Paul Mason in The Guardian:
Piketty’s argument is that, in an economy where the rate of return on capital outstrips the rate of growth, inherited wealth will always grow faster than earned wealth. So the fact that rich kids can swan aimlessly from gap year to internship to a job at father’s bank/ministry/TV network – while the poor kids sweat into their barista uniforms – is not an accident: it is the system working normally.
If you get slow growth alongside better financial returns, then inherited wealth will, on average, “dominate wealth amassed from a lifetime’s labour by a wide margin”, says Piketty. Wealth will concentrate to levels incompatible with democracy, let alone social justice. Capitalism, in short, automatically creates levels of inequality that are unsustainable. The rising wealth of the 1% is neither a blip, nor rhetoric.
To understand why the mainstream finds this proposition so annoying, you have to understand that “distribution” – the polite name for inequality – was thought to be a closed subject. Simon Kuznets, the Belarussian émigré who became a major figure in American economics, used the available data to show that, while societies become more unequal in the first stages of industrialisation, inequality subsides as they achieve maturity. This “Kuznets Curve” had been accepted by most parts of the economics profession until Piketty and his collaborators produced the evidence that it is false.
Put crudely, if growth is high and the returns on capital can be suppressed, you can have a more equal capitalism. But, says Piketty, a repeat of the Keynesian era is unlikely: labour is too weak, technological innovation too slow, the global power of capital too great. In addition, the legitimacy of this unequal system is high: because it has found ways to spread the wealth down to the managerial class in a way the early 19th century did not.
If he is right, the implications for capitalism are utterly negative: we face a low-growth capitalism, combined with high levels of inequality and low levels of social mobility. If you are not born into wealth to start with, life, for even for the best educated, will be like Jane Eyre without Mr Rochester.
Is Piketty the new Karl Marx? Anybody who has read the latter will know he is not. Marx’s critique of capitalism was not about distribution but production: for Marx it was not rising inequality but a breakdown in the profit mechanism that drove the system towards its end. Where Marx saw social relationships – between labour and managers, factory owners and the landed aristocracy – Piketty sees only social categories: wealth and income. Marxist economics lives in a world where the inner tendencies of capitalism are belied by its surface experience. Piketty’s world is of concrete historical data only. So the charges of soft Marxism are completely misplaced.
Piketty has, more accurately, placed an unexploded bomb within mainstream, classical economics. If the underlying cause of the 2008 bank catastrophe was falling incomes alongside rising financial wealth then, says Piketty, these were no accident: no product of lax regulation or simple greed. The crisis is the product of the system working normally, and we should expect more.