That there Thomas Piketty – wossee on about?

Today’s post might send a few readers into a coma of utter boredom. But I’ll try to make it readable.

You may have heard about a ‘rockstar economist’ Frenchman Thomas Piketty whose new 700-page book “Capital in the Twenty-First Century” has become an unlikely international bestseller and he’s doing the rounds wining and dining with top politicians like Obama and losers like Ed Miliband. And you may be at a dinner party where someone asks, “I say, old chap, what do you think about the central thesis of Piketty’s work?” Or you may be down the pub and some big bloke comes up to you and says, “Oy, you! That there Piketty, is he a Marxist historical determinist or wot?” Or you may be walking down a dark street and be surrounded by a knife-wielding gang one of whose members threatens, “Gimme yer money innit or I’ll stab yer innit. I’s just doing yer distribution of wealth innit. Just like him wild man Piketty wrote innit.”

So here’s brief guide to Piketty’s work, then you won’t need to buy or read his dreadful pretentious and inaccurate book.

Piketty’s central thesis is that we’re moving into an era of low economic growth in  which ‘R’ (the returns on ‘capital’ – property, shares, bonds, cash or whatever) will be higher than ‘G’ (the overall growth rate). Thus the simple equation – ‘R>G’. This means that those with ‘capital’ will become ever richer – increasing inequality – while those without capital will be left behind. According to Piketty, this will have two serious consequences. Firstly there is a risk to democracy as the rich are able to ‘buy’ influence with politicians and bureaucrats pushing through policies that suit them. Secondly, R>G will reduce social mobility as the rich will get the best education and life chances for their children, while those without ‘capital’ will be unable to compete.

Piketty’s main solutions include more taxes on wealth, property, earnings, shares and anything else that rich people own in order to redistribute wealth to reduce rising inequality.

There are just a few problems with Piketty’s thesis:

1. He ignores the fact that in the last 20 years many hundreds of millions of people (in China, India, Indonesia and other countries) have been pulled out of poverty. In fact, the countries where inequality is highest (China and India) are precisely those where the most people have escaped from poverty

2. Most of those who have become wealthy in the last few decades are actually entrepreneurs who have amassed massive fortunes through their own skill, inventiveness and imagination. The Forbes or Sunday Times Rich List are full of people who have risen from almost nothing to vast wealth through their own efforts, not from their family’s ‘capital’. Social mobility may actually now be higher than it ever was in the past, particularly as now you don’t need to build factories or own estates to become wealthy, as people did in the 19th century. All you need is a good idea and a lot of energy and luck

3. While demanding that governments grab ever more from those with ‘capital’, it doesn’t really occur to Piketty that perhaps the problem is that governments have become huge, bloated, inefficient, self-serving, greedy obscenities and that rather than stealing more from taxpayers, politicians should be cutting down on their own spending

4. The rich can always avoid taxes. So, were governments to implement Piketty’s ‘brilliant’ ideas, the rich would just change their behaviour to avoid paying most of Piketty’s new taxes.

However, Piketty is right on at least two issues:

1. The rich have ‘bought’ government. We see this most clearly in the bank bailouts – hundreds of billions of taxpayers’ money was showered on bankrupt banks without any requirement for reform, salary and bonus control or changes in behaviour. And we see this in no government making any effort to tax huge international companies like Amazon, Google, Starbucks, Apple etc because they’ve bought the politicians and bureaucrats

2. The new managerial classes have perverted capitalism in order to enrich themselves. For example, in the last 15 years the real value of Britain’s top 100 companies has fallen by about 25%, but the average remuneration of their executives has shot up from around £1.1m in 1999 to over £4m today.

Piketty’s basic assumption that inequality is necessarily negative for society is questionable. But as I describe in my book GREED UNLIMITED (available as an ebook from Amazon for only £1.99) his view that we are now in an era of crony capitalism where the elite are siphoning off the benefits for themselves while buying political power and squeezing the rest of us are absolutely correct.

Piketty’s book will, like Stephen Hawking’s A Brief History of Time, probably become one of the most bought, least read books of all time. And yes, I am envious. My books GREED UNLIMITED and DON’T BUY IT! are probably a lot more useful than Piketty’s pseudo-philosophical leftist ramblings – and a lot shorter and more readable.