Thomas Piketty is worried that advanced countries like the United States are headed toward a future in which the wealthy grow ever richer while economic growth stagnates, and he believes that something must be done to prevent this “patrimonial capitalism” from taking hold.
“All I'm saying in the book is: we should make sure this doesn't happen,” the French economist said Tuesday at an event in Washington, introducing the English translation of his book Capital in the Twenty-First Century, based on 15 years of research on trends in income and wealth inequality across nations.
Piketty, a professor at the Paris School of Economics, said there is no reason to think, based on any economic theory, that capitalist economies will necessarily produce economic growth to go with high returns of capital controlled by the wealthy. The future could entail the rich growing richer off their investments even as the economy stagnates, creating an ever-growing split between the "have" and "have-nots." But he does not advocate accepting such a new Gilded Age.
Instead, the 42-year-old Frenchman said, speaking in heavily accented but proper English, a crucial lesson of the 20th century is that “you don't need 19th century inequality to grow” the economy. The levels of inequality that prevailed in Western countries before World War I was “just useless,” he claimed, when the kind of broad-based growth that took place in the post-war period is attainable. His own proposal for warding off a return to the bad times is a steep increase in income taxes for high earners and a global wealth tax.
For the purposes of his book's success in the U.S., however - it's a New York Times bestseller despite being 700 pages of dense economics - Piketty's recommendations matter less than his overall argument, which lends data and theory to a narrative that has already been taking shape in left-of-center U.S. politics for several years.
The rise of the "1 percent" has increasingly resonated in U.S. political debates since the financial crisis. It's only recently that data detailing the rising incomes of the American top 1 percent have been available -- not coincidentally, from studies of tax data performed by Piketty and his co-author, the Berkeley economist Emmanuel Saez, another native of France.
As the economy and labor markets have struggled to heal in the half-decade since the crisis of 2008, Democrats have increasingly raised concerns about the fortunes of the 1 percent and inequality as part of their political platform. President Obama effectively endorsed inequality as the motivating issue for U.S. liberals in December, when he said in a heavily promoted speech that income inequality was the “defining challenge of our time.”
One of Obama's economic advisers, Betsey Stevenson, sounded notes of approval for Piketty's ideas about growth and inequality at a separate event at the Center for American Progress Tuesday, saying that “addressing inequality can foster growth, and fostering growth … can help prevent inequality rising” in the bad scenario envisioned by Piketty if nothing's done.
Although Piketty's work is still new and relatively inaccessible for a mass audience, it is likely that in the months or years ahead, it could gain widespread popularity. There is recent precedent for economics research taking hold among partisans in the U.S., namely Carmen Reinhart and Kenneth Rogoff's study on debt, which became famous in the period following the rise of the Tea Party in 2009 and 2010.
In January 2010, Reinhart and Rogoff, then economists at the University of Maryland and Harvard respectively, published a paper titled “Growth in a Time of Debt,” in which they found that a nation’s economic growth slowed significantly after its debt exceeded 90 percent of its gross domestic product.
That academic finding – that high debt slows growth – formalized an idea already popular among Tea Partiers, namely, that debt reduction was the right prescription for the time. For an academic paper, it received an enormous amount of attention and citations. In 2010, it wasn’t unusual to hear back-bench Republicans cite “Reinhart and Rogoff” in presentations to their constituents.
It didn’t matter that Reinhart and Rogoff’s own recommendations were far from what the post-2010 midterms Republican Party pushed legislatively — at various times, one or both of them suggested adding stimulus, planning for tax increases, instituting a carbon tax, and having the Federal Reserve raise inflation to 4 percent.
In the same way, Piketty’s own legacy in shaping U.S. political debates may turn out to be significant, given the early praise for his book from key figures influential among Democrats. But what form that influence may take remains to be seen.