French economist Thomas Piketty, author of Capital in the Twenty-First Century. Photo: Ed Alcock/The Observer. One of the slogans of the 2011 Occupy protests was ‘capitalism isn’t working’. Now, in an epic, groundbreaking new book, French economist Thomas Piketty—after mining 200 years of data—explains why they’re right.
Capital in the Twenty-First Century by Thomas Piketty, translated by Arthur Goldhammer. Published by Belknap Press, 696 pages. ISBN 9780674430006. (This catalog page contains a series of links related to the book.)
What are the grand dynamics that drive the accumulation and distribution of capital? Questions about the long-term evolution of inequality, the concentration of wealth, and the prospects for economic growth lie at the heart of political economy. But satisfactory answers have been hard to find for lack of adequate data and clear guiding theories. In Capital in the Twenty-First Century, Thomas Piketty analyzes a unique collection of data from twenty countries, ranging as far back as the eighteenth century, to uncover key economic and social patterns. His findings will transform debate and set the agenda for the next generation of thought about wealth and inequality.
Piketty shows that modern economic growth and the diffusion of knowledge have allowed us to avoid inequalities on the apocalyptic scale predicted by Karl Marx. But we have not modified the deep structures of capital and inequality as much as we thought in the optimistic decades following World War II. The main driver of inequality—the tendency of returns on capital to exceed the rate of economic growth—today threatens to generate extreme inequalities that stir discontent and undermine democratic values. But economic trends are not acts of God. Political action has curbed dangerous inequalities in the past, Piketty says, and may do so again.
A work of extraordinary ambition, originality, and rigor, Capital in the Twenty-First Century reorients our understanding of economic history and confronts us with sobering lessons for today.
Forces of divergence
John Cassidy The New Yorker USA March 31, 2014
In the stately world of academic presses, it isn’t often that advance orders and publicity for a book prompt a publisher to push forward its publication date. But that’s what Belknap, an imprint of Harvard University Press, did for Capital in the Twenty-first Century, a sweeping account of rising inequality by the French economist Thomas Piketty. Reviewing the French edition of Piketty’s book, which came out last year, Branko Milanovic, a former senior economist at the World Bank, called it “one of the watershed books in economic thinking.” The Economist said that it could change the way we think about the past two centuries of economic history. Certainly, no economics book in recent years has received this sort of attention. Months before its American publication date, which was switched from April to March, it was already the subject of lively online discussion among economists and other commentators.
Piketty, who teaches at the Paris School of Economics, has spent nearly two decades studying inequality. In 1993, at the age of twenty-two, he moved to the United States to teach at M.I.T. A graduate of the élite École Normale Supérieure, he had recently completed his doctorate, a dense mathematical exploration of the theory behind tax policies. Plenty of bright young European scholars move across the Atlantic, of course, and many of them end up staying. Piketty was not to be one of them. “It was the first time I had set foot in the United States,” he recalls in the introduction, “and it felt good to have my work recognized so quickly. Here was a country that knew how to attract immigrants when it wanted to! Yet I also realized quite soon that I wanted to return to France and Europe, which I did when I was twenty-five. Since then, I have not left Paris, except for a few brief trips.”
Part of Piketty’s motivation in returning home was cultural. His parents are politically engaged Parisians who took part in the 1968 riots. When he was growing up, his intellectual role models were French historians and philosophers of the left, rather than economists. They included members of the Annales school, such as Lucien Febvre and Fernand Braudel, who produced exhaustive analyses of everyday life. Compared with this scholarship, much of the economics that Piketty encountered at M.I.T. seemed arid and pointless. “I did not find the work of U.S. economists entirely convincing,” he writes. “To be sure, they were all very intelligent, and I still have many friends from that period of my life. But something strange happened: I was only too aware of the fact that I knew nothing at all about the world’s economic problems.”
In Paris, he joined the French National Center for Scientific Research, and, later, the Écoles des Hautes Études en Sciences Sociales, where some of his heroes had taught. The main task he set himself was exploring the hills and valleys of income and wealth, a subject that economics had largely neglected. At first, Piketty concentrated on getting the facts down, rather than interpreting them. Using tax records and other data, he studied how income inequality in France had evolved during the twentieth century, and published his findings in a 2001 book. A 2003 paper that he wrote with Emmanuel Saez, a French-born economist at Berkeley, examined income inequality in the United States between 1913 and 1998. It detailed how the share of U.S. national income taken by households at the top of the income distribution had risen sharply during the early decades of the twentieth century, then fallen back during and after the Second World War, only to soar again in the nineteen-eighties and nineties.
With the help of other researchers, including Saez and the British economist Anthony Atkinson, Piketty expanded his work on inequality to other countries, including Britain, China, India, and Japan. The researchers established the World Top Incomes Database, which now covers some thirty countries, among them Malaysia, South Africa, and Uruguay. Piketty and Saez also updated their U.S. figures, showing how the income share of the richest households continued to climb during and after the Great Recession, and how, in 2012, the top one per cent of households took 22.5 per cent of total income, the highest figure since 1928. The empirical work done by Piketty and his colleagues has influenced debates everywhere from Zuccotti Park, the short-lived home of Occupy Wall Street, to the International Monetary Fund and the White House; President Obama has said that tackling inequality and wage stagnation is our foremost challenge.
The question is what’s driving the upward trend. Piketty didn’t think that economists’ standard explanations were convincing, largely because they didn’t pay enough attention to capital accumulation—the process of saving, investing, and building wealth which classical economists, such as David Ricardo, Karl Marx, and John Stuart Mill, had emphasized. Piketty defines capital as any asset that generates a monetary return. It encompasses physical capital, such as real estate and factories; intangible capital, such as brands and patents; and financial assets, such as stocks and bonds. In modern economics, the term “capital” has been purged of its ideological fire and is treated as just another “factor of production,” which, like labor and land, earns a competitive rate of return based upon its productivity. A popular model of economic growth developed by Robert Solow, one of Piketty’s former colleagues at M.I.T., purports to show how the economy progresses along a “balanced growth path,” with the shares of national income received by the owners of capital and labor remaining constant over time. This doesn’t jibe with modern reality. In the United States, for example, the share of income going to wages and other forms of labor compensation dropped from sixty-eight per cent in 1970 to sixty-two per cent in 2010—a decline of close to a trillion dollars.
Piketty believes that the rise in inequality can’t be understood independently of politics. For his new book, he chose a title evoking Marx, but he doesn’t think that capitalism is doomed, or that ever-rising inequality is inevitable. There are circumstances, he concedes, in which incomes can converge and the living standards of the masses can increase steadily—as happened in the so-called Golden Age, from 1945 to 1973. But Piketty argues that this state of affairs, which many of us regard as normal, may well have been a historical exception. …
In the United States, the very idea of a new wealth tax looks like a nonstarter politically, as would the notion of raising the top rate of income tax to eighty per cent. That’s not a knock on Piketty, though. The proper role of public intellectuals is to question accepted dogmas, conceive of new methods of analysis, and expand the terms of public debate. Capital in the Twenty-first Century does all these things. As with any such grand prognostication, some of it may not withstand the test of time. But Piketty has written a book that nobody interested in a defining issue of our era can afford to ignore.
The short guide to Capital in the 21st Century
Matthew Yglesias Vox USA April 8, 2014
Thomas Piketty’s Capital in the 21st Century is the most important economics book of the year, if not the decade. It’s also 696 pages long, translated from French, filled with methodological asides and in-depth looks at unique data, packed with allusions to 19th century novels, and generally a bit of a slog.
The good news is that there’s no advanced math, and anyone who puts in the time can read the book. But if you just want the bottom line, we have you covered.
Capitalism simply isn’t working and here are the reasons why
Will Hutton The Observer UK April 12, 2014
Suddenly, there is a new economist making waves – and he is not on the right. At the conference of the Institute of New Economic Thinking in Toronto last week, Thomas Piketty’s book Capital in the Twenty-First Century got at least one mention at every session I attended. You have to go back to the 1970s and Milton Friedman for a single economist to have had such an impact.
The extravagances and incredible social tensions of Edwardian England, belle epoque France and robber baron America seemed for ever left behind, but Piketty shows how the period between 1910 and 1950, when that inequality was reduced, was aberrant. It took war and depression to arrest the inequality dynamic, along with the need to introduce high taxes on high incomes, especially unearned incomes, to sustain social peace. Now the ineluctable process of blind capital multiplying faster in fewer hands is under way again and on a global scale. The consequences, writes Piketty, are “potentially terrifying”.
Piketty notes that the rich are effective at protecting their wealth from taxation and that progressively the proportion of the total tax burden shouldered by those on middle incomes has risen. In Britain, it may be true that the top 1% pays a third of all income tax, but income tax constitutes only 25% of all tax revenue: 45% comes from VAT, excise duties and national insurance paid by the mass of the population.
As a result, the burden of paying for public goods such as education, health and housing is increasingly shouldered by average taxpayers, who don’t have the wherewithal to sustain them. Wealth inequality thus becomes a recipe for slowing, innovation-averse, rentier economies, tougher working conditions and degraded public services. Meanwhile, the rich get ever richer and more detached from the societies of which they are part: not by merit or hard work, but simply because they are lucky enough to be in command of capital receiving higher returns than wages over time. Our collective sense of justice is outraged.
The lesson of the past is that societies try to protect themselves: they close their borders or have revolutions – or end up going to war. Piketty fears a repeat. His critics argue that with higher living standards resentment of the ultra-rich may no longer be as great – and his data is under intense scrutiny for mistakes. So far it has all held up.
Nor does it seem likely that human beings’ inherent sense of justice has been suspended. Of course the reaction plays out differently in different eras: I suspect some of the energy behind Scottish nationalism is the desire to build a country where toxic wealth inequalities are less indulged than in England.
Occupy was right: Capitalism has failed the world
Andrew Hussey The Observer UK April 13, 2014
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… This is where I have arranged an interview with Professor Thomas Piketty, a modest young Frenchman (he is in his early 40s), who has spent most of his career in archives and collecting data, but is just about to emerge as the most important thinker of his generation – as the Yale academic Jacob Hacker put it, a free thinker and a democrat who is no less than “an Alexis de Tocqueville for the 21st century”.
This is on account of his latest work, which is called Capital in the Twenty-First Century. This is a huge book, more than 700 pages long, dense with footnotes, graphs and mathematical formulae. At first sight it is unashamedly an academic tome and seems both daunting and incomprehensible. In recent weeks and months the book has however set off fierce debates in the United States about the dynamics of capitalism, and especially the apparently unstoppable rise of the tiny elite that controls more and more of the world’s wealth. In non-specialist blogs and websites across America, it has ignited arguments about power and money, questioning the myth at the very heart of American life – that capitalism improves the quality of life for everyone. This is just not so, says Piketty, and he makes his case in a clear and rigorous manner that debunks everything that capitalists believe about the ethical status of making money.
The groundbreaking status of the book was recognised by a recent long essay in the New Yorker in which Branko Milanovic, a former senior economist at the World Bank, was quoted as describing Piketty’s volume as “one of the watershed books in economic thinking”. In the same vein, a writer in the Economist reported that Piketty’s work fundamentally rewrote 200 years of economic thinking on inequality. In short, the arguments have centred on two poles: the first is a tradition that begins with Karl Marx, who believed that capitalism would self-destruct in the endless pursuit of diminishing profit returns. At the opposite end of the spectrum is the work of Simon Kuznets, who won a Nobel prize in 1971 and who made the case that the inequality gap inevitably grows smaller as economies develop and become sophisticated.
Piketty says that neither of these arguments stand up to the evidence he has accumulated. More to the point, he demonstrates that there is no reason to believe that capitalism can ever solve the problem of inequality, which he insists is getting worse rather than better. From the banking crisis of 2008 to the Occupy movement of 2011, this much has been intuited by ordinary people. The singular significance of his book is that it proves “scientifically” that this intuition is correct. This is why his book has crossed over into the mainstream – it says what many people have already been thinking.
“I did deliberately aim the book at the general reader,” says Piketty as we begin our conversation, “and although it is obviously a book which can be read by specialists too, I wanted the information here to be made clear to everyone who wants to read it.’ And indeed it has to said that Capital in the Twenty-First Century is surprisingly readable. It is packed with anecdotes and literary references that illuminate the narrative. It also helps that it is fluently translated by Arthur Goldhammer, a literary stylist who has tackled the work of the likes of Albert Camus. But even so, as I note that Piketty’s bookshelves are lined with such headache-inducing titles as The Principles of Microeconomics and The Political Influence of Keynesianism, simple folk like me still need some help here. So I asked him the most obvious question I could: what is the big idea behind this book?
Related: Below: An earlier version of this essay first appeared in Canadian Dimension magazine, March 29, 2014 (“Canada’s transformation under neoliberalism”). Jim Stanford is an economist with Unifor. He is the author of Economics for Everyone (published in 2008 by Pluto Press and the Canadian Centre for Policy Alternatives), which has been translated into six languages.
The three key moments in Canada’s neoliberal transformation
Jim Stanford rabble.ca Canada April 9, 2014
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The last three decades have witnessed a far-reaching transformation of the Canadian economy, politics and culture. Canada is not unique in experiencing this neoliberal transformation, of course, but it has been as dramatic, thorough and socially destructive here as almost anywhere else in the industrialized world. Even before that transformation began, Canada was hardly a model of inclusion, equality, and democracy. But in the latter years of the postwar expansion, Canada progressed both economically and socially. Living standards were improving quickly for most — fuelled by rising real wages (which doubled in a generation), and a dramatic expansion of the social wage (including the introduction of national medicare, unemployment insurance and the Canada Pension Plan within six remarkable years, from 1965 through 1971). We were catching up to the U.S. economically (and surpassing it socially), escaping our traditional status as “poor cousins” to the North. And we carved a unique and somewhat independent role for the country in global economic, political and military affairs. This confidence, hope and momentum was symbolized by Canada’s hosting of Expo 67 in Montreal, the year of the country’s centenary — officially opened with then-prime minister Lester Pearson’s claim that it constituted “one of the most daring acts of faith in Canadian enterprise and ability ever undertaken.”
This expansionary post-war “golden age” eventually ran up against its own internal limits and contradictions. As in other advanced capitalist countries, the happy recipe of strong profits and business investment, rising living standards, and Keynesian welfare-state fine-tuning, began to disintegrate. The Polish economist Michal Kalecki presciently predicted after World War II, just as Keynesianism was being consolidated, that capitalism would eventually experience a “full-employment sickness.” As workers were empowered by long-run employment and income security, their expectations would grow, sparking increasing conflict with the interests of capitalist employers in maintaining a compliant, disciplined, low-cost workforce. A confident working class won a larger and larger share of the economic pie: in Canada, the labour share of GDP grew steadily through the post-war era, peaking in the late 1970s. Even worse for employers, workers demanded changes in the workplace, and society, that constrained the freedom and power of business. The expansion of an interventionist state meant rising taxes and stronger regulations. Internationally, national liberation movements curtailed capitalism’s geographic scope. Most importantly, business investment — the underlying engine of the post-war expansion — slowed appreciably.
Neoliberalism represented a multi-faceted, deliberate, global strategy by elites (in both the financial and the real spheres of the economy) to turn the whole ship around. A generation later, it is sobering to consider how successful that strategy has been. It has clearly empowered and enriched corporations and those who own them, and put workers on the defensive everywhere. On the other hand, despite these successes, neoliberalism has not succeeded in creating a world economy which is stable (witness the dramatic events of 2008-09), efficient, or successful in meeting real human needs.
Neoliberalism has been applied harshly in Canada, consistent with the international trend, but also reflecting the unique features (and weaknesses) of Canadian capitalism. In my review of the history of neoliberalism in Canada, I identify three crucial transition points: historical moments when neoliberal principles and practices were introduced, consolidated, and ideologically cemented.
Below: ‘Empire of the Elites’. Paul Craig Roberts is a former Assistant Secretary of the US Treasury and Associate Editor of the Wall Street Journal. He concludes his commentary below: “Only gullible Americans expect leaders and elites or voting to do anything about the institutionalization of tyranny. Elites are only interested in money. As long as the system produces more income and wealth for elites, elites don’t give a hoot about tyranny or what happens to the rest of us.”
Washington is humanity’s worst enemy
Paul Craig Roberts CounterPunch USA April 14, 2014
How does Washington get away with the claim that the country it rules is a democracy and has freedom? This absurd assertion ranks as one of the most unsubstantiated claims in history.
There is no democracy whatsoever. Voting is a mask for rule by a few powerful interest groups. In two 21st century rulings (Citizens United and McCutcheon), the US Supreme Court has ruled that the purchase of the US government by private interest groups is merely the exercise of free speech. These rulings allow powerful corporate and financial interests to use their money-power to elect a government that serves their interests at the expense of the general welfare.
The control private interests exercise over the government is so complete that private interests have immunity to prosecution for crimes. At his retirement party on March 27, Securities and Exchange Commission prosecutor James Kidney stated that his prosecutions of Goldman Sachs and other “banks too big to fail” were blocked by superiors who “were focused on getting high-paying jobs after their government service.” The SEC’s top brass, Kidney said, did not “believe in afflicting the comfortable and powerful.” In his report on Kidney’s retirement speech, Eric Zuesse points out that the Obama regime released false statistics in order to claim prosecutions that did not take place in order to convince a gullible public that Wall Street crooks were being punished.
Democracy and freedom require an independent and aggressive media, an independent and aggressive judiciary, and an independent and aggressive Congress.
The United States has none of the above.
Below: John Chuckman is former chief economist for a large Canadian oil company. He has many interests and is a lifelong student of history. He writes with a passionate desire for honesty, the rule of reason, and concern for human decency. John regards it as a badge of honor to have left the United States as a poor young man from the South Side of Chicago when the country embarked on the pointless murder of something like 3 million Vietnamese in their own land because they embraced the wrong economic loyalties. He lives in Canada, which he is fond of calling “the peaceable kingdom.” John’s writing appears regularly on many Internet sites. He has been translated into at least ten languages and has been regularly translated into Italian and Spanish. Several of his essays have been published in book collections, including two college texts.
Hurtling into darkness: America’s great leap towards global tyranny
John Chuckman Chuckman’s words on WordPress.com Canada April 14, 2014
The darkness to which I refer is something largely unanticipated in political studies and even in science fiction, a field which definitely enters this discussion, as readers will see. There have been many examples of national tyrannies and even stories of global autocracies, but the Hitler-Stalin-Mussolini type of tyranny is an antiquated model for advanced states despite its applying still to many third-world places. A unique set of circumstances now works towards a dystopian future in advanced states with no need for jackboots or brutal faces on posters.
Ironically, one of the key forces which brought Europe and North America over a few centuries to the kind of liberal democracies we know today is capable of delivering a new and unprecedented form of tyranny. That force is the body of interests of a nation’s middle class – the group of capable, ambitious, and rising people who were called a few centuries back by Europe’s landed old aristocracy “the new men.”
By “middle class,” I certainly do not mean what the average American Congressman encourages, in boiler-plate speeches, the average American to believe: that every family with steady work is middle class, all other classes having been eliminated from the American political lexicon. No, I mean the people of significant means – and, although not wealthy, of considerable talent and education – who hold as a group an important set of interests in society through their holdings and valued services. It was the gradual growth of this class of people over centuries of economic growth in Western societies that eventually made the position of monarchs and later aristocracies untenable: the middle class’s interests could no longer be represented by the old orders while their importance to burgeoning economies had become indispensable. They provided the indispensable force for what we now think of as democracy in their countless demands that their interests be represented.
But there is evidence, in America especially, that something altogether new is emerging in human affairs. The real middle class, at least a critical mass of it, has been folded into the interest of the modern elites, the relatively small number of people who own a great portion of all wealth just as they did in the 17th century, wealth today being generated by great global enterprises rather than the ownership of vast national estates. Great enterprises cannot be operated without much of the cream of the middle class: they serve in computer technology, finance, engineering, skilled management, the military officer class, and in intelligence. Their futures, interests, and prejudices have become locked-in with the interests of America’s corporate-military-intelligence establishment. They are indispensable to the establishment’s success, and they are accordingly rewarded in ways which bind their interests – health care, pension-type benefits, privileges, working conditions, opportunities for promotion, etc.
This marriage of interests between elites and the talented middle class effectively removes many of the best educated and most skilled people from being political opponents or becoming critics of the establishments for which they work. At the same time, America’s middle class in general – its small store owners, small factory owners, modest bankers, and even many professionals – has been under attack from economic competition in a globalized world for many years and has little to look forward to but more of the same. America’s legendary working class “middle class” – that brief postwar miracle of auto and steel workers and others who through unionized, unskilled labor earned long vacations, handsome pensions, home ownership, cars, and even small boats – has been battered beyond recognition, every year for decades seeing its real income fall and long-term having absolutely no prospects.