You may have heard of a French fellow called Thomas Piketty, called “the most important economist today,” whose book Capital (in the Twenty-First Century) has been launched across the intellectual firmament with the sort of impetus not seen since the days of Silent Spring, The Population Bomb – or The Spirit Level. The book is
695-pages of rollicking neo-Marxist agitprop against inequality and in favour of massive new taxes on the rich. The book is a sensation on the left, a nuclear target for the right, and an endless battlefield for economic theorists of all stripes.
If you haven’t heard of him yet you are not following North America’s leading purveyors of popular ideology: The New Yorker, The New York Times, The Week, The Nation, The National Review, The America Prospect. Hate it or love it — all are welcome from one end of that violent spectrum to the other — Capital is the economics industry’s tomb-raider of the 21stcentury.
If you haven't heard of it yet, fear not: it will be coming soon to a blog near you – or, at least, the warmed-over neo-Marxist rhetoric about “inequality” will.
Piketty rampages through two centuries of economic data and graphs, plunders ideas and theories from hither and yon, fills pages with pop culture references and CEO compensation lore, before settling down to contemplate his “utopian” idea: A global annual capital tax of maybe 2% on the assets of the rich and a marginal tax rate of 80% on incomes above maybe $500,000 — all necessary to ward off “the violent political conflict that inequality inevitably instigates.”
There’s a lot in Capital, but the book has three basic foundations. There’s the Marxist Set Up, the Capitalist Straw Dog and the Utopian Tax Plan. All the rest is elaborate if sometimes fascinating filler.
But since you’re going to keep hearing more and more in coming months about Piketty, his book, and especially the Utopian Tax Plan, it’s important to know more. Austrian Economics blogger Smiling Dave starts at the very beginning:
Gotta give Piketty's book credit for barking up the wrong tree right from the get-go. Here are the first lines from the intro:
The distribution of wealth is one of today’s most widely discussed and controversial issues. But what
do we really know about its evolution over the long term? Do the dynamics of private capital
accumulation inevitably lead to the concentration of wealth in ever fewer hands, as Karl Marx believed
in the nineteenth century? Or do the balancing forces of growth, competition, and technological progress
lead in later stages of development to reduced inequality and greater harmony among the classes, as
Simon Kuznets thought in the twentieth century?
Let's look at this more closely.
The distribution of wealth is one of today’s most widely discussed and controversial issues…
True as far it goes, that ignorant people talk about this a lot. But the intelligent can reach only one conclusion. Whoever works should be allowed to keep the profits of his work. [Even Marx agreed with this, merely arguing that the problem with capitalism is that someone is not being allowed to keep the fruits of his labours, a claim long exposed as false]. It makes no difference to A's rights to keep what he produced whether B is rich or poor, equal or unequal, to A. If we see "inequality", that does not mean something is necessarily wrong. In fact, inequality must exist in such a system, which the author agrees is the right way to go in his video. You'll remember that he praises "meritocracy", another word for what we are talking about.
For example, who reading this can write a book as popular as the Harry Potter series? I think we can agree that whoever can, will do it, Piketty and Karl Marx included, because the reward is so great. If you didn't do it, it's because you don't have the talent. Now, nobody was exploited, nobody was robbed, nobody was placed in chains, by J. K. Rowling. She wrote books that people loved so much they happily gave her money in exchange for them. Meritocracy at its best. Is anybody going to claim that since she is now a billionaire and everyone else is the same old slob, that something is wrong with the world?
And yet, the Harry Potter books have increased inequality in way few things have. Miss Rowling used to be "equal' to everyone. Now is she is supremely unequal. Is Piketty going to come out against the books, saying the world would be a better place if they were not written, that everyone would be happier that way? If he does, he's a bigger fool than he already has shown himself to be.
Bottom line, "inequality" per se is not a problem, just a fact of life. But the author makes it sound like it's the single greatest problem facing the world today. As other posters have pointed out, if people steal money to get rich, via the govt or in other ways, the problem is not inequality, but stealing.
The next sentences continue the theme, creating a false dichotomy. Either inequality will increase [=bad, he thinks] or will decrease or stay the same [=good, he thinks]. In light of the above, this is an incredibly foolish point of view. The book is about Capitalism, and he is going to be stupid enough to judge Capitalism based on the question, does it increase or decrease inequality?
The correct question, the correct criteria to judge Capitalism as opposed to other systems, is not to compare Miss Rowling to Joe Slob and see if they are both equal. It's to compare Miss Rowling in a Capitalist system to Miss Rowling in an alternate system, and Joe Slob under Capitalism to Joe Slob under another system. Does Capitalism increase the standard of living of both Miss Rowling and Joe Slob? If so, it is the superior system, regardless of any "inequality" that exists.
Of course, this comparison is so clear cut that Marxists dare not talk about it. The poorest capitalist country has a much higher standard of living, for everyone, than the richest Marxist country, a fact no one denies.
So if you want to see someone make a fool of himself for a few hundred pages, read Piketty's book. If you want to learn economics, read Smiling Dave's blog.
I reckon Smiling Dave has earned the sponsor’s message. Don’t you?
Anyway, he continues:
Wealth doesn't come into existence "randomly". Somebody had to do some work somewhere for that wealth to be created. This is a key point that, when elaborated on, refutes all his arguments.1. Even Piketty understands that Capital Accumulation is what leads to greater wealth. AE has shown that not only does it lead to greater wealth for the owner of the capital, but for the whole economy. Thus, we should do all we can to increase capital accumulation, and get rid of every discouragement. Many people work to improve the lot in life of their children. And if we institute Piketty's silly programs, we are destroying one of their important incentives to be productive.
Now there are two angles from which to look at his thesis, the moral and the economic. Since the Austrian giants have written about this extensively … I'll just give an outline:
1. Reductio ad absurdum. Accepting his logic for the sake of argument, the rich countries should give their
wealth to the poor countries, until everyone is equally poor. But you don't hear him advocating that.
2. Miss Rowling worked for her money, and even Marx agrees that therefore it's hers. Has she the right to
give it as a gift to anyone she wants? Of course, for otherwise it's effectively not hers to with as she pleases.
Therefore she has every right to give it to her son. Does she own it any less the day she is about to die? Of
course not. So if she gives it as a gift to her son the day she is about to die, we are all OK with that, right? No
questions about the son being "random", right? And that's what inheritance is, the recognition that the
parents want to gift their kids with their money.
3. Another reductio. If it is our job, as he assumes, to right the wrongs the Universe has created, why stop at
money? Why not right the wrongs caused by some people being more talented than other? Result: Harrison
Historically, this has always been the case. Soviet Russia was notorious for the amount of time wasting people did at work, preferring to gossip for hours than actually doing something productive. The reason? Russia had instituted Pikkety's programs of reditribution.
Contrast this with the USA, which, until it started doing what Piketty wants, was the richest country in the world by far. Its workers got the highest wages in the world, its products were of the highest quality, and were sold cheaper than any others. And how did that happen? Austrian analysis says because the USA was the free-est country, economically, meaning those who made money were allowed to actually keep it, as opposed to having it taxed away at every opportunity.
2. Ability tends to be inherited, at least to some extent. Thus, we are giving the capital to the person most likely to use it best if we let it be handed on through inheritance. And if the inheritor is not competent, market forces will ensure they will go to someone who is. But redistribution guarantees that vast amounts of the money will go to incompetents and dead beats, who will just spend it on beer and cigarettes.
Bottom line, we have another instance of what Mises always pointed out was a basic flaw in all other schemes but the free market: the results are the opposite of what the proponents intended. And the reason is simple: The free market maximizes wealth for everyone. Everyone wants that. But their proposals are always to stifle the free market, meaning to reduce wealth.
In short, like all versions of Equalite, Fraternite through the ages, Piketty’s forced equality simply makes us poorer. And worse: the only way government can make people equal is by force -- as Ayn Rand observed, they can either raise everyone to the mountaintops, or simply raze the mountains.
Which one, do you think,is most common?
You don’t need to go far to get your answer. Just your latest neo-Marxist experiments. Like Piketty’s France, already overtaxing the wealthy, from which Frenchmen like Gerard Depardieu are fleeing. Or like those people in Venezuela queuing for food and toilet paper while being shot in the streets.