Thomas Piketty’s new book Capital in the Twenty-First Century is all the rage right now. You know the gist: Piketty thinks capitalism has an inherent tendency to ever-increasing inequality. Indeed, he thinks capitalism leads to terrifying, destabilizing (his terms) inequality.
Maybe he is right about this, maybe he is not. I have not yet finished the book and, in any case, am not qualified to say. However, I have been struck by the reception of this book. It borders on adulation. Many public intellectuals seem to think they have finally found the scientific proof for what they knew all along: how capitalism is unfair, unjust, and ultimately ridden with “contradictions.”
This kind of reception should make us uncomfortable. We are hardwired to see the evidence in light of our ideological commitments, and intertwining the empirical with the moral makes it very difficult, if not practically impossible, for ideologically motivated people to reason correctly. (For some among many studies showing this effect, see here and here.) In the book, Piketty explicitly flirts with the Marxist left, couches his arguments in ethical terms, and proposes policies that clearly align him on one side of the ideological spectrum. And the reviews have by and large been just a little too relieved, too gleeful, a little too enthusiastic.
This is not good news for those among us who seek the truth. Yesterday, Tyler Cowen approvingly linked to a critical review of Piketty’s book by Clive Crook. Crook too notes the “erotic intensity” with which the book has been received. And he makes some good points about the importance of focusing on making sure economic growth benefits all, rather than inequality. That, I agree, should really be the major issue of our time. And the reception of Piketty’s book largely distracts form it.
One “R.A.”, blogging at the economist, disagrees. Responding to the Crook review, s/he writes:
Why do we care about inequality? We care about it because we are human, and we can’t help but be concerned about matters of fairness, however much economists might wish that were not the case. But what Mr Crook seems not to understand is that we also care about it because we care about living standards. Mr Piketty’s book does an able job showing that high levels and concentrations of capital have not been a necessary or sufficient condition for rapid growth in the past, though they have often sowed the seeds for political backlash that is detrimental to long-run growth. His argument is that the living standards of many people around the rich world are now unnecessarily low, because of the nonchalance with which elites have approached distributional issues over the past generation, and that continued heedlessness of this sort will ultimately undermine the growth-boosting institutions of capitalism. His argument is that economic growth that concentrates benefits on a small group of people will probably not be tolerated as fair, even if living standards among the masses are not completely stagnant.
It is an argument that is powerful and well-supported by the data—and extremely relevant today, whether or not one thinks inequality qualifies as the defining issue of the era. That, it seems to me, is why the book has been received as it has.
True: the importance of inequality is ultimately an ethical issue. And that issue is independent of the truth about whether inequality is growing or not. Piketty’s book might well have uncovered the truth about this matter. (Although Cowen in his own review of the book offers some important questions.) But even if inequality is growing, that does not settle the ethical question.
“R.A.” misses this point. Part of Crook’s message is precisely that inequality per se need not bother us as much as it does the Piketty-acolytes. (And the mere fact that many people do care about the issue does not show that we should care.) What matters is that living standards keep rising, and keep rising for all. That has been the crucial engine of humanity’s greatest achievements in poverty reduction, increases of life expectancy, literacy, culture high and low, and so on.
It may be true, of course, that real economic growth need not come with great increases of inequality. And it is clearly true that great increases of inequality do not imply real economic growth. But all that leaves open whether policies designed to reduce inequality, and transfer resources from rich to poor, carry significant risks of slowing down real growth.
If they do – and all the ones I have heard clearly do (read the section “Taxman” in Cowen’s review) – that remains, despite Piketty, an important concern. And one with profound moral implications. It is, or rather should be, central to our thinking about fairness. We cannot simply focus on inequality, therefore. Whether or not markets are fair depends in part on whether they help rise living standards. And if they do so unequally, well, maybe that is par for the course.