Thomas Piketty - the billionaire class

 Thomas Piketty, 

David Marchese.  NYT.  April 3, 2022.

An economic argument in favor of billionaires is that their doing well is a sign that our system of capitalism is working and that it means growth for everyone. But growth has been slowing down at the exact same time that billionaires have been rolling in it. Has that given definitive lie to the idea that the success of the 0.1 percent is good for the rest of us, too? 

 

Thomas Piketty, 

It’s proof as far as proof can get in the social and political sciences. The evidence that we have is that if you take the United States, the growth rate of national income per capita has been divided by two following the Reagan decade. It’s been a little more than 1 to 1.2 percent per year — the national income per capita real growth rate between 1990 and 2020. It used to be more than 2, 2.5 percent between 1950 and 1980. The tax performance in the Reagan decade was supposed to boost growth: Maybe you would have more inequality, but the size of the pie is going to grow so much faster than before that the average wages and income of average Americans will grow like you’ve never seen. This is not what we’ve seen. 

The big lesson from this is that the period of maximum prosperity of the U.S. economy in the middle of the century was a period where you had a top income-tax rate of 90 percent, 80 percent, and this was not a problem because income gaps of 1 to 100 or 1 to 200 are not necessary for growth. The other big conclusion is that what really matters for economic prosperity is education and relative equality in education. The key reason the U.S. economy was so productive historically in the middle of the 20th century was because of a huge educational advance over Europe. In the 1950s, you have 90 percent of the young generation going to high school in the U.S. At the same time, it’s 20 to 30 percent in Germany, France, Britain, Japan. The story that Reagan tried to tell the country in the ’80s, which is basically forget about equality, the key to prosperity is to let the top become richer and richer — it doesn’t work. 

 

Have you seen any structural or ideological changes that you think make our moment different from historically comparable ones?

Piketty, 

Well, the dominant ideology has been moving toward the view that we’ve gone too far in terms of market liberalization, in terms of globalization without regulation and the superrich getting richer. The problem is that we’re still stuck with institutions that were set up in the ’80s and ’90s in terms of limited tax progressivity, free capital flows without any common collective regulation, without financial cadastre so that you can track who owns what where — which is a big problem when you want to impose sanctions on oligarchs. 

In the United States, this institutional setup has been reinforced because of Trump’s big tax cut on corporations. There are many dramas we associated with Trump, but part of the drama is that he has been able to tell the middle class and lower middle class, “Look, we are going to continue with tax dumping, but I’m going to protect you in another way by protecting you against Chinese and Mexicans, the Muslims.” He was able to be elected on an ideology where you don’t redistribute between the rich and the poor but rather you protect Americans, especially white male Americans, against anybody who looks foreign. The risk is that neoliberalism is replaced by this form of neo-nationalism in order to avoid redistribution. Sometimes people like Trump can be successful with this strategy because it’s a much clearer message than saying, “Let’s look at the history of progressive taxation.”

You mentioned oligarchs. In America, we don’t like to think that we have them — that’s for a country like Russia. Instead we like to think we have entrepreneurs who achieved through merit. But the similarities are obvious: They’re all taking advantage of the free global movement of capital and have a disproportionate amount of political influence. Do you see America as being as securely in the grip of the oligarchic class as other countries we think of as being less democratic? 

Thomas Piketty,

 

The U.S. oligarchs have less control of the political system than the Putin clique in Russia, that’s for sure. In terms of what fraction of wealth accumulation is due to individual effort, individual merit, as opposed to a legal and institutional system that is working for them more than for the rest of the country, it’s difficult to say. Many Russian oligarchs bought the right assets at the right time, resold it. This is business life. 

To me, maybe the best comparison between the U.S. is not so much with Russia today but with Europe and the Belle Époque before 1914: a system which is nominally democratic but where the concentration of wealth is so high and lacking proper rules about political finance, political influence, that the democratic system is not enabled to have a common-sense reaction to this excessive level of inequality that, in the long run, is not good for U.S. prosperity. Particularly because when other countries get more educated than the U.S., then its economic leadership will be gone forever. U.S. economic leadership came from mass education, not from a small elite of billionaires. They have never been the source of U.S. prosperity, and they will never be.

You know, I do find it hard to wrap my head around the idea that after 40 years of worsening inequality, you — the inequality guy, Mr. r>g — are publishing a book saying we’re on the right track historically. It’s sort of cold comfort to know we’re more equal today than we were 100 or 200 years ago. Really give me a reason to feel as optimistic as you do. 

 

“Give me a reason to be optimistic?” By looking at my historical evidence, by thinking about the big picture, I have become more optimistic. 

 Excerpts from the magazine special issue.

NYT Magazine. The Money Issue. 4/10/2022