A Review of a Book Review

Thomas Edsall has written a really intriguing op-ed article in the NY Times based on a new book called Capital in the Twenty-First Century by Thomas Piketty, the basic premise of which is that a growing inequality is the natural outgrowth of free market capitalism working exactly as it is designed.

There are a number of key arguments in Piketty’s book. One is that the six-decade period of growing equality in western nations – starting roughly with the onset of World War I and extending into the early 1970s – was unique and highly unlikely to be repeated. That period, Piketty suggests, represented an exception to the more deeply rooted pattern of growing inequality.

Of course this is the exact period that capitalism's strongest defenders love to point to, and to claim as prove of its virtue. But what if that one period when the rising tide did lift a lot of boats (no, not all), was merely an anomaly, an exception? Certainly there wasn't much in capitalism's prior history to recommend it to anyone but the holders of the capital. Karl Marx's work didn't grow in a vacuum, and there was/is a reason for its enduring popularity.

 This next point is so obvious that one feels in need of a dope slap for not having thought of it: 

 Piketty proposes instead that the rise in inequality reflects markets working precisely as they should: “This has nothing to do with a market imperfection: the more perfect the capital market, the higher” the rate of return on capital is in comparison to the rate of growth of the economy. The higher this ratio is, the greater inequality is.

The period when capitalism actually worked to reduce inequality in the U.S. was a period of confiscatory tax rates on the highest incomes. As I understand Piketty's argument from this article by Thomas Edsall, in order for economic  inequality to be addressed in today's global economy it would require a global tax structure to ensure that the rate of after-tax growth on capital was minimized so that more money would flow into actual economic growth. Such a structure would have to be global for the obvious reason that capital would always move to the friendliest politcal-economic environment.

Although the Piketty book is apparently getting rave reviews from economists around the world, including a 20-page review in one economic journal, it does have some critics, and the Edsall column gives them their due. Generally, it seemed to me from Edall's description that many of the criticisms fall into the category of sniping around the edges, although it is unfair to say that without having actually read them.

Unfortunately, there is as yet no e-version of Piketty's book.