Rock-star economist Thomas Piketty— tough on inequality, soft on elitism May 26, 2014, Vol. 19, No. 35 • By CHRISTOPHER CALDWELL
The New York Times columnist Paul Krugman has written that Capital in the Twenty-First Century, Thomas Piketty’s new book on inequality and wealth, “will change both the way we think about society and the way we do economics.” Clive Crook describes the raptures with which intellectuals have greeted the book as almost “erotic.” President Obama’s advisers have been buttonholed about Piketty at speaking appearances from here to Dublin. Capital has reached number one on Amazon.com. It will provide the template for a lot of sweeping left-wing tax proposals in the coming years. It has been likened to Paul Kennedy’s Rise and Fall of the Great Powers and Reinhardt and Rogoff’s This Time Is Different. But in appearance and éclat, this staid, graph-and-table-clogged tome bears the strongest resemblance to Charles Murray and Richard Herrnstein’s book on intelligence, The Bell Curve, published 20 years ago. Like that book it is a sober work of social science from which one or two points have been made the subject of polemic. Unlike that book, Capital is beloved of elites—which is curious, since it purports to be an attack on elites.
Piketty is a number cruncher. Economists who study inequality have argued over and cited his work for a decade and a half. This new book does something more ambitious than just compare rich and poor. Thanks to computers and the spread of English as an academic lingua franca, it has become easier to cross-compare vast economic databases across long periods of time. Piketty has used wills, census records, and tax documents to measure the distribution of wealth and income in dozens of countries over long periods—all the way back to the eighteenth century in the case of France and Britain. He defines capital (or wealth, which he uses as a synonym) as “nonhuman assets that can be owned and exchanged on some market.” He has discovered that, in the societies we can measure, the importance of capital tends to be stable across time. In the nineteenth and early twentieth centuries, the stock of capital was worth about seven times the national income in Europe and about five times the national income in the United States. (The difference has to do with the availability of cheap land and higher levels of productivity.)
Those societies were unequal: In the United States and Britain in 1910, the richest 1 percent of citizens hauled in about a fifth of the income. And such societies tended to get more unequal because the rate of return on capital (r) is generally higher than the rate of growth (g) in the economy as a whole. Remember the formula
r > g
because it will soon be on T-shirts in college bookstores near you. Investments traditionally get a return of about 5 percent in Europe, 4 percent in the United States, while leading-edge economies grow, on average, at 1 or 1.5 percent a year. So the rich get richer.
The only reason we don’t already have the class structure of a banana republic is that, for a few decades in the mid-twentieth century—roughly the years of the world wars and the Great Depression—capital stock was destroyed by bombs and its value undermined by inflation. But in recent decades r > g has once more begun doing its insidious work. Our capital/income ratios are approaching those of a century ago. In the United States, “income from labor is about as unequally distributed as has ever been observed anywhere.” At book’s end Piketty puts forward a few suggestions for action. They are quite radical. One is a global tax on wealth. Piketty also suggests that European national budgets, which take up half of GDP in some countries, might have room to grow.
Certain reviewers have conflated Piketty’s views with those of Karl Marx—hopefully in the case of the Nation, despairingly in the Wall Street Journal. The latter, in a piece called “Thomas Piketty Revives Marx for the 21st Century,” claimed to see in his work “a moral illegitimacy to virtually any accumulation of wealth” and a hostility to growth. “Not that enhancing growth is much on Piketty’s mind,” the Journal adds, “either as an economic matter or as a means to greater distributive justice. He assumes that the economy is static and zero-sum.” This is all wrong. Piketty, while a leftist of a kind, is explicitly anti-Marxist. He believes Marx’s ideas of falling rates of profit are based on a primitive conception of productivity, and he runs down a variety of French leftist philosophers—Jean-Paul Sartre, Louis Althusser, Alain Badiou—in his footnotes.
May 19, 2014, Vol. 19, No. 34 • By THE SCRAPBOOK
The Scrapbook cited Gary Becker last week, in a list of outstanding recipients of the Bradley Prize. We’re sorry to have a sadder reason to mention his name this week: He died May 3, at the age of 83. “He was perhaps the greatest living economist,” George Mason University economist Tyler Cowen eulogized. Becker’s influence is felt far beyond his own field, however. If the basic lesson of economics is that incentives matter, Gary Becker taught the world that incentives matter everywhere.
8:04 AM, May 5, 2014 • By MICHAEL WARREN
Governor Rick Perry of Texas criticized President Barack Obama's Washington-centric approach to solving problems in a Sunday appearance on NBC's Meet the Press. Perry was asked by host David Gregory about the recent botched execution of a convicted murderer in neighboring Oklahoma and the announcement from Obama that his administration would be "analyzing" the use of capital punishment in various states. Perry said he was confident about how Texas administered executions, and then offered a critique of Obama.
11:25 AM, Apr 30, 2014 • By MICHAEL WARREN
Health care costs rose in the first quarter of 2014 by 9.9 percent, according to a quarterly report from the Bureau of Economic Analysis. The jump in costs with respect to real GDP comes after several periods of more modest health care cost growth. In 2013, for instance, costs only grew 2.4 percent from the previous year.
Mar 17, 2014, Vol. 19, No. 26 • By FRED BARNES
President Obama talks, talks, talks about jobs. The first 20 minutes of his State of the Union address in January was all about jobs. Immigration reform would “create jobs for everybody,” he said. His energy policy “is creating jobs.” Obama said he’s assigned Vice President Biden to make sure training programs match workers with “good jobs that need to be filled right now.” Last week he described his new budget as “a road map for creating jobs.”
Conservatives and the unemployed.Mar 3, 2014, Vol. 19, No. 24 • By IRWIN M. STELZER
Millions of Americans, glutted with benefits that until now have seemed likely to be renewed and renewed again, have suddenly become devoid of ambition, shed the work ethic, and taken to the couch and the TV remote. Or found a back pain or emotional problem that entitles them to the even higher benefits designed to ameliorate the plight of truly disabled workers.
A better approach to poverty.Feb 10, 2014, Vol. 19, No. 21 • By ELI LEHRER and LORI SANDERS
President Obama’s State of the Union speech brimmed with ideas to increase upward mobility and spur job creation—most of which have been tried previously, without good results. From calling on Congress to raise the minimum wage to announcing the creation of six new “high-tech manufacturing hubs” centered around research universities, too many of these ideas flow from misplaced confidence in the ability of top-down government policy to steer the economy and lift the circumstances of those in poverty.
A modest proposal for the new Fed chairman. Jan 27, 2014, Vol. 19, No. 19 • By ANDREW FERGUSON
It's been more than a week now and I’m beginning to suspect she’s not going to call, so here I will offer Janet Yellen the advice I’ve been hoping to give her privately since the Senate confirmed her as the new chairman of the Federal Reserve. My advice is: Think about John Cowperthwaite. By this I mean: Really think about
There are better ways to help workers than the minimum wage.Dec 23, 2013, Vol. 19, No. 15 • By IKE BRANNON
There is a vintage Corvette parked on the street nearby, a 1977 canary yellow model in perfect condition. The NADA Blue Book says it’s worth around $15,000.
The car is someone’s toy: I know that because it hasn’t been moved for an entire year. I’ve seen the owner visit it a couple of times to rev the engine and give it a sponge bath, but it’s been in the exact same spot since last Christmas.
50,000 words, boiled down—way down.Dec 23, 2013, Vol. 19, No. 15 • By ANDREW FERGUSON
Everybody has an opinion about the pope these days and, what’s worse, feels compelled to express it. Rush Limbaugh has an opinion about the pope. He says he finds the pope “upsetting.” And he’s not even Catholic!
In reducing the role of government in the economy, the U.S. is a laggard. Oct 14, 2013, Vol. 19, No. 06 • By IKE BRANNON
For much of the last century the United States was the world’s beacon for capitalism, but these days we’re far from such a lofty perch. Since the end of the Cold War, countries on both sides of the Iron Curtain have moved to reduce the role of government in the economy by changing the tax code as well as by privatizing government activities.
12:00 AM, Sep 21, 2013 • By IRWIN M. STELZER
Given that mine is the dismal science, it is my role to cool the exuberance of investors at the news that the Fed will continue to print money rather than taper, with a bit of news that should worry them--the possible revival of the trade unions, long a fading force in the private sector.
10:05 AM, Sep 20, 2013 • By GEOFFREY NORMAN
It is no secret that Washington generally prospers even as the rest of the country struggles. In a rough fashion, prosperity in the capital and economic hardship in the rest of the country are inversely related. An economic crisis means lots of new government pump priming--remember the stimulus?--which means new departments and programs in Washington. More opportunities for the tribe of lawyers and lobbyists.