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Thomas Piketty, Rock Star

Born 1971 in Clichy, Paris. Currently lecturing at the Paris School of Economics


 

This Year's Hot Property

Rarely has anyone burst onto the economic scene with quite as much fanfare and panache as the author of this year’s unlikely business bestseller, Capital in the Twenty First Century. Piketty’s scholarly tome topped the US charts in May 2014, despite weighing in at 577 pages and tackling a relatively obscure and badly-documented topic. Namely, the history of wealth distribution across developed-market economies, and its relationship to taxes and the business cycle.

But that’s the point. As even Piketty’s enemies concede, his singular achievement has been to collate a vast quantity of statistical and tax data, much of it supposedly incompatible, so as to generate what amounts to a vast database of information on the trends and timelines of wealth creation over the last 200 years. His findings tend to rest on empirical evidence rather than penetrating theory. But that, after all, is a valid scientific approach, as long as you call your findings a hypothesis, not a principle.

'If you have per capita growth performance of 1-2% over 30 years, and if two-thirds of growth is going to the top, that’s not a good deal for the middle class.'

Where Marx Went Wrong

Piketty makes no bones about his left-leaning politics, which have defined his career path to date. His political associations and his newspaper columns for Libération and his op-eds for Le Monde have left little room for doubt on that score.

But Piketty, the first head of the Paris School of Economics (2006), had always been puzzled by Karl Marx’s complete failure to anticipate the long survival of class divisions. According to Marx, capitalism was packed with internal contradictions that would soon set the proletariat against the rich, and the rich against each other. The puzzle, then, was that they did not in fact destroy each other, and that wealth inequality would continue to grow for centuries.

 

Wealth, More Wealth, and Taxes

Piketty’s new historical database appears to show that the widening wealth gap, and the general pattern of inequality, has grown consistently over the last 200 years except during those periods when graduated taxes were deliberately set so high as to hurt the rich. By no particular coincidence, those periods of growing wealth inequality have been when the rate of capital accumulation has grown faster than the underlying economy.

And conversely, differences in earnings tended to shrink during certain periods, such as the decades following the Second World War, when taxes on the wealthy were highly progressive. Piketty discusses the roles of estate taxes, income taxes and other factors – but, he says, the defining trend of the last two decades is that inequality of wealth distribution has been growing again.

How to fix it? Piketty proposes a new Wealth Tax to restore the balance. That’s gone down rather better in socialist France than it’s likely to in Britain or the USA. But Barack Obama’s advisers have consulted him, and he’s a celebrity on the international economics circuit. A Nobel economics prize would seem to be on the cards.

 

The FT Finds Fault

A major row erupted in May 2014, after the Financial Times identified what it claimed were faults in both Piketty’s number-crunching and his use of UK tax tables. The FT went so far as to claim that these failings, which Piketty admits, might invalidate his whole hypothesis about growing inequality since 1980. Piketty’s response has been, shall we say, ‘vigorous’?

 

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