Piketty the optimist

Written by Nicholas Barrett on . Posted in Current features, Features

conf_webIt’s hard to imagine a better moment to talk to Thomas Piketty. The renowned economist visited the EUI only hours after Obama’s State of the Union call for “middle class economics”, one day before the ECB started its unprecedented program of quantitative easing across the Eurozone and four days before another Greek election. It was also the week of the World Economic Forum in Davos. Meanwhile, Oxfam had just predicted that the combined wealth of the top 1% was on the verge of exceeding the combined wealth of everybody else on the planet put together.

In the eye of this storm, Piketty reserved the harshest words of his lecture for the new president of the European Commission. “The future of Europe does not lie in national tax optimization” he said, adding “Juncker’s model was to steal taxes from his neighbours.” This was a reference to leaked documents revealing Luxemburg’s years of offering multinational corporations minimal tax rates in return for a home in the EU, much of which was executed under Junker’s leadership. Remarks like this can travel far and wide. Since the publication of his book, Capital in the Twenty-First Century, Piketty’s voice is as loud and influential as any other economist around.

Speaking to EUI Times, after delivering his Max Weber Lecture, Piketty was keen to extol proposals laid out by Barak Obama the night before. The President had touted higher taxes on the wealthy in order to subsidise students studying at community colleges. “I think this is exactly the right policy” enthuses Piketty, arguing that in America “a big part of the rising inequality in recent decades is due to the fact that they have very good universities for top students and wealthy families but the bottom part of the population basically doesn’t have access to good education.” As he goes on he starts sounding less like an economist and more like a political communications strategist. “The plan is not sufficient” he remarks, “progressive taxes at the top could be increased much more than he proposed, but this is the right direction and I think it’s important to tie the tax increases on the rich with investment in the education of the entire population, making clear that this is why you want to increase taxes on their income, in order to finance higher education.”

piketty4_webPiketty, it seems, isn’t delving into politics to defend his economic vision, he may in fact be doing the opposite. When asked about his youth he freely admits “I wasn’t interested in economics as such. From the beginning, going into economics was a way to study politics.” He goes on to describe the start of a journey that ended with his 696 page volume selling over 140,000 copies and quickly becoming seminal in the field. “In France we have a training system that’s very much based on mathematics” he explains, “so at first I did maths because it’s what you are supposed to do in France when you’re good in school but I didn’t want to be a mathematician, I was much more interested in literature and history. So going into economics for me was a way of going into political and social issues.”

Using century’s worth of data and a trove of literary examples, Piketty has argued that when the value of capital grows faster than the economy, the rich, who usually own the capital, are able to accumulate vast amounts of wealth without having to innovate. Wealth and capital, he predicts, will be predominantly inherited instead of earned as the gap between the rich and the rest widens. On top of this, tax havens and tax breaks mean that this concentrated wealth does little to benefit the rest of society. Piketty’s answer to this is a “global wealth tax” on capital, which he once regarded as politically improbable; but that was before his research became a New York Times bestseller. As a book, Capital can feel bleak because the direction of travel reads like a one way street and it’s easy to imagine the author, with little faith in the possibility of his own reforms, to be an abject pessimist.

Meanwhile, the influential Marxist philosopher Slavoj Žižek has accused Piketty of the precise opposite, branding him “a utopian”. He was recorded telling a room that, although he agreed with Capital’s diagnosis, the notion of anything approaching a global wealth tax was simply naïve. Žižek argued that “if you imagine a world organization where the measure proposed by Piketty can effectively be enacted, then the problems are already solved. You have a total political reorganization, you have a global power which effectively can control capital. We already won.” In effect he was arguing that if democracies and governments had the ability to impose such an agreement then the revolution would already have happened. The last time the rich experienced sustained declines in their share of wealth involved factors like the great depression, the world wars and the end of colonialism. Now, according to critics like Žižek, the economic and political systems are inexorably weighed in favour of the wealthy.

When asked about this Piketty is resolute in his tone. “I think it’s possible to have the long-term target or the ideal target in mind… global government, perfect cooperation but of course that’s not going to happen but it’s important to have these targets in mind so we can make step-by-step progress in the right direction.” It feels as if the success of Capital and the acceptance of its core message by world leaders have given the author a greater sense of historical optimism. He’s keen to cite international progress on climate change that many had previously considered as political folly, “if we look at global warming, the EU has reduced its carbon emissions over the last 20 years, why did we do that? If we were selfish then we would never do it because the rest of the planet is polluting, so why would we make an effort?”

Progress, he claims, is possible in the world of finance too. “Look at bank secrecy in Switzerland”  he says, “five years ago people said it would be like that forever and it just took a few US sanctions against Swiss banks for Switzerland to agree to change its banking law. We can move slowly towards more democratic and automatic exchange of information about who owns what in the banks of the different countries, which is a precondition if we want to have wealth taxation on cross-boarder financial assets.”

These relatively recent developments do seem to widen the scope of what political action can perceivably accomplish, but, as any economist anywhere will tell us, there is still much to be done. Sometimes the scale of the world’s systemic dysfunctions can seem overwhelming and working within its accepted parameters can feel like a futile endorsement of the broken status quo. Among younger people, despondency is understandably widespread. According to Piketty, there is little to lose by trying. “I’m certainly not saying that we should wait for a perfect global utopian government to exist before we start doing anything and we certainly shouldn’t use this as an excuse for not doing what we can do with our national governments, who aren’t perfect, but we can do a lot.”

piketty3_webSince its publication and subsequent translations, Capital has become a strange symbol of both pessimism and hope. One comment it always provokes is that of its size. In hardback, it dominates the landscape of every table and tests the structural integrity of every bookshelf. To commit to it is to purge weeks and months of literary competition from your planned reading. Is it really something the public can rally around to effect democratic change, or is it destined to live on as a centrepiece of economic seminars and socialist symposiums? Piketty certainly hopes not, “I believe in trickle down analytics” he says, “I believe in the power of books and ideas but you have to be patient.” You certainly do have to be patient, although the propensity of charts and cultural examples mean that Capital is a lot easier to understand than its intimidating appearance suggests. “I tried to write a readable and accessible book” explains the author, adding “the success is beyond expectation. I think that what this shows is a strong demand for a democratization of economic knowledge.”

So has a ghettoization of economics alienated the public? “I think many people are tired of hearing that this is too complicated for them. That the issues of income, wealth and capital are too technical and only a small group of specialist economists have developed a science that is so sophisticated that the rest of the world cannot understand… this is a big joke.”

He goes on to offer his own analysis of the book’s success, here he is not just arguing for an end to an elite concentration of wealth but to an elite concentration of experts too. “We are all in the social sciences” he explains, “I think many people are ready to hear this message and find material in this book that helps them talk back to economists… but of course it will take more than just a book. It takes a political movement, it takes political action.”

“Economists” he laments “have done a lot of harm in the past by pretending to have the perfect models or the perfect science – that more market deregulation is always better. These supposedly scientific claims are in fact very ideological.” And this he claims is why public understanding is so important and why public engagement is vital.

Thanks to Piketty we now have a formidable blue-print of what doing nothing looks like. It may be up to the rest of us to write another.