In a 2008 interview with Jim Lehrer shortly after becoming a Nobel laureate, economist Paul Krugman sheepishly revealed that he first became interested in economics because of his childhood love of science fiction. And no, it was not, as some might say, because economics is science fiction, but rather because studying it seemed to the young Krugman to be the closest he could come to practicing psychohistory—an imaginary social science developed by the mathematician Hari Seldon in Isaac Asimov’s science-fiction series Foundation.
Psychohistory in Foundation is essentially an advanced form of what today goes by the name of “big-data analy-tics.” Armed with ultra-sophisticated mathematical models, Seldon is able to predict the exact timing of a societal collapse and develop a plan to limit the fallout. The prediction must remain secret, however; otherwise it will trigger a chain of events that will make the calamity even worse.
The soothsaying abilities of present-day economists remain far more limited than those of the godlike Seldon (see Recession, The Great), but self-fulfilling and self-defeating prophecies involving the economy are quite real. If forecasts of looming inflation convince the Federal Reserve to preemptively raise interest rates, they may in fact ensure that inflation never materializes. The act of making a prediction about the trajectory of the economy can itself shape the future.
Heather Boushey of the Washington Center for Economic Growth, J. Bradford DeLong of the University of California, Berkeley, and Marshall Steinbaum of the Roosevelt Institute contemplate this very paradox in their introduction to After Piketty: The Agenda for Economics and Inequality, an edited volume containing twenty-one “arguments, critiques, extensions, and explorations” written in response to French economist Thomas Piketty’s 2013 work on the history and future of inequality in the West, Capital in the Twenty-First Century. To understand what they find puzzling, it helps to first understand what it is that Piketty sets out to show.
Krugman explains in “Why We’re in a New Gilded Age” (Chapter 3) that Piketty’s thesis is “all about r versus g—the rate of return on capital versus the rate of economic growth,” where “capital” refers not only to financial capital but to productive assets of any kind, such as industrial plants or equipment. Capital argues that for most of history the rate of return on capital (r) has been greater than the rate of growth (g), and that this pattern is so consistent that it is virtually a fundamental law of capitalism. In addition, whenever the difference between r and g becomes greater the result is that a larger share of the national income accrues to the owners of capital. Piketty maintains that g is currently declining because of reduced population growth and slowing technological progress, but that r is declining more slowly and that the gap between the two rates is therefore growing. This portends a future of worsening inequality, in which inheritance rather than work becomes the main path to amassing wealth.
Piketty claims that the major exceptions to the historical norm of r > g were the result of cataclysmic events like the Second World War, when wartime taxation and widespread destruction of factories and machines reduced capital’s income share across the industrialized world. The editors write that Piketty’s Capital “portrays the forces favoring the formation of a dominant plutocracy as being so strong that they can be countered only by world wars and global revolutions—and even then, the correction is only temporary.”
In an essay titled “The Piketty Phenomenon” (Chapter 1), Capital’s English-language translator, Arthur Goldhammer, ponders how “a work by an academic economist comprising nearly 700 pages dense with statistical tables and graphs” could become the fastest-selling book in the history of Harvard University Press, and its author “the ‘rock star’ of a profession more commonly regarded as a ‘dismal science.’” He attributes the book’s stunning success and the “readiness of so many to wade into the unfamiliar waters of economic history” at least in part to widespread public anger at the injustices of the post-recession recovery, when “the portfolios of the wealthy recovered quickly, whereas people who lost their homes lost them for good.”
It is here that the editors spot a “contradiction” in the book’s “dual nature as work of scholarship and global intellectual phenomenon.” On the one hand, Capital contends that increasing inequality is the result of fundamental laws of capitalism. But in speaking before standing-room-only crowds at universities and high-level forums like the UN and IMF about possible policy remedies, “Piketty himself as a celebrity public intellectual is not behaving like a passive chronicler of unavoidable destiny. He is acting as if he believes that the forces he describes in his book can be resisted—that we collectively make our own destiny.”
The essays in After Piketty are impressively diverse, not only in their subject matter but also in the way they relate to Piketty’s original text. Several launch straightforward critiques of his work—both of what he has done and what he has failed to do—while others present complementary ideas that aim to enrich his arguments. Daina Ramey Berry (Chapter 6, “The Ubiquitous Nature of Slave Capital”) laments that Piketty did not say more about the institution of slavery, a form of “literal human capital,” and its role in wealth accumulation up through the nineteenth century. Laura Tyson and Michael Spence (Chapter 8, “Exploring the Effects of Technology and Wealth Inequality”) show how technological change has also been an important driver of income inequality, and how advances in automation could weaken the link between income and work to such an extent that policies like a universal basic income become necessary.
The contributors also span a wide spectrum of ideological orientations. Some, such as Eric Nielsen, operate from squarely within the mainstream neoclassical tradition in economics. In “Human Capital and Wealth before and after Capital in the Twenty-First Century” (Chapter 7), Nielsen criticizes Piketty’s neglect of “human capital” (of the non-literal kind) and somewhat unconvincingly suggests that education, rather than Piketty’s own “contentious and divisive policy program” of global wealth taxation, is the surest path to reducing inequality. Piketty’s proposed wealth tax is not without its problems, including the inherent difficulty in coordinating international agreements and monitoring tax havens, but education alone will not reverse our slide toward oligarchy.
Others offer more heterodox perspectives that draw on feminist theory or Marxist analysis. Heather Boushey’s “Feminist Interpretation of Patrimonial Capitalism” (Chapter 15) comments on the virtual absence of gender from Piketty’s narrative and considers how social norms surrounding marriage, childrearing, and inheritance can affect the intergenerational propagation of inequality. She highlights evidence that women, while “just as likely as men to inherit wealth from their parents,” are less likely to inherit a family business, and that parents are twice as likely to ask Google, “Is my son gifted?” as they are to ask, “Is my daughter gifted?”
Suresh Naidu (Chapter 5, “A Political Economy Take on W/Y”) posits a tension in Capital between a “Domesticated Piketty” who works with standard economic models that are “institution-and-politics free” and a “Wild Piketty” who sees capital as “the alchemy of today’s income transmuted into secure claims on future income.” Wealth, in this latter view, is not simply money saved from past income but a collection of rights to future income that are shaped by politics and power. If, for instance, intellectual-property protections are strengthened, the holders of patents or copyrights will find that what they own—namely, the right to a stream of revenue—has been rendered more valuable.
The sheer variety of approaches in this volume would pose a challenge for any attempt at editorial curation. Boushey, DeLong, and Steinbaum have chosen to arrange the chapters in four sections, with a fifth and final section devoted to a response from Piketty himself. The first section (“Reception”) contains the essay by Goldhammer and previously published reviews of Capital by Robert Solow and Krugman. All of these are supremely useful as introductions to the book and its academic and cultural significance. The ordering of the chapters in the subsequent triptych (“Conceptions of Capital,” “Dimensions of Inequality,” and “The Political Economy of Capital and Capitalism”) seems fairly random.
An alternative would have been to group chapters according to their level of technical detail. Most of After Piketty is accessible to the general reader, but anyone who has done more practical things than take graduate-level courses in economic theory will almost certainly find parts of the book to be a slog. For example, “Macro Models of Wealth Inequality” (Chapter 14), with its discussions of “logarithmic preferences” and “nonhomothetic bequest motives,” will be of interest only to specialists.
The math-phobic may be more interested in the chapters that offer broader philosophical or epistemological perspectives on Piketty’s project. David Singh Grewal, in the “The Legal Constitution of Capitalism” (Chapter 19), critiques the way in which Piketty treats r > g as a law of nature akin to gravity. Instead, he tries to “historicize the laws of capitalism understood as laws” by tracing the development of modern theories of property and contract and showing how these often “work to entrench the privileged place of capital.”
Although the competition is fierce, the most fascinating chapter is the final one, Elisabeth Jacobs’ “Everywhere and Nowhere: Politics in Capital in the Twenty-First Century” (Chapter 21). Jacobs circles back to the paradox highlighted at the outset by asking, “How can we have both fundamental laws of economics and historically contingent, institutionally bound processes that shape the relationship between the distribution of economic gains and the pace of economic growth?” She finds fault with Piketty’s discussions of proposals like international wealth taxation for their depiction of policy intervention as something that comes from outside the economic system rather than from actors and institutions that live within it. Capital, she says, fails to attend to the “mechanisms through which inequality might erode the promise of democratic governance.” The diminution of the voice of working people as wealthy donors and high-paid corporate lobbyists come to drive the agenda and write the legislation is but one example of “feedback loops” between economic and political inequality. Jacobs maintains that “promising economic policy ideas such as Piketty’s utopian vision of a global wealth tax are likely to remain a fantasy” unless coupled with a sustained effort to “build countervailing political power.”
Paul Krugman realized early on that he could never be Hari Seldon, but it sometimes seems as if he and many other economists have not entirely given up on the dream. The premise of psychohistory lives on in the technocratic conceit that economic policy can be formulated and implemented by an elite group of experts with minimal input from the masses. In Chapter 3, Krugman writes that it’s “easy to be cynical” about the prospect of meaningful action against the problem of inequality. “But surely Piketty’s masterly diagnosis of where we are and where we’re heading makes such a thing considerably more likely,” he continues, for Piketty “has transformed our economic discourse; we’ll never talk about wealth and inequality the same way we used to.”
Yet transforming the “economic discourse” will not by itself transform the world. It is not enough to have white papers or bullet points on a campaign website if you cannot amass the political power needed to implement your agenda and defend it once implemented. To do that, you have to organize people around a concrete vision of how your policies will improve their lives. Inequality will persist as long as we assume that the technocrats will eventually fix it for us. “We collectively make our own destiny,” say the editors of After Piketty, “even if the circumstances under which we make it are not those of our choosing.” A more egalitarian future is possible, but only if we build it for ourselves.
After Piketty: The Agenda for Economics and Inequality
Edited by Heather Boushey, J. Bradford DeLong, and Marshall Steinbaum
Harvard University Press, $35, 688 pp.
