Too Many Words About Piketty

Capital in the Twenty-First Century by Thomas Piketty
My rating: 3 of 5 stars

Tackling wealth and inequality, this was one of the best selling and least read books of the summer. Not that I'm mocking anyone here, I kept putting it down and took perhaps 5 months to finish and another month to get motivated to write this review (which is itself open to criticisms based on length).

It's a strange book to be a best seller. It's got three sections which basically consist of an idea, some data, and a policy pitch. More on the idea and policy pitch below, but the data section is interminable. The detail is something I respect on some level but if you're not the sort to read about national income level comparisons between different states and time periods already, I think you could do with perhaps three charts and a comment along the lines that "Similar trends were seen by most nations. Most other factors were minor."

Oh, also it's not really focused on inequality.





So what is it about? The idea, which I think is both simple and valid, is that if average returns on wealth (ie, interest, dividends, appreciation) are greater than the growth rate of the economy ("r > g"), then over time wealth will lay claim to a larger and larger share of national resources and labor less and less. So it will be more important to be born rich than to do a good job, relatively speaking.

Perhaps because he is French, he assumes that this is self-evidently something you should be worried about and doesn't spend time writing about how tough or unfair it is to be poor. Instead he moves to the data section which is essentially meant to show the idea is relevant because r is, in fact, greater than g.

Then the policy proposal: Add a wealth tax to supplement the income tax. Perhaps 1% for every dollar over $1 million and 2% if you're over $5 million. Since the book was so discussed I knew that would be the conclusion and was skeptical, but ended up persuaded. Unless people are very poor (or very unlucky) investors they should still be able to do that rich person thing where money becomes more money since historically real returns are well over 2%. But it help moves resources from those who have things to those who produce. It has the charm of simplicity as well, as there is no haggling over what's income and what losses can be carried over. He gives the example of the L'Oreal heiress Bettencourt, who with a fortune of tens of billions still never declared 'income' of more than $5 million in a year (a tiny fraction of her increase in wealth). Why even consider jacking up top level income tax rates if they don't capture the wealthiest? He admits the proposal doesn't seem feasible politically, but prefers talking about good policy to good politics.

As I mentioned, I don't quite get why this book became so popular among the left, since it's not a populist polemic. But also it makes it a strange target for the level of hate it received from the right. He's clearly a capitalist, likes free trade and some points--the value of high growth rates in combating wealth accumulation, for example--would get hearty support if they came from a different source. Praising the book and picking on the policy part seems like it would have been an honest play (and some more conservative economists have done that). Instead the Conintern talking points are that the whole thing is bad, trashy, even fraudulent scholarship; I spent a while following the arguments on the data and he seems by far to have the best of it there. (Hence a "book of the year" in the Economist or Bloomberg taking his side in a ginned up dispute on one time series.) Perhaps it would be tricky to disagree with just the end of a book that almost no one finished.

Would I recommend it to anyone I actually know? Maybe not. Clearly I thought the ideas were interesting. But while I'm convinced by the wealth tax idea, I'm unpersuaded the full book is necessary for most of us.

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