So Republicans are going populist, or at least two of them are, reports The Daily Beast’s Patricia Murphy. And perhaps it’s only in the sense that unlike Mitt Romney and many in the House GOP, they’re not speaking of working people with contempt. Well, it’s a start. But I wish they’d pick up copies of Thomas Piketty’s Capital in the Twenty-First Century. Oh, of course Ted Cruz and Rand Paul would find ways to pooh-pooh the book’s findings and conclusions, but it’s nice to think of them merely having to immerse themselves in empirical reality for a few hours instead of the magical economic fairy tales that undoubtedly constitute their usual diet.
If you’ve not heard of Piketty or Capital, it’s certainly the economic book of the year, and probably of the decade so far. (You can read Paul Krugman’s rave in The New York Review of Books here.) I admit I’ve only waded into it so far, but I went to see the author, a French economist, speak at the Economic Policy Institute in Washington to a room full of people who braved a hideous, monsoon-ish rain Tuesday morning. (The video of the event is here.) What Piketty has done, my economist friends tell me, is nothing short of revolutionary and deserves to change the way we think about wealth and inequality. Much more important, it also deserves to alter what we do about them.
Here’s the story in a ridiculously small nutshell. Thirty scholars collected data from 20 countries over about 100 years. Piketty pored over the data trying to pinpoint salient reasons for our insane levels pf income inequality, which is worse in the United States, where the richest 1 percent own nearly 40 percent of the wealth, than in most other advanced countries but hardly endemic to America.
The one key: In all times and places under study, the rate of return on capital increases at a faster rate than general economic growth. Growth averages 1, 1.5 percent. Rate of return averages 4 or 5 percent. So, presto, the people with the capital—money and assets of all kinds, land and equipment and what have you—are getting richer a lot faster than the rest of us. And as Nobel Prize-winning economist Robert Solow, a panelist at the event, pointed out: “Note that this is not a market failure.” This disparity (r > g, in wonk-speak) is a feature, not a bug, as they say, and it’s just our fate, and on and on it shall go, as the rivers roll to the sea.
And is there anything we can do to mitigate this? Three things, said panelist Josh Bivens of the Economic Policy Institute: 1) Make sure more people enjoy more access to r; 2) raise g; 3) lower r.
Now, if you are reasonably conversant in our economic debates, you already have some idea of what all this means. It means what Cruz and Paul would call “socialism” and what I would call “the kinds of reasonable, worker-focused economic policies this country had for about 40 years that were, on balance, the best years this country ever had.” We had large-scale public investment, near full employment at times, a more heavily unionized work force, a minimum wage that until 1968 kept pace with productivity, a more progressive tax system, a much more heavily regulated financial sector in which banks couldn’t gamble against themselves, and all the rest. Even with all these measures in place, r still grew faster than g, but not the way it does in today’s America.
The great question looming over Clinton’s expected campaign is the extent to which she’ll address the inequality crisis head on.
In other words, Piketty makes the case that inequality will just grow and grow unless societies take affirmative steps to reduce the gap between the rate of return on capital and overall economic growth. The problem is the old one: In our present political climate, there’s not a chance of that happening.
As I sat there Tuesday morning, I kept wondering to myself: Is there any way a politician, a presidential candidate, can turn these concepts into plain English, something that can capture people’s imaginations—an answer to the right’s vacuous “a rising tide lifts all boats,” but which happens to have the benefit of being true? We now have ample evidence that the “rising tide” of the better part of the last 30 years has not lifted all boats. The ocean liners are getting farther and farther away from the pack.
I think there must be a way, but before we ponder that question, we first have to wonder whether the presidential candidate I have in mind (it’s not Cruz or Paul) even believes all this. I think she does, or most of it. But this is class politics—not “class warfare,” just class politics—and that hasn’t exactly been Hillary Clinton’s game over the years. The great question looming over her expected campaign is the extent to which she’ll address the inequality crisis head on.
Given the 1 percent’s ownership of our political system these days, we’re probably stuck with living out this crisis for a very long time, until even the 1 percenters are finally forced to agree that something has to be done. We seem a long way away from that. But things do change sometimes. “In 1910 in America, everybody would have said a progressive income tax was impossible,” Piketty said Tuesday. “It could not be permissible under the Constitution, and so forth. But, you know, things happen.” Three years later, we had one. So it’s not impossible. And if trickle-down could start on a dinner napkin, surely the process of reversing its malignant effects can start with a book.