I finally finished Thomas Piketty’s envy economics
bestseller Capital in the Twenty-First Century, which according to those fine
people at Amazon, is actually an accomplishment in itself. I was debating for
sometime whether to buy the thing, the irony of shelling out nearly $30 for a
mass produced book to someone who already makes more than me decrying income
inequality was certainly a factor, but was curious as to what all the fuss was
about and don’t like criticizing something I haven’t read based purely on other
people’s opinions.
The short story, it’s not too terrible, actually fairly
readable for a voluminous book on an arcane subject. Did I find it world
changing? No. Were there plenty of parts that left me shaking my head? More
than a few.
First of all, the books has received a fair amount of
criticism for playing fast and loose with the facts. Most famously from the
Financial Times. In the scope of things, that probably isn’t the worst of his sins.
The most egregious is where he completely reverses the history of minimum wage
hikes in the United States.
This is bad since it could not have happened as the result of a typo or
misplaced cell on a spreadsheet. The only reasonable explanation is that
Piketty either falsified the facts intentionally, or just neglected them in an
attempt to fit his political biases. He also does a similar thing when he falsely
claims that the top marginal tax rate under Herbert Hoover was 25%.
In the end, this is really what the book is about. While it
makes some interesting points on investments, his research into investment
returns in university endowments actually interested me enough to research
further, the book is basically a political tract to rally against income
inequality. Marxist references aside, the book really shouldn’t be named
Capital, as capital is only incidental to the real theme of the book, income
inequality. Piketty makes no analysis of capital whatsoever, aside from how he
thinks it contributes to income inequality. To him it is just one amorphous
blob completely devoid of distinction, which grows ad infinitum until it
consumes the entire universe, leaving impoverished widows and orphans in its
metaphorical wake.
This is perhaps the greatest weakness of the book. Despite
its nearly 700 pages it is quite weak in the details and makes an incredible
amount of logical leaps without even a theoretical support. For example he
bases his predictions of the future of capital growth on the assumption that
all capital gains taxes will go to zero.
Wha…? Now I know many countries are reducing capital gains
rates to spur investment, and some libertarian economists have proposed
reducing rates to zero, but I know of nobody who actually thinks it will be,
much less that will be the global standard for the next century. It seems
nothing more than a convenient way for him to apply his argument than any
rational expectation.
Also in this line of thought Piketty just starts with the
presumption that income inequality is not only bad, but that it is the economic
measure that all others revolve around. In the introduction, he mentions that
mankind has greatly improved it average economic well-being over the last 200
years, but then the subject is promptly dropped. The entire rest of the book
rests with the sole concern of economic inequality, with no thought whatsoever
to changes in overall well -being. Without even the slightest analysis all
reduction of inequality is presumed to be good, all increases bad.
Piketty also gives no thought whatsoever to investment
decisions or the behavior of the “capital class”. Ironically, he even repeatedly refers to Bill
Gates amassing great wealth as a classic example of the reason steps need to be
taken to eliminate the wealthy, with only a passing parenthetical reference to
the fact that Gates is giving his money away voluntarily and doing an
incredible amount of good with it . In Piketty’s mind all wealth is equal. It
almost reaches cartoonish levels, where he almost seems to imagine wealthy
people piling their ill gotten gains in a giant vault and diving into it
Scrooge McDuck style, cackling evilly. One example of this is his repeated references to the movie Titanic as an example of class distinctions in early 20th century America. Seriously? I was half expecting him to use Unobtanium as an example of resource consumption and the exploitation of native cultures.
This brings me to yet another issue with his analysis, his conflation
of capital, wealth, and consumption. Piketty, like many left wing economists
employs a static zero sum analysis where any wealth, especially in the form of
capital, is seen as being stolen from the poor, in fact he even says at one
point that wealth is partially based in theft. Piketty calls for a series of taxes;
on both income and wealth so that society may take back this stolen loot. Ironically,
he fails to even make a moral argument for why society is justified in
confiscating property. It is just accepted as good. He doesn’t even limit this
to the rich, although he argues for the elimination of their wealth, but he
also calls for massive tax raises on the middle class in the United States,
even though that has actually nothing to do with the subject of the book as far
as capital or income inequality go. He just throws that in there because he
thinks government should confiscate wealth.
His biggest fallacy though is that invested capital does not
detract from society, it provides the investments needed for society to improve
itself. In Piketty’s superficial view it is bad though. His logic essentially
argues that a billionaire who blows through his money wastefully consuming
large amounts of resources, wrecking sports cars, buying off abused girlfriends
and running yachts ashore in the Mediterranean is benefiting society by
reducing his capital. Meanwhile that same billionaire who lives frugally in a
three bedroom house in Omaha and builds
a successful and profitable business, is detrimental to society and must be
punished.
So is the book worth reading. Yeah, if you have the time and
interest. Is this next word in economics? Unfortunately no, it actually takes
us back a couple of generations, to a superficial understanding of the way the
world works.
