“It may be,” writes Thomas Piketty in breathtaking understatement, “that a progressive tax on capital faces purely ideological obstacles that will take some time to overcome.”
If three words can transform right-wingers into Berserkers, they are “global,” “progressive” and “tax”. As the thetical point of Capital in the Twenty-First Century, perhaps the most important book of the century so far, Piketty proposes a global, progressive tax on capital. The arguments for it are unassailably sound, but the idea so affronts the status quo as to constitute a political heresy.
It takes occasional heresy to effect meaningful change. This book is heretical enough, popular enough and rational enough to carry about it the whiff of a movement’s beginnings, perhaps even of a paradigm shift, to use Thomas Kuhn’s now-overworked phrase.
By “capital,” Piketty means wealth, as conventional economists understand the term. He ably explains his conflation of the two, but here, let’s just say that capital can always be measured in dollars, and wealth can always be used as capital. So what he suggests is not exactly radical. A few American states, such as Kentucky and Florida, already levy a personal-property tax on intangible assets. It’s a way to get at real wealth, not just adjusted income.
Piketty carries the idea a great deal farther, however, suggesting that taxes on wealth should be global and progressive. He understands that the global part – even an incremental step such as a cooperative European Union tax – cannot be achieved in the short term. But he but points out that much could be achieved in increments, starting with international cooperation on tracking dollars, yea, even unto the Cayman Islands.
I used the word “unassailable,” I think advisedly, but that is not to say that Piketty has evaded assault. From the Financial Times to the conventionally liberal James Galbraith, estimable figures in economics, politics and journalism have challenged his massive data, called him Marxist – as if to discredit him – and pointed out that his ideas are politically untenable at the moment, as he already acknowledges.
What they have not done is take on the premise of Piketty’s work, elegantly reduced to the mathematical expression: r > g. What that little term means is that, historically, the rate of return on capital virtually always exceeds the rate of economic growth. And this means that people who amass or inherit great wealth will always accumulate money faster than those whose only asset is their labor: not working pays more than working.
Piketty establishes – until someone comes up with a powerful, data-supported argument to the contrary – that r > g is the fatal flaw of capitalism; that is, of capitalism uncontrolled by government. In one eloquent sentence, he sums up the problem: “The past devours the future.” It may not be news to everyone that capitalism is cannibalism, but Piketty’s careful analysis of mountains of data establishes the fact beyond argument.
So Piketty suggests that we “gain control of capitalism.” Does this make him a socialist or an anti-capitalist of any nature? Hardly. He wishes, perhaps like Franklin Roosevelt, to save and nurture capitalism by making it work. That he thinks it should be controlled suggests that capitalism is out of control. Well, yes.
Even at Standard & Poor’s Ratings Services, economists acknowledge that disparities in the distribution of wealth and income have begun to threaten overall economic growth throughout capitalist economies. They are careful to say that no one should address the inequities through the tax system, but rather, societies should see to the matter of education. Certainly, education is fundamentally important, and doing the right thing by students will pay off, for some of them, in 20 years or so.
Meantime, Piketty takes the honest, straightforward and obvious route: tax the rich. In fact, tax their riches. They’ll still be rich and face only the problems of the rich. The rest of us will have some fewer of the rather worse problems of the poor.
The book, in a marvelous translation by Arthur Goldhammer, is perfectly readable by reasonably educated people, and it has become an international bestseller. To call it a popularization, though, would be both inaccurate and insulting. It is a great book and it is required reading for everyone with a serious interest in geopolitics and economics.