WID 2018 World Inequality Report
politizane 2012 Infographics on the distribution of wealth in America, highlighting both the inequality and the difference between our perception of inequality and the actual numbers.
gm/caw 2020 Analysing economists’ confabulations and excuses for their collective failure to see the 2007 crisis coming, David Orrell concludes: “Rather than helping economists see into the future , their models were preventing them from noticing what was going on outside their windows.”
Failing to pay attention to the obvious is arguably the equilibrium mainstream’s forte. Like money, that neutral veil …
Inequality is another poignant case in point. For most outside the mainstream silo it has been glaringly obvious that inequality has steadily increased since the 1980’s. To believe the trickle down fairy tales of rising tides lifting all boats was hard even in the euphoric early days of easy credit and market liberalisation. London Yuppies had to navigate cardboard city on their commute and the dramas of de-industrialisation were lost on noone.
As Jonathan Aldred puts it in a Guardian article summarising h : “The economic arguments adopted by Britain and the US in the 1980s led to vastly increased inequality – and gave the false impression that this outcome was not only inevitable, but good.” More read the article here
And Robert H. Wade reminds us that “Mainstream economists have tended to emphasise the need for inequality as a source of incentives for effort and creativity, from which the whole society benefits; and to agree that higher taxes on the rich and increased aid to the poor are likely to hurt economic growth.” read the article here (excerpts below)
When in 2014 Thomas Picketty shocked the mainstream with his book “Capital” becoming a bestseller, The Economist couldn’t quite disguise it’s irritation: “Inequality has suddenly become a fevered topic, especially in America. Having for years dismissed the gaps between the haves and have-nots as a European obsession, Americans, stung by the excesses of Wall Street, are suddenly talking about the rich and redistribution.”
Whilst The FT’s Martin Wolf praised Picketty’s “Capital” as “an extraordinarily important book”, Chris Giles dismissed Piketty’s main conclusions. Errors and data problems “seem to undermine his conclusion that wealth inequality is rising in the US and Europe …. (and) … his thesis that capitalism has a natural tendency for wealth to become ever more concentrated in the hands of the rich.” It took Harvard economist Branco Milanovic to show how the FT ignored its own coverage of indicators of income and wealth concentration and did not make allowances for several changes in the methodology used to measure wealth distribution.
Dutifully reporting the nitpicking criticisms of “renowned scholars”, The Economist opined : “Mr Piketty’s expectation of rising wealth concentration is not outlandish. However, it is a prediction based on extrapolating from the past, not an inherent model of capitalism. … (He) assumes that the returns to capital will not fall substantially even as the stock of wealth rises. That may prove to be true, but the Piketty prediction is a hypothesis, not an iron law.”
The idea that extrapolating from the past may be marginally more empirical, let alone scientific, than scholarly deductions from an assumptive equilibrium model is obviously lost on this economist.
“Many economists,” Picketty says in a recent article about his latest “Capital and Ideology”, “pretend to have developed a science that is so scientific that nobody else can understand. Of course, this is a big joke. In the US, people in economics departments feel they are smarter than everybody else in the world, which after two years at MIT I thought was not particularly convincing. I felt: if I stay there I will just become like them. I don’t want to be mean, but I think we know very little in economics, in the social sciences. The best we can do is try to collect some historical data and try to interpret them.”
No wonder The Economist was worried. “If Mr Piketty does set the tone of debate on inequality, the world will be the poorer for it. For like its 19th-century namesake, “Capital” contains some marvellous scholarship, but as a guide to action, is deeply flawed. … Mr Piketty asserts rather than explains why tempering wealth concentration should be the priority …. Mr Piketty’s focus on soaking the rich smacks of socialist ideology, not scholarship. That may explain why “Capital” is a bestseller. But it is a poor blueprint for action.” read the whole 2014 Economist article here
This is how the mainstream identifies itself: it can afford to be in denial of its own “free trade ideology“ because it is an integral part of the dominant narrative.
Mind you that was in 2014.
Now The Economist opines that “Higher taxes, tried a little in the wake of the financial crisis, could be targeted more precisely to reduce inequality—much as they were in some countries after the second world war. Wealth taxes, as favoured by Keynes back then and increasingly discussed by academics and left-wing politicians today, could find that their time had come.” read whole 2020 Economist article here
The FT’s Simon Kuper thought so even before the war-like shock of Covid19. The non economist also understands that Picketty is not proposing some iron law formula but demonstrating that “inequality is a choice societies make, not an inevitability.”
Picketty “… proposes wealth taxes of 90 per cent on billionaires”, Kuper writes. “From the proceeds, a country such as France could give each citizen a trust fund worth about €120,000 at age 25. Very high tax rates, he notes, didn’t impede fast growth in the 1950-80 period. Warren (advised by economists who work with Piketty) is proposing annual taxes of 2 per cent on household fortunes over $50m, and 3 per cent on billionaires. She projects that this would affect 75,000 households, and yield revenues of $2.75tn over 10 years. Polls suggest most Americans like the idea. Paradoxically, the plutocratic US may be ideal terrain for a wealth tax. Mark Stabile, economist at Insead, points out that, first, rich Americans now have so much wealth that even if Warren captures just a small proportion, it could add up to a lot; second, Americans are taxed on their passports, so moving wealth abroad won’t save them (and Warren would slap hefty exit taxes on anyone giving up citizenship); last, thanks to SwissLeaks and the Panama Papers, we’ve learnt a lot about how the rich hide money. Advocates of inequality will come up with the usual justifications. But now is the redistributionists’ best chance.” read whole article here
To paraphrase Keynes: people who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of the defunct distillations of the latest mainstream frenzy.
“Once inequality increases, it can be self-perpetuating, as attitudes evolve to accommodate and justify it. … An initial impetus coming from economists … followed by a vicious circle in which inequality begets further inequality. As the top 1 per cent grow richer they have both more incentive and more ability to enrich themselves further. Their success in doing so begins the cycle all over again.
But the biggest increase in inequality has come from this process playing out in another arena: tax. High earners have most to gain from income tax cuts and more spare cash to lobby politicians for these cuts. Once tax cuts are secured, high earners have an even stronger incentive to seek pay rises because they keep a greater proportion of after-tax pay. And so on. …
The popular presumption that income tax cuts must lead to more work and productive economic activity turns out to have little basis in either common sense or economic theory. … It is often assumed that if the top 1 per cent are incentivized by income tax cuts to earn more, those higher earnings reflect an increase in productive economic activity. In other words, the pie gets bigger.
But some economists (including the influential Thomas Piketty) have shown this is not true for CEOs and other top corporate managers following the tax cuts in the 1980s. Instead, they essentially funded their own pay rises by paying shareholders less … (i.e.) the rich redistributing the pie rather than making it bigger
The income tax cuts for the rich over the past forty years were originally justified by economic arguments: Laffer’s rhetoric was seized upon by politicians. But to economists his ideas were both familiar and trivial. Modern economics provides neither theory nor evidence proving the merit of these tax cuts. Both are ambiguous. Although politicians can ignore this truth for a while, it suggests that widespread opposition to higher taxes on the rich is ultimately based on reasons beyond economics.
When the top UK income tax rate was raised to 50 per cent in 2009 (until Osborne cut it to 45 per cent four years later) the musicals composer Andrew Lloyd Webber, one of Britain’s wealthiest people, responded bluntly: ‘the last thing we need is a Somali pirate-style raid on the few wealth creators who still dare to navigate Britain’s gale-force waters’. 38 In the US Stephen Schwarzman, CEO of private equity firm Blackstone, likened proposals to remove a specialized tax exemption (from which he greatly benefited) to the German invasion of Poland.
While we may scoff at these whines from the super-rich, most people unthinkingly accept the fundamental idea behind them: that income tax is a kind of theft, taking income which is rightfully owned by the person who earned it. It follows that tax is at best a necessary evil, and so should be minimized as far as possible. … There is an entire cultural ecosystem which has evolved around tax-as-theft, recognizable today in politicians’ talk about ‘spending taxpayers’ money’, or campaigners celebrating ‘tax freedom day’. It is not just populism. Tax economists, accountants and lawyers refer to the ‘tax burden’ – and if you think ‘tax burden’ is a neutral label, then for the sake of consistency you should be happy for the term ‘public spending’ to be replaced with ‘public benefits’.
But the idea that you somehow own your pre-tax income, while obvious, is false. To begin with, you could never have ownership rights prior to, or independent from, taxation. Ownership is a legal right. Laws require various institutions, including police and a legal system, to function. These institutions are financed through taxation. The tax and the ownership rights are effectively created simultaneously. We cannot have one without the other. … It is impossible to isolate what is ‘yours’ from what is made possible, or influenced, by the role of government.
Talk of taxation as theft turns out to be another variation on the egotistical tendency discussed earlier – to see my success in splendid isolation, ignoring the contribution of past generations, current colleagues and government. Undervaluing the role of government leads to the belief that if you are smart and hard-working, the high taxes you endure, paying for often wasteful government, are not a good deal. You would be better off in a minimal-state, low-tax society.
One reply to this challenge points to the evidence on the rich leaving their home country to move to a lower tax jurisdiction: in fact, very few of them do. Here is a more ambitious reply from Warren Buffett: “Imagine there are two identical twins in the womb … And the genie says to them, ‘One of you is going to be born in the United States, and one of you is going to be born in Bangladesh. And if you wind up in Bangladesh, you will pay no taxes. What percentage of your income would you bid to be born in the United States?’ … The people who say, ‘I did it all myself’ … believe me, they’d bid more to be in the United States than in Bangladesh.”
Bangladesh anyone? Just follow the money …
Piketty – articles, presentations, reviews
YouTube 2022 Trailer Capital in the 21st Century
In May 2020 a full-length documentary film based on Thomas Piketty’s Capital in the Twenty-First Century opened via virtual screenings at independent theaters across the United States. Based on the international bestseller by rock-star economist Thomas Piketty (which sold over three million copies worldwide and landed Piketty on Time’s list of most influential people), this captivating documentary is an eye-opening journey through wealth and power, a film that breaks the popular assumption that the accumulation of capital runs hand in hand with social progress, and shines a new light on today’s growing inequalities. Traveling through time, the film assembles accessible pop-culture references coupled with interviews of some of the world’s most influential experts delivering an insightful and empowering journey through the past and into our future.
- Read a New York Times Magazine “The Money Issue” interview with Thomas Piketty on why he thinks America is primed for wealth redistribution
- Listen to Professor Piketty’s conversation with Tyler Cowen (Marginal Revolution) on Cowen’s podcast, Conversations with Tyler [transcript]
- At the Irish Independent, read Piketty’s argument that “we are not doing enough to target the oligarchs”
- Read a New Statesman interview with Piketty on why he’s optimistic about the future of the (global) Left
- Read a Dagbladet Borsen interview with Piketty [in Danish]
- The Piketty phenomenon and the future of inequality Robert Wade download pdf
- Egalitarianism’s latest foe Yanis Varoufakis YVaroufakisArticle download pdf
- Piketty and the limits of marginal productivity theory Lars Syll download pdf
- Piketty’s determinism? Ann Pettifor and Geoff Tily download pdf
- Piketty’s global tax on capital Heikki Patomäki download pdf
- Reading Piketty in Athens Richard Parker download pdf
- Pondering Mexican hurdles while reading Capital in the XXI Century Alicia Puyana Mutis download pdf
- Piketty’s inequality and local versus global Lewis turning points Richard Koo download pdf
- The growth of capital Merijn Knibbe download pdf
- Piketty vs. the classical economic reformers Michael Hudson download pdf
- Is Capital in the Twenty-first century Das Kapital for the twenty-first century? Claude Hillinger download pdf
- Piketty and the resurgence of patrimonial capitalism Jayati Ghosh download pdf
- Unpacking the first fundamental law James K. Galbraith download pdf
- Capital and capital: The second most fundamental confusion Edward Fullbrook download pdf
- Piketty’s policy proposals: How to effectively redistribute income David Colander download pdf
- Piketty: Inequality, poverty and managerial capitalism Victor. A. Beker download pdf
papers.ssrn.com/ 2018 How Pronounced Is the U-Curve? Revisiting Income Inequality in the United States, 1917-1945 – Vincent Geloso, Phillip Magness, John Moore, Philip Schlosser
Abstract : In this article, we offer a revision to the top income share series produced by Piketty and Saez (2003) for the United States, focusing upon the period prior to and including the Second World War. The inequality estimates for these years form the left-side of a century-long U-curve that has achieved widespread acceptance in the literature. However, a number of issues deriving from the limitations of tax data in first half of the 20th century likely distort the magnitude and shape of depicted distributional patterns in this period. By revisiting available source data from the IRS, we supplement the PikettySaez series for 1917-1945 with improved measures of deductible income and correct a number of distortions that arise from data construction issues within the original estimates. The cumulative effect of our corrections is substantial, including a five percentage point reduction on average to Piketty Saez’s top 10% income share estimates prior to 1944. Our corrections change both the shape and magnitude of the U-curve. The curve is now shallower largely because the levelling depicted during World War II has been overstated vis-a-vis a more gradual decline attributable to the Depression. This finding has important implications for the interpretation of the fall and rise of inequality in the United States.
Keywords: Inequality, Top Incomes, US Economic History
academic.oup.com 2022 How pronounced is the U-curve? Revisiting income inequality in the United States, 1917-1960
LRB The Inequality Engine Geoff Mann
“… postwar social democracy’s faith in ‘progress’ fooled a lot of people into thinking that everything would eventually work out OK. In 1955 the economist Simon Kuznets put forward the hypothesis that became the basis for the enormously influential ‘Kuznets curve’ … economic growth would fix the inequality problem on its own. Inequality might plague development, but eventually things would straighten themselves out.
Capital and Ideology proves conclusively that this was an illusion. Kuznets himself admitted that the curve was ‘5 per cent empirical information and 95 per cent speculation’. … As Piketty sees it, the curve is a ‘fairy tale’ with a ‘happy ending’. ‘Just be patient and wait until growth benefits everybody.’ … The return of the proprietarian era’s astounding inequalities has brought apocalyptic analyses back with it. They are an essential part of … debates about how we might deal with our current viral apocalypse and the world that will emerge from it.
Piketty … has, at least for the moment, a captive audience. Whether or not his revolution without revolutionaries can get us where we need to go, his analysis of how we got here demands our attention.” (2) scroll down to read Geoff Mann’s review
Verso ‘Why are you acting the Marxist?’
ineteconomics.org piketty’ts-world-inequality-review-a-critical-analysis James K. Galbraith
nature Post-pandemic economic overhaul will take more than tweaks
New Statesman How Thomas Piketty lost touch with reality
timesofisrael Economist’s warnings on inequality draw attention
Guardian Paul Mason Down the rabbit hole of bright abstractions
goodreads At once a retelling of global history, a scathing critique of contemporary politics, and a bold proposal for a new and fairer economic system
foreign policy The Tyranny of Property
The Economist A bestselling economist sets out the case for socialism
newyorker Thomas Piketty Goes Global
real-world economics review – Special issue on Piketty’s Capital
Picketty/Pemberton documentary reviews
thenation.com Thomas Piketty: Confronting Our Long History of Massive Inequality We talked to the French economist about his new book Capital and Ideology, his thoughts on Covid-19, and more.
inequality articles + updates
hup.harvard.edu/ 2021 A Brief History of Equality by Thomas Piketty
rte.ie/news/ Irish billionaires’ wealth up €3bn since pandemic began -A new report from Oxfam claims the fortunes of Ireland’s billionaires has risen €3.3bn since the start of the Covid-19 pandemic. The Inequality Virus report also finds that the wealth of the planet’s ten richest men has grown by half a trillion dollars since Covid-19 began sweeping the globe.
“There are two primary methods for measuring inequality – relative and absolute. In the discipline of economics, the former has become dominant by far. It is embodied in the standard Gini index, in the famous “elephant graph”, and in logarithmic distribution graphs … The dominance of the relative metric is interesting, because it has been wielded by powerful figures (Bill Gates, World Bank economists, etc) to insist that the world is becoming fairer even as the income gap between rich and poor, North and South continues to widen. … When we look at inequality from the perspective of the poor … it becomes clear that the relative metric is inappropriate as a tool for assessing distribution. Certainly if our objective is to end poverty, this is the conclusion we must draw, as an additional dollar going needlessly to the rich could have been used to reduce poverty, and yet was not. The absolute metric allows us to see this effect…”
raconteur.net Is property inheritance widening the wealth gap?
camelbackventures.org GENERATIONAL INHERITANCE: WE PASS DOWN MORE THAN WEALTH
bloomberg.com The Wealth Tax Is Going Global
Income Of The Poor Has Not Improved : Abhijit Banerjee On Malnutrition Report
Economic inequality and the rise of far‐right populism: A social psychological analysis
Sarah Jay Anatolia Batruch Jolanda Jetten Craig McGarty Orla T. Muldoon
“It is argued that far‐right (FR) populism in the West is fuelled by inequality.”
Why Do People Tolerate Income Inequality?
by Lucia Macchia, Anke C. Plagnol, and Nattavudh Powdthavee
“With income inequality rising considerably around the world, understanding why income inequality persists has never been more important. By knowing that income disparities can breed strong incentives for people to participate in a race to the top of the income ladder, while at the same time turning a blind eye to its negative consequences, leaders may be more motivated to tackle inequalities and improve overall well-being.”
advances.sciencemag.org Polarization under rising inequality and economic decline “Our model shows that under conditions of economic decline or increasing inequality, some members of the population benefit from adopting a risk-averse, in-group favoring strategy. Moreover, we show that such in-group polarization can spread rapidly to the whole population and persist even when the conditions that produced it have reversed.”
politico A better way to share the wealth
forbes 7 Myths About Income Inequality And How We Think About It
forbes To Fix Income Inequality, Stop Redefining It Out Of Existence
euractiv Inequalities of chances, income and capital are destroying society
cnbc 5 ways to fight wealth inequality, according to economists
ourworldindata Is income inequality rising around the world?
The Guardian Will coronavirus lead to fairer societies? Thomas Piketty explores the prospect
peoplespolicyproject Market Incomes Will Always Produce Hideous Inequality
“How do commentators like David Brooks account for the undeniable rise in inequality? Not by analyzing the dynamics of wealth distribution and power that would help us address the problem, but by pointing the finger at the rest of us.”
(1) The Piketty phenomenon and the future of inequality Robert H. Wade excerpts
“The implication of the IMF’s and other evidence is that current levels of inequality in the Anglo countries make it difficult to achieve adequate economic growth with financial stability (unless by the unsustainable German route of repressed wages plus large export surpluses). High and rising income concentration generates savings glut at the top and underconsumption below. Governments are constantly tempted to engineer credit and asset booms. Credit remains too cheap and debt remains too high, and central banks then become reluctant to damage the debt-heavy economy by tightening monetary policy. Meanwhile fiscal tightening is hobbled by political paralysis and visceral rejection of “Keynesianism”. When the boom turns to bust, governments and central banks try to ease the ensuing hangover with loose monetary policy. But the bust is likely to usher in a “balance sheet recession”, when households and firms labour under far too much debt relative to income, as in Japan through the 1990s and 2000s and much of the West since 2008. Balance sheet recessions are difficult to escape from, because the chief objective of households and firms becomes to pay down debt; so private demand shrinks and monetary policy becomes ineffective. It can take years for the deleveraging process to be complete enough for economic growth to resume without riding on the back of more borrowing and still more financial instability. As The Financial Times’ Wolfgang Munchau says about Europe gripped by a balance sheet recession (which very low interest rates have not cured), “The most likely trajectory is a long period of slow growth, low inflation, and a constant threat of insolvency and political insurrection” (2014:13).
For all the recent national and global attention to inequality, the chances that it will be curbed to a significant degree appear to be slim. The policies and institutions of the post-war decades which helped to drive inequality down – including high upper-bracket tax rates, laws protecting trade union bargaining power, financial sector constraints, capital controls, fixed exchange rates, and Left political parties which were left-wing (in contrast to today) – could not have happened without elites being deeply fearful of mass unrest, based on fresh memories of the Depression and war, strong trade unions, and the nuclear-armed Soviet Union providing an apparently plausible alternative to capitalism.
As these fears waned, higher capital mobility generated competition between jurisdictions to offer favourable conditions, including “light touch” regulation, free capital mobility, privatization, … anti-union laws, pro-CEO remuneration laws, and tax cuts on the rich and rises in indirect taxes.
To the extent that western elites after the 1970s referred to inequality as a problem, they domesticated it as “poverty”; reducing inequality meant reducing poverty. ….Compressing the whole income distribution cuts much closer to home. We are anxious that inequality could point to people like us as part of the problem rather than the solution. We are anxious that reducing inequality might mean taxing us and lifting up
those not far below us in the hierarchy, reducing the gap – threatening our status.
This helps to explain why centre-left parties made a tactical choice not to emphasise the dangers of rising inequality. … It was not just a matter of tactics. Leading centre-left figures really did believe in a moral society similar to that of conservatives: one in which, to quote two British theorists of the “Third Way”, “the key to justice as fairness can be seen in terms of the procedural securing of opportunities rather than a substantive commitment to patterned relative outcomes” (Buckler and Dolowitz, 2000, emphasis added).
Another leading intellectual on the British centre-left, Will Hutton, likewise defines “fairness” as rewarding individuals in proportion to the amount of discretionary
effort they deploy to achieve socially useful results, provided they actually achieve them. The aim of a centreleft government should be to make access to riches dependent on “talent, effort and virtue”, as distinct from making outcomes more equal (Hutton 2010).
For all that it has been vital to the center-left’s defence for ignoring inequality of outcomes, the distinction between achieving more equality of opportunity and more equality of outcomes falls down at the first nudge. Children of wealthy parents have far wider market opportunities than children of poor or middleclass parents, through multiple channels (Summers 2014; Boucher 2013).
All governments, including democracies, tend to fail in response to problems which have the clear potential of becoming catastrophes at some point beyond the next election. The stuttering responses to climate change and human and animal resistance to antibiotics are cases in point. So too is the response to rising inequality.
The key lesson from Piketty’s book is that, at present and likely future levels of income and wealth concentration, capitalism is losing its core claim to legitimacy, namely, that it incentivizes hard work and entrepreneurialism while it provides a floor of social
protection to those towards the bottom end of the income scale. To generate the necessary political will in favour of curbing inequality we must re-frame the very way we discuss the role of state and market. Prevailing narratives use “deregulation” to mean more free market and “regulation” to mean more state. Even people on the Left use this framing, as in “We need regulation to curb the dangers of free markets”. In fact, the issue is not regulation or deregulation, because there is no such thing as a free or unfettered market. The issue is whether to regulate market society in line with broadly shared social values or regulate market society in line with the preferences of the wealthy sliver. Talk of “deregulation” is a smoke-screen; it conceals state actions (policies and institutions of the “pre-distribution” kind) which directly and indirectly drive money up. Not just the Left but also conservatives of the “one-nation” kind should be able to
agree on this reframing.” read whole article here
(2) The Inequality Engine Picketty Review by Geoff Mann London Review of Books
With Paris still vibrating in the aftermath of the Commune, Emile Boutmy and a group of intellectuals founded the École Libre des Sciences Politiques in 1872. The school was a direct response to the Commune, to France’s humiliation in the Franco-Prussian War, and to a sense that its ruling class was bereft of talent, industry and imagination, its imperial and cultural mission a shambles. The university now known as Sciences Po was established as a new ‘crossroads of the ruling classes’.
Boutmy was worried, no doubt, about the collapse of France’s international standing, but his fundamental concern was to secure the place of the elite at the helm of history. Even if the belief that this class was born to command was no longer defensible, this didn’t mean that the nation’s fate could be left to the masses:
Obliged to submit to the rule of the majority, the classes that call themselves the upper classes can preserve their political hegemony only by invoking the rights of the most capable. As traditional upper-class prerogatives crumble, the wave of democracy will encounter a second rampart, built on eminently useful talents, superiority that commands prestige, and abilities of which society cannot sanely deprive itself.
Thomas Piketty quotes Boutmy’s proposition in Capital in the 21st Century (2013), the bestseller that made him a household name among today’s intellectual and business elite. According to Piketty – and it is hard to disagree – this ‘incredible statement’ illustrates the way ‘the upper classes instinctively abandoned idleness and invented meritocracy lest universal suffrage deprive them of everything they owned’. It is proof of ‘an essential truth: defining the meaning of inequality and justifying the position of the winners is a matter of vital importance.’
Capital in the 21st Century, however, had very little to say about this ‘essential truth’, which we might call the problem of legitimacy. Instead, it provided an exhaustive description of the evolution of income and wealth inequality in industrialised countries over the last two hundred years. Its main point was that a tendency to increasing inequality is baked into capitalism. The greater equality of the golden age of growth after the Second World War, for which so many remain nostalgic, shouldn’t be regarded as proof of what capitalism can do when it really gets going, but as a historical exception. World wars, communist revolution and the Great Depression simultaneously destroyed the property of the barons of the Belle Époque and shocked policymakers and the wealthy into a programme of redistribution that would have been unthinkable before 1914. By the late 1970s, however, capitalists had pulled themselves together, and with the help of governments across the world, arranged for a return to normal. Since then, what Piketty calls the ‘social state’ has gone into retreat, income and wealth taxes have plummeted or disappeared altogether, financial wealth has skyrocketed, and the 1 per cent have retaken the commanding heights of the global economy.
Piketty’s follow-up, Capital and Ideology, is a massive, globe and history-spanning attempt to figure out what’s inside the ‘black box’ that Capital in the 21st Century left unexamined. What makes it possible for inequality to persist, let alone get worse? Why don’t governments do anything about it? And since they so often don’t, why doesn’t runaway inequality provoke the mass resistance that might force them to?
Even the financial mess that began in 2007-8 passed with barely a grumble, at least at the level of policy. It only briefly troubled the rich, who quickly restarted the inequality engine. Taxes on the wealthy today are even lower than they were before the subprime crisis. The recession associated with the coronavirus has changed the picture, at least temporarily, but before the global lockdown started, asset prices were higher than ever, the stock market booming. Since 2008 no financier has had to return any ill-gotten gains. No one was punished for the elaborate financial contortions that devastated the global economy, emptied state treasuries and created a public debt crisis that has crushed working people and the poor, and will hang over the heads of their children and grandchildren. Covid-19 has obviously made this situation much worse.
You would expect the ‘inequality regime’ in which this crisis is unfolding to pose some tricky political problems. In the United States, for example, an average member of the richest 1 per cent now receives more than eighty times as much income, and owns 950 times as much wealth, as an average member of the bottom 50 per cent. On the face of it, this degree of inequality seems very difficult to justify, and one might see the mass support for Bernie Sanders, Jeremy Corbyn or Podemos in Spain (which Piketty has advised), as an indication that its legitimacy is indeed in question. But the task of justifying inequality isn’t just a problem for what Piketty calls our ‘hypercapitalist’ era. All societies have an inequality regime that must be justified somehow, or else the society will be vulnerable. According to Piketty, history demonstrates that the means deployed to address the problem of legitimacy are only ever partly material (redistribution of wealth, for example, or coercive control of those on the bottom rungs of the ladder). The more important means are ideological: at the very least, society’s inequalities have to make sense to people, to seem reasonable or even natural.
When ‘mainstream’ economists start talking about ideology, it is almost always used as a pejorative term. Ideology is the cloud that opponents of free markets have their heads in, or the belief that socialism could ever work, when in reality it would of course ‘disincentivise effort and innovation and substantially reduce the quantity and quality of a nation’s output’ (as Donald Trump’s Council of Economic Advisers put it in an October 2018 report, ‘The Opportunity Costs of Socialism’). This is the same ‘logic’ that Senator Lindsey Graham trotted out to argue against income support for US nurses in the midst of the coronavirus meltdown.
But Piketty is not a run-of-the-mill economist. He has no time, he said in an interview in 2015, for economists’ pseudo-scientific ‘hymn to entrepreneurship and well-deserved fortunes’. In their deluded belief that they are the only ones who can see past the distortions of politics and culture, they are the true ideologues. His need to write a second thousand-page book to analyse the ideological dynamics behind the story he told in his first book comes from somewhere other than a desire to convince his fellow economists.
The trouble with ‘taking ideology seriously’, as Piketty puts it, is that if you aren’t careful, it can easily become the explanation for everything. Ideology is an inflationary concept: it tends quite quickly to take up all the analytical space, so that the only way to get a handle on it is to claim to occupy some space outside it – which, if we take ideology seriously, is by definition impossible. Piketty knows full well the concept isn’t straightforward, and wants to define it from the off. ‘I use “ideology”,’ he writes in the first few pages, ‘in a positive and constructive sense to refer to a set of a priori plausible ideas and discourses describing how society should be structured.’ This is useful, certainly. Ideology is always a matter of what gets called common sense, the relationships or institutions that are taken as given, natural or necessary. Every time someone says ‘of course’ or ‘realistically’ they touch on it. Ideology is not a set of ‘ideas and discourses’, important as those are. It is the worldview that makes those ideas and discourses seem reasonable, or ‘a priori plausible’. Adorno once said that ‘if the lion had a consciousness his rage at the antelope he wants to eat would be ideology.’ Ideology is what makes the lion mad, not what he hunts in his madness. It is one thing to describe what was normal or obvious in a given time and place, such as the ‘naturalness’ of slavery in 18th-century Europe. But it is another thing to try and figure out what makes the normal or obvious seem so.
Piketty’s approach to the problem of legitimacy is more instrumental, more functional and more ‘rational’ than a critique of ideology would allow. What makes the lion mad isn’t something the lion or anyone else has decided; and it isn’t something the lion or anyone else can carefully ‘revise’ – ideology is too sedimented to be susceptible to design. Yet, like Boutmy’s plan to invent meritocracy, the ideas and discourses discussed in Capital and Ideology are often framed as the products of decisions and choices. They are self-interested projects, projects that can fail. Piketty’s analysis of an extraordinary range of inequality regimes – from what he calls ‘ternary’ or ‘trifunctional’ societies (feudal, in a broad sense, composed of clergy, warrior/nobility and commoner classes) to revolutionary Haiti, contemporary India, France, the US and more – is really a study of the way different societies experience inequality: how the wealthy have tried to perpetuate it, how the less wealthy have tried to challenge it, and what those experiences might have to teach us about tackling inequality today.
Piketty hopes the book will encourage a peaceful, policy-driven revolution leading to ‘participatory socialism’. It culminates in a careful proposal for global co-operation on progressive taxation of wealth, income and carbon, a universal capital endowment and massive reinvestment in education. The book is packed with fascinating detail and vast quantities of skilfully assembled data; it is written (and translated, by Arthur Goldhammer) in an accessible, conversational tone. But Piketty’s vital contribution is somewhat obscured by the book’s title. He is not in the business of uncovering the ideological dynamics that make the interests of the powerful appear to coincide with everyone’s general interest – what Boutmy called ‘political hegemony’ – or in explaining the way they have historically operated. Instead, he gives us a systematic examination of inequality across time and place, and of the ideas the powerful have used to justify it. If there is a theme that ties these diverse histories together, it is the thing most economists would have expected all along: self-interest. We learn a good deal about the lengths to which the powerful will go to assert their privilege (and the often outrageous injustice this entails), and about the only things that have ever thwarted them: mass violence and progressive taxation.
It is no exaggeration to say that, for Piketty, taxation is the key both to understanding the history of modern civilisations and to shaping their futures. Capital and Ideology comes close to proposing what amounts to a tax theory of history: a three-stage periodisation of global modernity – from ‘proprietarian’ to ‘social democratic’ to ‘neo-proprietarian’ – organised around the ways societies have or have not been able to justify and impose ‘fiscal pressure’ on their citizens and others, and the kinds of political, territorial and property regime that power secured.
Before the rise of territorial nation-states, the vast inequalities of the trifunctional societies of medieval Japan or Europe were premodern by definition, organised in decentralised hierarchical systems of tribute in which property and political regimes were one and the same. The modern state emerged from these societies through and because of taxation, in ‘two great leaps forward’: first, between 1500 and 1800, with the capacity to increase taxes from 1 or 2 per cent (sufficient only to support the coercive functions of the nightwatchman state) to between 6 and 8 per cent; and, second, between 1910 and 1980, when rich countries’ tax rates rose from 8-10 per cent to 30-50 per cent. (If you surmise that Piketty thinks we are currently taking a great leap backward, you are right.)
The later part of the first great leap forward effectively marked the end of trifunctional society, in the ‘great demarcation’ of 1789 (a term Piketty borrows from Rafe Blaufarb’s book of 2016). The French Revolution drew a line between premodern trifunctionalism and the first phase of the modern age, with the development of what Piketty calls ‘proprietarian’ societies (‘ownership societies’ in Goldhammer’s translation). Proprietarianism, which characterised Europe and North America until the First World War (and, in the form of colonialism, had immense and devastating implications for the rest of the world), was marked not only by the efforts of elites to construct Boutmy’s ‘rampart’ of meritocracy, but also by great changes to political and property regimes.
Two of these changes are vital to Piketty’s account. First, there emerged an increasingly strict separation between property rights (supposedly open to all without state interference) and ‘regalian’ powers (security, justice and the legitimate use of violence, which became the prerogative of the state). Second, and following directly, proprietarian societies ‘sacralised’ property, and in the process also sacralised the debtor’s obligation to the creditor. If property is inviolable, so is the duty to pay the owner for the use or acquisition of their property.
In retrospect, it may seem that, despite their origins, neither development was particularly revolutionary. Hannah Arendt thought Robespierre was Marx’s ‘teacher in revolution’, but on the question of property, at least, the French revolutionaries were far from being Marxists – Robespierre defended private property rights all the way to the guillotine, and denounced equality of ownership as a ‘chimera’. But the proprietarian order of Europe’s long 19th century emerged in a period that saw a host of other contradictory developments. The Bastille and the Terror may be the first things the French Revolution brings to mind, but it began – and ended – with a distinctly bourgeois flourish. Piketty’s ‘ownership society’ was possible at least in part because the radical impulses of 1789 were suppressed in the post-revolutionary reaction across Europe. In the end it took more than a hundred years for the bottled-up antagonisms caused by rising inequality and industrial alienation to destroy proprietarianism.
The millions who had been marginalised by liberal imperialism did this not just by violent means, but by making use of an idea that had found its first full expression in the French Revolution. Progressive taxation had been a subject of interest well before the storming of the Bastille. Rousseau put the question of taxation at the centre of political life in 1755 in both the Discourse on the Origins of Inequality and his contribution to Diderot’s Encyclopédie, ‘Economie ou Oeconomie (Morale et Politique)’. Property had destroyed humanity’s ‘natural’ equality, he argued, and some means of proportionate redistribution was essential to the maintenance of peaceful life in common. Better developed proposals followed – most famously from the Marquis de Condorcet, found dead in his cell after opposing the Jacobin constitution – and on 18 March 1793, two months after the execution of Louis XVI, the revolutionary National Convention formally adopted progressive taxation. The Thermidorian reaction and the rise of Napoleon – essentially, the process of deradicalisation – quickly led to the repeal of the tax, but the idea came to play a crucial role in the destruction of the 19th-century ownership society. (This was true especially, if not only, in Britain. Pitt introduced a graduated income tax in 1799 with little thought of structural inequality, but to pay for the Napoleonic Wars. When the tax was reintroduced and made permanent in 1843, however, part of its purpose was to secure political stability – a function that would be essential to the management of the crises of the 20th century.)
Piketty’s account of the proprietarian order is a devastating indictment of racist imperialism and class war in Europe and – usually by way of Europe – around the world, supported at every point by an array of data and graphs. Much of that story is well known, some of it less so, such as the extraordinary political-economic effects of the end of slavery and serfdom. In sharp contrast to the mythology of enlightened European abolitionism, the emancipatory aspects of 19th-century ownership societies weren’t a product of the moral triumph of liberal commitments to self-ownership, or of ‘freedom’ in the markets. In almost all cases – French and British slave traders and plantation owners, Russian landlords, the Brazilian landed elite – those who lost human ‘property’ were treated with deference and handsomely compensated.
In other words, in perfect harmony with the proprietarian moral code, the lord’s property remained sacred even in its nominal emancipation. Former slaves were framed as ‘debtors’ in hock to their former captors for services they would no longer render, in many cases forced to repay their ex-owners for lending them the rest of their lives. Saint-Domingue, where slavery was abolished in 1793, was arguably the only French dominion in which the 1789 Declaration of the Rights of Man and of the Citizen was implemented. It declared its independence as Haiti in 1804. In 1825, as reparation for the insolence of freedom, France obliged the new nation to transfer to the French state and former plantation owners ‘the equivalent of 15 per cent of its national product every year, indefinitely, simply to pay the interest on the debt without even beginning to pay down the principal’. Haiti was still paying in the 1950s, when the debt was finally cancelled. But by then it had been devastated by vicious postcolonial political and economic forces.
This is only the most startling example of a dynamic that began with capitalist proprietarianism and continues today in our ‘neo-proprietarian’ age. Throughout the age of emancipation, states incurred enormous debts compensating the beneficiaries of domestic and colonial slavery – the richest and most powerful property owners of the day – and in the process indebted both former slaves and the propertyless masses. Today, as Piketty repeatedly notes, something similar is happening, as both rich and poor states impoverish themselves by cutting taxes and liberalising trade, then cut social support and borrow – from the wealthy – to cover the costs. The rich never lose, even when they appear to have lost, and the past haunts only the poor.
Proprietarianism began to have difficulties between 1914 and 1945, as inequality within European nations was attacked from the left; inequality between countries was threatened by challenges to the colonial order; and there was ‘a nationalist and identitarian challenge’ in the form of increased intra-European competition and the wars and fascisms it spawned. The ‘social democratic’ recovery separates the proprietarian from the neo-proprietarian era: the interval between 1945 and 1980 involved the only significant historical reversal of capitalism’s inequality machine.
For Piketty, ‘social democracy’ is a loose term. It includes virtually everything we might associate with the welfare state, from arrangements as ‘left-wing’ as the redistribution mobilised by the Nordic states in the 1960s and 1970s or the postwar Italian Communist Party, to the ‘centrism’ of the Kennedy tax cut of 1964 or Lyndon Johnson’s war on poverty. Using such a broad definition makes some sense, since it highlights commonalities between otherwise quite different political and economic policy frameworks in the wealthiest parts of the world after 1945. The drawback, however, is that it papers over substantial differences, especially to do with social democracy’s relation to capitalism. Piketty sees the two, if not as contradictory, then as almost mutually exclusive: after the Second World War, some countries ‘remained nominally capitalist but were actually turning social democratic’. The real goal of social democratic society, he says, was ‘transcending private property and capitalism’.
This is an exaggeration, to put it mildly. There can be little doubt that the power of property – capital – was drastically reduced in the first half of the 20th century, or that some post-1945 states worked hard to keep it that way, especially by emphasising a ‘more social and instrumental concept of property, according to which the purpose of productive capital was to further the cause of economic development, social justice, and/or national independence’. Inequality, in both wealth and income, declined significantly (a process sometimes called the ‘great compression’). But in many places – the US and the UK most prominently – the era was characterised by an accord between the state and big business, a massive, intricate programme on the part of capitalists and governments (often with the active participation of trade unions) to guarantee the security of capitalism. Piketty emphasises the ways social democracy ‘embedded’ the economy in social life, but downplays the fact that, at least for the most powerful postwar states, the whole point was to find a way to preserve capitalism.
For the most part, his account of the Golden Age avoids nostalgia. He is quite hard on social democracy’s failure to ‘transcend the nation-state’ by building global institutions that might have been capable of disarming its opponents. But there is, nonetheless, a hint of wistfulness about his narrative. It reads a bit like a tale of heroic salvation from the chaos and disorder wrought by the ownership society’s theology of property and ‘disembedded’ self-regulating markets. The hero is the revolutionary offspring of Condorcet and Rousseau: progressive taxation.
For piketty, progressive taxation rescued capitalism from the inequality-induced instability it cannot help but engender and which led to the catastrophes of 1914-45. The development of a sophisticated fiscal progressiveness, in particular the sort that characterised postwar social democracy (top marginal tax rates averaged 81 per cent in the US between 1932 and 1980, and were even higher in the UK), has always been the best and perhaps the only effective non-violent way of dealing with inequality: ‘The principal instrument for mobilising resources to undertake common political projects was and remains taxation, democratically decided and levied on the basis of each taxpayer’s economic resources and ability to pay, in total transparency.’
Tax and violent disorder represent the best and worst of the modern human collective, a collective that is always, inevitably, struggling with inequality. Just as Capital in the 21st Century warned that contemporary inequality might precipitate a ‘Ricardian apocalypse’, Capital and Ideology is peppered with references to the ‘dangers’ – usually unspecified but clearly associated with ‘identitarian’ nationalism – that loom if we do not address the crisis of inequality. There is an omnipresent and menacing ‘or else’ lurking behind much of the book’s argument for redistribution. Piketty’s sense of impending calamity is widespread, especially among what he calls the ‘Brahmin left’, or what Americans call the ‘liberal elite’: those who are educated, economically secure and socially progressive.
This kind of anxiety plagues all elites, especially in times of crisis. Those who lie awake at night worrying about fascism are, Piketty says, experiencing something shared by all inequality regimes: ‘fear of the void’. The lords of the 18th century saw that fear realised in the storming of the Bastille and the destruction of the nobility; the industrial barons of the Gilded Age experienced it with the world wars, Bolshevik revolution and economic depression. If Piketty and the rest of the Brahmin left today glimpse the void in Trump or Bolsonaro, the elites of the ‘merchant right’ (Tories and Republicans) imagine it as a redistributive spiral of the kind that might have been precipitated by Sanders or Corbyn. The neo-proprietarian refusal to open the Pandora’s box of progressive taxation is merely the latest iteration of a dynamic Piketty perceives at the heart of all power.
At a time when apocalyptic presentiments seem to make so much sense, and the call to rebuild social democracy is consequently appealing to many, it is worth considering why, and when, the dream that something called ‘progress’ would deal with our problems died. As he is quick to point out, Piketty didn’t ‘discover’ capitalism’s tendency to produce inequality. Marx is an obvious predecessor, Keynes too. But where both Marx and Keynes diagnosed in capitalism an ineluctable drive towards self-destruction (which to Marx’s mind made other worlds possible, and to Keynes was proof that the economy needed constant expert management), postwar social democracy’s faith in ‘progress’ fooled a lot of people into thinking that everything would eventually work out OK. In 1955 the economist Simon Kuznets put forward the hypothesis that became the basis for the enormously influential ‘Kuznets curve’: ‘The long swing in income inequality must be viewed as part of a wider process of economic growth,’ through which ‘the dynamic forces associated with rapid growth’ would check ‘the upward trend of the upper-income shares’. In other words, economic growth would fix the inequality problem on its own. Inequality might plague development, but eventually things would straighten themselves out.
Capital and Ideology proves conclusively that this was an illusion. Kuznets himself admitted that the curve was ‘5 per cent empirical information and 95 per cent speculation’. In 2013, Piketty said it was devised ‘pour de mauvaises raisons’: Kuznets acknowledged that his fear of the void made him worry about ‘the future prospect of underdeveloped countries within the orbit of the free world’. As Piketty sees it, the curve is a ‘fairy tale’ with a ‘happy ending’. ‘Just be patient and wait until growth benefits everybody.’ It was ‘diametrically opposed to the Ricardian and Marxist idea of an inegalitarian spiral and antithetical to the apocalyptic predictions of the 19th century.’ The return of the proprietarian era’s astounding inequalities has brought apocalyptic analyses back with it. They are an essential part of the antidote, and already central to debates about how we might deal with our current viral apocalypse and the world that will emerge from it. Piketty’s confrontation with the void leads him to something like a liberal argument for socialism, and as the rescue packages for a world struck down by Covid-19 pile up, he has, at least for the moment, a captive audience. Whether or not his revolution without revolutionaries can get us where we need to go, his analysis of how we got here demands our attention.