InequalityCityRichPoor_Andreas Wecker_Flickr

Piketty and the Zeitgeist

May 13, 2014 Dani Rodrik

It is difficult to believe that Thomas Piketty's book Capital in the Twenty-First Century would have had the impact that it has had ten or even five years ago, even though identical arguments and evidence could have been marshaled then. But it is now acceptable to talk about inequality in America as the central issue facing the country.

PRINCETON – I get the same question these days wherever I go and from whomever I meet: What do you think of Thomas Piketty? It’s really two questions in one: What do you think of Piketty the book, and what do you think of Piketty the phenomenon?

The first question is much easier to answer. By sheer luck, I was among the earliest readers of the English-language version of Capital in the Twenty-First Century. Piketty’s publisher, Harvard University Press, had sent me the pre-publication galleys, hoping that I would contribute a blurb for the back cover. I did so happily, as I found the scope, depth, and ambition of the book impressive.

I was of course familiar with Piketty’s empirical work on income distribution, carried out jointly with Emmanuel Saez, Anthony Atkinson, and others. This research had already produced startling new findings on the rise of the incomes of the super-rich. It had shown that inequality in many advanced economies has reached levels not seen since the early part of the twentieth century. It was a tour de force on its own.

We hope you're enjoying Project Syndicate.

To continue reading, subscribe now.

Already have an account? Log in

Support High-Quality Commentary

US President-elect Joe Biden may have promised a “return to normalcy,” but the truth is that there is no going back. The world is changing in fundamental ways, and the actions the world takes in the next few years will be critical to lay the groundwork for a sustainable, secure, and prosperous future.

For more than 25 years, Project Syndicate has been guided by a simple credo: All people deserve access to a broad range of views by the world’s foremost leaders and thinkers on the issues, events, and forces shaping their lives. At a time of unprecedented uncertainty, that mission is more important than ever – and we remain committed to fulfilling it.

But there is no doubt that we, like so many other media organizations nowadays, are under growing strain. If you are in a position to support us, please subscribe now.

As a subscriber, you will enjoy unlimited access to our On Point suite of long reads and book reviews, Say More contributor interviews, The Year Ahead magazine, the full PS archive, and much more. You will also directly support our mission of delivering the highest-quality commentary on the world's most pressing issues to as wide an audience as possible.

By helping us to build a truly open world of ideas, every PS subscriber makes a real difference. Thank you.

Subscribe Now

new comment has been posted. new comments have been posted.

0 Comments on this paragraph, 14 in all 14 Comments on this article

D Dandelion Apr 5, 2015

So, how does Piketty's analysis differ form the classical economist's analysis/conception of inequality? Also, were they as pessimistic as Piketty or were they more aware of the fact that the economic system and its dynamics is not the only force playing a role in determining what the future will look like?
A new reply to this comment has been posted.
D Dandelion Apr 5, 2015

So, what do we know about the growth of inequality today that Marx and the other classical economists didn't? How is Piketty's analytical framework different from the way the classical economist conceived of or explained the problem of inequality?
A new reply to this comment has been posted.
silvio starosta Jun 11, 2014

I think that we can have all kind of discussions, from here to eternity.
And maybe some charts may suggest doubts or interpretations, but.. there is one fact that is ,lets call that is absolute and nothing relative.
The extreme poverty, the extreme inequality and the time of injustice we are having at the present world, is no matter of discussion, other thing is that there are many people looking to the other side.
Taking this into account, I really don't care about "certain doubts".
Piketty is not a terrorist or a comunist or brother of Osama bin laden. He is an economist , so lets open our eyes to reality.
Under the present circunstances we are going on a wrong direction
The "markets", not Piketty, are destroying the capitalism.
In the other side Google is worthy than General Motors.
What we will find at the end of this road ??
A new reply to this comment has been posted.
Michael Heller May 24, 2014

I cannot resist the temptation...

Now that Chris Giles the excellent Economics Editor of the Financial Times has found the Piketty findings are “undercut by errors” we may assume the coming of a fun Data Deluge.

Piketty’s Rogoff Moment has begun. I predict the next Project Syndicate piece on Piketty may legitimately be called Le Piketty Dénouement, or Piketty’s Sehr Short Zeitgeist.

Alternatively, just Piketty and Schadenfreude.

http://michaelgheller.blogspot.com
Heller Economic History Entertainments
A new reply to this comment has been posted.
G. A. Pakela May 19, 2014

If Piketty were really right, our world would be dominated by the Astors, Rockefellers, Kennedys, Fords and other heirs of great fortunes. Instead, we have Bill Gates, Mark Zuckerberg (who apparently doesn't even own a suit) and Warren Buffett. Two decades from now there will be another crop of ultra rich, and that will be based on some as yet unknown entrepreneurs who strike on a great idea and make a fortune.
A new reply to this comment has been posted.
James Edwards May 19, 2014

Piketty's book provided interesting evidence of the dynamics of the inequality however has pointed the need for the wealth tax simply because the political system is being bought by the wealthy with vested interest in legislation that would benefit their businesses.
A new reply to this comment has been posted.
William Wallace May 17, 2014

Indeed, the rise of a strong middle class, and broader distribution of wealth, coincided with key historical variables in labor supply and demand, and level of technology. Mass employment of semi-skilled and skilled labor was possible during that window of opportunity, but the core industrial production left after advanced mechanization is too small to create broad employment opportunities.

The middle classes in China and India may have even shorter shelf-lives, as already slight rises in manufacturing salaries are giving way to robotization and elimination of jobs.

While true that emerging and new technologies provide new forms of work, it cannot be said with any confidence that skill sets may be made broadly available. IOW, there are large segments of the population who may never quite qualify for intense knowledge-based work, regardless of educational efforts.

We are for all intents and purposes now returning to the historical norm of great imbalance between labor and capital. What we need to address is what sort of working model can we come up with that neither discourages initiative nor leaves the general population unprotected.
A new reply to this comment has been posted.
philip meguire May 15, 2014

The Depression and WWII gave rise to confiscatory progressive income tax systems. For example, during 1946-63, the USA taxed incomes over about 3M/year in current dollars, at a 91% marginal rate. The result was that all salaries and bonuses exceeding about 500K/year disappeared. Thatcher, Reagan and Roger Douglas put an end to this confiscatory regime, very high salaries soon emerged, and income Ginis fell throughout the OECD. While the share of income going to the top 1% rose, so did the share of total income taxes paid by this group. It is likely that a return to the income tax parameters of the 1950s and 60s would require that the middle and working class pay higher effective tax rates, or a contraction of the public sector. This is not to argue that prevailing tax systems are necessarily ideal. I advocate further reductions in the tax liabilities of the bottom 50%, and getting the top 1-5% to pay more income tax. Just how to do this is a matter of trial and error.

There is no good data on the size distribution of household wealth in any G7 country, mainly because wealth is easy to conceal and financial wealth is untaxed. Closely held firms are very hard to value. But I submit that wealth does not matter as long as the income streams generated by wealth are fairly taxed.

The link below is to a WSJ oped by Martin Feldstein, an authority on public finance. I warmly endorse every objection Feldstein raises to Piketty's handling of the data and understanding of the institutional realities.
http://online.wsj.com/news/articles/SB10001424052702304081804579557664176917086?mod=hp_opinion&mg=reno64-wsj

If the world worked as Piketty thinks it does, household net worth would grow faster than personal income. In fact, the difference between the two annual growth rates, USA 1946-96, was only 0.1%. 1996-2013, personal income grew 0.8%/year more than HH net worth, thanks to the 17% decline in net worth during 2008. HH net worth includes the capitalised value of DB pensions, but not the capitalised value of Social Security benefits, a major form of wealth for the bottom 60-80% of households.

The way forward is blunting the hard edge of poverty, not confiscating the wealthy.
- James Edwards May 19, 2014
  
  The way forward is blunting the hard edge of poverty, not confiscating the wealthy.
  
  I'm going to have to disagree with your assessment of confiscating the wealthy because the wealthy will find ways to make money regardless of the tax rate imposed. We did have wealthy people in the years after 1946 and before.
  A new reply to this comment has been posted.
A new reply to this comment has been posted.
fatih kök May 15, 2014

Mr. Rodrik, Turkey's crony capitalısm killed more than three hundred people ın Soma Manisa as you know from latest news.
what ı request from you is to write a concise article about this phenomenon in Turkey economy
Thanks.
A new reply to this comment has been posted.
hari naidu May 14, 2014

Dani has the right background and academic experience to understand the internal (dynamic) contradictions of Capitalism.

Karl Marx ventured to conjecture that internal contradictions will ultimately undo Capitalism – as he witnessed it in Ruhr Valley (Germany).

Piketty is going a step further to find empirical evidence to challenge the central thesis of Capitalism a la America.

In contrast, EU, under Lisbon Treaty, underwrites an Industrial Policy based on a social matrix (incl. VAT). In other words, what the German’s call, “social ekonomie” based on safety net.

Now, witness modern developments in subcontinent of India and mainland China, inequality is dangerously dividing the social cohesion and fabric of society and its political process.

My take on the French economist is simple because Marxist thinking has always been a part and parcel of French intellectual (academic) life for a long time.

American's – on the right - will find his conclusions as a critique of their infantile social system and its political economy.
A new reply to this comment has been posted.
Procyon Mukherjee May 14, 2014

I am curiously attracted to Ernst Engel’s First Law, “The poorer a family, greater the proportion of its expenditure that must be devoted to the provision for food”, or to put it differently greater the income, smaller the relative percentage of outlay for subsistence.

This is no earth shattering discovery, but it is at the core of Piketty’s observation that when low and middle-income earners have a stagnating prospect of income growth, their consumption propensity, that which drives the base of the economy in terms of goods and services, would fall, impacting g, while r which comes from inheritance, would continue to grow unabated.

But as Rodrik is right, extrapolation is dangerous, and there must be a point of inflection.
A new reply to this comment has been posted.
Yoshimichi Moriyama May 14, 2014

The Zeitgeist today is that exclusive or almost exclusive pursuit of economic interest will almost automatically lead us to good society and that texts of economics provide us with the key for arriving at that earthly paradise. We have elevated economics, without the awareness of elevating blindly, to that status afforded to Newton's and Einstein's physics.

I must admit that economis today has becom such a highly sophisticated discipline beyond a layman to make an adequate comment, but economics does not stand above time and place. It can be best interpreted in a historical context; John Locke, Adam Smith, Malthus, Ricardo, Say, Keynes, etc., cannot stand aloof above their times. It is time we should underappreciate our mythical faith in economics and tame and bring economics to its proper place.
A new reply to this comment has been posted.
Zsolt Hermann May 13, 2014

I think the unprecedented response to Piketty's book is based on its scope and fundamental research, from how many sides he is supporting his conclusions, in short this is the hardest evidence to ignore or hide from regarding the self-destructing nature of our present human system and lifestyle.

We have many facts, proof all over the place but unconsciously we still avoid putting the whole picture together as looking at the whole picture, the whole unnatural and unsustainable system we built in total incompatibility compared to the strict natural system we exist in, would force us to change, and we do not want to change.

Instead we choose to fight, ignore facts even if they are the clearest, most obvious, or even if we agree there is a problem we "kick the can" or hope for some miracle.

So Piketty's strength is in the systemic approach, putting a whole picture together which is hard to ignore or refute.

The weakness of the book is its focus on economy, trying to find an economic solution to a problem that is much deeper.
It is of course not the author's fault, he is a specialist looking at his field.

But his work is similar to a skin doctor who wants to treat specific skin changes with his ointments, when the skin changes are simply symptoms of a cancer breaking out.

Economics and trade is simply the external representation of the inter-relationships in between human beings.
Banking systems, political governance is simply facilitating institutions for the economy and trade to maintain its function.

The root, the main driver is human nature, which influences how we relate to each other.
And our untamed, inherent human nature is self-preserving, self-calculating, egocentric, viewing others as enemies and competitors.

Thus regardless of the initial idea, good intentions this inherent nature of ours will corrupt the system regardless of what and how we try.
This nature brought down all previous, glorious civilizations, corrupted Marx's ideas, and finally corrupted modern democracy and freedom, and the promising, free-market capitalistic system.

So Piketty's depression is spot on in a way that unless we first correct, re-route our human nature, allowing it to build mutually complementing, and cooperating human relationships, shifting from competition to collaboration, from self-calculations to primary collective calculations, it does not matter what structure, ideology, political, economical, financial system we try, we will fail again and again.

So what we all need to work out as soon as possible how to introduce a new education system, and how to change the values of society so we treat the real problem and not the superficial symptoms.
A new reply to this comment has been posted.

https://prosyn.org/4gxYQO5

Cookies and Privacy

Piketty and the Zeitgeist

To continue reading, subscribe now.

Support High-Quality Commentary

New Comment

Email this piece to a friend

Contact us

Log in/Register

Cookies and Privacy

Piketty and the Zeitgeist

To continue reading, subscribe now.

Support High-Quality Commentary

Edit Newsletter Preferences

Set up Notification