Wednesday night, on the elevator down to the 400-seat auditorium at the City University of New York Graduate Center, one middle-aged man who looked like an economist bragged to a middle-aged couple who looked like economists, “I actually first saw Piketty back in ’01. Little place in the Village. He played ‘Patrimonial Capitalism,’ acoustic, and Emmanuel Saez came out for the encore.”
Just kidding, of course. But one cannot help but be taken aback by the rock-star kind of reception Thomas Piketty, a French economist, has received since his book Capital in the Twenty-First Century was published in English translation last month. If the world of center-left newspapers and magazines were a room, you couldn’t swing your arms in it without hitting a review of Piketty’s book (almost certainly a positive one). Paul Krugman in the New York Review of Books and in his column. Matthew Yglesias in Vox (“Can you give me Piketty’s argument in four bullet points?”). The Nation gave it the cover and nearly 10,000 words. Martin Wolf—Britain’s Paul Krugman (unless Krugman is our Martin Wolf)—just took his turn in the Financial Times. Even the right hasn’t been able to avoid it altogether. Piketty’s book earns its grandiose title with a once-in-a-generation confluence: It uses reams of brand-new data to tell the most compelling story available about the social and political problem that is already at the front of the agenda, namely, economic inequality.
And so last night’s event at CUNY had the feel of a prime stop on some big act’s whirlwind tour of North America. (Piketty has 11 stops in three cities this week.) “This seems to be the place to be!” is what the economist in the elevator actually told the two economists in the elevator. Chase Robinson, interim president of the Graduate Center, similarly said in his opening remarks, “I’m told it’s the hottest ticket in town.” The room was not quite to capacity, although the event had reportedly sold out. Judging from Twitter, there was extensive use of the live-stream, including an aborted drinking game at The Nation’s offices.
The subtext of the event might have been one generation—the three main discussants as well as, I would guess, the majority of the audience were Baby Boomers—being confronted with their mistakes by a younger man. Piketty is just 42. “Some of us went to graduate school at a particular period in this curve when things were looking very good,” noted Columbia economist Joseph Stiglitz, “and it gave us a particularly distorted view of the world.” For them, the evening presented an opportunity for redemption, in the form not only of acknowledging their previously “distorted view of the world,” but for proposing ways to get the world back to the way they thought it was. For younger audience-members, meanwhile, the night was even more important: If we don’t get the world back that way, then, Piketty’s book suggests, the rampant inequality that has already become a major factor in American life will just worsen.
Piketty, looking younger even than his years, and wearing a gray suit and a white shirt with partly opened collar—a stylistic nod, perhaps, to his countryman Bernard-Henri Lévy—began with a succinct summary. (Piketty spoke English in a moderate accent. The book was translated by Arthur Goldhammer, who, disclosure, is my cousin.) He clicked a couple slides, PowerPoint-style, including one directing anyone to his website. But he got so enveloped in his story that by the end, he realized he had failed to click through more than a dozen slides.
Seeing Piketty tell his by-now familiar story, in-person, brought home just how important his story’s story-ness—its narrative quality—is. Piketty would not have become this big a deal if, with the exact same data and insight, he had not fashioned a great yarn, with its beginning, middle, and premonitory end.
The story goes like this. Previously, thanks to the work of midcentury economist Simon Kuznets, the consensus held that inequality had a tendency toward narrowing. But using tax data from nearly 50 countries, stretching back decades and decades and, in France’s case, as far back as the 18th century, Piketty shows that Kuznets, who developed his eponymous Curve in the 1950s and ‘60s, had the unfortunate coincidence of standing at the one point in time where inequality might have appeared to be narrowing—right after two world wars and a depression had demolished the accumulated holdings of the world’s wealthiest. In fact, Piketty demonstrates, that period—the 30 or so economically glorious years following World War Two, known in France literally as Les Trente Glorieuses—was aberrant, and, in fact, generally, inequality widens, because, post-tax, the rate of return on capital (r)1 exceeds the rate of economies’ growth (g) several times over. Translation: Investment income tends to be larger and grow at faster rates than wages do, meaning that the already-rich, who make most of their money through investments and inheritances anyway, get even richer. If graffiti artists ever get into Piketty, then the equation
r > g
will appear all over the walls of the cities.
Everything adds up and is intelligible. Anyone familiar with the ascent of the finance industry—or even just the magic of compounded interest—will understand why r would exceed g. Anyone can understand how the United States, as Piketty acknowledged, might be temporarily breaking the mold, creating billionaires out of nobodies not through capital accumulation but through astounding wages to “supermanagers,” even though these supermanagers of course will, through their heirs, continue what Piketty terms “patrimonial capitalism,” and even though, as Krugman has noted, a glance at the Forbes 400, with its four Waltons in the top ten, reveals that America is not immune to inherited wealth. Anyone can understand why capital may have lost ground to wages from about 1913 to 1950, and if they couldn’t understand it, they could view Piketty’s chart (below—this comes from him) and the gigantic crater that represents the destruction to capital that occurred during that period:
Learning the story, one can also understand why Piketty’s work has caught on among a broader audience. And one can similarly understand why economists would be so excited about it, beyond its substantial advances within the profession itself (which, the other economists reminded us, are prodigious): Here is a both sophisticated and easy-to-understand way of telling the economic past that explains our current crisis and even suggests what the future might hold. And what does the future hold? Well, partly since we’re hopefully out of world wars, the distance between r and g will continue to grow, at an ever-faster rate. The only thing we don’t know is how we might prevent this from happening.
Trying to answer that final, crucial question were Stiglitz and Krugman, both of whom gave brief addresses after Piketty spoke. Stiglitz—winner of the Nobel Economics and Peace Prizes—insisted that politics can correct for the depredations that r > g promises: “Inequality is not just the result of economic forces,” he said, “but political processes themselves are affected by the level and nature of inequality.” He added: “It isn’t inevitable that r be greater than g. It’s the effect of our policies.” Name-checking the Citizens United ruling, he noted that greater inequality entrenches greater power in the wealthy, who will use that greater power to double-down on policies (low capital-gains rates, low inheritance taxes, low barriers to campaign finance itself) that ensure greater inequality, and so on, in a vicious cycle. Krugman, in remarks largely taken from a blog post published earlier Wednesday, recognized the book’s strength as providing empirical proof for claims liberals had long made about inequality, as well as for telling that story—“this analysis isn’t just important, it’s beautiful,” he wrote. Throughout their talks, Piketty sat closest to the podium and beamed with satisfaction. He looked almost post-coital. Who can blame him?
At the outset to his presentation, the University of Wisconsin’s Steven Durlauf pledged to play “spoilsport” and bring a “nerdy perspective.” He did not disappoint. Mainly he registered quibbles, doubtlessly important within the profession, about Piketty’s use of the data. I hesitate to analyze his presentation, because it was frankly above my head, and anyway he overall thinks the book sound, important, brilliant, and everything else. After the event, I asked Piketty if he was concerned that his methods and conclusions are complex enough to be misused in inexpert hands. He shook his head and said: “When economics looks too complicated, it’s usually a bad sign.” Enough prominent knowledgeable centrist and left economists—really, all of them—have given the book their Good Housekeeping Seal of Approval that most non-experts should be satisfied. And unfortunately, an in-depth right-wing engagement with Piketty’s book has yet to emerge (N. Gregory Mankiw, a nation turns its lonely eyes to you).
So, as the revolutionist asked, what is to be done? Piketty’s solution to r > g is a global, progressive tax on individuals’ wealth. This is by far the part of his book that has received the most criticism: not for its wisdom, but for its practicability. (Taxing the wealthy in one country is difficult enough.) Piketty shrugged this off; noting that top-bracket marginal tax rates rose to their historic heights in the 1950s, precisely when inequality was at its lowest anyway, he argued with a smile, “The history of taxation is full of surprises.”
It is clear that some wedge needs to be stuck in the spokes of the wealth-and-power cycle that Krugman called the “political-economy spiral of inequality, in which great wealth brings great power, which is used to reinforce the concentration of wealth.” Without citing Piketty, Mark Schmitt has suggested that campaign-finance reform is the proper entry into the sometimes nebulous inequality debate. That seems to make a lot of sense.
Krugman closed on an unusually optimistic note. Teddy Roosevelt, he noted, gave his famous Progressivist speech, calling for progressive income and inheritance taxes on “great fortunes,” back in 1910, before the cataclysms that temporarily slowed r. The New Deal, too, Krugman said, finds its roots decades before 1933. In other words, thoughtful Americans were able to recognize the problem of inequality and propose ways to solve it all by themselves, without the aid of impersonal social habits and tendencies. An economic law such as r > g has the potential to be every bit the oxymoron the term “economic law” suggests. Krugman seemed to argue that for all the compelling and even “beautiful” structures that Piketty describes, politics, not economics, remains the ultimate art of the possible.
Piketty defines “capital,” perhaps too broadly, basically as wealth derived from things other than wages.