Readers who are following the adulation of Thomas Picketty’s Capital in the 21st Century do not need much information about the book.
One major theme of the book is that if the rate of return on “capital” exceeds the overall rate of return in the entire economy, then it follows that the rich and elderly gain in relation to everyone else. Ignore for now the major difficulty of such a claim – that it is not really clear what capital is, and how one might actually compare, value, and add-up different types of capital – that seems to me to be the major difficulty with the book. But what stands out about the claim above is that it, while has empirical backing (i.e. the rich and elderly HOLD a larger share of capital than the non-rich and non-elderly) I am not sure it has any practical meaning. The fear of Picketty is that of course this kind of accumulation of capital leads to a positive feedback of wealth accumulation, then inheritances, which lead to even more capital accumulation, and hence wealth, relative to those folks who do not obtain a large share of their income from capital, which exacerbates inequality, which leads to more capital for the rich and elderly, which leads to larger inheritances and so on.
Such is why he concludes that a globally coordinated wealth tax is in order. Understanding correctly as he does that “the rich” are fairly savvy, and that capital is mobile, any one country that tried to ratchet up estate or wealth taxes on its own would find out that it collected no revenues and that it didn’t actually make inequality less, it perhaps may make it more severe.
In thinking about this, one is led to wonder how capital ended up becoming “democratized” in the first place. After all, to the extent that there was any capital through history, it was ALL owned by the rich elites, and since the rate of economic growth through human history was zero, yes zero, then this condition of the rate of return on capital exceeding the rate of return on the overall economy seems to have existed prior to George Bush. So, what enabled the massive DECREASE in global inequality since modernization began? What has enabled ANYONE other than the nobles from hanging on to their castles and capital and passing it on to their children and exacerbating inequalities? Is it really only the ending of laws such as primogeniture and entail, worldwide, that are responsible for it? That doesn’t appear right to me. Was it a globally coordinated wealth tax that ended the horrific inequality the preceded Adam Smith’s time and place? Not at all. So what is different today that requires such a thing?
Without belaboring the point too much, it seems of course that the book was written with the conclusion in hand, much like most books (on either side of the political spectrum). Kapitalism is convicted of horrible crimes (even if it has some good aspects) – it’s just the nature of the charges that changes from time to time. But what I find astonishing is the implication of the argument. If capitalism is bad, notice that the major proposal coming out of the most influential book of the 21st century is not central planning, or socialism directly, no. It’s just a coordinated wealth tax. Presumably this wealth tax would be distributed to the less wealthy. So in many respects this is not all that different than a Hayekian view of the world, though Hayek I am sure would have defended a far more efficient version of a tax than a wealth tax. But the real takeaway for me is the implicit admission that all of the lords of high knowledge have actually no idea how to fix things at the margin. There are not 10 chapters dedicated to green jobs programs, or the health care features of the rich countries, or the environment or anything like that. Maybe it couldn’t be, after all it is already 700 pages long.
In addition to what I think is glaring above, reconsider the main argument. So, rich guys and old guys have lots of the “good stuff” and the “good stuff” grows faster than the “regular stuff.”
This is already too long, point 4 deserves its own post and various smaller parts of the book deserve much more attention.