Thomas Piketty ignores the gulf in wealth between the young and the old, and between home-owners and the restby David Willetts / August 20, 2015 / Leave a comment
Published in September 2015 issue of Prospect Magazine
Thomas Piketty’s Capital in the Twenty-First Century had a massive impact when it came out last year. Now comes the prequel. We have not had to wait for quite as long as for Harper Lee’s Go Set a Watchman but the idea is the same—after the bestseller, let’s publish the back catalogue. This book appeared in French in 1997 but has only now been translated into English. It has been partly updated but much of the analysis precedes his subsequent masterwork. And it shows. Piketty clears the ground by taking us through many of the economic issues in understanding inequality, but it lacks broad historical sweep. Instead we get a useful review of the issues in which the tenets of neoliberal economics are tested, but no alternative account is put forward.
Capital in the Twenty-First Century advanced a simple, bold proposition—that the rate of return on capital exceeds the growth rate of the economy: r>g. (An economic principle that is absent from this earlier book, though one can see its origins in some of the analysis.) It is only the turbulent destruction of wealth such as we saw in Europe in the first half of the 20th century which enables societies to break free from the consequences of this iron law, Piketty argues. That proposition caught the imagination because it painted a picture of a society of “patrimonial capitalism” where you lived on assets accumulated by previous generations. But that model has faced some very serious and telling challenges.
Piketty is bold to focus on the ownership of assets, not just income. But it is the high earnings of bankers and senior business leaders which stand out as a driver of inequality in today’s United States—not an elite living off inherited wealth. And when it comes to inequality of incomes the pattern is complicated. America has seen widening inequality of income but that has not been repeated across the west. In Britain, too, we saw widening inequality in the 1980s, but inequality has been broadly stable recently. In the recession many benefits rose with inflation whereas wages did not grow at all or even fell—that is why the Chancellor, George Osborne, justifies his freeze in benefits. And meanwhile the earnings of the top 20 per cent have been particularly hit by the big falls in bankers’ bonuses.