Book Review: Capital in the Twenty-First Century, by Thomas Piketty

Abstract

Thomas Piketty Capital in the Twenty-First Century. Cambridge, MA: Belknap Press, Harvard, 2014. 685 pp.Journalists and journalist-academics once read from Adam Smith's Theory of Moral Sentiments to Karl Marx for the point E. F. Schumacher fingered: to approach economics as if people mattered. That idea seemed to fade in the United States in the late 1970s and 1980s, as homeless entered the vernacular, the middle class eroded, and Americans celebrated Lifestyles of the Rich and Famous more than we are all in this together. After Californians passed Proposition 13 and similar measures, public schools, the foundation of American citizenship, began to fray, and conservatives consigned Marx to the dustbin of history. Higher education equated the science, technology, engineering, and mathematics (STEM) disciplines with success, as economics and the social sciences became scientistic: less about people, more about models abstracted from them.That is partly why an intellectual tsunami swept academe when economist Thomas Piketty, professor at the Paris School of Economics and centennial professor at the London School of Economics, published Capital in the Twenty-First Century in French, in 2013, and in English, in 2014. Piketty's argument-that capital inevitably grows faster than the general economy (r > g), concentrates wealth in fewer hands, and worsens income inequality-did more than validate the 99% movement. From the macroeconomic level, his work confronted the West with the impact of its 40-year swing to individualism at the expense of community. It also enriched social science methodology by Piketty's connecting comprehensive statistical aggregations over more than two centuries' time to poignant qualitative work from those eras: from Jane Austen to Honore de Balzac, and from the economics of slavery to Michael Jackson. In the process, the work resurfaced the arguments of Marx-this time less doctrinaire, and with testable, web-accessible data.Piketty's charge produced a counteroffensive, first, from financial circles in London and New York, to little effect, and then, from conservative think tanks attacking his assumptions. Massachusetts Institute of Technology (MIT) economics doctoral student Matthew Rognlie seemed to dent the argument by suggesting Piketty had understated the case against capital's growth, which Rognlie said has been negligible in recent decades and concentrated mainly in the housing sector.1 Rognlie's critique took hold, but the debate's outcome remains unsettled, and the impact on Piketty's work seems more an issue of degree, rather than kind.Among the downsides of growing income inequality, Piketty says, is not only that it produces reactions like the 99% movement; it also dampens the economy overall, evident in America's slow recovery from the Great Recession. In other words, when two thirds of American economic activity depends on consumer spending, squeezing the incomes of lower- and middle-class people does not just reduce their standards of living: It lowers all boats.Piketty charts in exhaustive detail how that has happened worldwide since the 1980s, when incomes of billionaires soared into the stratosphere while billions of others live in want. …