In a New York Times op-ed published on Sunday titled "Wealth Over Work," Paul Krugman warns that we are heading towards "oligarchy" as the ultra-wealthy such as the Koch brothers and Walmart heirs exhibit greater and greater sway over politics in the United States; Krugman uses as evidence for his argument a new book out that he claims "will be the most important economics book of the year -- maybe the decade."
The book, written by leftist French economist, and according to Krugman "arguably the world’s leading expert on income and wealth inequality," Thomas Piketty, is titled "Capital in the Twenty-First Century," a Marx-inspired title that has gone viral in the progressive intellectual sphere. How does Piketty argue that the world should counter the move towards oligarchy caused by capitalism? A progressive annual global wealth tax -- i.e. a tax on assets one already owns -- and up to an 80% income tax rate on the highest earners.
U.S. President Barack Obama speaks on economic themes at the Center for American Progress December 4, 2013 in Washington, DC. Obama spoke at the think tank about economic inequality and a lack of upward mobility. Photo Credit: Pool/Getty Images
Piketty's magnum opus, which we are currently slogging through (it is 700 pages), is premised on the argument that capitalism naturally leads to dangerous and destabilizing income inequality, with the rich increasingly getting richer and more powerful, as according to Piketty they earn a higher rate of return on their capital or wealth than the rate of growth of the economy for extended periods of time. Stated differently, those who control great wealth in a free economy will become increasingly wealthier through returns on their wealth (stocks, bonds, real estate, etc.) relative to total annual income, as economic growth slows and the rate of return on wealth outpaces the growth of the total economy.
The end result is a socially unjust, immoral, "undemocratic" and likely disastrous outcome. According to Piketty the only reason this has not occurred already following the Industrial Revolution is due to disruptive technological developments and the shocks of World Wars I and II, which served to redistribute and/or destroy wealth.
As Krugman puts it, Piketty's book documents
"...the growing concentration of income in the hands of a small economic elite. He also makes a powerful case that we’re on the way back to “patrimonial capitalism,” in which the commanding heights of the economy are dominated not just by wealth, but also by inherited wealth, in which birth matters more than effort and talent."
These so-called divergent effects that concentrate wealth, swamp the convergent aspect of the diffusion of knowledge and skills facilitated by capitalism.
In order to correct for the inequality and lack of social justice that free-market capitalism produces in Piketty's eyes, he advocates as mentioned that governments should institute a progressive annual tax on capital or wealth, in addition to imposing an income tax of 80% on those with incomes above $500,000 or $1 million per year, among other reforms.
In addition to Krugman's praise, the book has received favorable coverage in Al Jazeera, Book Forum, Demos, The Economist, Huffington Post, the New Yorker, Washington Monthly, The Week and perhaps most representatively in numerous posts over at the liberal Center for American Progress' newly created Washington Center for Equitable Growth, which cites Piketty and fellow income inequality economist Emmanuel Saez's work in its mission statement. This heavy coverage indicates that Piketty's book, compared in multiple places to Marx's "Das Kapital" in both importance and nature, but bolstered with two-hundred years of statistical data (however flawed such data may be) is highly valued in progressive circles.
Couple these early indications among the progressive intellectual class with the fact that Piketty is considered as American Enterprise Institute's James Pethokoukis notes, arguably one of the two "...most important public intellectuals in the world today," it stands to reason that this book will be used to justify progressive policies and generate and bolster anti-capitalist academic papers and other influential literature for months and years to come.
In a midterm election year, and at a time in which income inequality and class warfare rhetoric is ever-present, it is vital to study the thrust of what's being put forth, material that may contain the key arguments to the left's agenda on income inequality, taxation and economics more broadly for days, months and years to come.
As such, below we provide the 10 most highlighted passages in the book, which give a sense as to its key themes, and what readers collectively interpret to be its most crucial arguments. It bears noting for your reference that the most-highlighted passage was marked 153 times, while the least of the most-highlighted passages was marked 48 times.
Most Popular Passages from Thomas Piketty's "Capital in the Twenty-First Century"
1. When the rate of return on capital exceeds the rate of growth of output and income, as it did in the nineteenth century and seems quite likely to do again in the twenty-first, capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based.
2. When the rate of return on capital significantly exceeds the growth rate of the economy (as it did through much of history until the nineteenth century and as is likely to be the case again in the twenty-first century), then it logically follows that inherited wealth grows faster than output and income.
3. Like his predecessors, Marx totally neglected the possibility of durable technological progress and steadily increasing productivity, which is a force that can to some extent serve as a counterweight to the process of accumulation and concentration of private capital.
4. The sharp reduction in income inequality that we observe in almost all the rich countries between 1914 and 1945 was due above all to the world wars and the violent economic and political shocks they entailed (especially for people with large fortunes). It had little to do with the tranquil process of intersectoral mobility described by Kuznets.
5. Knowledge and skill diffusion is the key to overall productivity growth as well as the reduction of inequality both within and between countries.
6. The second conclusion, which is the heart of the book, is that the dynamics of wealth distribution reveal powerful mechanisms pushing alternately toward convergence and divergence. Furthermore, there is no natural, spontaneous process to prevent destabilizing, inegalitarian forces from prevailing permanently.
7. To put it bluntly, the discipline of economics has yet to get over its childish passion for mathematics and for purely theoretical and often highly ideological speculation, at the expense of historical research and collaboration with the other social sciences.
8. Over a long period of time, the main force in favor of greater equality has been the diffusion of knowledge and skills.
9. The history of the distribution of wealth has always been deeply political, and it cannot be reduced to purely economic mechanisms. In particular, the reduction of inequality that took place in most developed countries between 1910 and 1950 was above all a consequence of war and of policies adopted to cope with the shocks of war. Similarly, the resurgence of inequality after 1980 is due largely to the political shifts of the past several decades, especially in regard to taxation and finance.
10. It has been the demographic growth of the New World that has ensured that inherited wealth has always played a smaller role in the United States than in Europe.