Conservatives have flocked to their think tanks for ideas about how to discredit Thomas Piketty's blockbuster book, "Capital in the Twenty-First Century." For good reason. It confirms the history they would like us to forget and that they shamelessly revised. In 685 pages, it has documented verifiable economic facts.
Piketty's main point is that wealth disparity inevitably grows when the income from capital investments exceeds the income from work and a nation's productivity growth. As wealthy family dynasties become richer and more powerful, their money increasingly takes a larger share of a society's resources and productivity. High progressive taxes, especially on corporations and the wealthy, reduce this disparity, and helps fund programs that reduce the initial maldistribution of wealth.
Stephen Moore, chief economist at the conservative Heritage Foundation, wrote that Piketty's book was "…based purely on class warfare and envy." Incredibly, Washington Post's Michael Gerson admitted, in his words, "If income inequality is the main economic problem, it could be solved tomorrow, through confiscation and redistribution." In other words, Piketty's progressive taxes would do the job. Gerson claimed that working-class childrens' lack of social development, not inadequate taxation, was the real cause of wealth and income disparity.
Most conservatives simply say Piketty's book is a criticism of America's cherished economic system, capitalism. Not true. He wrote "I have no interest in denouncing inequality or capitalism per se — especially when social inequalities are not in themselves a problem as long as they are justified… I am interested in contributing, however modestly, to the debate about the best way to organize society and the most appropriate institutions and policies to achieve a just social order." (p. 31)
His book is about the roles of work and inherited capital in creating wealth in any kind of political/economic system. It covers three centuries and 20 countries, from the aristocracies of Europe, to investors and workers in the U.S. As a matter of fact, he cited the U.S. as being unique in history. For the first time, it successfully prevented the degenerating effects that inherited and excessive individual wealth have on an economy that claims to be a meritocracy. We were able to do it because of, in Piketty's words, "an American invention": high progressive taxes on incomes and inheritances from the 1930s to1980. (p.505)
It's easy to see why families whose incomes come from capital inevitably outpace those whose incomes come from work. Income from labor consists of wages, salaries, bonuses, and earnings from labor related activities. This kind of income is limited to current output, and stops when work ceases. On the other hand, income from capital includes rent, dividends, interest, profits, capital gains, royalties, and "other income derived from the mere fact of owning capital in the form of land, real estate, financial instruments, industrial equipment, etc." This kind of income builds on itself, can be passively managed, and is magnified greatly when transferred to descendants.
To some extent, Piketty's book is old news. Noted historians Will and Ariel Durant made quite similar conclusions. In their 1968 book, "Lessons of History," the Durants concluded that bankers — the ones who control money — always rise to the top of the economic pyramid. And free market capitalism, if government doesn't take steps to stop it, always results in a growing disparity between rich and poor. They cited Roosevelt's New Deal as an example of how government significantly reduced the disparity with liberal economic and social policies.
Sounds like economist Piketty and the respected historians — not conservative think tanks — tell it like it is.
Chuck Kelly is a retired consultant living in Burnsville and is author of The Destructive Achiever; power and ethics in the American corporation and Farewell Fantasyland; time for political and economic reality. Reach him at email@example.com.