Thomas Piketty Revives Marx for the 21st Century

Date: 22-04-2014
Source: The Wall Street Journal By DANIEL SHUCHMAN

An 80% tax rate on incomes above $500,000 is not meant to bring in money for education or benefits, but ‚to put an end to such incomes.‘

Thomas Piketty likes capitalism because it efficiently allocates resources. But he does not like how it allocates income. There is, he thinks, a moral illegitimacy to virtually any accumulation of wealth, and it is a matter of justice that such inequality be eradicated in our economy. The way to do this is to eliminate high incomes and to reduce existing wealth through taxation.

„Capital in the Twenty-First Century“ is Mr. Piketty’s dense exploration of the history of wages and wealth over the past three centuries. He presents a blizzard of data about income distribution in many countries, claiming to show that inequality has widened dramatically in recent decades and will soon get dangerously worse. Whether or not one is convinced by Mr. Piketty’s data—and there are reasons for skepticism, given the author’s own caveats and the fact that many early statistics are based on extremely limited samples of estate tax records and dubious extrapolation—is ultimately of little consequence. For this book is less a work of economic analysis than a bizarre ideological screed.

A professor at the Paris School of Economics, Mr. Piketty believes that only the productivity of low-wage workers can be measured objectively. He posits that when a job is replicable, like an „assembly line worker or fast-food server,“ it is relatively easy to measure the value contributed by each worker. These workers are therefore entitled to what they earn. He finds the productivity of high-income earners harder to measure and believes their wages are in the end „largely arbitrary.“ They reflect an „ideological construct“ more than merit.

Soaring pay for corporate „supermanagers“ has been the largest source of increased inequality, according to Mr. Piketty, and these executives can only have attained their rewards through luck or flaws in corporate governance. It requires only an occasional glance at this newspaper to confirm that this can be the case. But the author believes that no CEO could ever justify his or her pay based on performance. He doesn’t say whether any occupation—athletes physicians economics professors who sell zero-marginal-cost e-books for $21.99 a copy—is entitled to higher earnings because he does not wish to „indulge in constructing a moral hierarchy of wealth.“

He does admit that entrepreneurs are „absolutely indispensable“ for economic development, but their success, too, is usually tainted. While some succeed thanks to „true entrepreneurial labor,“ some are simply lucky or succeed through „outright theft.“ Even the fortunes made from entrepreneurial labor, moreover, quickly evolve into an „excessive and lasting concentration of capital.“ This is a self-reinforcing injustice because „property sometimes begins with theft, and the arbitrary return on capital can easily perpetuate the initial crime.“ Indeed laced throughout the book is an almost medieval hostility to the notion that financial capital earns a return.

Capital in the Twenty-First Century
By Thomas Piketty
(Belknap/Harvard, 685 pages, $39.95)

Mr. Piketty believes that the wealthier a society becomes, the more people will claw for the best relative social station and the more inequality will ensue. He turns to those timeless economic authorities Jane Austen and Honoré de Balzac in mapping our future. Throughout the book, he importunately digresses with the dowry-chasing machinations of characters in novels like „Sense and Sensibility“ and “ Père Goriot. “ He is obsessed with the following calculus: Are the fruits of working hard greater than those attainable by marrying into a top fortune? If not, „why work? And why behave morally at all?“

While America’s corporate executives are his special bête noire, Mr. Piketty is also deeply troubled by the tens of millions of working people—a group he disparagingly calls „petits rentiers“—whose income puts them nowhere near the „one percent“ but who still have savings, retirement accounts and other assets. That this very large demographic group will get larger, grow wealthier and pass on assets via inheritance is „a fairly disturbing form of inequality.“ He laments that it is difficult to „correct“ because it involves a broad segment of the population, not a small elite that is easily demonized.

So what is to be done? Mr. Piketty urges an 80% tax rate on incomes starting at „$500,000 or $1 million.“ This is not to raise money for education or to increase unemployment benefits. Quite the contrary, he does not expect such a tax to bring in much revenue, because its purpose is simply „to put an end to such incomes.“ It will also be necessary to impose a 50%-60% tax rate on incomes as low as $200,000 to develop „the meager US social state.“ There must be an annual wealth tax as high as 10% on the largest fortunes and a one-time assessment as high as 20% on much lower levels of existing wealth. He breezily assures us that none of this would reduce economic growth, productivity, entrepreneurship or innovation.

Not that enhancing growth is much on Mr. Piketty’s mind, either as an economic matter or as a means to greater distributive justice. He assumes that the economy is static and zero-sum; if the income of one population group increases, another one must necessarily have been impoverished. He views equality of outcome as the ultimate end and solely for its own sake. Alternative objectives—such as maximizing the overall wealth of society or increasing economic liberty or seeking the greatest possible equality of opportunity or even, as in the philosophy of John Rawls, ensuring that the welfare of the least well-off is maximized—are scarcely mentioned.

There is no doubt that poverty, unemployment and unequal opportunity are major challenges for capitalist societies, and varying degrees of luck, hard work, sloth and merit are inherent in human affairs. Mr. Piketty is not the first utopian visionary. He cites, for instance, the „Soviet experiment“ that allowed man to throw „off his chains along with the yoke of accumulated wealth.“ In his telling, it only led to human disaster because societies need markets and private property to have a functioning economy. He says that his solutions provide a „less violent and more efficient response to the eternal problem of private capital and its return.“ Instead of Austen and Balzac, the professor ought to read „Animal Farm“ and „Darkness at Noon.“