While confessing her admiration for Thomas Piketty, American economist Nancy Folbre has three objections to his theories. What is the impact of labour inequalities on class conflicts? What part do gender-based differences play? And lastly, aren't economic inequalities between nations even more problematic than those between individuals?
If there were more economists like Thomas Piketty, the world would be a better place, though it is hard exactly to say how much better without a detailed econometric model. I jest only in order to explain the history of my own love-hate relationship with the economics profession. I love it when really smart economists like Piketty bring trends in wealth inequality to the fore, showing how they affect the trajectory of economic growth. I hate it when they treat it in mechanical terms, as though the economy itself were an automobile beyond our control, or a GPS that simply needs to be reprogrammed.
Piketty's book almost escapes this criticism by explaining how we could take the steering wheel. But the steering wheel he reaches for points to?a progressive, global tax on wealth?seems so small, remote, difficult to reach. It is hard to imagine how to campaign for, much less implement such a tax. And while Piketty emphasizes the growing power of a small wealthy elite, he doesn't say much about how they wield that influence.
His book has more to say about how the machine works than how its guidance system has been designed. Many economists on the left have registered similar complaints. My favourite exposition of these, published on line in Jacobin by Suresh Naidu, is called Capitalism Eats the World, which aptly describes the policy prescription as "technically feasible and politically hopeless." Piketty's very model predicts increasing consolidation of wealth and power.
Political power determines taxation and vice versa
Piketty's own model predicts a consolidation that increases wealth and power.
Still, like Suresh, I love Piketty's book because it effectively undermines the case mainstream economists have made against a tax on capital?a technical litany of claims that it would reduce efficiency and lower economic growth. In the context of the global economics profession, the theoretical model he develops is subversive because it shows why profits may continue to expand at the expense of wages, a process which could potentially undermine the growth that economists love to hail. His historical narrative, based on persuasive empirical research, clearly shows how political power has shaped tax policy?and vice versa.
In person, Piketty is even better than his book. In a talk he gave at my university in September, he won over his audience with his humility, a quality rare among economists. He pays obeisance to the data, making his painstakingly collected numbers available to everyone, with detailed documentation.
He won a laugh for his confession that he longs for a wealth tax in part because it would generate better data on the distribution of wealth (the most reliable data on income distribution comes from obligatory income tax returns).
He presented figures on the real growth rate of top global wealth between 1987 and 2013 substantiating his claim that the more capital individuals own, the faster it seems to grow. He illustrated the same point with a comparison of rates of return on college endowment portfolios in the US between 1980 and 2010. Elite universities with the largest endowments garnered far higher rates of return than those (like mine, the University of Massachusetts) with small endowments. Whether or not capital eats the world, it seems to reproduce faster the bigger it gets.
