Capital in the 21st Century: Thomas Piketty

Capital in the 21st Century is a best-seller book; written by the French economist Thomas Piketty. He was educated from London School of Economics and now has been working for French School Economics. He is the successful economist to make leaders and academia listen to him by sparking widespread debate over the causes and consequences of rising inequality.

One of the slogans of the 2011 Occupy protests was ‘capitalism isn’t working’. Now, French economist Thomas Piketty explains why they’re right.[1] It is true that everyone is, now, forced to listen to Piketty with great attention as inequality increased intolerably. Inequality has become a fevered topic for everyone.

Piketty’s work raises fundamental issues concerning both economic theory and the future of capitalism. He documents large increases in the wealth/output ratio.[2] Piketty’s research suggests that the 1% and the 99% enshrined by Occupy are not an anomaly of our time, it’s a structural feature of capitalism.[3]

According to Piketty ‘‘invested capital – in the stock market, in real estate – will grow faster than income” (r > g.[3a] where, r for return is greater than g for growth).

While describing the facts, he has used more and frequent numbers (data) to justify his claim. People who are not good at numerical tricks, might be lost in the jungle, but due to these huge data analysis, the claims are extremely close to validity. So ‘‘this forecast is based not on speculation but on facts assembled through massive research.

Thomas Piketty
Thomas Piketty

More interestingly he has described the ill intention of super managers, wolf of wall street, footballers[4] and billionaires who are competing to accelerate their income whereas majority of the people are the loser.  According to him the super rich do not produce the ‘‘wealth’’ but get highest salary from it. This is an absolute form of theft.  There is always ill competition or conflict between super rich who compete to increase their income from property and assets. This is the ‘meritocratic extremism’ He says. Capital in the Twenty-First Century is all about income inequality over several hundred years. So it is easier to understand the nature of super rich like plutocracy, oligarchy, totalitarian or meritocracy who are really work against egalitarianism.  This is how Thomas Piketty has changed the way of current economic thinking.

Ideologically Piketty is a ‘socialist’. The Economist has discribed him as ‘‘Close to the Socialist Party’’ who proposed the ‘‘progressive tax on wealth is the solution.’’ Being a socialist, he supported Francois Hollande, against Nicolas Sarkozy in the presidential election of France. But Thomas Piketty refused to receive an awarded Légion d’Honneur was a ‘cruel snub’ because he supports more pro-growth policies and progressive tax instead of austerity as President Francois Holande is unable to carry out the aspiration.

Capital in the Twenty-First Century is all about income inequality over several hundred years. Super managers, wolf of wall street, footballers and billionaires who are competing, ill competition or conflict, to increase their income from property and assets whereas majority of the people are looser. This is the meritocratic extremism. The super rich do not produce the wealth but get highest salary from it. This is an absolute form of theft. It is an analysis of the capital for centuries and side by side reflection of capitalism and its super rich owner like plutocracy, oligarchy, totalitarian or meritocracy how they really work against egalitarianism; where return is always greater than growth.

The reasons behind popularity

The Capital in the 21st Century is not a kind of celebrity work for the popularity. It is a bitter truth and factual research on wealth and capital for 300 years. First and foremost, it is hard to research on how capital has been created and captured in 21st century. Jacob S. Hacker, Professor at Yale University, et. al. writes in the Guardian that Capital in the Twenty-First Century is written in the tradition of great economic texts. Where John Maynard Keynes wrote The General Theory of Employment, Interest and Money in reaction to the “classical economists” and Karl Marx wrote Das Kapital in reaction to the “bourgeois economists,” Thomas Piketty writes in reaction to the “U.S. economists.”[5] Hence Piketty has set his place on the top rank of the generation as like J M Keyens and Karl marx. This is greatest achievement of Piketty for him and economics as a whole.

American Nobel  prize laureate Paul Krugman described Capital in the 31st Century as “epic” and a “sweeping vision”.

Due to popularity he is being rewarded from several titles. the Financial Times called Piketty a “rock-star economist”, The Economist called him ‘modern Marx’. His book is tagged as ‘‘economic manifesto, the headliner and the new de Tocqueville [6] Intellectuals are salivating with the popularity of this book.

Andrew Hussey writes ‘‘Now the arguments have centred on two poles: the first is a tradition that begins with Karl Marx, who believed that capitalism would self-destruct in the endless pursuit of diminishing profit returns. At the opposite end of the spectrum is the work of Simon Kuznets, who won a Nobel prize in 1971 and made the case that the inequality gap inevitably grows smaller as economies develop and become sophisticated.’’

I believe, this book is an analysis of the problem rather than the solutions. Blockbuster book, Capital in the 21st Century’ is a great piece of scholarship, but a poor guide to policy. As a solution, he prescribes a progressive global tax on capital from 0.1% to 10% base on earnings. He also suggests a punitive 80% tax rate on incomes above $500,000 or so.

Invested capital – in the stock market, in real estate – will grow faster than income (r > g. where, r for return is greater than g for growth).

Inequality is not only a problem  inside the country but it is country to country as well. it depends upon the thinking of rich country how they come up to fair share within the countries.  So  ‘‘It is hard, almost impossible, to imagine that the cure he proposes – tax and more tax – will ever be implemented in a world where, from Beijing to Moscow to Washington, money, and those who have more of it than anyone else, still calls the shots.’’ Those who benefit from the current system will resist change, and they are powerful’’ Joseph stiglitz, Making globalization work (p 13)[7]

According to Piketty the real danger is- if this process is not arrested, poverty will increase at the same rate and the 21st century will be a century of greater inequality, and therefore greater social discord than the 19th century. We need a  socialist approach to make consumer society equal and really strong in income and education/information so that balance between business, government and consumer society is practically possible. Simple version of the Piketty’s model is that the wealth grows more quickly than the economy does as a whole.

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