While most still solvent Americans were celebrating Memorial Day with Brats and Burgers, an elite cadre of economists was locked away in dens and private nooks, pouring over data sets by bankers lights or pounding keyboards to express opinions on the French economist Thomas Piketty.
Piketty’s simplistically titled but exhaustively comprehensive “Capital in the 21st Century,”– an analysis of trends in global income inequality–is the surprising best-seller of the early beach season and has attracted politicians (i.e., Elizabeth Warren) to academicians and expert luminaries (i.e. John Galbraith) with to economic laymen like yours truly.
It’s been the topic of considerable and highly technical debate as well, especially on the web. At issue is whether Piketty’s data holds up to scrutiny or whether he’s just pushing an agenda.
For those of us who measure their economic acumen in semesters and various acronyms (MBA Economics, MEA-Masters in Economic Analysis—etc.,) there’s not much hope of understanding the mathematical minutiae of this discussion, let alone settling it, and I wouldn’t try. But by endeavoring to make sense of the broader issues here, many of us can learn something about where we are headed as a society.
A crude recap of Piketty’s essentials points are that the most affluent, both in the United States and globally, have been hoarding a sharply increasing share of wealth in their societies. His main premise is that we quite possibly have entered a prolonged period—think, age of the robber barons in the 19th century–when the value of capital will continue to outstrip productive economic and income growth. The result being that rich people will continue to compound their riches while everyone else falls relentlessly behind.
He also offers a series of fairly radical solutions that would have seemed unmentionable just a few years ago– including a spike in tax rates for the wealthiest citizens comparable to when Ronald Reagan took office and promptly set in motion the end of the strong middle class in the United States.
The really striking thing about the debate so far is that the right seems unable to mount any kind of substantive counterattack to Mr. Piketty’s thesis. Instead, the response has been all about name-calling, a favorite among the less-informed — in particular, claims that Mr. Piketty is a Marxist (of course!), and so is anyone who considers inequality of income and wealth an important issue.
But Mr. Piketty is hardly the first economist to point out that we are experiencing a sharp rise in inequality, or even to emphasize the contrast between slow income growth for most of the population and soaring incomes at the top. What Mr. Piketty and his colleagues have done, however, is to add a great deal of historical depth to our knowledge, demonstrating that we really are living in a new Gilded Age. But we’ve known that for a while.
What’s really new about “Capital” is the way it demolishes that most cherished of conservative myths, the insistence that we’re living in a meritocracy in which great wealth is earned and deserved.
For the past couple of decades, the conservative response to attempts to make soaring incomes at the top into a political issue has involved two lines of defense: first, denial that the rich are actually doing as well and the rest as badly as they are, but when denial fails, claims that those soaring incomes at the top are a justified reward for services rendered. Don’t call them the 1 percent, or the wealthy; call them “job creators.”
But how do you make that defense if the rich derive much of their income not from the work they do but from the assets they own? And what if great wealth comes increasingly not from enterprise but from inheritance?
What Mr. Piketty shows is that these are not idle questions. Western societies before World War I were dominated by an oligarchy of inherited wealth — and his book makes a compelling case that we’re well on our way back toward that state.
And The Wall Street Journal’s review, predictably, goes the whole nine yards, ridiculously segueing from Mr. Piketty’s call for progressive taxation as a way to limit the concentration of wealth — a remedy as American as apple pie, once advocated not just by leading economists but by mainstream politicians, up to and including Teddy Roosevelt — to the evils of Stalinism.
Really WSJ? Is that really the best the vaunted Journal can do? The answer, apparently, is yes.
Piketty and his most frequent collaborator, the Berkeley economist Emmanuel Saez, are recognized authorities in this field, so the populist left immediately embraced Piketty’s book as a brief against the rich. Inevitably, of course, other experts immediately began looking for holes in it.
Last week, reporters at the Financial Times (one of the few periodicals with which I still place any aplomb) dealt what seemed like the most serious blow yet to Piketty’s claims. They claimed to have discovered an array of mistaken or just plain inexplicable figures in Piketty’s data, which he put online for anyone who wanted to see it. Taken together, the FT claimed, these mistakes had the effect of exaggerating trend lines, and this discovery seriously undermined Piketty’s case.
The first question for me to consider, then, as an informed but not expert reader, is whether we should trust Piketty on the basics of his data. As near as I can tell, the best way to think about this is to envision the data as being like the plumbing in your house. A sweeping historical study like the one Piketty has undertaken requires linking different data from long stretches of time, sort of like connecting pipes.
The problem any academic faces is that the kind of data governments keep isn’t uniform from one country or one generation to the next. Okay, but that hardly discounts the underlying premise.
Although Piketty’s data might not be watertight, the consensus, even among skeptics of the book, seems to be that nothing catastrophic to his argument has been omitted. If the FT is right, then Piketty’s picture of rising inequality may be slightly alarmist, but its essential qualities and assumptions remain unchallenged.
Scott Winship, a capable and well-traveled economist, (he originally practiced his trade at the more progressive Brookings Institute) who now calls the conservative Manhattan Institute home, settled into a center-right comfort zone. (In other words, he is the kind of nuanced thinker about whom Harry Truman despaired when he famously said he wanted a one-armed economist, so he wouldn’t have to keep hearing about what was true on the one hand and what was true on the other.)
Mr. Winship’s take:
“I feel like I spent more time looking at the data this weekend than Piketty did. Most of the adjustments that he makes, I think, are pretty easily defended. I have a hard time getting worked up about any of this.”
But to focus on the granular data here, which only a relative handful of statistical experts can knowledgeably dispute, is to miss the larger issue surrounding Piketty’s book entirely, if not intentionally.
So that seems to be the best Piketty’s conservative detractors can muster.
Now, the fact that apologists for America’s oligarchs are apparently at a loss for coherent arguments doesn’t mean that they are on the run politically. Money still talks — and thanks to the unSupreme Roberts court, it talks louder than ever.
Still, ideas matter; shaping both how we talk about society and, eventually, what we do. And the panic over Piketty’s “Capital” shows that the right has run out of ideas if not voices to shout their propaganda loudly and often.
Harvey A. Gold