Piketty wars: episode III—revenge of the Right

In episode I of Piketty wars, Harvard University Press published Capital in the Twenty-First Century. In episode II, the reviews of Piketty’s book, by liberal mainstream economists, were generally positive. Now, in episode III, the Right can be found on their Invisible Hand ship, launching a series of attacks against Piketty.*

The first salvo came from beware-of-the-politics-of-envy generals Phil Gramm and Michael Solon, on the opinion pages of (not surprisingly) the Wall Street Journal, who use two main arguments: First, based on research by Philip Armour, Richard V. Burkhauser, and Jeff Larrimore (on which I wrote last year when it first appeared), they make inequality virtually disappear by various sleights of the very-much-visible-hand (by changing the definition of income, the relevant data set, what counts as income, how capital gains are calculated, and so on). Second, they extol the virtues of Bill Gates, Warren Buffett, and the Walton family (as if Gates, Buffett, and Walton alone are responsible for the wealthy they’ve accumulated, in an economy seemingly without workers who actually produce the value they’ve captured).

Then there’s prosperity warrior John Cochrane, also in the pages of the Wall Street Journal, who waves the flag of “good inequality”—because, in his view, “most U.S. billionaires are entrepreneurs from modest backgrounds, operating in competitive new industries. They are decidedly not bad workers, who suffer from awful public schools and who are “stuck in a cycle of terrible early-child experiences, substance abuse, broken families, unemployment and criminality.” Cochrane’s approach is to say anything and everything in order to ridicule the idea of taxation and redistribution and point us toward the only goal he wants us to recognize: prosperity, based on “property rights, rule of law, [and] economic and political freedom.”

Finally, we have the Jedi-knight-turned-Darth Vader of the bunch, my old friend Deirdre McCloskey [pdf]. She enters the duel with Piketty with an eloquent (when is she not?) 51-page essay of a lightsaber. Her main critique is the oft-repeated refrain that it’s poverty, not inequality, that is the real problem—and, of course, in her view, the West has already solved that problem. The idea that growing inequalities should concern us is simply anathema to McCloskey’s Smithian-inspired celebration of the “immense accumulation of commodities.” Who cares if the growing gap between a tiny minority at the top and everyone else undermines the legitimacy of that society, especially its promise of “just deserts”? And then there’s her misreading of Piketty, who simply does not argue that r > g is the basis of contemporary inequalities. As her French nemesis has made clear, the real cause of income inequality is the explosion in top managerial compensation. Then, on top of that, as capital itself grows in importance, and as earnings on capital exceed the growth in total income, there is a tendency for wealth ownership to become more unequal, thus creating the prospect of dynasties of inherited wealth, which Piketty refers to as “patrimonial capitalism.”

Precisely because of growing inequalities in the distribution of income and wealth, the legitimacy of contemporary capitalism is being called into question. Piketty has been a central figure in producing and making sense of the data that demonstrates the existence of those inequalities—in order to warn the Republic of the impending danger. Instead of listening to him, those on the dark side merely deny the existence of a problem and try to make us believe that all is well in the Galaxy.

Meantime, the Death Star of inequality continues to be constructed, which could mean a victory of the Empire over the Republic. Unless, of course, the Rebellion is successful.

 

*Full disclosure: I’m not really a fan of Star Wars and therefore I’m sure I’ve mangled the plot line of Star Wars: Episode III—Revenge of the Sith.

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