Moving On

from Peter Radford

We now live, whether we have grasped that fact or not, in a post-Piketty era. This will seem silly to many of you who have toiled at the coal face of progressive issues for years, but I think it is something worth reflecting on. It isn’t us who need to be convinced. It is all those who have denied or avoided reality.

Something has changed.

Robert Locke, with whom I am having a rather public dialog with says this with regard to my note earlier about Piketty and the new Gilens & Page study:

“Peter, having convictions confirmed by numbers is nice, but for people who have lived observant lives since 1980, they just amount to “a penetrating glimpse into the obvious.” We need hopeful suggestions about how American public opinion can be effectively mobilized to institute an economic democracy. What books or articles, or people, should we listen to or read to effect that? We need to enter into a penetrating discuss[sic] about how change is managed. It won’t be easy. We had the abolitionists before the Civil War. Did they get rid of slavery? We had the Progressive movement at the beginning of the 20th century but it produced managerialism,not democracy. The people most effective in getting change done are the enemies of economic democracy. The system we have today is the result of their post1970 quite efficient transformational work.”

I do not want to raise Piketty to too exalted a status, but we ought to recognize his achievement, and that his effort is part of a much larger research scheme involving many others. This new era exists because we now have a massive dataset, thoroughly and transparently compiled across nations and through time sufficient to act as a foundation for a pivot away from the thinking of these past four decades. 

Crucially it debunks the conservative notion that there is a self-adjusting mechanism in free market systems which allows us to ignore what appear to be heinous outcomes like our contemporary inequality. Conservative economists argue we ought ignore such outcomes because they are what the market “wants”, and since the market is simply a reflection of our accumulated preferences freely expressed, those outcomes must also be what we want. It is a powerful argument. It is simple and profound. It is wrong.

It is wrong because the rate of return on capital is higher than economic growth. So the logic of inequality is more foundational than the logic of market competition. Free market economics, in its various guises, never went deep enough. It stopped short at what I consider to be an ideologically convenient layer of thought.

Free market economics has a long history, but it is almost always advocated to contrast with reality not to explain it. It came into being to illustrate why whimsical autocratic interference in the workings of a market might hinder the accumulation of wealth. Its recent version came into being during the Cold War when capitalists needed theoretical underpinnings to create a moral superiority over Soviet style communism. Its creators were, by and large, born and raised during an aberration in our history, in a period when capitalism could be made to look benign. They used limited references to history, and they had limited analytical technology to allow them to massage large quantities of data. Kuznets is a shining example of this.

Piketty has changed this.

He has reintroduced history. He has explicitly reintroduced political economy. He has delved deeper into the foundations of capitalism and produced a fact that needs a response. It needs a new theory. He has not produced that theory, he has simply pointed out the natural asymmetries within capitalism.

Further, he has done in much of Marx. For all the same reasons.

Both left and right now need to reformulate their thinking.

The logic of capitalism is not that that it is self defeating. Nor that it is self adjusting. It just is. It plods along inexorably undermining much of what we observe as modern and socially beneficial. It will destroy the middle class. Relentlessly. It will plunge us back into a modern form of the Gilded Age. It requires the counter balancing force of democracy to humanize and channel it. It needs constant tempering.

That many of us have observed this as obvious is neither here nor there. That it confirms our convictions is irrelevant – though nice. It is the public who need to hear about it. They are the ones who have lived the myths of opportunity, of upward mobility, of merit based success, of American “exceptionalism”, and of market efficacy. They are the ones who need to be educated because they are the voters who can influence the next generation of policy. And it is policy that can correct our course.

Who should we read? I don’t know exactly. Clearly the fact that Piketty’s book is now a best seller and has sold out on Amazon tells us that he is being read. But there are others: Saez and Zucman’s paper is in the same vein. But I think the real literature is now to be written which ought to be exciting to any young economist who wants to make a contribution to society rather than simply to economics.

Remarkably, Irving Fisher’s 1919 presidential adress to the American Economic Association was on the importance of the topic of inequality, mainstream economics – paradigm or not – ignored him. It culminated in the absurdity of Robert Lucas and his statement that distribution doesn’t matter and that studying it is a waste of time. Yes it matters. Fisher knew it. Piketty proves it.

Finally, and with respect to the public: I was having coffee whilst going through a presentation I am preparing on inequality. A friend asked to look at it and comment. He had two reactions. First he though the word “inequality” was provocative and redolent of class warfare. He wanted me to think of another word. Second, he was astounded at the data in my charts. Piketty data. He had never seen anything like it. Why, he wondered, do our politicians not talk about this?

He went further. He said that removing the scales of myth will be deeply disturbing. People, he argued, have been ignoring the pressure of reality, but they know viscerally that something is wrong. Quite what they are not sure. But those myths allow them to maintain hope. A hope that things will improve. I hope that they can muddle through and survive. A hope that they will avoid the financial pitfalls that unemployment and illness inevitably now bring. To have that hope they need to believe in the larger American system and that it is fair. Take away that veil of fairness and you take away that hope. After that comes anger and resentment. After that comes recrimination. After that comes social unrest.

And, yes, he ended there. With the inevitability of upheaval.

Post-Piketty we can now contemplate upheaval on the basis of fact rather than pure emotion or observation of the obvious.

When I helped Edward, Norbert, and Grazia form the World Economic Association it was because I imagined a moment like this would arise. There is now more momentum behind change, and we have the vehicle – one of many to be sure – to help facilitate that change. We have journals that could be dedicated to such things. We have conferences that could feature such things. And we have access to thousands of people who can advocate such things. We can, therefore, help establish an economic democracy.

First we need to communicate with our neighbors.

This starts at the bottom, because, as Gilens and Page point out, the top isn’t listening.