An interview with economist and author Thomas Piketty:
Piketty’s best-selling book, Capital in the Twenty-First Century, was recently translated from French to English and has upended the global discussion on capitalism and inequality. Piketty relies on the most expansive income and wealth datasets ever compiled to identify a striking trend over more than 200 years: returns on capital grow faster than the regular economy, meaning that without some policy intervention, the rich get richer, and richer, and richer.
Piketty said that he is unsure if he would have had the courage to write his book during the heat of the Cold War. “I don’t know what I would have done. I’m lucky enough to belong to a generation, and maybe to the first generation, that didn’t have to make that kind of choice, because the Soviet Union was gone,” he said.
Piketty’s dataset is an expansion of one put together by a leading 20th century economist, Simon Kuznets, famous for what’s known as the Kuznets curve — a chart suggesting that as capitalist economies reach a certain undefined stage of development, inequality begins falling after sharply rising. Yet the Kuznets curve was used for half a century to argue that capitalism has a natural tendency to reduce inequality in advanced economies, despite a lack of evidence.
“During the Cold War period, people really wanted to believe in the stories about inequality and capitalism,” Piketty said. “For instance, Kuznets’ evidence in the 1950s and 1960s … he did not believe that the reduction in inequality that he found between 1910 to 1950 was a natural process. He was very well aware, if you read his book, that the World War, the Great Depression, and the policies that were implemented after these shocks — progressive taxation and other policies — played a very important role. But everybody wanted to believe in a sort of natural process that would naturally lead to a decline in inequality in advanced stages of development, because in the Cold War context the fight between capitalism and communism was so great.”
While the economics profession may have been intellectually impoverished by the existence of the Soviet Union, the alternative economic system, communism, was quite good for average people — people, that is, not in the people’s republics.
“The existence of a counter model was one of the reasons that a number of reforms or policies were accepted,” he said, arguing that those in capitalist countries fared better thanks to the threat of communism.
“In France, it’s very striking to see that in 1920, the political majorities adopted steeply progressive taxation. Exactly the same people refused the income tax in 1914 with a 2 percent tax rate. And in between, the Bolshevik revolution made them feel, after all, that progressive taxation is not so dangerous as revolution.”
Thanks to Nicole Naum.
“Capital(ists) will attempt to resist its own downfall. What will lead to its destruction are capitalism’s internal contradictions; but only because of an adversary developing independently of capitalism’s will, i.e. the proletariat……” Marx wrote that 150 years ago. Capital has been “resisting its own downfall” for the past 100 years. World War I and II were attempts made by the capitalists to resist their own demise. Today capitalism is in a death spiral. The proletariat (99%) have had enough war and enough inequality of wealth. They are becoming highly politicized. If I were the Koch brothers or Sheldon Adelson or George Soros, I’d be very careful not to become the next Don Sterling.
This:
“While the economics profession may have been intellectually impoverished by the existence of the Soviet Union, the alternative economic system, communism, was quite good for average people — people, that is, not in the people’s republics.
“The existence of a counter model was one of the reasons that a number of reforms or policies were accepted,” he said, arguing that those in capitalist countries fared better thanks to the threat of communism.
“In France, it’s very striking to see that in 1920, the political majorities adopted steeply progressive taxation. Exactly the same people refused the income tax in 1914 with a 2 percent tax rate. And in between, the Bolshevik revolution made them feel, after all, that progressive taxation is not so dangerous as revolution.”
Yup, which is why, after 1989, the gloves came off, as it were.
Also too, the exact same process was probably considered mainstream opinion in 1920, when H. G. Wells wrote ‘An Outline of History’ as regards what really happened to Rome: i.e. the enlargement of a rentier class based on high finance which sucked the wealth out of the provinces and Italy itself. High finance (i.e. stock exchanges) were invented in Carthage probably but imported into Rome by ca 70 BCE. A similar process had occurred in Athens (without stock exchanges, but with the elites becoming richer and richer through interest rates) but was forestalled by the Solonic reforms. It is interesting that those with disposabke income who invest in securities have an average ‘multiplier’ probably close to 3; while pure consumers have one closer to 10.