First Century, has been a phenomenon. Prof. Stiglitz got to the subject of inequality first, it was the subject of his Ph.D. thesis in 1967, and of his own book on the subject, The Price of Inequality: How Today’s Divided Society Endangers Our Future, (shipping weight 1.7 pounds), but Prof. Piketty was getting the rock star treatment. Some of that may be due to Prof. Krugman’s rave review. “... Piketty has written a truly superb book. It’s a work that melds grand historical sweep — when was the last time you heard an economist invoke Jane Austen and Balzac? — with painstaking data analysis. And even though Piketty mocks the economics profession for its ‘childish passion for mathematics,’ underlying his discussion is a tour de force of economic modeling, an approach that integrates the analysis of economic growth with that of the distribution of income and wealth. This is a book that will change both the way we think about society and the way we do economics.”
Timing is everything. Prof. Stiglitz sometimes seemed like a voice in the wilderness trying to drum up interest in the problem of inequality, and Prof. Piketty came along at just the right time to take advantage of the growing interest.
Probably the most important aspect of Prof. Piketty’s work will be in the area of economic research. Traditionally studies were based on surveys, but by their nature members of the 0.01% are under-represented in surveys. By using tax data Prof. Piketty was better able to delve into the economic behavior of the oligarchy. The second most important result of his work is creating jobs for economists writing reviews and critiques of Piketty’s book. First there were the reviews, then the replies and the re-replies and the meta-replies. Carlos Lozada of the Washington Post wrote “How to write a Thomas Piketty think piece, in 10 easy steps.” His best was “4. Piketty uses lots of literary references. Say that in a way that shows you’re obviously familiar with them.” Unfortunately the most relevant list item is “8. Piketty calls for an international tax on wealth. Say it’s never going to happen.” One of the best responses, assuming it’s tongue in cheek, was from Tyler Cowen in Foreign Affairs magazine, where he suggests that we should appreciate the filthy rich because, free from the need to make a living, they can produce great art. He then gives a list of major artists who were supported by their families. It makes you wonder what Shakespear could have accomplished if he hadn’t had to write for a living.
What we’ll take away from the book is simply r > G which means the return on capital is greater than the growth of the economy, as long as you’re not talking about FDIC-insured bank deposits. It’s true that this is mostly seen in Europe where inherited wealth exceeds even the income of (most) hedge fund managers, while in the US the inflated compensation packages still edge out inheritances, but hedge fund managers and Fortune 500 CEOs have children, and in just a few years we’ll have moved from any possible claim to being a meritocracy to patrimonial capitalism, where wealth = power.
This has been exacerbated by the Bush tax cuts and the efforts to eliminate the inheritance tax. They spoke about family businesses, like family farms and third generation delis, but behind the curtain were the Koch brothers and the Walton heirs. This is what Prof. Stiglitz has been warning us against, and Prof. Pikkety has documented.
It might be okay if it were only money – there are honestly benefits to having people support things that aren’t essential. Ruth Lilly left a fortune to the Poetry Foundation, which is good, because much as we need the National Endowments for the Arts and Humanities, they need more funding than we can justify from taxes.
But when the inequality of income and wealth, with help from the Roberts court, translates into political control, the principles of democracy are at risk.
Sam Uretsky is a writer and pharmacist living on Long Island, N.Y. Email sdu01@ outlook.com.
From The Progressive Populist, June 1, 2014
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