Saturday, April 19, 2014

The New Marx?

Well not yet … but 42-year-old French economist Thomas Picketty is rocking not only the hallowed halls of the ivory tower but the corridors of power as well. His new book, Capital in the 21st Century, is already on the New York Times bestseller list and his current tour of the U.S. is drawing interest and accolades among the Washington and New York elites. The book looks at data on taxation and income inequality, a topic the author has been working on with fellow French left-leaning economist Emmanuel Saez for over a decade. It concludes, in direct conflict with conventional wisdom in the field from at least the 50s, that mature capitalist economies will inevitably evolve toward greater income inequality. In fact, he finds quite the opposite, in that the rate of return on capital tends to outstrip the overall rate of growth (meaning imperfect markets with artificially deflated wages, market power or both) and that this leads to the concentration of wealth at the top of the ladder.

That has certainly been the case in the United States and UK, where the undereported story of the conservative revolution revolves around the upward movement of wealth since the 80s. This renewed interest in income inequality is not solely the result of two, until recently, obscure French academics of course. It also revolves around the uncredited influence of the now defunct Occupy movement and, maybe, the inopportunely released comments about the 47% made by Romney during his failed campaign for President. The reality today is that income inequality is dramatically on the rise predominantly because wages of all but the top earners have been artificially suppressed while merger after merger have created humongous multinational corporations with substantial market power. The former allows for higher wages and income at the top of the economic ladder while the latter allows companies to artificially inflate prices above their optimal level (thus creating a double-squeeze on the middle class and poor as their wages decrease as inflation increases).

Picketty goes far beyond simply relying on the data to speak for him though, to offer prescriptive policy reform proposals. Among the most controversial is a tax on wealth that can both redistribute income more fairly and improve economic growth (as the marginal rate of spending to income is higher the lower an individual or families’ income is). By acknowledging that economics cannot be looked out outside the specter of its relationship to the political world, Picketty moves beyond the limitations that disciplinary boundaries too often impose on academic research – making it both too arcane and too specific to be of use to policymakers or the general public. And his dedication to both democracy and markets makes him a better spokesman for radical social reform than either Stiglitz or Krugman. Picketty argues in the end that, “capitalism and markets should be the slave of democracy and not the opposite” and that to achieve this the average citizen must ““take a serious interest in money, its measurement, the facts surrounding it and its history.”This is where the more left-leaning economists and politicians have too often lost the average citizen and the question now is how to provide quality popular education that can provide the rudimentary understanding necessary to make these arguments resonate beyond those corridors of power and money so excited or repelled by these ideas. 

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