- - Monday, June 16, 2014


By Thomas Piketty
Belknap/Harvard University Press, $39.95, 685 pages

Why on earth should you shell out $39.95 ($10 less on Amazon) to wade through 685 pages of French post-Marxist polemical economics, when its critics include even such far from conservative critics as the Brookings Institution, The Financial Times and another daily newspaper of this city?

For the same reason that when an 800-pound gorilla enters the room, you should look out for your bananas.

More seriously, even when one sets aside the euphoria that has greeted “Capital” by enthusiasts such as Paul Krugman, “The Colbert Report” and the talking heads at MSNBC, the parts of this mammoth excursion into the serious global concern about the widening gaps in income distribution make it essential reading. The book offers a salutatory jump-start to your own consideration of what is clearly askew in today’s global economic environment and what can be done about.

Nor should you be daunted by the door-stopping size of the book. Author Thomas Piketty, a Paris School of Economics professor, cheerfully cues you when you can skip over dozens of pages of statistics and get on with the highly readable chapters of analysis and arguments. Indeed, one of the charms of the book is Mr. Piketty’s easy writing style and his light-hearted concession that he could be wrong about both his supporting data and some of his interpretations.

At least part of the totally unexpected international response to “Capital” by its publishers at Harvard is the attractive persona of Mr. Piketty himself. Part of his public persona is that of the bright Ivy League (but French) schoolboy, an image echoed by another Franco-American economist, Emanuel Saez, whose extensive research into patterns of income inequality in various parts of the world make up an important core of Mr. Piketty’s research.

Image aside, it is the breathtaking statistical research that has impressed even Mr. Piketty’s harshest critics. Mr. Piketty and his collaborators have swarmed over estate tax and income records from France (most of all), but also from Britain and America (from its earliest founding) with increasing detail and accumulation as their search moves from the 18th century through the 19th, 20th and the first decade of the current era.

Thus, the first part of the book offers the lay reader an accessible and all-encompassing tutorial on how the main industrial societies of the West treated the creation of wealth, the taxation of that wealth and the distribution of that wealth between the upper and lower levels of each society. One of the interesting insights is that all governments from the earliest records used taxation strategies not just to raise money for the public purse, but whether ruled by monarchs or parliaments, there was a surprisingly sophisticated willingness to try to pick winners and penalize losers in what we wrongly persist in calling a free-market economy.

The headline conclusion of “Capital” is that after a period from the 1950s through the 1980s, when there was a tolerable level of income dispersal between the upper and lower earning classes, the gap has widened at an accelerating pace to now it is as unsustainably wide as it was on the eve of the Great Depression or (worse) during the Golden Age of plutocracy at the end of the 19th century. Mr. Piketty argues that the inevitable consequence of capitalism is to overly reward the wealthy and penalize those whom he says are actually responsible for creating economic prosperity in the first place.

Not that Mr. Piketty is anti-capitalist in the classic Marxist sense; he praises the system for fostering advances in entrepreneurship, innovation and productivity that make prosperity possible. He just hates it when that system makes some people wealthy while others don’t have an absolutely equal share. With some reason, he also argues that when income distribution becomes too unsustainably skewed, it is a threat to the very democracy that underpins the capitalist system in the first place.

So far, so good. Some critics have attacked Mr. Piketty’s statistical analysis, noting that data on income distribution based on land taxes and estate levies from 200 years ago cannot fairly portray what was going on in such diverse societies as France, Britain and the United States, and even where available, cannot fairly extrapolate conditions in those three diverse economies in 2014. That is a flaw in all economic analysis, where past data is rarely prologue.

However, where Mr. Piketty really goes off the rails is the solution he advocates to the dangerous disparity he claims to see. With a straight face, he would impose a global one-time flat tax surcharge of 10 percent on all wealth over $1 million and a larger 20 percent bite on lesser incomes. Then he would install an annual 80 percent tax rate on personal incomes that exceed $500,000 to $1 million and a 50 percent to 60 percent tax on incomes as low as $200,000 thereafter.

Throughout this exercise in Procrustean economics, Mr. Piketty shows a moral disdain for the creators of wealth. He argues that factory workers are more valuable to a society because their economic work can be measured by the widgets they produce. Since the income accruing to a venture capitalist who takes risks to build a widget factory cannot accurately be assessed, that income is somehow immorally earned.

While he concedes there may be political resistance to his plan among less enlightened societies (one can only imagine how the Swiss or Chinese might react), he sees more fertile ground for his ideas in the European Union and in the United States, whose social-welfare state he describes as “meager.”

Given the drift of dysfunctional politics going on around here these days, he may be right. For no other reason then, this book is required reading.

James Srodes is the former Washington bureau chief for both Forbes and Financial World magazines.

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