After Financial Times’ botched and bungled attack on Piketty’s Capital in the Twenty–First Century fainted, in order to escape from dealing with the essence Bloomberg BusinessWeek chose a different tactic which is a) kind of funny, b) pathetic.
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According to Megan McArdle review of Piketty’s book in Bloomberg Businessweek, “Piketty has touched off the most vigorous public conversation about inequality since Occupy Wall Street—only this time it’s a conversation about data and economics, rather than the wealth of certain bankers and the propriety of camping in the streets. That’s a lot of progress to come from one man.” While her review does cite some critics of the book whose views seem more focused on discrediting the book’s conclusions and recommendations, most of the review is a solid consideration of what the book says and what it might mean for our future. That said, McArdle does slip in some conclusions of her own that seem intended to take the wind out of Piketty’s arguments and particularly his pointing the finger at capital accumulation (very much intentionally set up by folks who benefit from it) as a major (perhaps “the” most important) concern facing the world (and particularly the US) today. She quotes Rogoff and Winship dismissing the notion that r had been greater than g as a “non-problem” since “… you have to have some compensation for risk.” There are two problems with this dismissal. First, risk is not unproblematic. That is, that some actions or situations are riskier or safer than others is invented in particular situations by particular actors for particular reasons. For example, to say that investors are taking greater risk by investing in an urgent care facility as opposed to liquor store in a poor neighborhood is based on a scenario that gaining payment for liquor by the poor inhabitants of the neighborhood is more likely than gaining payment from those inhabitants for urgent health care. Considering all the pressures that can be brought to bear on the inhabitants today this assumed difference in risk seems unreasonable. McArdle also concludes that even if the return on capital is higher than the growth rate of the economy, that doesn’t mean capital will accumulate and concentrate itself indefinitely; the capitalists might spend it, give it away, or divide it among heirs faster than it accumulates. Problem being that none these alternatives addresses how to deal with the wide ranging impacts of wealth accumulation inequality. McArdle also comments (a la Larry Summers) that it is not the case that capital can always be easily substituted for labor, thus allowing capitalists to gain greater returns (and thus wealth accumulation) by simply substituting investments in capital (e.g. automation, robots) for labor. What she fails to recognize is that even if capital investment can’t always provide greater return when substituted for labor the choice as to which action to take is entirely in the hands of the capitalist (the investors). Whether new machines are built and deployed or laborers laid off or hours reduced is wholly and completely the decision of investors. Finally, and most egregiously McArdle lays the blame for the decline of the security for the lives of 75% of Americans (and more in the rest of the world) at the feet of low skills/lack of education, and globalization. What she fails to mention is that the same capitalists (with some exceptions to be sure) who benefit from them invented globalization to increase returns and were prime movers in both changing education from a public good into a market commodity and increasing the cost and debt involved in gaining the skills and education to “compete” in the globalized economy (again to increase returns). And with this I arrive at the real and in many respects non-economic (both in terms of the discipline and the kinds of actions taken) importance of Piketty’s book. Large inequalities of wealth in societies not only place an unsustainable burden on the actors (human and nonhuman) that make up that society to continue the tasks that keep the society functional but also actually creates pressures to terminate the society. Monarchs did not invoke the name of God just because it sounded good. They invoked God’s name to justify the actions they took because God was a force so great that members of society largely felt compelled to accept and adhere to His word. This power of God is largely gone in today’s western world. So what do they invoke in its stead? Markets (and democratic liberty they are claimed to protect), incentives to take risks and be inventive, forcing the largely lazy and shiftless majority of humans to work hard, and protecting families and our Christian heritage. If Piketty had extended his analysis back to the period going from the 10th to the 11th century he would have found the same problem, only more pronounced, the rich getting rich and poor getting poorer. That problem is less pronounced as we go from the 20th to the 21st century primarily due to the spread of democratic decision making, not the spread of investor capitalism. The latter made possible the creation of more wealth. It has done nothing to make its distribution more equal.