It can happen, I suspect, to any of us. Someone comes along with major thoughtfulness, lays it out in an enticing book that happens to lend aid and comfort to our ideological druthers, and we shout its praises and sneer at those who don’t.
I’ve been there. I’ve quoted my heroes at length and, on a couple of occasions, embarrassingly learned later of faults and fallacies hidden in the bushes. My question is whether leftists will give up their sneers as critics raise serious questions about a new book by French economist Thomas Piketty.
Called “Capital in the Twenty-First Century,” it says capitalism is heading for virtually inevitable catastrophe in the absence of taxing the tarnation out of the rich – or something very close to that. There has seldom been such rejoicing among leftists who clearly see the work as a powerful means of winning political battles, thanks to the well-argued, clearly expressed thesis and research that is nothing short of mountainous.
Piketty’s central point is that growth of capital significantly exceeds the rate of economic growth, meaning that income from stocks, bonds and other assets is vastly outstripping the income of labor. For historical reasons, income inequality was held in reasonable check during some periods, he says, but no longer. It is getting crazier all the time, and, to stop the madness, he wants a tax of 80 percent on incomes over $500,000 or maybe a million in highly developed countries and a progressive, global, wealth tax on our assets.
Here comes Martin Feldstein of Harvard. He disputes the thesis, saying capital only grew minutely more than the U.S. economy in recent decades once you take tax rule changes into account. As for a disastrous future, others contend, there are just too many variables to allow reasonable predictions.
Piketty says his proposed confiscatory taxation won’t hurt, but critics say it will deter innovative entrepreneurialism and other diligent efforts while enlarging bloated government. He makes it seem the wealth of the rich stays put while critics note the well-off are now paying most of our taxes, generate vast economic activity by spending on their lifestyles and invest in companies that are then enabled to expand and produce more jobs.
Another notable complaint is that Piketty left out something big in assessing U.S. income, namely $2.3 trillion in government transfer payments to the poor and middle class. In the end, it is also noted, the problems of the poor have far less to do with capital than with such social factors as single-parent households.
And hey, if Piketty is right that capital will keep growing at great rates while other income sinks, why not help fix the inequality issue by hitching more wagons to this star? Investing a percentage of Social Security contributions in stocks could pay off big time, right? President George W. Bush was beaten up badly for this idea, but some point to how the Piketty thesis gives extra credit to a proposition that had merit before he spoke up.
John Cassidy, who reviewed “Capital” in the New Yorker, makes a point I especially applaud. He says Piketty barely deals with the incredible economic good happening in the developing world. In 1981, Cassidy says, about 40 percent of everyone lived on one dollar a day. Today, it is 14 percent. In the 1950s, people on average did not live past 42 in poor countries. The life expectancy has now risen to 68. China’s economy may be creating new inequalities, but it has raised hundreds of millions out of excruciating destitution.
This brings me to a book that I believe is worthy of more attention than Piketty’s. It is Matt Ridley’s “The Rational Optimist,” which demonstrates how it is exchange, specialization, innovation – the work of free markets and trade – that are leading us not to a forlorn future, but to a great one worldwide if we let it happen.