A Brief History of Equality, by Thomas Piketty (Belknap Press, 285 pp., $27.95)
The overwhelming majority of economists agree on a few things: secure, well-defined property rights are a vital ingredient of growth; people respond to incentives; the economy is not zero-sum; sustainable growth comes from innovations that enable us to make more from less; some trade-off between equality and growth is necessary because innovation often makes some people rich, and they must be rewarded for their risk-taking and talents.
In his latest book, A Brief History of Equality, Thomas Piketty rejects these assumptions. He has written more of a manifesto than a history or economics book. As an economist and market enthusiast, I am not his target audience, as he makes clear in his introduction. Throughout the book he makes some assertions that don’t square with standard economic thinking. Like most economists, I expect explanations for why all those other studies were wrong, but Piketty offers none.
He also has no interest in converting nonbelievers like me. I think markets are wonderful—not only for their ability to provide order through prices but also because of how much they have enriched the world, yielding once-unimaginable improvements to our quality of life and longevity and facilitating the emergence of a prosperous middle class.
Piketty acknowledges these improvements and agrees that they are wonderful. He believes, however, that they happened not because of free markets but despite them. And he sees economic growth as not such a great achievement, given that it coexists with so much inequality in wealth and income. Above all, people “need justice,” he maintains. An economically equal society is his ultimate goal, a vision that stems from deep convictions that reflect his personal values.
The first half of the book documents the rise in living standards, and the rise and fall and rise again (in rich countries) of inequality. The history and data are fascinating, though some of Piketty’s inferences are questionable. For example, his insistence that high earners in America did indeed pay confiscatory tax rates until tax reform in the 1980s—from 70 percent to 90 percent on income—contradicts lots of research. In any case, he argues that such progressive taxation “seems in no way to have discouraged innovation or productivity,” and that high rates of taxation on the wealthy produced an “immense historical success.”
He cites historians who believe that slavery and colonialism played a primary role in building European and American wealth but does not contend with the economic-history literature, which agrees that these institutions were a moral abomination but takes a more nuanced view on how critical they were to the West’s economic development. I realize that Piketty did not necessarily write this book to convince the economics profession that much of what’s been published in journals over the past 40 years is wrong—but it was still alarming to read, “All research finds,” when he is referring to fairly contentious economic results, let alone his insinuation that anyone who says otherwise is a lobbyist. This is not true.
There is some ground for agreement. Like many economists, Piketty thinks that much economic growth in the twentieth century came from making education better and more accessible to all. This improved the productivity of the population. The creation of the welfare state also lessened inequality and provided more economic security. But he assumes rather than addresses the question of causality—it could be that richer societies can afford bigger welfare states, rather than that big welfare states are directly responsible for growth, as Piketty asserts.
The book’s second half lays out the policies that Piketty believes will create a more equal society. His program hinges on weakening property rights because he believes inequality in property ownership is both unjust and the source of our problems. To a skeptical reader, this part sounds like an Ayn Rand fan’s dystopian fiction. Piketty envisions income taxes at confiscatory levels (8o percent to 90 percent) for high earners, allowing for a much larger welfare state featuring guaranteed jobs, a minimum income, and a greener economy.
And that is not all. On top of the income taxes, he wants “confiscatory” wealth taxes (on large fortunes and inheritances) to pay for a minimum inheritance. In his world, the richest heirs would inherit no more than 600,000 euros and the poorest would get 120,000 euros from the state. He also would consider regulating inheritances—these could be acceptable, he believes, if they are used to buy a home or start an enterprise devoted to “social or environmental goals.”
Piketty also thinks employees should have more input in the management of the firms for which they work—similar to the arrangement at some German corporations, where employees have seats on the board. But he takes the idea much further. Employees would have a say in management in all private-sector businesses. Piketty understands this may be hard on small businessowners, so if you have two employees, they only get 30 percent of the vote. Voting power of owners would then decrease as more people are hired. If you hire ten people or more, your staff gets a 50 percent share in voting rights to determine how your business is run.
Piketty admits that these ideas may alarm readers—not because they are radical, he says, but because they don’t go far enough. After all, he concedes, there would still be some inequality. His book, he says, is just a starting point.
Perhaps some of this book’s potential readers are concerned that such high taxes on their businesses means that they will earn less money. Piketty is aware such taxation will result in less private enterprise; this is a feature of his plan, not a bug. He anticipates an economy with only small private businesses: craftsmen, restaurants, repair shops, hotels, commerce, consulting, and so on. Other goods and services—anything that requires scale—will be provided by the government or by nonprofits. Piketty insists that this is not Communism, and he’s right. It’s not. Individuals can still own capital—they just can’t own too much of it and must give nearly all the returns from it to the government. Piketty calls this new system “Participatory Socialism.”
He also envisions large-scale repatriations of wealth to former colonies and a welfare state that extends beyond national borders. When Tyler Cowen asked him in an interview if such a policy would in some ways worsen inequality, because such large wealth transfers tend to benefit corrupt rulers in developing countries, Piketty explained that any such reallocation would involve “a very strict monitoring [presumably by the French government] of individuals who might get rich or get the money about this.” Cowen asked if this was essentially a revival of colonialism, and Piketty agreed that it was complicated, and that Haitians would be involved in the program somehow.
Piketty sees the neoliberal reforms of the 1980s as a failure, despite the large decline in global inequality that coincided with them. He views his proposal as the natural next step following other instances in which society weakened property rights, such as the abolition of slavery and feudalism. Getting rid of those institutions yielded both moral and economic goods, so it stands to reason, he argues, that forcing small-business owners to hand over management to their employees and income and profits to the government would be good, too.
To his credit, Piketty is a true believer. Other than his desire to spare good restaurants and hotels while destroying most other private enterprise, his vision for the world is not hypocritical or logically inconsistent. His chapter on racial equality is particularly thoughtful. It is a refreshing change from the arguments of many American leftists, who talk a good game about justice and equality but advocate policies that harm the poorest members of minority communities while benefiting those of means.
A Brief History of Equality is mostly about the French economy and French economic history, but judging from the nation’s recent presidential election, most French people aren’t interested in participatory socialism. Nevertheless, Piketty is confident that, without drastic changes to our notion of property, a violent revolution is inevitable.
I don’t doubt that Piketty genuinely believes his solutions would create a fairer and more just world, but I wish that he had tried harder to convince skeptical readers. I also would like to live in a world where there is less poverty and more opportunity, but I believe that market-friendly policies are a better way to achieve this goal. To some degree, the dispute comes down to a difference of values. People of my persuasion put a higher value on rising living standards than on equality for its own sake. We also have different (and equally valid) readings of the history and data, which are surely influenced by our values. Yet Piketty frequently dismisses people who disagree with him as corrupt, ignorant, or stupid. He would do better not to assume the worst of his opponents and to reckon honestly with their arguments.
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