Peer2Politics

Co authored by Ann Pettifor and Geoff Tily

In this review of Piketty’s Capital (Harvard University Press, 2014)
Pettifor and Tily argue that Thomas Piketty’s determinism (which suggests
that inequality is set to continue to rise indefinitely and that interest
and growth are on a preordained trajectory) is wrong. Things don’t have to
be this way. Piketty’s approach arises from his fundamentally neo-classical
approach to interest as the marginal product of capital.

Given persistent, pressing economic crises, the Obama administration should open an Office of Economic Innovation to consider systemic changes, and involve Marxists and heterodox economists to help visibilize possible solutions growing up alongside capitalism.

Now that the first round of intellectual debris left in the wake of French economist Thomas Piketty’s explosive best-seller “Capital in the Twenty-First Century” has begun to settle, it may be time to look more closely at the gaping hole it has left not only in political-economic analysis but also in conventional political strategy. After Piketty documented long-running trends that have turned over ever-increasing shares of national income to the owners of capital at the expense of the vast majority, the best solution he could muster was what he termed a utopian idea: a global tax on capital. Liberal economists, for their part, have largely rolled out the usual list of progressive tax reforms, often conveniently forgetting to confront the extraordinary political obstacles that stand in the way of any one policy remotely powerful enough to tackle the forces Piketty documents.

There are several things. There’s some debate about this, but I think most readers of Thomas Piketty’s book (Capital in the Twenty-First Century) get the impression that the accumulation of wealth — savings —is responsible for the rise in inequality and that there is, therefore, in a way,a link between the growth of the economy — the accumulation of capital— on the one hand and inequality and wealth. My paper begins with the observation that in fact, you cannot explain what has happened to the wealth/income ratio by that analysis. A closer look at what has gone on suggests that a large fraction of the increase in wealth is an increase in the value of land, not in the amount of capital goods.

Thomas Piketty has written a book called Capital that has caused quite a stir. He advocates progressive taxation and a global wealth tax as the only way to counter the trend towards the creation of a “patrimonial” form of capitalism marked by what he dubs “terrifying” inequalities of wealth and income. He also documents in excruciating and hard to rebut detail how social inequality of both wealth and income has evolved over the last two centuries, with particular emphasis on the role of wealth. He demolishes the widely-held view that free market capitalism spreads the wealth around and that it is the great bulwark for the defense of individual liberties and freedoms. Free-market capitalism, in the absence of any major redistributive interventions on the part of the state, Piketty shows, produces anti-democratic oligarchies. This demonstration has given sustenance to liberal outrage as it drives the Wall Street Journal apoplectic.

What are the grand dynamics that drive the accumulation and distribution of capital? Thomas Piketty's latest findings will transform debate and set the agenda for the next generation of thought about wealth and inequality.