Anti-Piketty

Capital for the 21st Century

Jean-Philippe Delsol, Nicolas Lecaussin, Emmanuel Martin

• Publisher: Cato Institute
• Year: 2017
• ISBN:
  9781944424268
• Topic: Economics
• Subtopic: Development Economics
• Index: Economics

Thomas Piketty's book Capital in the Twenty-First Century has enjoyed great success and provides a new theory about wealth and inequality. However, there have been major criticisms of his work. Anti-Piketty: Capital for the 21st Century collects key criticisms from 20 specialists—economists, historians, and tax experts—who provide rigorous arguments against Piketty's work while examining the notions of inequality, growth, wealth, and capital.

Part 1. An Apocalyptic Vision

The empirical and theoretical work of an author is inevitably marked with a vision. It is important to discuss that vision to form a complete critique of the author’s work and thereafter to better understand those empirical and theoretical choices.

As with Karl Marx, the vision that permeates the work of Thomas Piketty is decidedly pessimistic about capitalism. Class struggle is always in the background: society is in conflict, and what A gains is lost by B. In such a society, the rich are “the wicked” side of the story. The idea that the poor can enrich themselves through capital accumulation—the tool of domination of the rich—is nearly taboo in Piketty’s world. The fact that the poor are already enriched by the market economy obviously doesn’t fit in with the rest of the vision.

Part 1 of this volume therefore offers a critique of Thomas Piketty’s vision—a vision in which reductions in various inequalities are hidden, a vision which is tainted by an anti-rich bias, a vision which does not serve the poor.

Section 1. No Declining Inequality?

Thomas Piketty pictures a world caught in an unstoppable spiral of enrichment of a minority, at immense cost to the majority. While the 1 percent of rentiers accumulates fortune in a snowball effect, what becomes of the 99 percent? In reality, are the 99 percent becoming poorer? Are they so badly off?

This section looks at the phenomenon—unprecedented in history—of the enrichment of the masses, notably in the form of extended life expectancy and access to consumption and education. It attempts to offer a realistic vision about the evolution of types of inequality, which is a lot less pessimistic than Piketty’s.

1. The Great Process of Equalization of Conditions

Jean-Philippe Delsol

Thomas Piketty’s book Capital in the 21st Century (2014) is an undeniable commercial success. A large part of this success is undoubtedly due to the Marxist affiliation claimed in the title “Capital.” Twenty-five years after the fall of the Berlin wall, one might have thought that the Marxist heritage would be stored in the cupboard of the history of ideas. But the recent financial and debt crisis generated legitimate frustrations, and intellectuals who propose explanations and answers have a ready market.

Anti-capitalist ideas have been especially well received. The American and European crises have largely been presented to the public as crises of capitalism although they were, to a large degree, crises generated by interventionism of public policy (monetary, budgetary, housing, and land policies) in the market process (Norberg 2009; Salin 2010). Regardless, the ideological ground was ready for Piketty, thanks to the “Occupy Wall Street” movement—the rebellion by the Greek people with grand speeches against “finance without a face,” as François Hollande once put it (2012).

The Great Enrichment of the Masses

Of course, inequality in a market economy is a legitimate concern that cannot simply be swept under the rug. However, focusing on inequality should not mean dismissing other fundamental issues. People who focus on inequality often seem to forget a historical fact: market economies have allowed a great many people to get rich and to get out of poverty. This effect is unprecedented in history. The American historian and economist Deirdre McCloskey calls it “the Great Enrichment” (2014, 76).

Our view of human history is often biased by a historical effect of position, a kind of 21st-century glasses, undoubtedly amplified by the persistent myth of a precapitalist golden age, populated by cheerful people, eating their fill and living free, healthy, and long lives. In reality, the daily life of an average person before the advent of capitalism was much crueler than even the images evoked by Balzac of the 19th-century industrial age, which have haunted our conscience since adolescence.

To be clear, yesterday’s world was no less harsh on poor people, and they were no less numerous. Rome, at the end of the Empire, supported 120,000 indigents. There was massive poverty in the eastern part of the Roman world in the sixth century. During the Middle Ages, the poverty level fluctuated but was generally much worse than today. In Burgundy, France, “in Dijon in 1397 the miserable represented 83 percent; in 1431 and 1433, they were still 58 and 54 percent, and 27 and 34 percent of beggars” (Mollat 1992, 283). The church and the monks took active care of the poor at the time.

In time, the liberal revolution and the industrial revolution lifted a greater number of people out of poverty. The living and working conditions of the “proletariat” at the start of the industrial capitalist era were without doubt abominable by today’s standards. But in their historical context, those conditions were not abnormal, and they actually attracted many impoverished people—as shocking as that may sound today. We must therefore realize what the capitalist revolution has allowed. It has ignited a process of liberation, contrary to what the Marxist or Neo-Marxist vision would have us believe.

The Reduction in Consumption Inequality

The speed at which the market economy allows sections of humanity to get out of poverty should make us marvel. Again, without minimizing the question of inequality in income or wealth, this process of liberation and enrichment has clearly reflected a decline in consumption inequality. Steven Horwitz reminds us: “For most of human history, the difference between the rich and the poor was a difference in the kinds of things they had access to. Rich people had stuff that poor people didn’t” (2015, 22). The gap in consumption between the rich and poor has recently decreased like nothing before thanks to the unprecedented rise in exchanges and innovations. Consumption inequality in food and basic services has never been as low.

Of course, only the rich can drive in Ferraris, but that does not prevent the poor from driving. As Jonah Goldberg (2014) puts it, “There’s a significant difference between not being able to feed your family and not being able to feed your family as well as a wealthier man might.” A poor American has the same access to basic foods as Bill Gates. The idea of not being able to eat meat more than once a week or once a month, common for the vast majority of people a century ago, has become foreign to us (at least in the countries that have chosen the path to development). It takes fewer hours of work to pay for similar goods than a generation ago.¹ Poor people today have access to foods that, two centuries ago, even kings could not procure; they can cure a toothache cheaply when even the richest in former times remained in agony in such a case, despite their wealth. The number of new products has exploded,² and their quality has increased,³ rendering more and better services, especially for the poorest.

The same goes for the reduction of inequalities in longevity, life expectancy, access to education (Eberstadt 2016), or access to leisure. We can therefore criticize the analysis of Thomas Piketty for focusing on the increasing wealth of the 1 percent and forgetting a bit too quickly about the increasing wealth of the 99 percent (Strain 2014; Winship 2014).

The Reduction in Inequality on a Global Level

As with any process, change will not happen by waving a magic wand. The fate of assembly-line workers working 12 hours a day in developing countries like Cambodia concerns us, just as Korean workers’ conditions concerned our parents a generation ago. Now Korea is a developed country and working conditions have improved. This progress illustrates a point that is somewhat obscured in Piketty’s book: focusing on inequality within particular countries can make us forget that inequality is gradually decreasing worldwide, across countries. Indeed, the phenomenon of liberation of the greatest number by the capitalist revolution is being reproduced on a global scale. Between 1990 and 2010, the income and wealth gap increased, as both Piketty and Pope Francis complain in unison. But at the same time, world poverty was retreating.

In 1990, 47 percent of the world population lived on less than a dollar a day. Twenty years later, 22 percent still shared that terrible lot, surviving on less than $1.25 per day (the equivalent of $1.00 in 1990). Viewed more positively, 700 million people were lifted out of extreme poverty. A study conducted for the Organisation for Economic Co-operation and Development shows that the number of Latin Americans living on less than $4.00 a day decreased from over 40 percent in 2000 to less than 30 percent in 2010 (OECD/UN-ECLAC/CAF 2013). In Latin America today, the poor are equal in number to the middle class, whereas they were two and a half times as many just a decade ago.

The Economy: A Zero-Sum Game?

The principal lesson is that the market economy is not a zero-sum game (Shuchman 2014). Piketty, however, proposes a vision in which whatever the capitalist gains, the worker loses: the enrichment of one implies the impoverishment of the other; a bigger piece of cake for Jack means a smaller piece for John. His vision stems from a fundamentally static view of socioeconomic development. The enrichment of the wealthiest actually goes hand in hand with that of the poorest (Saab 2014⁴). The very concept of development rests in the idea of the snowball effect, which profits everyone (albeit at different rates): the size of the cake gets bigger.

Note that Piketty’s “natural” explanation of inequality reduction involves war and economic crises. Obviously, and fortunately, Piketty does not advocate war or economic depression; he proposes radical taxation. However, his objective is the same, which is shocking in its cynicism and absurdity. Effectively, the result of Piketty’s proposal would be, if not the destruction of capital, at least the “decumulation” of capital (Reisman 2014) with all of its consequences, such as potentially stifling growth and development and preventing the decline in poverty. Ensuring that the wealthiest get poorer simply reduces the size of the “cake”! Is not economics about, instead, promoting the reduction in poverty (indirectly, through the accumulation of capital)? Piketty seems to be seduced not only by the vision of the economy as a zero-sum game, but also by economic policy as a negative-sum game.⁵

Class-Struggle Theory Recycled in a World without Human Capital

The view of the economy as a zero-sum game fits perfectly with the theory of class struggle. Piketty denies being a Marxist, though, and claims that he likes the market economy: “I love market forces” (Piketty and Roberts 2014). He says his own experience with communism during a trip to Romania in the 1980s vaccinated him against hard-line Marxism. However, it is difficult not to see in Piketty’s work a rehashing of the old theme of class struggle—a softened, 21st-century version. The simplistic employee/capitalist cleavage, however, does not fly for two reasons.

First, the “great enrichment” has allowed the working masses to effectively become capitalists by making wealth for themselves through their savings. The wealth of the poor has increased—with no comparison to what it was a century ago. Thus, workers are becoming capitalists: for example, many workers are employees who open retirement savings accounts. That is, they can do so if their government does not prohibit it, on the advice of experts fond of Piketty’s theories. For Piketty does not approve of the practice: according to him, although the accumulation of capital is quasiautomatic and without risk for the rich, curiously it is too risky for the poor, as Rallo (2016a) and Tanner (2016) explain.

Second, one of the powerful causes of inequality reduction is the accumulation of human capital (Strain 2014). This investment, which the poor as well as the less poor can effectively make to become more productive and thus climb the income ladder, is the foundation of social mobility and the great disruptor of class boundaries. Human capital is undoubtedly the most profitable form of capital (Butler 2014). The differences in accumulation of human capital in large part explain the differences in remuneration. We cannot overlook the analysis of human capital if we are to understand the sources of growth and reductions in extreme poverty and many inequalities (McCloskey 2014; Meltzer 2014).

Although Piketty’s book is supposed to be about the analysis of capital, he puts aside human capital, arguing that human capital is not transferable. However, his analysis is already founded on confusion between capital (i.e., productive, financial, property capital) and transferable wealth or inheritance. Moreover, the fruits of the accumulation of human capital are in large part transferrable. It is thus difficult not to believe the author’s choice was aimed at intensifying the bias of the book.

The Immobile Society?

Here is another sign of Piketty’s extremely static view of social changes: Piketty does not understand—or pretends not to understand—real mobility. He reckons that wage mobility has been weak (Piketty 2014, 299), while admitting the appearance of a middle class that has replaced the rentiers. Indeed, he notes that “the decrease in the upper decile’s share of national wealth in the twentieth century benefited the middle 40 percent of the population exclusively, while the share of the poorest 50 percent hardly increased at all” (Piketty 2014, 342). Thus, today, the middle class⁶ owns about a third of the national wealth.

The stratification in deciles from the poorest to the wealthiest ignores the central fact that deciles are porous. Piketty does not analyze the transfer from one to the other as social mobility occurs in both directions. Yet, this social mobility is an important factor, especially in advanced societies and in particular in the United States.⁷

Movement between deciles depends in part on age, as young people are generally poorer but capable of climbing the economic ladder given time. This observation also holds between generations.⁸ Stephen Moore cites the work of economist Ron Askin, who has shown that two-thirds of Americans today enjoy higher incomes than did their parents at their age (Moore 2012, 50). Moore adds that a Federal Reserve Bank of Dallas study covering the period 1975–1991 shows that 98 percent of poor households in 1975 were no longer poor in 1991 (Moore 2012, 48).

Inequality: A Threat to Democracy?

One of Piketty’s main arguments against inequality is that it constitutes a threat to democracy: too high inequality generates a risk of revolution, and chaos could follow. However, a general rule is that people are more interested in bettering their own lot (if they are permitted to) than in depriving the wealthiest. Thus, employment and growth matter most. Even during the recent crisis and its aftermath, many elections brought to power parties that were not particularly egalitarian, which seems to reflect the concerns of the majority (Barone 2014).

Is democracy doomed to turn into a plutocracy? Events in the United States can sometimes lead us to believe that is the case, for example with the Bush and Clinton families. Yet, let’s observe that the two families are in opposing camps, and the camp dear to Piketty is well represented here (Epstein 2014). In fact, wealthy donors appear all along the political spectrum: should George Soros be prohibited from supporting the Democrats? In addition, not all the people in power are rich: Barack Obama and John Boehner both come from modest environments (Goldberg 2014).

Furthermore, if we are really faced with a government of the rich, why did that government put in place generous redistribution systems (Bourne 2014)? Why, indeed, would the government shoot itself in the foot? Finally, is the link between a fall in inequality and democracy that evident? If so, why did the “egalitarian” interwar period in Pik...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• FOREWORD
• INTRODUCTION
• PART 1. AN APOCALYPTIC VISION
• PART 2. CRITICIZING THE EMPIRICAL STRENGTH OF CAPITAL IN THE 21ST CENTURY
• PART 3. THEORY AND POLICY
• NOTES
• REFERENCES
• CONTRIBUTORS