Capitalism according to Piketty
The Paris School of Economics is located in a very un Parisian part of the city. It is located on Boulevard Jourdan, at the lower end of the 14th arrondissement , next to the Montsouris park. Unlike what happens in most French gardens, this park exhibits an absolute lack of Cartesian rigor; in fact, with its lake, its open spaces and its meddlesome and sweet ducks, it could very well be located in any British city. In contrast, the small campus of the Paris School of Economics looks unmistakably and comfortingly like almost all French university campuses. That is, it is gray, monotonous, ramshackle and with corridors that vaguely smell like cabbage. This is where I have arranged an interview with Professor Thomas Piketty, a shy young Frenchman (he is in his forties) who has spent most of his career in archives and collecting data, but who is on the verge of becoming the most important of his generation; an independent thinker and a democrat – as defined by Yale professor Jacob Hacker – who has become nothing less than “an Alexis de Tocqueville for the 21st century.”
And this because of his latest work, titled Capital in the 21st Century . It is a voluminous book, about a thousand pages, full of notes, graphics and mathematical formulas. At first glance, its appearance is blatantly academic, overwhelming and incomprehensible at the same time. The fact is that, over the past few months, the book has unleashed heated debates in the United States about the dynamics of capitalism and, especially, about the seemingly unstoppable rise of the tiny elite that controls a growing portion of the wealth of the world. It has also raised controversies about power and money in non-specialized websites and blogs, and has questioned the myth that is the very core of American life: that capitalism improves everyone’s quality of life. This is not exactly the case, says Piketty, who demonstrates this in a clear and rigorous way, destroying everything that capitalists believe about the ethics of making money.
The innovative character of the book has been recognized in a long article published in The New Yorker , in which Branko Milanovic – former chief economist of the World Bank – is cited, who describes the volume of Piketty as “one of the decisive books of thought economic”. Along the same lines, a contributor to The Economist has affirmed that Piketty’s work has rewritten two hundred years of economic thinking about inequality. Very briefly, the polemics have focused on two poles: the first is the tradition initiated by Karl Marx, who believed that capitalism would end up destroying itself in the endless search for diminishing returns. At the opposite end of the spectrum is the work of Simon Kuznets, winner of the Nobel Prize in 1971, for whom the inequality gap is necessarily reduced as economies evolve and become more developed.
According to Piketty, none of these reasonings hold up against the evidence he has accumulated. Moreover, it manages to show that there is no reason to believe that capitalism is capable of solving the problem of inequality; a problem, which, insists, far from improving, worsens. From the banking crisis of 2008 to the indignant movement of 2011, it is something that had already been intuited by ordinary people. The singular importance of his book is that it demonstrates scientifically that intuition is correct. That’s why the book has crossed specialized circles, because it says what many people already think.
“I wanted to direct the book to the general reader,” says Piketty at the beginning of our conversation, “and, although it is clearly a book that can also be read by specialists, my goal was to make the information very clear to everyone who I want to read it. ” Actually, it has to be said that Capital in the 21st century is surprisingly readable. It is full of anecdotes and literary references that illuminate the entire narrative. In English, the agile translation of Arthur Goldhammer, a great literary stylist who has faced authors of the stature of Albert Camus, has been a great help. However, looking into the shelves of Piketty’s office, titles as easily inducing headaches as Principles of Microeconomics and The Political Influence of Keynesianism , a regular person like me needs some additional help. So I asked him the most obvious question of all: what is the fundamental idea that runs throughout the book?
“I started investigating a very specific problem,” he says in an English tinged with an elegant French accent. “A few years ago I asked myself where were the raw data that supported all the theories about inequality, from David Ricardo and Marx to the most contemporary thinkers, I started looking in Great Britain and the United States and discovered that there was not much. I discovered that the existing data contradicted almost all the theories, including those of Ricardo and Marx.When I started studying other countries, I saw that a pattern appeared: that capital, and the money produced by it, accumulates faster than growth in capitalist societies, and that this pattern, observed in the nineteenth century, became more predominant after the 1980s, when controls on capital were eliminated in many rich countries. ”
So Piketty’s thesis, backed by exhaustive research, is that the economic inequality of the 21st century is increasing and accelerating at a dangerous pace. First of all, this analysis modifies the way we consider the past. We already knew that the end of capitalism predicted by Marx never occurred; and that even at the time of the Russian Revolution of 1917 the wages of the rest of Europe were already rising. We also knew that Russia was by all standards the least developed country in Europe and that for that reason communism took root there. However, Piketty adds that it was the various crises of the 20th century (mainly, two world wars) that prevented the continued growth of wealth by temporarily and artificially leveling inequality. Contrary to our perception of the twentieth century as a time when inequality decreased, the truth is that in real terms it did not stop growing.
In the 21st century, it is like this not only in the so-called rich countries (United States, Great Britain and Western Europe), but also in Russia, China and other countries in an emerging phase of development. There is a real danger that if the process does not stop, poverty will increase at the same rate; and, according to Piketty, it may very well turn out that the 21st century is a century with more inequality and, therefore, more social discord than the 19th century.
When he explains his ideas to me with formulas and theorems, everything sounds too technical to me (I had problems with mathematics in elementary school). However, following his explanations attentively (he is a good teacher, very patient) and decomposing the analysis into small fragments, everything starts to make sense. Piketty explains to his beginner that rent is a flow, that it moves and can grow according to performance. Capital is a heritage, its wealth comes from what has been accumulated “throughout all the previous years together”. It’s a bit like the difference between having an overdraft and having a mortgage; and if one does not manage to own one’s house, he will never have any property and will always be poor.
In other words, what he is saying in global terms is that those who possess capital and wealth-generating assets (such as, for example, a Saudi prince) will always be richer than entrepreneurs who try to raise capital. The trend of capitalism in this model concentrates more and more wealth in the hands of fewer and fewer people. Did not we already know? That the rich get richer and the poor get poorer? Did the Clash and other groups in the 1970s not sing about that?
“Well, actually, we did not know, although we could have suspected it,” says Piketty, cheering on the subject. “In the first place, it is the first time we have gathered data that shows that this is so.Secondly, it is evident that this movement, which is acquiring speed, will have political implications: we will all be poorer in the future and that is a situation that generates crisis, I have shown that in the current circumstances capitalism can not work. ”
Interestingly, Piketty claims to be an Anglophile and, in fact, began his research career with a study on the English income tax system (“one of the most important political mechanisms in history”). However, he also states that the English have too blind a faith in the markets, which they do not always understand. We discussed the current crisis in the British universities that, after having imposed tuition fees, now discover that they lack liquidity because the government did not calculate well what the students would have to pay and is not able to ensure the repayment of the loans granted to them. the payment of the license plates. In other words, the government believed that it was getting a source of income by introducing tuition fees and, in reality, by not being able to control all the variables of the market, what it did was to bet with public money and it seems that it will lose dramatically . Piketty says with a smile: “It is the perfect example of how to provoke debt in the public sector, something incredible and difficult to conceive in France.”
Despite his sympathy for Britain and the United States, Piketty confesses that he only feels comfortable in France. Capital in the 21st century contains a multitude of French references (a key figure is the historian François Furet); and Piketty admits that the political landscape that best understands is French. He grew up in Clichy, in a mainly working-class neighborhood. His parents were militants of Workers’ Struggle, a Trotskyist party that still enjoys a good reputation in France. Like many in those years, disappointed by the failure of the almost revolution of May ’68, they retired to raise goats near Carcassonne (the classic trajectory of many progressives of that generation). However, the young Piketty studied in Paris and ended up getting a PhD at the London School of Economics at age 22. He then went to the Massachusetts Institute of Technology, where he excelled as a teacher, and eventually returned to Paris and became the first principal of the school where the interview takes place.
His own political itinerary began, he tells me, with the fall of the Berlin Wall in 1989. He traveled to Eastern Europe and was fascinated by the ruins of communism. It was that initial fascination that led him to embark on a career as an economist. He was also influenced by the Gulf War of 1991. “I saw then that many bad decisions were made by politicians because they did not know about economics, I am not a politician, it is not my job, but I would love for politicians to read my work and get rid of it. conclusions of it. ”
The statement is somewhat misleading, since Piketty did work as a counselor for Ségolène Royal in 2007, when the Socialist leader was a candidate in the presidential elections. It was not a happy time for him, since at the same time he ended up in bitter accusations with his romance with the politician and novelist Aurélie Filippetti, another follower of Royal. It is understood that, after that murky affair, Piketty wants to distance himself from the rumble and brawls of daily politics.
It does not matter, what have we learned? That capitalism is bad. Very good. Which is the answer? Socialism? It is expected. “It’s not that simple,” he says, disappointing this former Marxist teenager. “What I defend is a progressive tax, a global tax, based on the imposition of private property, it is the only civilized solution, the others are, in my opinion, much more barbarous, and I am referring to the Russian oligarchic system, in which I do not believe, and inflation, which in reality is only a tax on the poor. ” He explains that the oligarchy, especially the current Russian model, is nothing more than the government of the very rich over the majority. It is a tyrannical system and it does not differ much from a form of gangsterism. He adds that inflation does not usually affect the very rich, because their wealth increases anyway; the poor, on the other hand, take the worst part because it increases the cost of living. A progressive tax on wealth is the only sensible solution.
However, although what he says makes sense, and not only sense but much common sense, I comment that no political party, right or left, would dare to go to Britain or the United States to the polls with such idealistic proposals. François Hollande today receives a general rejection not for his sexual adventures (which, in fact, are worth a wide admiration), but for the severe tax regime that he tries to impose.
“It’s true,” says Piketty. “Of course it is true, but it is also true, as my colleagues and I have shown in this book, that the present situation can not be sustained for long, it is not necessarily an apocalyptic vision, I have made a diagnosis of past situations and present, and I think there are solutions, but before putting them into practice, we have to understand the situation.When I started collecting data, I was very surprised of what I found, that inequality is growing very fast and that capitalism does not seem to be in Many economists start upside-down, asking questions about poverty, but what I wanted to understand was how wealth or super-wealth works to increase the inequality gap, and what I found, as I said, is that The speed at which the inequality gap grows is increasing, one has to wonder what that means for ordinary people, for those who are not multimillion neither will they ever be. Well, I think it means primarily a deterioration of the collective economic welfare; in other words, a degradation of the public sector. You only have to see what Obama wants to do (reduce inequality in health care and in other areas) and how difficult it is to get that to understand how important it is. There exists among the capitalists a fundamentalist belief according to which capital will save the world and it is not so. Not because of what Marx said about the contradictions of capitalism, but because, as I discovered, capital is an end in itself and nothing more. ”
Piketty delivers her talk, scholarly and convincing, with quiet passion. It is, gives the impression, a somewhat shy and withdrawn character, but he loves his subject and, in fact, it is a pleasure to be in the middle of a private seminar about money and how it works. It is true that his book is long and complex, but his expositions about how the capitalist world works are understandable by all who live in it (that is, all of us). One of the most pervasive is the one that refers to the rise of managers or superdirectives, who do not produce wealth, but who get a salary from it. In fact, says Piketty, it is a form of theft, although that is not the worst crime of the superdirectives. Far more damaging is the way they have embarked on a competition with the billionaires, whose wealth – which accelerates beyond the economy – will always be unattainable. This creates a permanent race in which the victims are losers, that is, ordinary people who do not aspire to such a position or wealth, but who are nevertheless despised by presidents, vice presidents and other Wall Street wolves. In that section, Piketty shreds one of the great lies of the 21st century: that superdirectives deserve their salaries because, like footballers, they possess specialized skills possessed only by an almost superhuman elite.
“One of the great divisive forces that exist today,” he says, “is what I call meritocratic extremism: it is the conflict between billionaires, whose income comes from property and assets, as in the case of a Saudi prince, and super-managers. None of these two categories makes or produces anything except their own wealth, in reality, it is a superrichness completely separate from the everyday reality of the market, which rules the lives of most ordinary people. they compete with each other to increase their wealth, and the worst of all scenarios is the way in which super-managers, whose income is really based on greed, continue to raise salaries outside the reality of the market. banks in 2008, for example “.
This is the kind of thought that makes Piketty’s work so attractive and fascinating. Unlike many economists, he insists that economic thought can not be separated from history or politics; that gives the book a character, defined by the American Nobel Prize winner Paul Krugman, as “exceptional” and “panoramic vision”. Piketty’s influence is growing far beyond the small microsociety of university economists. In France he is more and more known for his comments on public affairs, with articles in Le Monde and Libération , above all; and their ideas are frequently discussed by politicians of all tendencies in current programs. Perhaps more important and less usual, its influence is growing in the dominant currents of Anglo-American politics (apparently, his book is one of the favorites among the circle of Ed Miliband, leader of the British Labor Party), a traditionally indifferent environment to French economics teachers. As poverty increases throughout the planet, everyone is obliged to listen to Piketty with great attention. However, although its diagnosis is precise and convincing, it is difficult, if not impossible, to imagine that the proposed cure (taxes and more taxes) can be put into practice in a world where, from Beijing to Washington through Moscow, it is money and its biggest accumulators who carry the baton.