The Piketty Factor: "Capital in the 21st Century" - The right book for the "Right" Time?

Economist Thomas Piketty's book, "Capital in the 21st Century" is already causing a stir in media, political and economic circles for its analysis on the negative impact of extreme capital accumulation on growth. In essence, he posits that, for the many, inheritance will matter more, much more, than individual merit and hard work. That is, the increase in wealth in capital will prove inversely proportional to the increase in employment and related growth needed for the expansion of the overall economy, not only for the expansion of those at the very highest levels. The Paris School of Economics professor's book is dense, theoretical and scholarly, but references a great deal of data and research. It provides a more academic foundation to the more anecdotal and intuitive sense that, while things are proceeding very, Very, VERY, VERY well for some, for many others, things are not going well at all in the present, and the prospects for the future, especially for succeeding generations, either the young or those on fixed incomes or facing retirement, are not looking promising at all. Since the last decades of the 20th century, and into the 21st, the hegemony of the Right-based ideology of an anti-government free market corporate society, as we move into this era of advanced capitalism, denied the importance of equality and true opportunity for all segments of society in favor of a trickle down theory. Following the 2008 economic collapse, despite the marginal increases in financial regulation, the resurgent stock market was accompanied by sluggish employment. Where economic growth occurred, it was for those who already held a lot of wealth. For those who did not hold capital, specifically for salaried employees and wage workers, growth has languished, or worse.

Whether he is "on the money" or not, a fresh view is needed and that may be what "Capital in the 21st Century" can provide. The book, and much of the writing surrounding the debate of his book and ideas, will no doubt become required reading in New York's City Hall, where Mayor Bill deBlasio has made the issue of inequality a central issue in his recent election campaign and, hopefully, his administration. It also needs to be discussed in the White House where President Obama has recently cited the issue as well.
--Deep in the Heart of Brooklyn

What follows is Deep in the Heart of Brooklyn's Piketty Primer:

Thomas Piketty's Book "Capital in the 21st Century" (Harvard University Press) - excerpt here
Excerpt of the excerpt: "In a way, we are in the same position at the beginning of the twenty-first century as our forebears were in the early nineteenth century: we are witnessing impressive changes in economies around the world, and it is very difficult to know how extensive they will turn out to be or what the global distribution of wealth, both within and between countries, will look like several decades from now. The economists of the nineteenth century deserve immense credit for placing the distributional question at the heart of economic analysis and for seeking to study long-term trends. Their answers were not always satisfactory, but at least they were asking the right questions. There is no fundamental reason why we should believe that growth is automatically balanced. It is long since past the time when we should have put the question of inequality back at the center of economic analysis and begun asking questions first raised in the nineteenth century. For far too long, economists have neglected the distribution of wealth, partly because of [economist] Kuznets’s optimistic conclusions [about the inevitable historical decline of inequality, but which was not based on empirical research] and partly because of the profession’s undue enthusiasm for simplistic mathematical models based on so-called representative agents. If the question of inequality is again to become central, we must begin by gathering as extensive as possible a set of historical data for the purpose of understanding past and present trends. For it is by patiently establishing facts and patterns and then comparing different countries that we can hope to identify the mechanisms at work and gain a clearer idea of the future."

Stephen Erlanger in the NY Times: Taking on Adam Smith (and Karl Marx) here
Excerpt: "The last part of the book presents Mr. Piketty’s policy ideas. He favors a progressive global tax on real wealth (minus debt), with the proceeds not handed to inefficient governments but redistributed to those with less capital. “We just want a way to share the tax burden that is fair and practical,” he said.

"Net wealth is a better indicator of ability to pay than income alone, he said. “All I’m proposing is to reduce the property tax on half or three-quarters of the population who have very little wealth,” he said."

John Cassidy in the The New Yorker Inequality by the Numbers: Thomas Piketty's Inequality Story in Six Charts here

John Cassidy in the New Yorker: Is Surging Inequality Endemic to Capitalism? here

Moyers and Company - Perspectives on Piketty here
National Review: Technology will save us. Dean Baker: Provides valuable insights. American Prospect: deTocqueville 2.0. More.



Pascal-Emanuel Gobry in Forbes: The Conservative Case for Thomas Piketty here
Excerpt: "But on his proposals on inequality, I think this quote aptly sums up his project–which happens to be one I share: ”my point is not at all to destroy wealth. My point is to increase wealth mobility and to increase access to wealth.”

Time Magazine on Why Thomas Piketty is Freaking Out the Super-Wealthy here
Excerpt here:

"Piketty’s 15 years of painstaking data collection—he poured over centuries worth of tax records in places like France, the U.S., Germany, Japan and the U.K—provides clear proof that in lieu of major events like World Wars or government interventions like the New Deal, the rich take a greater and greater share of the world’s economic pie. That’s because the gains on capital (meaning, investments) outpace those on GDP. Result: people with lots of investments take a bigger chunk of the world’s wealth, relative to everyone else, with every passing year. The only time that really changes is when the rich lose a bundle (as they often do in times of global conflict) or growth gets jump started via rebuilding (as it sometimes does after wars).
This is particularly true in times of slow growth like what we’ve seen over the last few years. I’ve written any number of columns and blogs about how quantitative easing has buoyed the stock market, but not really provided the kind of kick that we needed to boost wage growth in the real economy, because it mostly benefits people who hold stocks–that’s the wealthiest 25 % of us. Meanwhile, consumption and wage growth remain stagnant. And as Piketty’s book makes so uncomfortably clear, it’s likely to get worse before it gets better. No wonder I saw an advertisement for a storage company on the subway the other day that read, “The French aristocracy didn’t see it coming, either.”

"That’s one of Piketty’s biggest messages–inequality will slowly but surely undermine the population’s faith in the system. He doesn’t believe, as Marx did, that capitalism would simply burn itself out over time. In fact, he says that the more perfect and advanced markets become (at least, in economic terms), the better they work and the more fully they serve the rich. But he does believe that rising inequality leads to a less perfect union, and a likelihood of major social unrest that mirrors the sort that his native France went through in the late 1700s. Indeed, the subsequent detailed collection of wealth data in the form of elaborate income and tax records made France a particularly rich data collection ground for his book. (Bureaucracy is good for something!)

"My feeling about this book is similar to that of New York Times’ columnist Paul Krugman. It’s going to be remembered as the economic tome of our era. Basically, Piketty has finally put to death, with data, the fallacies of trickle down economics and the Laffer curve, as well as the increasingly fantastical notion that we can all just bootstrap our way to the Forbes 400 list. It’s telling and important that Piketty credits his work to the fact that he didn’t forge his economic career in the States, as so many top thinkers do, because he was put off by the profession’s obsession with unrealistic mathematical models, which blossomed in the 1980s to the exclusion of almost all other ideas and disciplines, and the false ideologies that they were used to justify. “The truth is that economics should ever have sought to divorce itself from the other social sciences and can only advance in conjunction with them,” he argues.
Indeed, had more top economists followed the lead of other social scientists and ditched their black box models in favor of spending time in the field—meaning on Main Street, where trickle down theory hasn’t ever really worked—they might have come to the same conclusions that Piketty has. We can only hope that the politicians crafting today’s economic programs will take this book to heart>"

Piketty: "Income Equality "Completely Useless" here
Excerpt: "If you'd like to live in Downton Abbey, the good news is that our economy has entered a second Gilded Age of opulence and elegance.

The bad news is that you'll likely end up among the vast majority stuck sweating in the kitchen.

In a new book, Thomas Piketty, the French economist who helped popularize the notion of a privileged 1 percent, sounds a grim warning: The U.S. economy has begun to decay into the aristocratic Europe of the 19th century. Hard work will matter less, inherited wealth more. The fortunes of the few will unsettle the foundations of democracy.

The research Piketty showcases in his book, "Capital in the 21st Century," has set the economics field ablaze. Supporters cite his work as proof that the wealth gap must be narrowed. Critics dismiss him as a left-wing ideologue."

Paul Krugman in the NY Times on "The Piketty Panic" -- unable to refute, the right resorts to name calling. Column here
Excerpt: "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 — in particular, claims that Mr. Piketty is a Marxist, and so is anyone who considers inequality of income and wealth an important issue."