As with physicist Stephen Hawking’s “A Brief History of Time,” economist Thomas Piketty’s 700-page “Capital in the Twenty-First Century” is a bestseller destined to have a steep purchased-to-read ratio. For many on the left, it will be enough to simply know that Piketty’s grand theory of capitalism affirms their preexisting worldview: capitalism drives inequality ever-higher, superrich CEOs don’t deserve their fat paychecks, massive taxes on income and wealth are necessary to avoid an inegalitarian death spiral. For many on the right, it will be enough to simply know that Piketty is a French inequality researcher who teaches at the Paris School of Economics. Let the eye-rolling commence.
But Piketty is a first-rate scholar whose magnum opus is well worth reading, whatever your ideological inclination. His thesis is straightforward. At its center are observations and forecasts about the return on capital, economic growth, and the relationship between the two. Some economists, such as Paul Krugman and Martin Wolf, think Piketty’s probably got the story right. Others, including AEI’s Kevin Hassett, Tyler Cowen, and Joshua Hendrickson, take the other side of the trade.
Yet even if Piketty is wrong, there is reason to believe technology and globalization might sharply increase immobility, as well as boost income and wealth inequality–and lead to long-term wage stagnation for the vast majority of workers. The good news here is that many of the most realistic responses — even Piketty thinks his own end-game policy agenda is utopian — are intrinsically good ones. Since slow economic growth worsens inequality, we should want to pursue policies that might boost birthrates (tax relief for parents) and innovation (remove regulatory barriers to entry).
Indeed, Piketty has said as much. If capital ownership is becoming too concentrated, then we should try to broaden it (universal savings accounts) and turn more workers into owners. Cowen highlights “deregulating urban development and loosening zoning laws, which would encourage more housing construction and make it easier and cheaper to live in cities such as San Francisco and, yes, Paris.” And, of course, both primary and secondary education need a strong dose of disruptive innovation to meet the changing needs of students and workers.
If policymakers start giving such ideas greater thought, then Piketty’s book, right or wrong, will have performed an immensely valuable service.