Capital in the Twenty-First Century

"We’re at a time of crisis. We obviously face an environmental crisis but at the same time we face a political crisis, and a series of economic crises. These things cannot be separated. Our primary task in all such situations is to understand the roots of these crises. I choose this book for two reasons. First of all, in the economic sphere, Piketty explains the economic crisis that we face in ways that also explain the political crisis. He does this by talking about the rise of what he calls ‘patrimonial capital’: wealth arising from inheritance, rent, and interest payments which greatly outweighs any wealth arising from hard work and enterprise. Patrimonial capital creates a class which is effectively inviolable: a class whose position cannot be challenged economically and therefore cannot be challenged politically. You can take Piketty’s argument a little further and say that patrimonial capital breeds patrimonial politics. It creates a class of people who cannot ordinarily be displaced by democracy because they are able to buy their way back into power through our unreformed political-funding arrangements, the use of dark money, funding think-tanks, social media astroturfing, and sock puppetry. That solid and unredeemable core of wealth creates a solid and unredeemable power block. When you have got an elite that is far richer than the rest of the population, they become much less amenable to political demands. And their eventual aim is to release themselves from the constraints of democracy. Now, when you consider that these people are by far and away the most damaging people in environmental terms with their vast carbon footprints, their consumption of rare fish sushi, their use of mahogany fittings, super-yachts and private planes, and the huge demands that they make (especially with the help of their dark money funding networks) for their complete release from environmental regulations and the destruction of those regulations, you realise that the power of patrimonial capital also presents an imminent environmental threat. “Patrimonial capital creates a class which is effectively inviolable: a class whose position cannot be challenged economically and therefore cannot be challenged politically.” As well as offering a meta-analysis of our current crisis, Piketty provides some withering statistical analysis. The most important part of his work was his extension of the Kuznets curve to the present day. The Kuznets curve was supposed to show that inequality diminishes over time. Support Five Books Five Books interviews are expensive to produce. If you're enjoying this interview, please support us by donating a small amount . However, Piketty was able to show that inequality diminished in the post-war decades only because of the vast taxation of the very rich that took place. The average rates of taxation were about 80-90%. It was the Second World War followed by the rise of Keynesian social democracy on both sides of the Atlantic that eroded the position of the very rich and removed their massive economic and political power, and created more egalitarian societies. So, there were the Trente Glorieuses (as the French call them) between 1945 and 1975 during which there was a great redistribution of both wealth and power. And then, of course, it closed up again with the new era of patrimonial capital, which now begins to resemble that of the years before the Great Depression—the first quarter of the twentieth century. We’re heading back into that territory now, with the help of a justifying ideology which is similar to but not the same as the laissez-faire ideology that led to the Great Depression . And this justifying ideology is called neoliberalism. However, one complaint that I have about Piketty is that, while he brilliantly analyses the problems that we face, his solutions are in no way commensurate with the scale of the problem. Which is good as far as it goes, but it only goes ten per cent of the way towards challenging the scale of the economic and political power that he exposes. But worse still, he has nothing to say about the environmental crisis. His solutions are all about Keynesian stimulus measures. These would actually exacerbate the environmental crisis by seeking to ensure that the rate of economic growth resumes. This is one of the fundamental problems that we face: the two great narratives of the twentieth century—Keynesianism and neoliberalism—are the only two political narratives we still have. And there has been little effort within mainstream politics on the left and centre, since Keynes wrote his General Theory , to develop a new narrative which allows us to live in the twenty-first century in a way that benefits human beings without destroying the living world on which we depend."

"I was hoping to read it, but these bushfires are driving us crazy here, so I’ll stick with Capital in the 21st Century . Although it’s a long book, I found it incredibly readable. Much of it is about the re-emergence of the inequality of 19th century. We’re going back to those levels, and Piketty illustrates this marvellously with discussions of 19th century English and French literature and talks about Jane Austen and Balzac. I’m a fan of David Lodge, the academic novelist. In one of his books, the central character is an English literature lecturer and he explains how, in these books, the hero or heroine normally ends up threatened with ruin and disaster and the only escape routes are marriage, emigration, a legacy or death. Obviously in Jane Austen everybody’s moving these 5000 or 10,000 a year around the chessboard. No one is earning a living and the idea that if you were poor you might make yourself rich by just working hard and saving your money and perhaps investing it just simply doesn’t appear. That brings in, in much stronger focus, this theme of inequality of opportunity that I’ve been talking about. As we’ve moved to these big accumulations of wealth, the chance of breaking out of it becomes smaller and smaller. Capital in the 21st Century is more data-focused, because where Piketty came to prominence was developing data on the top 1% of incomes. That really did change people’s views of what was happening. Certainly, until I read his and other, related, research, I thought inequality was a problem of the professional classes, of which I’m a member, and that everybody in that top 10-20% of the income distribution was pulling away. I thought it was something of a copout to say, ‘Let’s just tax the rich.’ When Piketty gets into the data, you really see that the metaphor is peeling an onion: the top 10% has done better than the other 90% but the top 10% of them, the 1%, has done much better again. The professional classes have held their own but not really gained much, and within that 1%, the top 0.1% has done really well and so on and so forth until you get to the 26 people who own more than the bottom three billion. Yes, this is still being fought about, to some extent, but the basic message is now pretty generally accepted, it’s very difficult to avoid it in the data. The people who are now trying to say, ‘It’s not so bad’ are definitely mounting a rearguard action. For Piketty it’s the idea that incomes accruing to capital or to people close to capital—the finance sector and top managers—are growing at the expense of everything else. That’s the technical meaning of capitalism. “if you get a left-wing economist and a right-wing economist in a room with a whole bunch of other people, pretty soon the economists will be arguing against everybody else” What I’m talking about more in my book is markets. Obviously markets and capitalism go together, in some sense, though people have imagined a market version of socialism. You can also criticize markets on grounds that are independent of the fact that they produce inequality. You can criticize the commodification and alienation that goes on. Or you can simply say, as I do in large parts of my book, that there are things that markets do well and things they don’t do well. Libertarianism is a contested term. It suggests people being free to pursue their own projects in various ways. Historically, there have been both left and right wing versions of it. In the US, the right wing version has definitely appropriated the term quite successfully. But what you see, when it comes to the crunch, is that the people associated with this group really only care about property and a fairly narrow range of government interferences that affect the owners of property, like gun laws. US libertarianism has fallen over very badly in protecting individual rights, and can’t handle climate change and global warming. It could potentially handle it by emissions permits of the kind they’ve adopted in the European Union, but that would be an admission that property rights are a social contrivance created by the state—rather than a natural right inherited from some sort of mythical social contract in the past."

"Piketty clearly chose the title to make you think of Marx . He wanted to make the point—so that people could hear it—that the inequality of income was very dependent on an inequality of wealth. He talks about the importance of inheritance in older societies and makes that point throughout. He ends up with an argument that, if you want to try to change things now, taxing income has very little effect. Taxing capital has more effect. In contrast to a lot of the books about inequality, he ties together both inequality of income and inequality of wealth. “If you want to try to change things now, taxing income has very little effect. Taxing capital has more effect” This book was enormously important in changing thinking, certainly in Western Europe and in America, about inequality, and bringing it to the fore. He does say that, but it turns out not to be quite so critical in his formal analysis. He suggests some fundamental laws of economics and then puts this in as a very simple exercise. But the point that he’s making is the point he makes well—and other people have made also—which is that as growth slows down, that is a good setting for inequality to increase. The r > g formula that he uses [meaning: returns on capital ( r ) will grow faster than the economy ( g )] is a good, simple way to express that, but it’s not a very firm rule. It does well to explain the flowering of the middle class after World War II , but there are other explanations as well. And so, the r > g is a very attractive way to say this, but one shouldn’t take it as a theorem because it doesn’t seem to be derived from a complicated model. It’s saying that if you have capital it can grow faster than income and therefore increase its share. That’s really the substance of it. I agree with that, yes. Walter Scheidel has just written a book claiming that the only way to really deal with inequality is to have a world war or a plague like the Black Death, neither of which we want to go through. He argues that the best thing to do at the moment is to live with this—rather than look for some cause. Get the weekly Five Books newsletter Now, if there was a change of heart of the very rich—and there might be, they’ve gotten into power in the United States now and they don’t quite know what to do with it—if the political winds change and people can institute a capital tax as Piketty recommends or even some more income taxes as Obama did in his healthcare promotion, then there may be an accommodation between rich and poor. The rich might accept a rather small tax on their income or wealth in return for helping out the poorer members of society. But we’ll have to wait and see if that happens anytime soon. The point is that if you want to reduce wealth you have to have a tax. At the moment the Republicans, who are the party of the wealthy, are talking about eliminating the inheritance tax. That would work in the opposite direction. That would work to increase the longevity of wealth and make it harder to better the situation. That’s why I say these things depend on the politics. Yes, the British did a very good job after the wars and tried to break up the bigger estates. The French had taxes to help. But the United States, having gotten itself in this position of extreme inequality, may have trouble pulling itself out."