The most important book of our generation, explained
The term must-read has lost most of its urgency—if indeed it had much to begin with. When you see it in a review, you assume it simply means the reviewer enjoyed the book, or that everybody else will be reading it and therefore you must, too. And Thomas Piketty’s Capital in the Twenty-First Century is a must-read in that sense: It’s at the top of the bestseller lists, and everyone with an interest in politics or policy or economics is at least pretending to read it right now. But it’s a must-read in another, deeper, truer sense: If you want to understand the world, if you want to comprehend the mechanics of the forces shaping our time, if you want to know the political choices we face, you must read it. I cannot think of a more important book published in my lifetime.
Economists have already, in their own quiet way, gone batshit crazy for this book. It is the kind of game-changing text that revolutionizes whole academic fields. At a recent economics conference in Toronto every single session contained at least one reference to Piketty. The Economist has devoted a discussion group to the book. Paul Krugman, in his review for The New York Review of Books, offered a trained economist’s take on it that could not have been more complimentary.
I’m not an economist, but then, I think Capital in the Twenty-First Century will change much more than an academic discipline. It will change how we feel about the personal and political choices of our lives. At the core of the book is a simple formula derived from one of the largest data sets ever compiled—two hundred years of income and wealth data from more than twenty countries—distilled into a single graph:
In the broadest terms, what this graph means is that, except for a brief period between the first World War and the 1970s, the rate of return on investments has tended to be greater than the rate of economic growth. The consequences of this insight are enormous. It means that the great period of the growing middle class, the golden age of prosperity for all, amounts to a historical blip. Piketty’s book ends the idea that a rising tide lifts all boats. It ends the magical thinking about capitalism that has consumed our political life since the 1980s, the idea that open markets and growth solve all problems. Even more radically, this graph means that capitalism and democracy do not necessarily complement each other, as we have assumed for a century. As the return on capital overwhelms the income that can be earned, money will overwhelm speech. Citizens United was just the first crack.
Capitalism, untrammeled, produces more and more intense forms of inequality. Piketty calls this “the internal contradiction of capitalism,” which sounds a lot like Karl Marx. Piketty doesn’t deny the connection, although by no means could he be considered a Marxist. Like everyone who lived through the fall of the Berlin Wall, Piketty is under no illusions about the virtues of communism—there are none. No possible regime of inequality under capitalism would be worse than totalitarian state control.
But here we come to the book’s most significant weakness: what to do about it all. The brief window of narrowing inequality was marked by mass destruction—by two world wars and the Great Depression. Hopefully, we won’t have to live through those nightmares again to achieve some degree of egalitarianism. Raising income taxes is at best a limited option, for the simple reason that taxes in advanced economies now range between 35 and 50 percent of national income. Raising that number to even, say, the ludicrously high level of 75 percent would not be that big of a jolt.
Piketty’s big proposal is a global tax on wealth, much like property tax but on industrial capital and other investments. (The tax would have to be global to prevent capital from fleeing to other, less regulated jurisdictions, as it does now.) Piketty himself describes this idea as “utopian.” It presupposes, first of all, that the mechanics of markets will adopt near-complete transparency. Even more unlikely, he imagines the people of the world allowing an international government to tax their savings and investments. Frankly, the chapter of solutions to global capitalism shouldn’t have appeared here. Piketty should have saved those proposals for a second book. Because we need solutions. And none are apparent.
Like Das Kapital, Piketty book is better as pure diagnosis. It reveals, beyond any doubt, using all intellectual resources available, the internal contradictions of capitalism. If I were a Republican policy-maker, if I were the Koch brothers, if I worked for Goldman Sachs, Capital in the Twenty-First Century would frighten me more than anything that happened at Occupy Wall Street. Occupy was a mess of old-fashioned ideologies infused with inchoate rage, and it produced no clear vision and no clear goals. Piketty’s book is much more radical. Never again will the idea fly that all we must do as a society is permit the flow of capital and leave entrepreneurs alone and everything else will take care of itself. Society requires collective decisions about how and why resources are produced and consumed.
The huge fortunes that have been amassed in the past couple decades are neither an accidental by-product of an otherwise wonderful system nor a benign force. Capital in the Twenty-First Century takes nearly seven hundred pages to say: “I call bullshit.” And now bullshit has been called. So, what’s next?