What Piketty’s Conservative Critics Get Wrong
With his book Capital in the Twenty-First Century, Thomas Piketty has lobbed a truth bomb that has blown up several decades’ worth of received opinion about the way the economy works in capitalist societies. He makes a powerful, meticulously-argued, data-driven case that inequality is a feature of capitalist economies, not a bug. Let to its own devices, wealth tends to become highly concentrated. The only events likely to prevent our society from plunging into a dystopian spiral of inequity are, on the one hand, certain rarely occurring catastrophes, such as war or depression; or, on the other, dramatic government intervention in the economy, in the form of steep taxes on the wealthy.
You can see why conservatives are going to be enraged by this book.
A conservative backlash to Piketty was inevitable; the only surprise is that it’s taken so long to develop. But in the last week or so, responses from the right have finally begun to roll in. Send in the clowns!
Reihan Salam, inexplicably regarded as a leading light among today’s young conservative intellectuals, doesn’t appear to have read a word of the book, but took it upon himself to write about it anyway for the National Review Online. Cribbing from one of the few less-than-glowing reviews of Piketty on the left, by economist Dean Baker, Salam decides he didn’t like the book because of its “pessimism.” But he disagrees with Baker’s ideas about policies to fix inequality, and asserts that a more “open” and “entrepreneurial” economy will do the trick instead. Salam offers no policy details, but his piece does discuss many plot details of a sci-fi novel he enjoyed. (WTF?)
Salam’s piece was dumb, but things were about to get more idiotic. Earlier this week, the economist Branko Milanovic tweeted, “And the award for the stupidest review of Piketty’s book so far goes to . . . . (no surprise there) @WSJ.” The Wall Street Journal review is indeed wretched. Reviewer Daniel Shuchman describes this painstakingly careful work as “less a work of economic analysis than a bizarre ideological screed.” He also suggests that Piketty’s argument that confiscatory tax rates won’t hurt growth is a groundless “breezy” assurance. In fact, Piketty’s argument is based on his rigorous econometric analysis of fifty years of data from eighteen OECD countries. Shuchman ends his review with a classic move straight out of the red-baiting playbook: “the professor ought to read ‘Animal Farm’ and ‘Darkness at Noon,’” he wrote. Awesome point!
I didn’t think it was possible to find a more hack-stastic review of Piketty in a major publication than the one by Shuchman. Like Milanovic, I was ready to award the dunce cap to the Journal and call it a day. But then along came Megan McArdle’s column for Bloomberg View. Her piece on Piketty contains what is surely one of the most extraordinary openings of a book review I have ever read:
I apologize in advance, because I am going to talk about a book that I have not yet read. To be clear, I intend to read Thomas Piketty’s “Capital in the Twenty-First Century.” It is sitting on my (virtual) bedside with a big stack of other (digital) books that I intend to read. But it’s far down in the queue, and I’m afraid that I can’t wait to weigh in—not on the book itself, but on its topic.
Okay then! She proceeds to argue vigorously against Piketty’s policy proposal on taxes—although, to repeat, she did not read his arguments in favor of them. At this point, I strongly suggest you skip her piece and read Fredrik deBoer’s review of McArdle’s review instead. It is delightful.
Not every conservative response to Piketty has been quite as disgraceful as the ones by Salam, Shuchman, and McArdle. There have been more serious reviews as well—though all of them deserve scrutiny and pushback.
For instance, the American Enterprise Institute’s Kevin Hassett argues that the correct way to measure economic inequality is to look at consumption inequality rather than income inequality, and he claims that consumption inequality is not on the rise. Nice try, but no. The best recent research shows, in fact, that consumption inequality is soaring as well.
The Manhattan Institute’s Scott Winship claims that if Piketty had included taxes and transfers in his measure of inequality, he would have found that, even though income rose disproportionately at the top, the bottom 90 percent still experienced significant gains. He doesn’t link to his analysis, but I’m skeptical. An earlier study Winship touted that showed similar results turned out to have serious methodological flaws.
More importantly, transfers have their limits. Studies show that the wealthy increasingly dominate the political process, and that their views on economic issues lean much more conservative than the rest of the population. As the rich get richer and wield even more control over our democracy, it’s likely that government policy will become less, rather than more, redistributionist.
Let’s be real: are we to deduce from Winship-type arguments that conservatives believe that the way to deal with inequality is to increase welfare spending, and make the tax system more fair for low-income earners? Sorry, but that’s a suggestion that doesn’t even pass the laugh test.
Some conservative reviewers appear to misunderstand basic points of Piketty’s argument. Foreign Affairs’s Tyler Cowen (who also discusses the book on his blog) falsely asserts that Piketty claims that capital returns will be “non-diminishing.” The National Review’s Joshua Hendrickson asks what will happen to return on capital when the growth rate changes. Piketty’s analysis makes it clear that that even if growth slows and the return on capital is reduced, the gap between the two will merely narrow; it won’t reverse itself. The essence of Piketty’s argument is that return on capital will outpace growth—a dynamic that, left unattended, will lead to growing wealth concentration and inequality.
Another misunderstanding: Cowen as well as Bloomberg’s Clive Crook claim that Piketty argues that a high capital-to-income (or, as Crook puts it, capital-to-output) ratio is what’s driving inequality. Piketty does not actually say that, nor he does he believe a high capital-to-income ratio is objectionable in itself, if capital is divided equally. The issue is that wealth is unequally distributed to begin with, and then over time tends to become even more concentrated. In that context, a high capital-to-income ratio becomes a major problem.
Finally, Crook argues that “living standards” matter most, not inequality. Living standards are indeed important, but for decades, wages for the bottom 90 percent have been stagnating. For many people in our society, living standards are abysmal; the poverty rate is high and increasing numbers of people can’t get enough food to eat.
Even for the non-poor, inequality matters. Many goods are positional, such as the best schools, housing, and jobs. But in a society where wealth is power, and economic inequality is skyrocketing, those are perks that increasingly are restricted to a rich and well-connected elite. That’s a disturbing reality that violates basic norms of fairness and equal opportunity. It’s one of the reasons why addressing economic inequality has become our nation’s most urgent political priority. And it’s another point that all of Piketty’s right-wing detractors (whether they’ve actually read his book, or not) seem to have missed.