For to everyone who has, will more be given, and he will have an abundance. But from the one who has not, even what he has will be taken away. — Matthew 25:29
French economist Thomas Piketty’s Capital in the 21st Century is the latest book sensation. Confession: I haven’t actually read it. But I’ve read plenty about it (both pro and con) — hardly avoidable lately. “Progressives” are gaga over it*, a confirmation bias feeding frenzy. People love having their pre-existing beliefs flattered. Piketty strokes the left’s inequality obsession: he predicts the gap worsening, saying returns on capital tend to outpace economic growth, so wealth tends to concentrate; and to combat this he proposes a worldwide wealth tax and punitively high (80%) income tax rates for the rich.
Piketty’s predictions of slow growth and consequently increasing inequality have been challenged for faulty economic assumptions and analysis. The Left imagines a coming dystopia where a corporate 1% hogs all the wealth and the 99% have nothing. The absurdity is: who would buy all the products and services that make the 1% rich?
Meantime, Piketty’s fans also strangely overlook a glaring political correctness no-no. The book is Western-centric, focusing on the “First World” and pretty much ignoring the rest. But this is no mere cosmetic flaw — it goes to the heart of Piketty’s presentation. Wealth and equality are global matters, and if you only look at part of the globe, you can’t get it right. The big story is that while inequality may indeed be rising in Pikettyland, it’s not rising, in fact it’s falling, globally.
That’s unarguable fact, because for some time, Western economic growth rates have been materially exceeded in the poorer countries, notably India and especially China (together comprising over a third of world population). That means the global gap between rich and poor must be narrowing (even if within countries it’s not).
Moreover (fatal to Piketty), trends in rich nations and poor ones are not unrelated. As we know well in America, a big reason for rising inequality is the disappearance of high-paying factory jobs that used to raise up the less affluent. Many of those jobs have gone to poorer countries — raising up their lower classes. In other words, global inequality is shrinking because wealth is shifting from richer countries to poorer ones; though it’s flowing from the less wealthy people in the rich countries which thus become more internally unequal. So the U.S. lower and middle classes are being hurt more by poor foreigners than rich Americans.
Piketty calls rising inequality “terrifying.” It would be, if the poor were getting poorer; yet they’re not. While the rich are getting richer, so are the world’s poor, albeit not as fast, but with hundreds of millions rising out of poverty in recent decades. Even in advanced countries, the poor are not falling, what with all the social safety nets. (Entitlements to Social Security, Medicare, and other government benefits are a form of wealth Piketty seems to ignore.) And poverty ain’t what it used to be: the living standard of Americans now classed as “poor” would have been considered solidly middle class a few decades ago (and would be considered rich in much of the world today).
But inequality is really the wrong concern, because the problem of the poor is not that others are rich. The problem of the poor is instead their poverty, which cutting down the rich won’t solve. The left’s big error is thinking the rich “extract” their wealth from the rest; that there’s a lump of wealth to be divided up. Not so; wealth is created by productive effort. Steve Jobs got rich because people gladly paid more for his products than they cost to make. That added value made everyone richer. Had Jobs and his products never existed, his wealth would not have been spread among everyone else; it would not have existed either!
True, if you simply grab money from the rich and hand it to the poor, they’d be less poor and unequal — for the moment. But it won’t solve why they’re poor in the first place. What’s needed is not redistribution of wealth, but of the ability to earn wealth. That would be good for everyone, and without taking anything away from anyone; but it’s a much tougher problem. (Piketty does acknowledge that expanding education must be part of the answer.)
Yet the left’s inequality obsession is not truly a social conscience thing. It’s not so much compassion for the poor as envy and hatred for the rich. It’s wealth and the power it brings that they find so intolerable (because they lack it), and are so rabid to tear down. Thus their swoon for Piketty’s global wealth tax proposal (how innovative). How to use the tax revenues, to raise incomes at the bottom, is barely a concern; it’s mainly to make the rich less rich.** And of course Piketty and his fans ignore how their vendetta against the rich, if enacted, would gum up the economic growth machine. Now that would really be terrifying — for rich and poor alike.
But in a commentary on Piketty, in Salon, Jesse Myerson says the solution to inequality is really simple. Instead of letting the returns on capital assets flow to their owners, we can just have the returns flow “democratically” to, well, everybody! As Red Green would say, “It’s just that easy!” Why didn’t Piketty think of that?
* Visiting SF’s famed City Lights bookstore last week, the guy ahead of me was buying their last copy.
**This was demonstrated by the string of hostile comments to a version of this review on Amazon. It was all “the rich this” and “the rich that” and why they should be made less rich, with nary a word about making anyone less poor. Will there be similar comments here?