I’ve not read the book. Yet. But I’ve enjoyed reading the reviews of Thomas Piketty’s controversial, celebrated, and widely cited book on income inequality, capital and labor. Here are a few for you.
Though Piketty is an economist, his book is essentially a work of political science. He objects to extreme economic inequality because it offends democracy: Too much power is conferred on too few. His economic analysis sometimes seems skewed to fit his political agenda.
Piketty’s analysis of the advantages of increasing the minimum wage neglects negative employment effects on low-skill individuals. He states that increasing the minimum wage lowers inequality at the bottom of the income distribution by raising the pay of low-income individuals.
That is partly correct. Measured inequality declines because the difference between the lowest wage in the economy and the average wage is reduced, even if some of the low-wage workers lose their jobs because they are no longer employable.
Tyler Cowen in Foreign Affairs (Highly recommended.)
The final chapters of the book, which contain Piketty’s policy recommendations, are more ideological than analytic. In these sections, Piketty’s preconceptions lead to some untenable conclusions. His main proposal is a comprehensive international agreement to establish a progressive tax on individual wealth, defined to include every kind of asset….He hedges a bit on the precise numbers but suggests that wealth below 200,000 euros be taxed at a rate of 0.1 percent, wealth between 200,000 and one million euros at 0.5 percent, wealth between one million and five million euros at 1.0 percent, and wealth above five million euros at 2.0 percent.
Although he recognizes the obvious political infeasibility of such a plan, Piketty has nothing to say about the practical difficulties, distorting effects, and potential for abuse that would inevitably accompany such intense government control of the economy.
Piketty’s book is less interested in economic efficiency than in social justice. “Building a just society,” he writes, “is the purpose of democracy.” For Piketty, “just” is the equivalent of “egalitarian.” He doesn’t explain why this should be so, though his equation of the two surely explains why Capital in the Twenty-First Century has political appeal among American academics, the media, and liberal politicians on both sides of the Atlantic—from President Obama to French president François Hollande.
In “Capital in the Twenty-First Century,” the Thomas Piketty book so adulated by liberals, the French economist argues that capitalism is innately flawed by a rich-get-richer, everybody-else-stagnates dynamic that has stayed hidden for the past half century by serendipitous factors. Somewhat disconsolately for his story, though, the U.S. has exhibited the wrong kind of income inequality, caused not by rising inheritances of the idle rich but soaring “labor earnings” of the managerial class, which he attributes to self-dealing by executives and boards.
As Cowen writes, “It’s a very important book,” regardless of whether you agree with his policy prescriptions.