THOMAS PIKETTY AND HIS CRITICS / THE NEW YORK TIMES OP EDITORIAL

Thomas Piketty and His Critics

Thomas B. Edsall

MAY 14, 2014


Many on the left see the popularity of Thomas Piketty’s new book, “Capital in the Twenty-First Century,” as a sign of hope, but both optimists and pessimists share a belief more telling than Piketty’s success: the idea that the traditional Democratic economic agenda is dead.

Piketty’s book reinforces the idea that the domestic policies liberals advocate for are palliative, not curative — that, in essence, inequality is here to stay.

The problem of deepening inequality is enormous, Piketty writes: “Growth can of course be encouraged by investing in education, knowledge and nonpolluting technologies. But none of these will raise the rate of growth to 4 or 5 percent a year.”

Instead, he writes, “for countries at the world technological frontier” — the United States, Northern Europe and parts of Asia — and “ultimately for the planet as a whole – there is ample reason to believe that the growth rate will not exceed 1-1.5 percent in the long run, no matter what economic policies are adopted.”

Piketty’s analysis articulates what many people on the Democratic left feel intuitively, that a domestic tax, spending and regulatory agenda is ineffective in the face of the power of globalized capital to grind down wages and benefits.

In Piketty’s view, the solution is a measure beyond the political reach of any individual nation or international body, as they are now constituted: a global wealth tax. Only such a tax “would contain the unlimited growth of global inequality of wealth, which is currently increasing at a rate that cannot be sustained in the long run and that ought to worry even the most fervent champions of the self-regulated market.”

Piketty’s proposed global tax would set rates of 0.1 to 0.5 percent on fortunes of less than 1 million euros ($1.37 million); 1 percent on assets of 1 to 5 million euros ($1.37 million to $6.87 million); 2 percent on holdings of 5 to 10 million euros ($6.87 million to $13.7 million); and a sliding scale ultimately reaching 10 percent on fortunes of “several hundred million or several billion euros.”

It would be an understatement to say that a tax on wealth faces major implementation problems. James Wetzler, the tax commissioner of New York State during the administration of Mario Cuomo, wrote in an essay that “absent aggressive policy intervention, the Western world appears to be headed toward a plutocratic dystopia characterized by wealth inequality approaching that of ancien régimeFrance.”

Wetzler added in an email that “to make the U.S. tax system more progressive, we should focus on strengthening our existing income, estate and gift taxes, not on a new starter like a wealth tax. A federal tax on wealth would require a constitutional amendment, and we know a lot less about its economic impact than we know about our existing taxes.”

Further complicating implementation of a wealth tax, according to Wetzler, is that it “must address complexities associated with the fact that so much wealth is owned by corporations and other legal entities with dispersed ownership.”

And that’s only part of the problem. Who would run a super-national tax collection agency? How would the taxes collected on assets owned by one person but held in multiple countries be distributed? How would global wealth tax supporters actually win the enactment of regulations that would require transparency of ownership of real estate, of bank holdings and of control of private corporations?

Is it fair to describe Piketty’s analysis (as opposed to the upbeat man) as pessimistic? First, Piketty declares that traditional liberal remedies – education spending, worker protections, more progressive taxation, family stabilization assistance – may be helpful at the margins, but inequality will worsen “no matter what economic policies are.” Second, Piketty does not offer a weapon other than a massively redistributive and politically unachievable tax with which to battle this intensifying inequality.

The unlikeliness of Piketty’s policy prescription becoming reality has not placated the right. James Pethokoukis, the money and politics blogger for the American Enterprise Institute, exemplifies the aversion to Piketty now erupting among American conservatives. 

Pethokoukis warns that Piketty’s “soft Marxism,” if unchallenged, “will spread among the clerisy and reshape the political economic landscape on which all future policy battles will be waged. We’ve seen this movie before.”

It’s not only the right that is disturbed; there is also opposition among a number of progressive activists and liberal policy analysts who recognize the dangers Piketty’s analysis poses to their agenda.

While Piketty notes that “there is widespread discontent with the extreme inequality and lack of opportunity and security,” he simultaneously reinforces the “passivity and resignation” that comes out of “the failure of the state and of center-left parties to do much to change what’s happening,” Robert Kuttner, the founder and editor of The American Prospect, told me in an email. And so, Kuttner wrote, “working class people give up on it.”

Dean Baker, co-director of the Center for Economic and Policy Research, a liberal economic think tank, took a harsher view of liberals’ attraction to Piketty. In an email, Baker wrote that “a big part of the appeal is that it allows people to say capitalism is awful but there is nothing that we can do about it.” Baker, who has formulated a detailed domestic agenda to fight inequality, worries “that many people will feel that they have done their part after struggling through a lengthy book on economics, and now they can go back to their vacation homes and say it’s all a shame.”

It may be that Piketty is right that traditional liberal policies are largely ineffective. There are, however, grounds to challenge this pessimism. Support for this challenge can be found not only on the left, but also on the center-right.

Kenneth Rogoff, a Harvard economist, contends in a review of Piketty’s book that “the idea of a global wealth tax is replete with credibility and enforcement problems, aside from being politically implausible.”

Rogoff views evidence of growing inequality presented by Piketty and others as “persuasive” and he proposes a number of alternative, smaller-scale remedies to control disproportionate wealth accumulation. He suggests a shift to a “relatively flat consumption tax, with a large deductible for progressivity.” 

Consumption taxes apply to spending, as opposed to income taxes that are levied on wages, benefits, profits from sales, dividends and other gains. Why, Rogoff asks, should we “try to move to an improbable global wealth tax when alternatives are available that are growth friendly, raise significant revenue, and can be made progressive through a very high exemption”?

Rogoff cites a series of suggestions developed by Jeffrey Frankel, a professor at the Kennedy School at Harvard. These include “the elimination of payroll taxes for low-income workers, a cut in deductions for high-income workers, and higher inheritance taxes.”

Despite the criticism of Piketty from right, left and center, he has, by shifting the focus from income to wealth, successfully transformed the debate over inequality.

His influence is reflected in two essays by Clive Crook, a financial columnist at Bloomberg View. The first was an unrelentingly negative review of Piketty’s book, the headline of which gives you the flavor of the rest: “The Most Important Book Ever Is All Wrong.”

“Every claim,” Crook argues, “is either unsupported or contradicted by Piketty’s own data and analysis.”

On May 11, however, Crook did an about face and wrote a very different essay, “Piketty’s Wealth Tax Isn’t a Joke.”

“One idea that’s been roundly dismissed by fans and critics alike deserves to be taken more seriously: the proposal for a global wealth tax,” Crook writes, noting that “on equity and efficiency grounds, it makes sense to tax wealth.”

Crook, too, sees insurmountable difficulties for any entity that might try to collect an annual wealth tax and argues instead for “moderate but effective taxation of capital income combined with moderate but effective taxation of inheritance, so that unrealized gains are brought back into the tax base, either during the course of an investor’s life or at death.”

In other words, centrists like Rogoff and Crook — in addition to liberals determined to assault bastions of privilege — are beginning to take proposals to restrain the growing concentration of wealth seriously.

Both the shift of attention to wealth and the seriousness with which a proposal to constrain the accumulation of wealth is being taken represent a major change in the contemporary debate over inequality. Few Americans appear to begrudge the multimillion dollar annual compensation of entrepreneurial executives like Steve Jobs or Bill Gates. But inherited and unearned wealth does not command the same legitimacy.

In fact, the emergence of what Piketty calls “patrimonial capitalism” — concentrated wealth and political power passed on from generation to generation in a class-based social order — runs directly counter to the longstanding American commitment to equality of opportunity. Piketty has laid the intellectual groundwork for a challenge to a social and political order based on socioeconomic ranking by wealth stratification.

Now we need effective politicians to articulate this challenge in ways that resonate with a striving electorate determined to achieve a higher standard of living through grit and hard work. Where is the level playing field? 

Politicians who seek to gain traction on these issues face high hurdles, but only those willing to risk confrontation can address the depth of public discontent, anger and resentment.