The problem of income inequality in Capital in The 21st Century

From The Week of May 1st, 2014 Wealth has become one of society's most enduring obsessions. Its acquisition preoccupies our musicians, its distribution fascinates our economists, and its possession enables our powerbrokers. Perhaps, this is unhealthy. After all, to ascribe so much value to something is to virtually guarantee that it will become a point of serious societal contention. But while some may successfully convince themselves to deny its seductions, wealth, and the money it represents, is much too deeply embedded in human civilization to simply shrug off. For it not just conveys prestige, its pursuit has endowed our greatest minds with the will and the drive to strive against all risk, a truth that has revolutionized our world and brought us wonders our agrarian ancestors couldn't have imagined. But for all of its unimaginable influence, wealth still starts more arguments than it ends. How much is too much? How much should be freely given away? How much should be taxed? How much should be invested? Wealth is hardly a new invention, and yet, even after all these centuries, it remains controversial, a state not at all alleviated when it is examined by the inquisitive regard of Thomas Piketty who attempts to explain wealth, in all its forms, in his dense and sprawling work. For centuries, economists have understood that economic growth comes in two basic varieties: income and capital. The former is any wage that one might receive for services returned, money that one can then spend on wants and needs. The latter, meanwhile, is the equity that one has invested in what one owns, anything from shares in companies to the roof over one's head. Over time, both of these forms of wealth can accumulate value; technological advances can make products cheaper and thus cause one's money to possess more buying power than it once did while land can become more scarce, as the human population expands, increasing its value sometimes overnight. These forms of growth have allowed human civilization to rise beyond subsistence farming and into the rarified air of industry and technological innovation. Traditionally, economists have equally connected the value of capital and the value of income to the health of national economies. After all, it seemed safe to assume that, in the event a national economy fell into recession, the value of a factory would suffer as much as the value of one's wage. Conversely, should a national economy grow at an auspicious rate, the values of both capital and income would grow equally. But on this vital point, Mr. Piketty begs to differ. Drawing upon 300 years of economic data from numerous western nations, he has reached the conclusion that the growth of capital, thanks to its greater durability, its capacity to weather purely financial shocks, and its concentration in the hands of the wealthy, is considerably more than the growth of income which is not only far more destructible, its value is much more subject to the fluctuations of national fortune. Charged with this insight, Capital In The 21st Century becomes more than a 700-page slog through a veritable forest of charts and research. It becomes a work of disturbing intensity that coalesces around a single, compelling argument, that capitalism is fundamentally flawed. Drawing on centuries of data, Mr. Piketty, a decorated French economist, argues that because the value of capital is more stable than the value of income, and because most of the available capital is owned by the rich and not by the many, the wealth of the few is accelerating away from the wealth of everyone else and will continue to do so for the foreseeable future. In this way, the author has set himself in opposition to prevailing opinion, that the fortunes of capital and income are linked, rising and falling together. This bold stance is no doubt part of the reason for such a lengthy laying out of his case. There's no doubt that Mr. Piketty's argument is intriguing. He contends that economists have been tricked into believing growth of capital and income are linked because of the peculiarities of the 20th century which experienced two colossal world wars which destroyed much of the capital of Western Europe. Additionally, this blood-soaked century also labored through decades of Left-leaning governments whose socialist tendencies caused them to implement steeply progressive income taxes which harnessed the profits of the wealthy, thereby precluding their wealth from racing away from the pack. After Europe recovered from WWII, and once the policies of these governments were rolled back in the 1970s and 1980s, the growth of capital returned to its more typical state, of outstripping income growth two to one. If Mr. Piketty is right, and assuming the 21st century avoids capital-destroying calamities like those experienced by the 20th, then the chasm between the haves and the have nots will only continue to dangerously widen. But however much we may be exercised by his assertions here, there is far less excitement for his proscription, a global tax on wealth, between one and two percent, aimed at redressing the imbalance between capital and income, thereby narrowing income inequality. Only a fool would declare this an impossibility, but neither would anyone but a fool think it probable. The United Nations doesn't even harbor a full complement of the world's nations. And if a body designed to unite the world in a single, diplomatic congress can't even agree on membership, how are we to implement a truly global tax on wealth that would undoubtedly prove even more controversial than a global tax on carbon emissions which are arguably just as consequential to civilization? The hope for such movement seems dim unto darkness. In some respects, it is foolish of me to have penned this review; I am by no means a trained economist. And it is clear, to anyone who reads even a dozen of the pages herein, that no less a figure is required to properly assess Mr. Piketty's case on economic grounds. But as a work of literature, it is profound. Yes, it is difficult, yes, it is stifling, but when one comes to understand the man's contention, the implications elevate the text into something well worth exploring. A fascinating and disturbing slog... (3/5 Stars)