(Ed Note: Great book review of Thomas Piketty’s “Capital in the 21st Century. The book is loaded on The T-Room’s Recommended Reading carousel on the home page. Buying it through The T-Room helps us with our costs. h)
by Rana Foroohar
There are many reasons why French academic Thomas Piketty’s 685-page tome, “Capital in the 21st Century,” has vaulted to the top of the Amazon.com best seller list and is being discussed with equal fervor by the world’s top economic policy makers and middle class Americans who wonder why they haven’t gotten a raise in years. The main reason is that it proves, irrefutably and clearly, what we’ve all suspected for some time now—the rich ARE getting richer compared to everyone else, and their wealth isn’t trickling down. In fact, it’s trickling up.
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!)