Thomas Piketty and the politics of inequality

Reasonable people differ on the amount of economic inequality that is tolerable.  But I think almost anyone would set some upper limit.

In today’s USA, a single individual, Bill Gates, is wealthy enough to buy the city of Boston for the assessed value of its property.  The size of Jeff Bezos’ wealth is almost unimaginable.

Meanwhile four in 10 Americans lack enough cash on hand to meet an unexpected $400 expense without going into debt.

Why is this acceptable?  I’ll describe the ideas of the great French economist Thomas Piketty in his new book, Capital and Ideology.  Then I’ll discuss some of the things Piketty left out.

Piketty said the fall of Communism in the Soviet bloc and China discredited egalitarianism and validated the market economy.  Leaders of Western capitalist countries felt they were in a position to tell the working class that there is no alternative.

Even before that, the economic stagnation of the late 1970s discredited the welfare state.  The USA had both high unemployment and high inflation, which was considered theoretically impossible.  One diagnosis was that the welfare state had reached its limit, that it was in a state of deadlock because of the inability to satisfy all claimants.  This had been predicted by Friedrich Hayek in The Road to Serfdom.  He said that only a fascist dictator would be able to break the deadlock.

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Ronald Reagan and Margaret Thatcher presented a different answer.  Dial back to welfare state, cut upper-bracket tax rates and allow rich people and corporations to accumulate wealth.  They will invest that wealth and the workings of the free market will assure that this works for the benefit of all.

As Piketty pointed out, none of this worked out as promised.  Cuts in marginal tax rates did not result in job creation, economic growth or anything else that was promised.

So why do Reaganism and Thatcherism still prevail?

One reason is that the historic left-wing parties abandoned the working class.  The Democrats in the USA, the Labour Party in Britain and the French socialists came to represent an educated elite rather than laborers and wage-earners.

Politics in these countries has come to be a conflict of elites, between what Piketty called the Merchant Right and the Brahmin Left.  It is like the conflict between the nobility and the clergy in the European Middle Ages and the conflict between landowners and business owners in 19th century Britain.

In the USA, many progressives see today’s politics as a conflict between the plutocracy, whose power is based on wealth, and the professional-managerial class, whose power is based on their academic credentials and their positions in organizations.  Wage-earners are not represented.  Piketty showed that the same conflict exists in other countries.

Historically, the Democrats, the Labour Party and the French left-wing parties represented working classes who lacked both high incomes and higher education.  Gradually, perhaps because of the extension of educational opportunities to all, the left-wing parties came to represent the highly educated.  At the same time, the Democrats became more acceptable to the affluent.  This left lower-income voters without a political home.

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The Brahmin Left has shifted from representing the interests of wage-earners as a class to defending the interests of minorities—African-Americans in the United States, Muslims and immigrants in Britain and France.

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This has produced a backlash, which resulted in, among other things, the election of Donald Trump, the British vote to exit the European Union and a strong anti-immigration movement throughout the Western world.

Today’s voters, according to Piketty, are divided in two ways—whether they are pro-rich or pro-poor and whether they are universalists or nationalists.  He calls these factions Market Federalists, Social Federalists, Market Nativists and Social Nativists.  Among the four, the two Nativist factions are predominant in France.

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Piketty would like everyone to be a Social Federalist, but in many parts of the world, that faction scarcely exists.  You can be a Market Federalist, who favors globalization, immigration and minority rights, but cares nothing about inequality or the rights of labor, or you can be a Social Nativist, who opposes international finance but only cares about the dominant ethnic group.

The problem with being a Nativist of any kind is that, if your basis of unity is race or ethnicity or language or culture, you have to support all the members of the in-group, including the rich, against all the members of the out-group, including the poor.  Your egalitarianism, even if it is genuine, has narrow limits.

But there are problems with being a Social Federalist.  There aren’t any international organizations that are subject to democratic control.  Part of the struggle against inequality is bringing power back to the national and local level, where the authorities can be held accountable.  Think globally, but act locally (or nationally),

Piketty’s insights are true and important.  But there are political obstacles to the campaign for equality he didn’t write about, and I will get to them in my next post.

LINKS

Piketty’s new book explores how economic inequality is perpetuated, an interview of Piketty for the Harvard Gazette.

Thomas Piketty: Confronting Our Long History of Massive Inequality, an interview for The Nation.

Tell me who you vote for and I will tell you who you are, by Nuno Sousa for Rostra Economica.

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