Power to the Pikettys!

If there were more economists like Thomas Piketty, the world would be a better place, although it’s hard to say how much better it would be without a detailed econometric model. I’m joking, but that’s only because I’d like to explain the history of my own love-hate relationship with the economics profession. I love it when brilliant economists like Piketty highlight trends in wealth inequality, and show how these affect the course of economic growth. I hate it when they talk about it in purely mechanical terms, as if the economy itself is a car we’ve lost control of, or a GPS which simply needs to be reprogrammed.

Piketty’s book almost escapes this criticism because it explains to us how we might get behind the wheel. But the flywheel he is reaching for – a progressive, global tax on wealth – seems so small, so distant. It’s hard to imagine how to campaign for such a tax, let alone implement it. And while Piketty emphasizes the growing power of a small, privileged elite, he says little about how they exert this influence.

His book says more about how the machine works than about the design of its guidance system and pilots. Many left-wing economists have expressed criticism along these lines. The best presentation, in my opinion, is an essay by Suresh Naidu published on the website Jacobinand titled Capitalism Eats the World, which aptly describes this policy recommendation as “ technically feasible but politically hopeless “. Piketty’s own model predicts an upward consolidation of wealth and power.

Yet, like Suresh, I love Piketty’s book because it effectively undermines the arguments made by mainstream economists against a tax on capital – a technical litany of claims that such a tax would reduce economic performance and would reduce growth. Concerning the body of economists on a global scale, the theoretical model that he develops is subversive because it shows how profits could continue to increase to the detriment of wages, a process which would risk undermining the growth so appreciated by specialists in economics. economy.

His historical account, based on compelling empirical research, clearly shows how political power determined tax policy – ​​and vice versa. He shows his reverence for data, making his meticulously collected figures accessible to all, accompanied by detailed documentation.

In person, Piketty is even better than his book. During a lecture he gave at my university last September, he won over his audience with his modesty, a quality rarely found among economists. He provoked laughter when he admitted that his desire for a wealth tax was partly because it would produce better data on the distribution of wealth (the most reliable data on the distribution of income come from income tax returns, which taxpayers are required to complete).

He presented figures on the real growth rate enjoyed by the world’s richest households between 1987 and 2013, to support his claim that the more capital people own, the faster capital growth appears to be. . He illustrated this same point by comparing the returns obtained by various endowment portfolios for the benefit of American universities between 1980 and 2010. The most prestigious universities, and with the largest endowments, reaped much greater returns than those (like mine, the University of Massachusetts) which have smaller ones. Whether capital eats the world or not, it seems that the bigger it is, the faster it reproduces.

He also gently made strong political arguments, comparing the majority opinion’s emphasis on “ invisible hand » markets with the “ low hand » of power. His long-term trend line in the United States shows that income inequality increased in the 1920s, then partially fell due to more progressive taxation, only to intensify again when marginal tax rates were reduced. The U-shaped decline in inequality in the middle of XX^e century shows the political interruption of an economic trend. “ The ruling class, he explains, has not always been so powerful ; otherwise we wouldn’t see this type of curve. »

Piketty is also open to more complex narratives. In response to a question about the impact of decolonization in the middle of XX^e century, he conceded that these events also had their role to play. He went further than his usual topic of progressive taxation to discuss possible ways of changing corporate governance, referencing Germany’s policy of co-determination, which has given workers greater influence over management methods. and which has therefore probably contributed to lower stock market valuations in this country. Cooperative enterprises, as well as employee (participation and) shareholding schemes, could pave the way for the accumulation of wealth.

I didn’t get a chance to ask my own questions, but I saved three about the ways we define groups that compete for wealth and power. Like the traditional left, Piketty focuses on the conflict between capital and labor. But what is the impact of gaps between workers on class conflicts? ? While Piketty recognizes the importance of growing inequalities in labor income, he does not fully explain this polarization, particularly in the case of the United States. Why do high earners do so well compared to low earners? ? Are they really that much more productive than their less well-placed peers? ? Or are they essentially masked capitalists, more capable of capturing higher rents commensurate with their skills? ? And if this is the case, is it possible that executives and managers who are predominantly white and natives of Western countries join forces with the owners to keep wages at the bottom of the scale, where people of color and immigrants are overrepresented ?

Likewise, what role do gender-based differences play? ? Kathleen Geier and others have observed that gender is entirely left out of Piketty’s account, despite its influence on structuring both wealth and income inequality. Men enjoy substantial income advantages over women, in part because they take on less responsibility for caring for dependents.

Public policies also have an impact on gender inequalities. As women bear more responsibility than men for the well-being of others, it is not surprising that they benefit more from and support the welfare state. political to a greater extent.

Inequalities based on ethnicity, citizenship and gender are not as extreme as those based purely on wealth or income. However, they clearly influence the standard of living of families and create divisions in the body of “ workers ” in the broad sense, to the point of hindering effective negotiations with the “ capital “.

Finally, is economic inequality within a nation, or even within a group of nations (such as advanced capitalist countries) truly the main problem? ? Or is there not an even more serious problem posed by growing inequalities between nations, as Branko Milanovic convincingly argues in The Haves and the Have Nots? ? This divide helps explain skeptical reactions to the global wealth tax.

Poor countries have good reason to welcome rich immigrants, as do their tax havens – whatever the conditions. This is one more reason to go beyond a simple model opposing capital and labor, to take into account other dimensions of collective conflict.

The last question during the public conference was asked by a student committed to the left. Faced with the latter’s dissatisfaction with his insistence on taxation, Piketty provided a bilingual response on the political level, like his English tinged with strong French inflections: “ Let’s not create an opposition between progressive taxation and class struggle, he explained. It takes a class struggle to implement progressive taxation. »

I think he is right on this point. We also need a theory of how collective interests based on social class intersect with those based on citizenship, gender, and other dimensions of collective identity and action. Developing such a theory might require many more Pikettys. Give them power.

Translation reviewed and corrected by Ophélie Siméon.