Sunday 17 April 2022

Capital and Ideology by Thomas Piketty

 Pages: 1041  (including inline footnotes, excluding index)

Piketty became an international intellectual super-star back in 2014 after releasing Capital in the 21st CenturyCapital and Ideology (published in English in February 2020) is his followup book, intended to answer the question "What now? Can we do something about wealth inequality?"

I can summarize Piketty's answer fairly briefly.

There is nothing natural or inevitable about the level of income or wealth inequality that currently exists.  In fact, inequality was much lower across a broad range of societies in the period 1950-1980 AND economic growth was higher.  

There are proven policies that we could use to radically reduce inequality like steeply progressive income taxes, inheritance taxes, and wealth taxes. Coupled with transnational treaties and transnational governance designed to eliminate tax competition between nations, we could radically and quickly reduce inequality. It is desirable that we do so for reasons of innate economic justice, to build funding and support for critical initiatives like combatting climate change, and because extreme inequality is fostering zenophobia and division.

But Piketty is not brief.  In fact, Capital and Ideology is 1041 pages long. What's worse is that you could get the gist of his argument if you read the 47 pages of the introduction and the 75 pages of Chapter 17: Elements of a participatory socialism for the 21st Century.  

So why is Capital and Ideology so long?  

  • Piketty (or his translator) is wordy: several times I found myself taking a pencil and editing an entire long paragraph down to a sentence. 
  • The book is repetitious.  Given how long it is, the repetition can be helpful.  On the other hand, if the book were shorter it might not be as necessary.
  • Piketty took both the praise and the critiques of Capital in the 21st Century a bit too seriously: 
    • The quotations from Austen and Balzac in that book really enlivened his descriptions of the economies of 19th Century Britain and France. His attempts to find relevant literature to quote when describing the economies of every nation and every time period included in this book just seems laboured. 
    • Piketty was obviously critiqued for focusing too much on Western economies in Capital in the 21st Century, and he makes a real effort to discuss a wider range of nations in Capital and Ideology. Unfortunately, data for many of these countries is not as complete, which makes his efforts to be more inclusive sometime feel more like a 'tickbox' exercise than a true broadening of the discussion.
More importantly, obviously Piketty backs up each point that he makes with copious data and examples, and all of that takes words (and pages).

Should you read this book? Well, Piketty has much more to say my summary does, and some of his stories are fascinating: did you realize that the 19th Century Sweden was the most highly unequal country in Europe? Or that the ruinous and unsustainable level of reparations imposed on Germany after WWI amounted to approximately the same percentage of national income as the debt imposed on Haiti after their 18th Century slave revolt? (Haiti's debt was intended to reimburse slave owners for their losses. Haiti repaid that debt in full over the following 125 years.  Sickening, no?)  Or that France made an attempt to create a transnational governing body for it and its colonies as they gained  independence? (The attempt failed because France refused to share real power.) Or that the American Civil War cost about 1/3 of what it would have cost to compensate slave owners for the economic "loss" of freeing their enslaved workers? (and that no one seriously considered compensating the freed workers for the loss of the value of their years of labour, let alone the trauma of their enslavement?)

These stories are interesting, and sometimes enlightening.  Not to mention that none of what I've said so far even mentions Piketty's analysis of changes in voting patterns since the 1960s (Chapters 14-16) and the rise of 'nativism' in many countries (think Le Pen, Orban, Trump....).  These chapters are thought-provoking and could warrant an entire post of their own.

But sometimes a book makes an impact because it appears at just the right time to illuminate the world around it, and sometimes a book fails to make an impact because its timing is 100% wrong. 

I suspect that Capital and Ideology falls into this latter category.

Reading this book in 2022 reminded me how different the world feels today than it did in 2019, post-pandemic, post-Floyd George, post-Ukraine invasion, and as the climate crisis accelerates.  

If you want to learn more about Capital and Ideology, you can check out some of the professional reviews of the book, like this one from The Guardian.  You can also check out some of the notes I made after finishing it.

Notes on Capital and Ideology

Major points: 
  • Every inequality regime needs a rationale, an ideology that justifies why it exists, why it's fair.  Ours says that it's a "meritocracy" where the entrepreneurial and hard-working thrive. It is therefore much more "blamey" than, say, medieval society because in our society if you aren't successful, it's your own fault.  This argument is problematic for many reasons.  One is that access to education, particularly higher education, is highly unequal, and highly correlated to economic success.  
  • Our current inequality regime is not "natural" or "inevitable".  It evolved out of a particular set of historical circumstances, and can and has changed over time, sometimes radically and quickly.   Piketty illustrates this by describing a wide variety of historical circumstances ranging from Ancien Regime France through post-colonial India. For example, Britain financed the Napoleonic Wars by issuing interest-paying bonds. The money to pay the interest on these bonds was raised by levying  regressive taxes (like tariffs) on the entire population.  Over the next century, this amounted to a huge wealth transfer from lower and middle income tax payers to the wealthiest members of British society (who were bond-holders).  However, Britain paid for the First World War by introducing a progressive income tax and steep death duties, both of which primarily affected the wealthiest. The difference? The franchise was extended in the late 19th to early 20th Century to cover all adult males (and eventually females).
  • No form or conception of "property" or ownership is natural, inevitable, or universal. (see different conceptualization of property ownership in Ancien Regime, which included numerous obligations for land owners).  
  • No particular level or type of inequality is necessary to have a high growth economy: economies where the top decile takes 20% of all income and economies where the top decile takes 80-90% can both be economically successful (although levels of inequality that high generally only occur in slave societies)

What changes should we make?  

  • Reconceptualization of ownership as 'temporary' and only justified when it causes a social good.  ie/ 
    • Return to having high marginal tax rates on the highest incomes (rates reached 80-90% in the 1970s in Britain and the US), a steeply progressive inheritance tax on the largest fortunes, and a wealth tax.  Think of the wealth tax as an extended "property tax", that applies to all wealth and not just real estate.
  • Structural redistribution of societal wealth, funded by wealth tax.  That is, every young adult gets an equal allotment of capital at age 25 equal to perhaps 60% of average wealth in society (or 3.5 X annual income, or $150k in Canada).  Think of it as an early universal inheritance, that comes at a time of life when it can do people the most good.
  • Weaken the power of "ownership".  Make the involvement of workers in the governance of all firms compulsory, as it is in Germany and Sweden where workers get seats on corporate boards. Perhaps couple this measure with further limits on the number of corporate board votes per $ invested to limit the influence of the largest shareholders
  • Stop the 'race to the bottom' and inter-state tax competition.  Stop making treaties like NAFTA or CETA that focus on trade and freeing capital from international control, and start making pacts that focus on economic justice, enforcing financial transparency, and minimum taxation levels.
  • Create transnational unions with real teeth, where the transnational union focuses on enforcing consistent inheritance taxes, income taxes, corporate taxes, etc. between nations.


Analysis of changes in voting patterns across a wide range of societies:
  •  Piketty talks about how support for social democratic parties has collapsed amongst those in the lowest deciles of income beginning in the 1960s but particularly since 1980. Reason? social democratic parties had no answer to Reaganism/Thatcherism, and instead largely adopted the neo-con's destructive anti-tax and globalist agenda.   This has impoverished those in the bottom 50% of the income distribution. 
    • Political participation in this group has dropped dramatically overall.  
    • Because no one seems to be  representing their interests and because all political discourse focuses on how TINA to current economic policies, they turn to zenophobic and exclusionary parties and politics. Think of it from their perspective:  they are told that the pie has to be smaller, so there's a certain logic to their saying that we need to exclude immigrants to preserve what's left of the pie for them.  
    • support for social democratic parties scales with education: the most educated are the most likely to support social democratic parties.  This "Brahmin left" benefits from globalization and inclusionary policies, as economic success in a globalized economy is correlated with education.

 Random facts/points:
    • Since 1980s, top decile's share has risen to 55% while bottom 50% share has decreased to 15%.  Globalization has benefited richest (top 1% have taken 27% of all global growth), and poorest in poorest countries (bottom 50% globally got 12% of global growth).  Middle suffered.
    • the change in the 1980s led by Reagan/Thatcher to much lower taxes and to privatization was a mass transfer of public assets/wealth to private interests.  Comparable (though smaller) than the liquidation of the assets of the Soviet empire which enriched  Russian / Eastern European oligarchs/ kleptocrats.
    • on around page 600-630 Piketty includes an interesting discussion of how China is governed, and how it sees the West and its governance
    • p. 666: carbon emissions are as inequal as wealth.  Yellow vest movement in France shows you cannot reduce taxes on wealthy while imposing a carbon tax on everyone.  "there can be no effective carbon policy that ignores economic justice or people will rebel"
    • His discussion of slavery as an economic issue not a social issue felt kind of sickening, frankly, even though it's enlightening.  I suspect that in the future our current arguments that we can't act to stop climate change because we can't afford it will feel just as apocalyptically unjustifiable as the economic arguments made at the time against abolishing slavery. (There was a general feeling that slavery could not be abolished without fully compensating slave owners for their economic losses, which would have been a huge economic burden. To today's ears, the focus on compensating slave-owners, and the complete lack of consideration to compensating enslaved people for their enslavement is appalling.)