Newsmaker: Thomas Piketty – capital and critics | Fin24
 
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Newsmaker: Thomas Piketty – capital and critics

Oct 04 2015 16:28
Dewald van Rensburg

Thomas Piketty. Picture: Getty Images

Thomas Piketty has been on the defensive for months.

Apart from debating both formidable and silly critics of his famous book, he has also had to constantly clarify that he did not actually say most of the things everyone seems to think he did. 

A lot of what he wrote in Capital in the Twenty-First Century has been “attenuated or garbled in the ongoing discussions of the book”, says the world’s, for now, most famous economics professor. 

In a series of surprising essays in a various journals over this past year, he points out that he actually does not believe that his famous formula “r>g” is necessarily the mysterious inequality-generating force at the centre of the capitalist universe. 

Reflecting on the reception of his book, he also says he “may have devoted too much attention to progressive capital taxation and too little to a number of institutional evolutions that could prove equally important” as cures for inequality. 

That is to say, he does not really believe a global wealth tax, something that has become almost synonymous with his surname, is the be-all and end-all solution. 

“Alternative forms of property arrangements and participatory governance” could be equally important, he says in a ­recent essay in the Journal of Economic Perspectives. 

He has been slated for trying to devise a grand “general law of capitalism”, but says his main conclusion is actually the ­opposite: that “one should be wary of any economic determinism in regard to ­inequalities of wealth and income”. 

“When a lengthy book is widely discussed in academic circles and the popular media, it is probably inevitable that the arguments of the book will be simplified in the telling and retelling,” he says. 

That’s an understatement. 

He is marketed motivational-poster style, most recently by the Nelson Mandela Foundation, which has been tweeting Hallmark-esque images of him in beatific poses next to completely out-of-context snippets from his book.

The fact that Nelson Mandela has been relegated to much the same kind of pop cultural role seems like a good enough reason for Piketty to have been invited to present the ­annual Mandela memorial lecture, which happened last night. 

It’s probably not Piketty’s fault, but his name has become a watchword for simply being “against inequality”, especially the kind involving the “1%”. 

An infinite variety of people have hitched a ride on his coat-tails and written “replies” to Piketty that are often very tenuously related to anything in the book, apart from the minimal agreement that inequality is not cool. 

Even Bill Gates, one of the richest men in history, added his two cents after an apparently informative Skype call with the professor. Gates blogged that he agrees completely with most of what ­Piketty says, except for the proposal for universal wealth taxes. Billionaire Gates would, of course, be the single biggest loser in the world from such a tax. 

Few people have actually read Piketty’s book, but most would probably tell you it somehow proves definitively that capitalism is evil – but capable of reform through taxes. 

While Piketty is billed as World Lefty No 1, his most strident critics are ­actually Marxist and other non­orthodox economists. 

Most people are in awe of the wealth and income data he and his colleagues amassed, and continue to update today. 

Radical and conservative economists alike, however, criticise ­Piketty for using the term “capital” when what he is really talking about is wealth.

In a way, the book’s title is very misleading ­because just about all economic theory treats “capital” as something distinct from wealth – the stuff used by capitalists in production, not yachts and artwork and, especially, real estate, all of which makes up wealth these days. 

Many serious critiques start with the crucial fact that the rising share of “capital” income in the US comes mostly from property prices, not a dynamic involving capital as usually understood. 

Piketty’s major theoretical point was, however, not that “capital”, or rather wealth, is the main engine of inequality.

Instead, he speculates that it might, in the near future, become like it was in 18th- and 19th-century Europe.

Piketty presents his idea with, literally, a whole book’s worth of caveats and fascinating historical analysis, but that is the major tweet-sized takeaway. 

That’s where the famous equation r>g comes in. That means the return (r) on “capital” is usually higher than the overall growth (g) of the economy, at least in the long run. 

That’s pretty much the opposite of Marxism, where the perpetual decline in the rate of profit is predicted to cause ever-worse economic crises – a theory that still stands when you stick to a strict definition of “capital”. 

If you take the r>g thing seriously, then rich people have more wealth, hence they get richer faster than humanity as a whole, almost by default. 

In the simplest possible terms, this just means the old adage that “it takes money to make money” is true. 

“The way in which I perceive the relationship between r>g and wealth inequality is ­often not well captured in the discussion that has surrounded my book – even in discussions by research economists,” says Piketty. 

First off, he doesn’t ascribe the global rise of ­income inequality seen in all countries with data since the 1980s to the effect of r>g at all. 

The trend is due to more extravagant remuneration for the world’s “supermanagers”, a highly political fact of our times. 

This eventually leads to the accumulation of wealth, which can then balloon due to r>g under the right conditions. 

Piketty’s political argument is really that those “right conditions” exist at this historical juncture. These are the trends towards taxing wealth less, slower economic growth and the thing Piketty is particularly fervent about: the way big money seems to always get higher returns than small money. 

The longer that is allowed to go on, the closer we get to a “patrimonial” form of capitalism, where inheritance becomes the major determinant of who has and who has not. 

While this might be a powerful political revelation to ­anyone who believes the world is truly meritocratic, arbitrary birthrights like being born white, male or on one side of a border rather than the other have been the main determinant of life chances for as long as there has been anything like a global economic system.

An important part of Piketty’s book of caveats is the assertion that ideas around the entitlement to supersalaries and inheritances are every bit as cultural and changeable as racism, patriarchy and nationalist myths.

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