Varoufakis vs. Piketty
“The rich… divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life which would have been made, had the earth been divided into equal proportions among all its inhabitants and thus without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species.” Adam Smith, The Theory of Moral Sentiments, Part IV Chapter 1
“For he that hath, to him shall be given: and he that hath not, from him shall be taken even that which he hath.” Mark, King James Bible, 1611, 4:25
Adam Smith’s optimism and its vulgar neoliberal reincarnation, the ‘trickle down effect’, are thankfully on the back foot these days, steadily losing ground to a more ‘biblical’ narrative (see Mark 4:25 above). The Crash of 2008, the bailouts that followed, and the ‘secular stagnation’ which is keeping the wage share at historic lows (at a time of conspicuous QE-fuelled, bubble-led, asset-price inflation), have put paid to the touching belief that the ‘invisible hand’, left to its own devices, distributes the fruits of human endeavour more evenly across humanity.
The commercial and discursive triumph of Thomas Piketty’s Capital in the 21st Century symbolises this turning point in the public’s mood both in the United States and in Europe. Capitalism is, suddenly, portrayed as the purveyor of intolerable inequality which destabilises liberal democracy and, in the limit, begets chaos. Dissident economists, who spent long years arguing in isolation against the trickle-down fantasy, are naturally tempted to welcome Professor Piketty’s publishing phenomenon.
The sudden resurgence of the fundamental truth that the best predictor of socio-economic success is the success of one’s parents, in contrast to the inanities of human capital models, is undoubtedly uplifting. Similarly with the air of disillusionment with mainstream economics’ toleration of increasing inequality evident throughout Professor Piketty’s book. And yet, despite the soothing effect of Professor Piketty’s anti-inequality narrative, this paper will be arguing that Capital in the 21st Century constitutes a disservice to the cause of pragmatic egalitarianism.
Underpinning this controversial, and seemingly harsh, verdict, is the judgment that the book’s:
- chief theoretical thesis requires several indefensible axioms to animate and mobilise three economic ‘laws’ of which the first is a tautology, the second is based on an heroic assumption, and the third is a triviality
- economic method employs the logically incoherent tricks that have allowed mainstream economic theory to disguise grand theoretical failure as relevant, scientific modelling
- vast data confuses rather than enlightens the reader, as a direct result of the poor theory underpinning its interpretation
- policy recommendations soothe our ears but, in the end, empower those who are eager to impose policies that will further boost inequality
- political philosophy invites a future retort from the neoliberal camp that will prove devastating to those who will allow themselves to be lured by this book’s arguments, philosophy and method.
 Of course when Mark was prognosticating that more will be given to the ‘haves’, and taken away from the ‘have nots’, he was not referring to wealth, but to understanding, wisdom, propriety. Still, the quote fits recent wealth and income dynamics so well that it would seem a pity not to employ it in this context.