Home > Uncategorized > Thomas Piketty’s changing views on inequality

Thomas Piketty’s changing views on inequality

from Steven Pressman and RWER issue no.92

Thomas Piketty established his professional reputation by using income tax returns to measure income distribution over long time periods in several nations. Long before Capital in the Twenty-First Century (hereafter C21) appeared, Piketty (2001; 2003; & Saez, 2003) showed that, in many capitalist countries, income flowed to the top 1% (really the top .1%). C21 made two new contributions – a theory to explain this phenomenon, r>g, and a policy solution, taxing wealth.

Surprisingly, C21 became an international best seller. Nonetheless, it was criticized by a broad array of economists. Heterodox economists objected to the economic theory Piketty used to explain rising inequality. Neoclassical economists disliked his policy proposal and understood that neoclassical economics didn’t support Piketty’s explanation of rising inequality. And many economists criticized Piketty’s data and his interpretation of the distributional facts (see Pressman, 2016).

Piketty’s follow up, Capital and Ideology, was published in France last fall; an English version appeared in March of 2020. There are many similarities between the two books. Both are massive tomes,1 well-written and packed with economic data. Both use the term “capital” when really talking about wealth. Finally, literary references abound to support key points.

Despite these similarities, there are many changes. Gone are r>g and any analysis of inequality that rests on neoclassical economic theory. Capital and Ideology contains a different perspective on the causes of inequality. As its title proclaims, it is our beliefs that are crucial. Piketty undertakes a broad sweep of history to argue that the degree of inequality we get depends on how people see inequality and that this varies from time to time and from place to place. A progressive ideology, leading to greater equality during the 20th century, ran out of steam by the end of the century. It was replaced by the view that markets increase human well-being. There is also a new policy proposal – broader representation on corporate boards.

This paper examines Piketty’s changing views on the causes of inequality and the policy solutions needed to remedy the problem. Section 2 provides a brief overview of some general perspectives on understanding income inequality. Section 3 focuses on how C21 views the causes of inequality. Section 4 then discusses the causes of inequality according to Capital and Ideology. Section 5 looks at key policy proposals to reduce inequality in both books. Section 6 concludes.  read more

 

  1. Ed Zimmer
    July 4, 2020 at 5:42 pm

    “Besides raising estate taxes, top individual income tax rates and corporate income tax rates can be increased, and there could be a significant financial transactions tax.”

    Wouldn’t a financial transaction tax adversely affect index funds? I would hate to see the non-professional-investor environment go back to pre-Bogle days.

  2. Ikonoclast
    July 5, 2020 at 12:18 am

    In C21 Piketty was exposing the automatic outcomes of an axiom-based legal law, regulation and financial system. The real economy is a real system (obviously). The financial economy is a formal system whose operations are prescribed by its axioms. Our system of legal laws, regulations, financial rules and financial calculations (bookkeeping and national accounts) is a formal, prescriptive system founded on ideological property axioms and calculated out via prescribed operations in the numéraire (money or financial capital). The RWER article even happens to mention one property axiom of the modern system: the axiom “for unlimited private accumulation.”

    The expression r>g was not put forward by Piketty as a “law”. He put it forward as a tendency under certain conditions. The full expression of the tendency was;

    If r>g then inequality increases.

    It is a tendency prescribed by the axioms of the legal laws, regulations, financial rules and financial calculations. The outcome is axiomatic (meaning here “automatic”) given the prescribed axioms of capitalism and finance. This was not a Western problem while g was greater than r, in at least the imperial / post-imperial developed countries. Growing rewards could be given to labor. Capital came to an accommodation with labor (by exploiting the colonized world and Western inequality dropped.

    The problem arises for the West and then the world with the secular (long run) stagnation crisis; when the economy can no longer grow or grow enough. After all, we live in a finite real world. Capital “wants” to expand for ever but the real economy cannot do so. This crisis was always going to come. The axiomatic system of capital prescribes a endless growth trajectory which is impossible in the real world.

    Something must give at this point. There must be preemptive change by ballot box and statism, or violent revolution or civilizational collapse. These exhaust the real possibilities and they are not necessarily mutually exclusive, although we would have hoped that the first one could preempt the next two. This is no longer likely to be the case. Change has probably been left to late.

  3. Ken Zimmerman
    July 25, 2020 at 3:19 pm

    Economic life is the activities through which people produce, circulate, and consume things, the ways that people and societies secure their subsistence or provision themselves. ‘Things’ is an expansive term, Including material objects, but also the immaterial: labor, services, knowledge and myth, names and charms, and so on. In different times and places, different ones of these will be important resources in social life, and when they are important, they have or will come within the purview of economic anthropologists.

    In other words, where some economists view economic life in terms of the sorts of mental calculus that people use and the decisions that they make (for example, utility maximization), which stresses the form of thought of the person being studied, most economic anthropologists view economic life in terms of the substance of the activity. Even those who attend to the mental calculus are likely to do so in ways that differ from what is found in formal economics (for example, Gudeman 1986; Gudeman and Rivera 1991). This substance includes markets in the conventional sense, whether village markets in the Western Pacific or stock markets in the First World. However, these markets are only a sub-set of economic life, and in accord with their tendency to see the interconnections in social life, economic anthropologists tend to situate things like markets or other forms of circulation, or production or consumption, in larger social and cultural frames, as a way to see how markets affect and are affected by other areas of life. This contextualization operates in terms of types and categories, as well. So, while anthropologists recognize the growing importance of the economy in how people in Western societies understand their world over the past couple of centuries (Dumont 1977), they do not take the nature of ‘the economy’ as given or its growing importance as self-evident (for example, Carrier 1997; Carrier and Miller 1998; Dilley 1992; Friedland and Robertson 1990). This indicates that for many economic anthropologists, it is not just economic life that merits investigation. So too does the idea of economy, its contents, contexts and outstanding features, and the uses to which it is put. Or, more succinctly economic ways of life are one aspect of culture. Not the totality of culture. When economy is substituted for culture, or comes to subsume culture within itself, the strength, beauty, and persistence of culture suffer. Culture may be diminished to point of disappearance. This is the current situation with neoclassical economics and at least certain of the several cultures of America. I believe Piketty at this stage of his life notices this and wants to open up ways to change it. Thus, his conclusion in ‘Capital and Ideology.’

    “Beyond the realm of research, the autonomization of economic knowledge has also been bad for the civic and political sphere because it encourages fatalism and fosters feelings of helplessness. In particular, journalists and citizens all too often bow to the expertise of economists, limited though it is, and hesitate to express opinions about wages and profits, taxes and debts, trade and capital. But if the people are to be sovereign—as democracy says they should be—these subjects are not optional. Their complexity is such that it is unjustifiable to abandon them to a small caste of experts. The contrary is true. Precisely because they are so complex, only broad collective deliberation, based on reason and on the past history and experience of every citizen, can lead to progress toward resolving these issues. Ultimately, this book has only one goal: to enable citizens to reclaim possession of economic and historical knowledge. Whether or not the reader agrees with my specific conclusions basically does not matter because my purpose is to begin debate, not to end it. If this book has been able to awaken the reader’s interest in new questions and enlighten her with knowledge she did not previously possess, my goal will have been fully achieved.”

    A goal with which every anthropologist I know or have read agrees. But a goal, from what I can determine few economists would accept.

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