Monday, April 21, 2014

Book review: Taking On Adam Smith (and Karl Marx)

Capital in the Twenty-First Century
by Thomas Piketty

Reviewed by  ST
By debunking the idea that “wealth raises all boats,” Mr. Piketty has thrown down a challenge to democratic governments to deal with an increasing gap between the rich and the poor 
PARIS — Thomas Piketty turned 18 in 1989, when the Berlin Wall fell, so he was spared the tortured, decades-long French intellectual debate about the virtues and vices of communism. Even more telling, he remembers, was a trip he took with a close friend to Romania in early 1990, after the collapse of the Soviet empire.

“This sort of vaccinated me for life against lazy, anticapitalist rhetoric, because when you see these empty shops, you see these people queuing for nothing in the street,” he said, “it became clear to me that we need private property and market institutions, not just for economic efficiency but for personal freedom.”

But his disenchantment with communism doesn’t mean that Mr. Piketty has turned his back on the intellectual heritage of Karl Marx, who sought to explain the “iron laws” of capitalism. Like Marx, he is fiercely critical of the economic and social inequalities that untrammeled capitalism produces — and, he concludes, will continue to worsen. “I belong to a generation that never had any temptation with the Communist Party; I was too young for that,” Mr. Piketty said, in a long interview in his small, airless office here at the Paris School of Economics. “So it’s easier in a way to reopen these big issues about capitalism and inequality with a fresh eye, because I was too young for that fight. I don’t have to justify myself as being pro-communist or pro-capitalist.”

In his new book “Capital in the Twenty-First Century” (Harvard University Press), Mr. Piketty, 42, has written a blockbuster, at least in the world of economics. His book punctures earlier assumptions about the benevolence of advanced capitalism and forecasts sharply increasing inequality of wealth in industrialized countries, with deep and deleterious impact on democratic values of justice and fairness.

Branko Milanovic, a former economist at the World Bank, called it “one of the watershed books in economic thinking.” Paul Krugman, winner of the Nobel in economic science and a columnist for The New York Times, wrote that it “will be the most important economics book of the year — and maybe of the decade.” Remarkably for a book on such a weighty topic, it has already entered The New York Times’s best-seller list.

“Capital in the Twenty-First Century,” with its title echoing Marx’s “Das Kapital,” is meant to be a return to the kind of economic history, of political economy, written by predecessors like Marx and Adam Smith. It is nothing less than a broad effort to understand Western societies and the economic rules that underpin them. And in the process, by debunking the idea that “wealth raises all boats,” Mr. Piketty has thrown down a challenge to democratic governments to deal with an increasing gap between the rich and the poor — the very theme of inequality that recently moved both Pope Francis and President Obama to warn of its consequences.

Mr. Piketty — pronounced pee-ket-ee — grew up in a political home, with left-wing parents who were part of the 1968 demonstrations that turned traditional France upside down. Later, they went off to the Aude, deep in southern France, to raise goats. His parents are not a topic he wants to discuss. More relevant and important, he said, are his generation’s “founding experiences”: the collapse of Communism, the economic degradation of Eastern Europe and the first Gulf War, in 1991.

Those events motivated him to try to understand a world where economic ideas had such bad consequences. As for the Gulf War, it showed him that “governments can do a lot in terms of redistribution of wealth when they want.” The rapid intervention to force Saddam Hussein to unhand Kuwait and its oil was a remarkable show of concerted political will, Mr. Piketty said. “If we are able to send one million troops to Kuwait in a few months to return the oil, presumably we can do something about tax havens.”.. read more:

See also: 
Books reviewed: Aseem Shrivastava - Twenty-first century capitalism

Thomas Piketty is economics’ biggest sensation & the field’s fiercest critic

The boldness of Piketty’s thesis is belied by its apparent simplicity: Inequality is intrinsic to capitalism, and, if not forcefully combatted, is likely to increase—to levels that threaten our democracy and fail to sustain economic growth. Karl Marx predicted much worse—runaway inequality leading ultimately to social collapse—and Piketty takes care to distinguish his view from Marx’s apocalypse. Even so, his thesis runs directly counter to mainstream economic theory, which holds that inequality should eventually decline, a process known as "convergence."

One ironical comment from the thread beneath the above link:
So, the rich get richer and the poor get poorer. Such insight is probably worth a Nobel Prize...

A Historical View of Economic Categories
NB: This essay on Marxist economic categories arose out of a lecture delivered in Hindu College in 1987, and was published in Mainstream, Vol XXVI No. 35 June 11, 1988