Future of income inequality via Picketty

Every now and then, perhaps more than I care to admit, I defer reading a book that attains some degree of popular status. There may be some complex psychology behind this, or more simply I don’t like to jump on bandwagons. Or I think I have the gist of the argument a book is making. Eventually, after enough colleagues recommend it, I finally pick it up. And I’m usually glad I did. Thomas Picketty’s Capital is the most recent example of this phenomenon. And I am sure glad I picked it up. In a word, “wow!”

My intransigence on this particular work is puzzling, given that I am extremely interested in the “next economy” in general and the disturbing trend of income inequality in particular. In my defense, I suppose I did agree with Piketty’s overall premise before reading it. But the exquisite, compelling, detailed case that he makes really blew me away. Some vague notions I had are now concretized and brought to life in vivid detail. If you care about these topics, these fat 577 pages (not including very detailed notes) are well worth the journey.

In the Houston Foresight parlance, this is more of a current assessment, including history, than a forecast, but that’s not a knock, in fact, I really appreciated how Picketty stuck to his facts and analysis and let us know when he was speculating.

I have lots of underlines and notes, but l’ll see if I can get right to the point. Left to its own devices, capitalism will tend toward inequality. Okay, hardly shocking news there. Most of us were exposed to that idea when studying Marx. It’s the perspective, the detail, and the data that are quite compelling here. I do not get the sense of any ideology here, along the lines of trying to provide capitalism is bad. Some factors in capitalism promote convergence of incomes, some divergence – on net, divergence is the stronger force, and it boils down a simple fact: the return on capital investments (which Picketty puts at an average of 5%) beats economic growth (a surrogate for income growth, which he puts at 1-2% on average). This creates an advantage for previously accumulated wealth that exacerbates in equality. Again, there is tremendous detail behind this, but that’s the crux of it. He explores all kinds of arguments and ways around this, but this the key point.

What I found particularly striking is how the two World Wars –and resultant policies – actually led to some “progress” in reducing inequality. The Reagan and Thatcher “revolutions” undid that and we are back to historically high levels of inequality.

He proposes a progress global tax on capital as a redistributive mechanism, but admits this is idealistic, perhaps utopian in today’s climate, but also could be done with sufficient will. As futurists we might wonder whether the existing system is worth saving. Picketty is quite blunt that failure to do with inequality the easy way (i.e., the progressive capital tax) means we will have to deal with it the hard way (i.e., revolution). Andy Hines

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