Daily Piketty Afternoon Must-Read: Mike Konczal: Studying the Rich

Mike Konczal: Studying the Rich: “Piketty’s book warns that capital and inequality are likely…

…to make even greater strides in the next few decades; the influence of wealth and inheritance could make our economy look a lot more like the nineteenth century, with its dominance of dynastic fortunes, than the joint prosperity we have come to assume is the natural state of advanced economies…. Piketty’s argument is convincing and well-supported. So what is the debate over?… Generally, critics have come at him from two different directions…. By not locking his own argument tightly to a model he also leaves himself vulnerable to criticism that there are trends towards equality…. Some… have argued… the more capital there is… the rate of return should fall. If it falls rapidly, the capital share of national income will not increase….

If economists to Piketty’s right are concerned over his economic models, those to Piketty’s left think he doesn’t concede enough to politics…. The idea of a “free” market is a vacuous, question-begging abstraction, invoked to defend the status quo or the interests of the wealthy…. Dean Baker… argue[s] that Piketty doesn’t do enough to explain how financial regulations or patent protections could help deal with the problems he identifies…. More broadly, Piketty has been criticized for not acknowledging how institutions and politics influence the returns on capital…. Those on the left also worry that the debate over Capital could devolve into, as the economist Suresh Naidu argues, a “bastard Pikettyism” that just navel-gazes at the mathematical economic models discussed above, instead of a more critical, broader inquiry….

Though he equivocates… the text suggests that Piketty believes social democratic reforms outside high taxation are incapable of changing these dynamics…. He assigns no role in combating “r > g” to the growth of the social state that ensures access to health, education, and income security. Labor unions and the regulatory state are missing or underdeveloped…. In an especially revealing passage on French rentiers at the turn of the last century, Piketty writes that “universal suffrage and the end of property qualifications for voting…ended the legal domination of politics by the wealthy. But it did not abolish the economic forces capable of producing a society of rentiers.” This is a remarkable provocation for liberals….

I think this book signals a major change in the debate over inequality. First, the rosy picture that economists have painted about the nature of inequality has been displaced. The idea that labor’s share of the economy is more or less fixed, an essential element of the mantra that a rising tide lifts all boats, has been dealt a serious, if not fatal, blow. The idea that the inequality is necessary for a well-functioning society has also been thrown into question…. Second, the debate over wealth and taxes is back…. In Piketty’s analysis, the decline of high marginal tax rates are the main culprit in the large growth of inequality internationally since the 1980s. Since this major transfer of resources didn’t cause an increase in economic productivity, the cost of undoing it will be minimal for the economy as a whole…