Piketty and the Austerity of Imagination

Thomas Piketty’s recent book Capital in the Twenty First Century has gotten rave reviews and has been proclaimed by many liberal and progressive pundits and scholars as the best thing since Marx.  Piketty’s central claim is that the return on capital (investments, real estate, rents) will always exceed the return on labor unless some extraordinary shock occurs, like a world war or depression.   In laymen terms, this means that rich people who can inherit and invest their wealth will always make more than everyone else who has to earn their money through labor. The solution Piketty proposes to this inevitable growth in inequality is a global wealth tax, which he himself says is utopian and unlikely.

So why is this book so popular with liberals?  One possible reason is that it displays moral indignity in the face of wealth inequality, but it does not ask any of us to change or do anything.  It also gives the reader a strong sense of historical knowledge of the global economy, but this understanding is plagued by several glaring blind spots.  As Thomas Frank has pointed out, in a book on labor and capital that goes on for close to 700 pages, the role of unions is barely mentioned.  Moreover, the incredible destructive nature of the 2008 global financial meltdown is also ignored, and most of his statistics only focus on a small number of countries, and this is due to his reliance on a narrow set of tax data.  In short, Piketty is blinded by his own limited source of information and his own ideology.  Although he looks like a Occupy Wall Street proponent, he really is locked into a moderate austerity mindset.

Since he believes that the only thing that can cause income from labor to exceed wealth from investments and inheritance is a war or massive depression, he promotes the logic of austerity: we will never have strong economic growth, so all we can do is try to tax the wealthy and reduce social benefits like pensions.  If this austerity logic sounds familiar, it is what is driving the thinking of the White House and the State House.

What is missing from this austerity of imagination is any hope that we could expand economic growth by increasing the wages of working people.  While Piketty justifies the Federal Reserve lending trillions of dollars to banks and corporations to stabilize their books, he does not even ponder how some of this money could have been used to refinance mortgages or student debt.  Like Piketty, the Fed does not think that the government can do anything to spur economic growth and job creation, and so the only alternative is to feed money to the investment class who have decided that we no longer need consumers or workers since businesses and banks can make money by just buying back their own stocks from cheap government loans. 

What we need are policies that help to create better high paying jobs so we can increase consumer demand and create even more economic growth.  However, companies have found that they can increase their profits, stock valuation, and executive compensation by reducing labor costs, and this is done in part by hiring people part-time with low wages and no benefits.  Since most workers do not have any bargaining power and do not belong to unions, there is a global race to the bottom as everyone loses ground to inflation except for a small number of managers and investors.