White House honors French neo-Marxist

Thomas Piketty may not be a household name in this country (yet), but the French economist who is updating Karl Marx has quite a following at the White House and among thought leaders of the Democratic Party.  Thomas Hubert of France24 explains:

In his latest book, French economist Thomas Piketty warns that modern-day capitalism leads to unsustainable levels of inequality. While he is often linked to France's Socialist Party, his writings have made him unusually popular in the US.

Thomas Piketty’s “Capital in the Twenty-First Century” has only just been translated into English – several weeks ahead of schedule, due to popular demand – and the New York Times’s star columnist Paul Krugman has already described it as “the most important economics book of the year — and maybe of the decade”.

The French economist’s current US book tour is turning into something of a red carpet event. So far this week, he has met the White House’s Council of Economic Advisors as well as Treasury Secretary Jacob Lew.

“The Democratic Party, especially the Obama administration, has been in contact with us and using our findings for a long time,” Piketty told AFP in Washington.

And what are his “findings”? Pretty much an update of Karl Marx’s failed prediction that capitalists would appropriate an increasing share of “labor surplus” and make the lot of the proletariat worse and worse, leading to revolution.

In “Capital in the Twenty-First Century”, Piketty warns that free-market economies will see ever growing concentration of wealth in the hands of those who already hold capital.

“When the rate of return on capital exceeds the rate of growth of output and income, as it did in the nineteenth century and seems quite likely to do again in the twenty-first, capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based,” he wrote.

The Paris School of Economics scholar argues that in the long run, earnings from possessions such as property and financial assets grow faster than the rest of the economy – especially workers’ wages. This, he warns, leads to deepening inequalities with serious social consequences.

The belief among free-market economists that capitalism will regulate itself and lift the general population towards higher incomes is flawed, according to Piketty, because it is based on observations made during the 20th century, a war-ridden age unlike any other.

Peace brings inequality

“The sharp reduction in income inequality that we observe in almost all the rich countries between 1914 and 1945 was due above all to the world wars and the violent economic and political shocks they entailed (especially for people with large fortunes)”, he wrote. But in peaceful times, the rich will get richer and the poor will get poorer.

Although Piketty claims a 20 year history of researching the subject and an “unprecedented” set of “data covering three centuries and more than twenty countries,” even lefty American economists see some holes:

University of Texas economist James K. Galbraith regrets that the “meticulous examination of the facts” in the French scholar's book “does not provide a very sound guide to policy”.

Even the appreciative Krugman acknowledges that Piketty’s theory does not account for the recent spectacular rise in the income of managers such as the CEOs of multinational companies, which is not derived from their existing wealth.

One suspects the respectful greeting Piketty is receiving is because the White House crowd wants to believe free markets are bad and must be thwarted in the name of justice. And, of course, who better to dole out “justice” than the very mandarins inhabiting the West Wing and Oval Office?

Hat tip: Ed Lasky