Like seismic waves rippling outward after a tectonic shift, reverberations are roiling the economic-policy landscape after the U.S. launch of the groundbreaking new analysis by Thomas Piketty, the scholar from the Paris School of Economics whose landmark tome – “Capital in the Twenty-First Century” – has newly jolted the economics profession.
Any Washingtonian or World Bank Group staffer who somehow missed the news of Piketty’s celebrated series of speeches and seminars last week – in Washington, New York and Boston – received an unmistakable signal this week about what an important intellectual breakthrough Piketty has achieved. President Jim Yong Kim on Tuesday cited Piketty while putting the issue of economic inequality at the top of his list of priorities during his review of the Spring Meetings of the Bank and the International Monetary Fund. Noting that he was already about halfway through reading Piketty’s “Capital,” President Kim sent a clear message that the skewed global distribution of wealth, as analyzed by Piketty and emphasized by many officials at the Bank and Fund's semiannual conference, should be top-of-mind for policy-watchers at the Bank and beyond – indeed, at every institution that hopes to promote shared prosperity.
Piketty’s scholarship is now receiving widespread acclaim as a landmark in economic analysis, and is being recognized both for its “exhaustive fact-based research” and its sweeping historical perspective. More of a patient dissection of hard data than a political roadmap, Piketty’s book has quickly become the subject of multiple praiseworthy reviews, notably in the New York Times and the Financial Times. One usually level-headed Bloomberg View analyst, recoiling from the “rapturous reception” accorded to the book, may have gone slightly overboard this week in asserting that Piketty's insights had been greeted by American liberals with “erotic intensity.”
Predictably, Piketty's book has also quickly become the target – “Piketty Revives [Karl] Marx,” blared a Wall Street Journal headline; “Marx Rises Again,” warned the New York Times’ lonely conservative scold – of the whack-a-mole ideological purists in laissez-faire Op-Ed columns, who forever seem tempted to equate modern-day liberalism with long-gone Leninism. Eager to publish denunciations of any idea, however modest, that might justify (heaven forfend) tax increases on stratospheric income-earners and the top-fraction-of-the-One Percent, the free-market fundamentalists on the Wall Street Journal’s editorial board – unabashed cheerleaders for plutocracy – have opened up one of their trademark barrages via their Op-Ed columns (“This book is less a work of economic analysis than a bizarre ideological screed”; “The professor ought to read ‘Animal Farm’ and ‘Darkness at Noon’ ”). The Journal's jihad clearly aims to demean or discredit anyone who might flirt with such Piketty-style notions as restoring greater progressivity to the tax code. (Egad: Progressive taxation? Next stop: Bolshevism.)
For fact-based readers who shun such doctrinaire dogmatism, one of the Piketty implications is this: Having discerned capitalism’s natural tendency toward “inexorably rising inequality” – unless lawmakers adopt moderating factors like progressive taxes on incomes and inheritances – Piketty’s work challenges many of the economics profession’s “core beliefs about the organization of market economies”: even (in the words of New York Times columnist Eduardo Porter) many “long-held tenet[s] of free-market capitalism.” Piketty’s authoritative analysis invites the economics discipline to pursue a searching reconsideration of the passive laissez-faire philosophy, which played a major role in creating the conditions for the Crash of 2008 and the ensuing Great Recession. Piketty has thus brought a dose of “disruptive innovation” to a discipline that remains in deep introspection amid the breakdown of the once-dominant, now-discredited Washington Consensus.
Propelling Piketty-style ideas on Tuesday, another renowned analyst – a historian by training and a journalist by profession – led an energetic forum at the Bank, livestreamed (and archived online) thanks to the Bank’s InfoShop. Chrystia Freeland – formerly a columnist with the Financial Times and Thomson Reuters, and recently elected as a member of the Canadian Parliament representing center-city Toronto – discussed her celebrated work “Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else.” Noting the “fortuitous” timing of her Bank visit, after Piketty’s sweep through Washington, Freeland asserted that the idea of rampant inequality “is really squarely on the world’s intellectual (if not yet political) agenda” thanks to Piketty.
“For a really long time, this [discussion of ‘super-accumulation at the top’] has been a taboo, particularly in the American political discourse,” said Freeland. The InfoShop audience surely warmed to Freeland’s praise for the years of patient Bank research – she cited, in particular, the work of former Bank economist Branko Milanovic, who is now at the City University of New York – that helped lay the fact-based foundation for Piketty's philosophical construct.
For too long, said Freeland, political partisans reached for too-easy answers about “the really tremendous disparities” created by an Anglo-American variant of finance-driven capitalism that metastasized beyond any effective government restraint. Liberals erred, said Freeland, by merely deploying “the ‘crony capitalist’ suite of explanations,” as if Thatcherism and Reaganism had merely allowed economic predators to reign, rather than more fundamentally upsetting the balance of the social contract. Conservatives erred, meanwhile, by dismissing the widening socioeconomic gulf with the fatalistic brushoff that “it’s just the way capitalism works.” Freeland instead (taking the evenhanded “journalist’s view”) contended that “it’s really a little of both”: Self-serving interests exploited their profit-maximizing opportunities while government watchdogs slept – but the Thatcher/Reagan era's approach also fundamentally skewed the system in ways that intensified capitalism's natural tendency to concentrate capital in fewer and fewer hands.
Piketty’s analysis, said Freeland, seems inclined more toward the perspective that “this is the way industrial and post-industrial capitalism works . . . absent powerful political interventions.” And therein lies a challenge that is “difficult intellectually” as well as politically to confront, she said – underscoring that all policy choices, even if they sometimes seem “purely technocratic,” instead “inevitably involve politics.”
If capitalism has a natural tendency to let inequality intensify – and if wealth and poverty are diverging at the very time that the middle class is being “hollowed out” amid the pressures of globalization and ever-more-advanced technology – then we could be headed for a “neo-Downton Abbey society.” In such a class-stratified hierarchy, quipped Freeland, “a few of us invent Google, and the rest of us give them massages.”
Speaking as “a pro-business person, a pro-capitalist person” who sees “no alternative” to capitalism – but who aims to “make capitalism better, and [make it] work better” – Freeland envisioned a way to ease today's mounting social tensions: suggesting a straightforward, although politically difficult, solution proposed by a far-sighted business leader amid her reporting for “Plutocrats.” It would be in the long-term self-interest of the super-wealthy to “be out there advocating for a wealth tax” to reduce inequality, at least slightly, to forestall an eventual social explosion. As one Brookings Institution scholar has put it: “No one wants to see tumbrel carts rumbling through the streets” someday, having reached the point where the modern-day aristocracy is led to the guillotine.
Not with such a cathartic bang, but instead with a despairing whimper, democracy seems headed toward “extremely bleak” prospects if Piketty’s analysis holds true, according to Thomas B. Edsall of the New York Times. “Piketty joins a number of scholars raising significant questions about how the global economic system will deal with such phenomena as robotics, the hollowing out of the job market, outsourcing and global competition,” Edsall reckons. “Without what [Piketty] acknowledges is a politically unrealistic global wealth tax, he sees the United States and the developed world on a path toward a degree of inequality that will reach levels likely to cause severe social disruption.”
Confronting such a grim trajectory, the inherent optimism of the development community is likely to be sorely tested in the coming era of ever-more-concentrated wealth and ever-more-intense poverty. The quest to eliminate extreme poverty and promote shared prosperity faces enormous structural challenges, both economic and political – and the fatalistic brushoff from pro-plutocracy party-liners, that "it's just the way capitalism works," is likely to be futile in the long run, as social frictions grow more grating. The relentless logic of “Capital in the Twenty-First Century” and “Plutocrats” may serve a useful purpose, however, if it underscores the urgency of surmounting rigid ideological boundaries – prodding pragmatists, from all academic disciplines and all political persuasions, to unite in the search for practical ways to overcome what both Piketty and Freeland call “the political challenge of our time.”
Watch the replay, below, of Chrystia Freeland's talk at the World Bank.