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A response to Thomas Piketty

By Thomas McKenna
web posted December 14, 2020

$28.04 is the price of French Economist Thomas Piketty’s bestselling book Capital in the Twenty-First Century. If you were to ask Mr. Piketty if he should be allowed to keep his profits, he would probably say yes. After all, his 685 pages of dense economic analysis came at a high price: many years of education, research, and writing. He should be allowed to reap the fruits of his labor, right? Don’t be so sure.

If we were to apply the theory that undergirds Mr. Piketty’s book to his own income, we would find that he must relinquish most of it. Mr. Piketty’s book is grounded in an ideology that values economic equality over economic freedom and rebukes capitalism as an immoral system. His chapter titled, “Rethinking the Progressive Income Tax,” lays it out for your lying eyes.

The title of Mr. Piketty’s book doesn’t scream “ideological manifesto”, nor does much of its text. Though his book mainly consists of quantitative analysis, his moral qualms with capitalism permeate his approach to economic inequality. Consider the meat and potatoes of his book: economic inequality is currently substantial and steadily growing. Should we care about inequality?

Regarding efficiency, it’s hard to argue against market incentives that have lifted millions out of poverty, even if they have created more inequality. Would Mr. Piketty rather live in South Sudan, where everyone is equally miserable? We should neither strive for inequality nor let a disdain for it thwart the economic growth that lifts the entire economy as a whole. As a moral question, a person who accumulates capital has not stolen it. Oftentimes, he has contributed to society in a major way and has been paid well for his efforts. Mr. Piketty’s arguments and proposals imply a socialist, even Marxist, philosophy towards the concentration of capital and distribution of wealth.

When he explores the differences and similarities between his philosophy and that of Karl Marx and the Soviet Union, he argues for the morality of socialism but is forced to reckon with the realities of it as well. With regard to the Soviet Union, he explains, “With zero return on capital, man (or the worker) finally threw off his chains along with the yoke of accumulated wealth.” Yet he acknowledges an inconvenient fact. “Unfortunately for the people caught up in these totalitarian experiments, the problem was that private property and the market economy do not serve solely to ensure the domination of capital over those who have nothing to sell but their labor power. They also play a useful role in coordinating the actions of millions of individuals.” Mr. Piketty twists an intellectual pretzel to argue that socialism is morally superior while acknowledging the undeniable success and necessity of free-market incentives. However, the fundamental philosophy of a free market is that we own our labor and the value it brings. If the government owns 50% of it, is it really mine anymore? Mr. Piketty should spare his readers the moral argument for socialism.

Additionally, his language is blatantly Marxist in nature, and the ideas of that philosopher run through this chapter. He offers a solution, saying, “a tax on capital would be a less violent and more efficient response to the eternal problem of private capital and its return. A progressive levy on individual wealth would reassert control over capitalism in the name of the general interest while relying on the forces of private property and competition.” Mr. Piketty would dispense with capitalism if it weren’t so effective.

What does he have in mind when he speaks of a “less violent and more efficient response”? Taxes, and lots of them. For appetizers, a 20% one-time wealth tax followed by a 10% annual wealth tax would be levied on the richest among us. What’s the main course? An 80% marginal tax rate on incomes higher than $500,000 or possibly a million--he can’t decide. Would these taxes fill the endless appetite of our governments? Certainly, not. This tax, “wouldn’t bring the government much in the way of revenue.” Instead, it would “distribute the fruits of growth more widely while imposing reasonable limits on economically useless (or even harmful) behavior.” To finish the three-course meal, he proposes a 50-60% marginal tax rate on incomes above $200,000 per year, because the additional revenue would help the government “to develop the meager US social state and invest more in health and education.” It seems he hopes the dessert, not the dinner, will provide the protein. We won’t be eating the steak platter. We’ll just need to get it off the chef’s hands because he had an immoral surplus of it when we sat down to eat.

It would be easy enough to dismiss these arguments as radical ideas consigned to the fringes of economic thought. However, Mr. Piketty’s book rose to the top of the charts on the Amazon and New York Times bestseller lists when it was published a mere six years ago. His ideas are echoed by politicians including Bernie Sanders and Jeremy Corbyn. The incoming Biden administration plans to raise 4 trillion dollars in revenue by raising taxes on “corporations and the wealthy.” Hidden amid quantitative analyses and policy proposals is a fundamental split from the free enterprise system that has propelled the modern world into a new age of prosperity. Mr. Piketty, Mr. Biden, and others wish to impose their own standards of economic morality through top-down government control.

If we wish to maintain the free enterprise system that has lifted millions from poverty and created the freest and most prosperous countries in world history, we must reject the arguments of Mr. Piketty. Will we forfeit the freedoms and the systems that have brought us to the comfort and security of our current lives? Let us pray we will not. ESR

Thomas McKenna is a high school student currently in AP Macroeconomics. This is his first contribution to Enter Stage Right. © Thomas McKenna.

     

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