Not many academic economists publish massive statistical analyses that become best-sellers. That’s what happened with Thomas Piketty’s tome, “Capital in the 21st Century,” which argued persuasively that the current extreme levels of inequality in Europe and the United States are not necessary characteristics in the economy and are actually detrimental to it.
Piketty’s recent sequel, “Capital and Ideology,” may not do as well, although it is fascinating in its approach. Piketty measures inequality in Western and other societies through history and shows how our current governing ideology — the sanctity of private property, whether tangible (like land and buildings) or intangible (like stocks and bank accounts) — is no more rational or efficient than the medieval ideology it replaced.
Pre-industrial societies in Europe and India justified the division of society into broad classes (roughly divided into clerics, warriors and laborers) by portraying each class as essential, but with different roles. Piketty shows that these societies were actually less unequal economically than the industrial capitalism that replaced them. The ideology of private property supported not only the increasingly unequal class structure of industrializing countries, but also the brutality of colonial and slave societies. Slave colonies like Jamaica and Haiti were probably the most unequal societies the world has ever known.
However, Piketty treats ideology as a determining factor without proving this assumption. Furthermore, he makes a major point of showing how our ideology regarding private property has changed with the institution of sharply progressive income and inheritance taxes in the 20th century, but doesn’t explain how that happened. With this change, private property was limited to the degree that it impeded economic recovery. At the same time, taxing high levels of wealth and income significantly reduced inequality and social conflict.
Piketty’s assessment of inequality must be taken with a grain of salt. While progressive taxation had reduced inequality by the 1960s, Europe and the United States had by no means become egalitarian. In the past hundred years, the share of national income going to the wealthiest 10 percent of households in the United States fell from 50 percent to 34 percent by 1970, and has since climbed back to almost the same level. Their share of wealth fell from 85 percent to about 62 percent and has since risen to 73 percent.
This degree of change was enough to create what is often called the “middle class,” an educated “elite” that is somewhat distinct from the class of wealthy capitalists. As this happened, the left-leaning parties (such as Labor in Britain, Socialists in France and Democrats in the U.S.) started ignoring the less-educated part of their base and pitching their politics to the educated middle class. This in turn meant that politics became divided between two elites rather than (at least to some extent) reflecting the division between rich and poor. Reducing inequality was taken off the table. According to Piketty, this flipped our political discourse from a class-based politics to an identity-based one – and with this, he specifically means the rise of white identity politics (or white nationalism) as a common phenomenon across Europe and in the United States.
Piketty hits a nerve with his suggestion that the Democratic Party has abandoned much of its original New Deal constituency for an “educated elite” (though there have always been plenty of wealthy capitalists in that party), and that in turn has contributed to the mess we find ourselves in. He has a clear policy solution: restore and expand progressive taxation and use it to reduce inequality (and in the process put class back into politics) and make inherited wealth temporary by ensuring it gets circulated back into society at large.
It’s less clear who he expects to do this. The move toward austerity and cutting social programs (generally known as neo-liberalism) was pushed by the wealthy in both parties in the United States, and they had their way because economic power in our system translates into political power. Is Piketty hoping to convince the wealthy that it’s in their interests to give up some of their wealth and power in order to ensure the smooth functioning of the system? Or does he hope that political leaders of at least one party will be able to act independently of their donors to push a new and better “New Deal”? Neither seems likely.
Of course, a new mass movement for economic equality could convince our elites to go for a solution like this. Yet such a movement is unlikely to be satisfied with leaving capitalism in place while reducing inequality by a few percentage points, even if that makes the system work better. In fact, it was the rising expectations and social demands in the 1960s (when inequality approached its low point) that ignited the conservative reaction we’re living with today.
Piketty has done fascinating work here. But one could as easily conclude from his analysis that capitalism inherently leads to severe inequality and that attempts to restrain it are, if not futile, at least likely to fail over the long term. His recommendations for a more democratic and less unequal economy, while commendable, seem to lack any grounding in current politics or in possible movements for change.
Read more in the Oct. 14-20, 2020 issue.