After Piketty: The Agenda for Economics and Inequality by Heather Boushey

Author:Heather Boushey [Boushey, Heather]
Language: eng
Format: epub
Publisher: Harvard University Press
Published: 0101-01-01T00:00:00+00:00

The Pessimistic View: Growth Is Not (Necessarily) Inclusive

The optimistic view that a growing economy will move seamlessly toward less social and economic inequality did not turn out to be true. Here is the purpose of C21: Piketty wants us to understand that the economy does not naturally push toward greater economic equity. He looks at the data and eschews putting our hopes in market forces to fix the social and political problems of inequality.

Piketty’s argument that optimistic faith in the market is misplaced stems from his (untraditional) methods. He makes three related breaks with the standard economic methodology. As we will see, these dovetail with ideas developed in feminist economics. First, Piketty builds his theory up from the first-order empirical regularities of the data to fit them, rather than following the Procrustean methodology of chopping and stretching the data until they fit the theory. Second, Piketty eschews a narrow focus on modeling to the exclusion of an understanding of history and real-world data and problems. Third, Piketty incorporates the interaction between institutions and practices—refusing to take the property-rights and bargaining-power setups underlying the market as exogenous. Plus, Piketty pursues a much greater array of engagement with the social sciences more generally than an economist typically undertakes.22

The data that underlie C21 were mostly already known, at least within the economics community. In 2003 Piketty and Emmanuel Saez published a pathbreaking paper in the Quarterly Journal of Economics, documenting that income inequality has widened more than had been previously recognized, and that the top 1 percent now captures a higher share of income than at any time since the early twentieth century’s Gilded Age.23 In C21, Piketty takes the data to what he sees as the logical conclusion: As incomes accumulate into capital and then calcify into inheritances, the wealth of the dead takes on greater importance than that of the living. We will see ever-increasing inequality so long as the growth rate of the economy is below the rate at which the wealth of the rich compounds itself via the rate of profit. Piketty predicts that this will long be the case, because the process is self-reinforcing: “When the rate of return on capital exceeds the rate of growth of output and income, as it did in the nineteenth century and seems quite likely to do again in the twenty-first, capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based.”24

Piketty rejects the idea that highly developed economies can do much to improve growth—and that even if they could, that would only begin to reduce, rather than simply slow, the growth of inequality insofar as growth rises above the rate of return on capital.25 He ends C21 with what he sees as the only reasonable policy conclusion: policy makers should implement a global wealth tax to reduce the rate of return on capital. To describe the system he identifies, Piketty coins a new term: “What we are witnessing is a strong comeback of

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