Let’s go back to 1922 – the year the Teapot Dome Scandal broke and Warren G. Harding turned on the first radio in the White House, ever. Out here, that was the year the Hollywood Bowl opened, and the year that Howard Carter, the real Indiana Jones, found the entrance to Pharaoh Tutankhamun’s tomb in the Valley of the Kings, starting a rage for all things Egyptian, resulting in decades of “Mummy” movies and the Egyptian Theater on Hollywood Boulevard. In May of that year, Sergei Diaghilev, Igor Stravinsky, Pablo Picasso, Marcel Proust, James Joyce, Erik Satie and Clive Bell dined together in Paris, at the Majestic Hotel, the one and only time that happened. That might have been a bit tense, and strange, but over here, we weren’t really into anything intellectually or artistically radical at all – that year gave us the first issue of Reader’s Digest, which was decidedly lowbrow – and lowbrow on purpose. But back in Paris, in early February of that year, Sylvia Beach published James Joyce’s Ulysses – causing no end of trouble. That was a masterpiece, or so dense and complex that everyone agreed it was, but it was also a “dirty” book – considered obscene at the time, although today it would be considered only mildly explicit.
The problem was that some Americans wanted to read it, here, not in Paris, and one New York publishing company decided to print it here and sell copies, and they ran into a buzz saw – John Sumner and the New York Society for the Suppression of Vice. Sumner hadn’t been happy when that firm had published a modern translation of Petronius’ Satyricon – even in a limited edition – and he had lost that case, but Sumner kept at it. He decided to work with sympathetic state assemblymen up in Albany on a new Clean Books Bill – because it would be the James Joyce book next. Then it was James “Jimmy” Walker, the future mayor of New York, to the rescue. He was minority leader of the State Senate at the time, and he gave a rousing speech mocking the folks who wanted to keep everyone’s thoughts pure, by making sure they didn’t read much of anything, really. Walker wasn’t buying it. All ideas should be considered, even by women, and really, “No woman was ever ruined by a book.”
That did it. The Clean Books Bill went down in flames, but Walker was saying more than the notion of keeping women unaware and uniformed, for their own good, to assure their putative purity, was both insulting and foolish. He was saying books are never the problem. These days, were he an internet guy, discussing net neutrality and massive and instantaneous worldwide interconnectivity changing everything, he’d be saying “information wants to be free” – trying to suppress basic facts and ideas about them is a futile game for insecure frightened fools, who always lose that game anyway. And no one was ever ruined by a book. They did that on their own.
No one bans books anymore, or even tries, save for evangelicals here and there trying to keep those Harry Potter books out the hands of all children, who might come to think witchcraft is kind of cool. When she was mayor in Wasilla, Sarah Palin did ask about how she would go about banning certain books – but no one knows which books she had in mind – maybe those with words. Still, books with gay characters or animals that seem normal and happy enough are sometimes denounced, and removed from school libraries and banned from classrooms – but somehow kids manage to read them anyway. Information does want to be free, and most everything is on-line now anyway. Jimmy Walker was right. Banning books is a fool’s errand.
That doesn’t mean some books don’t scare the crap out of people. Now and then one comes along that upsets important people, or people who think they’re important, and one of those is that new book – Capital in the Twenty-First Century – which Paul Krugman calls the most important economics book of the year, and maybe of the decade. Krugman finds that he agrees with the author, the French economist Thomas Piketty:
Piketty, arguably the world’s leading expert on income and wealth inequality, does more than document the growing concentration of income in the hands of a small economic-elite. He also makes a powerful case that we’re on the way back to “patrimonial capitalism,” in which the commanding heights of the economy are dominated not just by wealth, but also by inherited wealth, in which birth matters more than effort and talent.
To be sure, Mr. Piketty concedes that we aren’t there yet. So far, the rise of America’s one percent has mainly been driven by executive salaries and bonuses rather than income from investments, let alone inherited wealth. But six of the ten wealthiest Americans are already heirs rather than self-made entrepreneurs, and the children of today’s economic elite start from a position of immense privilege. As Mr. Piketty notes, “the risk of a drift toward oligarchy is real and gives little reason for optimism.”
Krugman sees that happening here:
America’s nascent oligarchy may not yet be fully formed – but one of our two main political parties already seems committed to defending the oligarchy’s interests. Despite the frantic efforts of some Republicans to pretend otherwise, most people realize that today’s GOP favors the interests of the rich over those of ordinary families.
Yeah, well, what else is new? These Republicans say all that matters is self-reliance and personal responsibility, but Piketty demonstrates, with data, that that’s nonsense. Piketty is onto their game, so his book is dangerous. No one was ever ruined by a book, but they might be, and now Krugman explores that:
Other books on economics have been best sellers, but Mr. Piketty’s contribution is serious, discourse-changing scholarship in a way that most best sellers aren’t. And conservatives are terrified. Thus James Pethokoukis of the American Enterprise Institute warns in National Review that Mr. Piketty’s work must be refuted, because otherwise it “will spread among the clerisy and reshape the political economic landscape on which all future policy battles will be waged.”
Well, good luck with that. The really striking thing about the debate so far is that the right seems unable to mount any kind of substantive counterattack to Mr. Piketty’s thesis. Instead, the response has been all about name-calling – in particular, claims that Mr. Piketty is a Marxist, and so is anyone who considers inequality of income and wealth an important issue…
Piketty is not a Marxist. No one is these days. Piketty is just showing the idea that we’re living in a meritocracy in which great wealth is earned and deserved is a myth, as Krugman, who has his Nobel Prize in Economics explains:
For the past couple of decades, the conservative response to attempts to make soaring incomes at the top into a political issue has involved two lines of defense: first, denial that the rich are actually doing as well and the rest as badly as they are, but when denial fails, claims that those soaring incomes at the top are a justified reward for services rendered. Don’t call them the One Percent, or the wealthy; call them “job creators.”
But how do you make that defense if the rich derive much of their income not from the work they do but from the assets they own? And what if great wealth comes increasingly not from enterprise but from inheritance?
David Atkins, a Democratic strategist out here in California, takes it from there:
What makes Piketty thesis so upsetting to conservatives is his argument that income inequality actually hampers economic growth. That’s what makes up the bulk of his thesis, and that’s what is most novel about it.
The immorality of income inequality and the trend toward aristocracy haven’t bothered them much. But when someone points out that all of this immoral plutocracy actually hurts GDP growth, that’s when the panic ensues.
It’s almost as if the wealthy elite have turned GDP growth into a golden idol. It’s been standard dogma that the dirty lefties are constantly besmirching the sacrament of growth. When someone starts pointing out that the high priests are defiling the altar, that’s when chaos begins to engulf the temple.
That’s why Pascal-Emmanuel Gobry, in Forbes, offers the Conservative Case for Thomas Piketty:
On his proposals on inequality, I think this quote aptly sums up his project – which happens to be one I share – “My point is not at all to destroy wealth. My point is to increase wealth mobility and to increase access to wealth.”
There’s nothing wrong with that:
To be a conservative is to want a vibrant, innovative economy. All else equal, presumably, in order to have such an innovative economy, you want to have risk-taking and risk-bearing capital. The problem with the global economy isn’t, per se, that the rich have a lot of money. It’s that the rich have a lot of money and, instead of investing it in rocket ships to the moon and dotcom ventures, almost all of them are instead investing it in government bonds and ultra-safe corporate bonds. With inflation at zero and no wealth tax, investing at 2% for no risk is very attractive. If there is inflation and/or a wealth tax, suddenly you have to seek it out bigger investments.
Looked at it very broadly, the conservative “diagnosis” would say something like this: for the broad middle class, what we usually think of as the components of “the good life”, i.e. housing, a job, affordable healthcare, higher education, and so on, are growing increasingly expensive – and in large part this is because of bad government regulation. This is also true of access to capital. As Piketty says, all else equal, we want to increase wealth mobility and access to capital.
That’s hardly Marxist, but that kind of thinking leads to this:
If you want a vibrant economy that favors the entrepreneur – as conservatives do – you want an economy where it’s easy to get rich, but where it’s hard to stay rich – where rich people have to keep putting money to work, i.e. investing in young entrepreneurs and general-welfare-enhancing risky ventures. One way to help do this, of course, is to unleash the creative-destructive forces of the market in as many sectors as is reasonable, so that entrepreneurs will disrupt old wealth. But – again, particularly in a zero-inflation world – it’s not clear that this is sufficient to ensure that goal. And, in a world where you do have to tax something, taxing stocks of wealth seems like one of the least-harmful options out there.
And this is even stranger:
There is no such thing as a “neutral” monetary or tax policy. All else equal, your option will either encourage wealth hoarding, or wealth sharing–true sharing, driven by the free market, not “sharing” under the threat of a government baton. And it seems to me that a system that encourages wealth mobility is one that free market conservatives should embrace.
A lot of rich Republicans won’t like the sound of this, and will say this is not conservative at all. There’s too much talk of sharing of course, even if this second French fellow is talking about market-driven sharing.
Matthew Yglesias, however, points out that Americans see Piketty as more left-wing than he sees himself, and notes here that the guy actually wants to cut most Americans’ taxes:
Piketty’s big point about the United States is that we actually do engage in substantial wealth taxation in this country. We call it property taxes, and they’re primarily paid to state and local governments.
Total receipts amount to about 3 percent of national income. The burden of the tax falls largely on middle-class families, for whom a home is likely to be far and away the most valuable asset that they own. Rich people, of course, own expensive houses (sometimes two or three of them) but also accumulate considerable wealth in the stock market and elsewhere where, unlike homeowners’ equity, it can evade taxation.
Piketty also observes that the current property tax system is curiously innocent of the significance of debt. A homeowner is taxed on the face-value of his house, whether he owns it outright or owes more to the bank than the house is worth. “If you own a house worth $500,000 but you have a mortgage of $490,000 then your net wealth is $10,000″ he explains. “So in my system you would owe no tax.”
Well, someone had to point out that middle-class American homeowners do pay big taxes on what someone else owns – taxes on their house and the land on which it sits, which the bank sort of owns until you pay off the mortgage. If you’re going to tax wealth, it might be better to tax those who actually hold that wealth. Your mortgage is an asset on their books, after all – unless they sold the mortgage to someone else, who repacked it with other mortgages and sold those to other parties, for cold hard cash in return. It’s still their wealth, not yours. Or is that too logical?
This Piketty book is dangerous, and Slate’s Jordan Weismann sees how dangerous it is:
Conservatives have long had an easy framework for their economic ideas: The free market cures all. Liberals, instead of nebulously arguing that they’re fighting for the middle class, now have a touchstone that clearly argues they’re fighting against the otherwise inevitable rise of the Hiltons.
“Capital” will change the political conversation in a more subtle way as well, by focusing it on wealth, not income. Discussions about income can become very muddy, in part because Americans don’t like to begrudge a well-earned payday, and in part because it can be tricky to decide what should count as income. If you start adding health insurance and government transfers such as food stamps into the equation, as some do, the top one percent doesn’t dominate quite so severely.
Wealth is a different story. Americans don’t like the idea of aristocrats – there’s a reason campaigning politicians bring up family farms and steel mills, not Shelter Island vacation homes, when they run for office. Moreover, you can’t save food stamps or a health plan, and because wealth only includes what you can save, it’s a measure of who wins in the economy over the long term.
That’s why Robert M. Solow supports Piketty’s proposal for a global wealth tax:
Annual revenue of 2 percent of GDP is neither trivial nor enormous. But revenue is not the central purpose of Piketty’s proposal. Its point is that it is the difference between the growth rate and the after-tax return on capital that figures in the rich-get-richer dynamic of increasing inequality. A tax on capital with a rate structure like the one suggested would diminish the gap between the rate of return and the growth rate by perhaps 1.5 percent and would weaken that mechanism perceptibly.
This proposal makes technical sense because it is a natural antidote to the dynamics of inequality that he has uncovered. Keep in mind that the rich-get-richer process is a property of the system as it operates on already accumulated wealth. It does not work through individual incentives to innovate or even to save. Blunting it would not necessarily blunt them. Of course a lower after-tax return on capital might make the accumulation of large fortunes somewhat less attractive, though even that is not at all clear. In any case, it would be a tolerable consequence.
Bloomberg’s Megan McArdle doesn’t buy it:
If we look at the middle three quintiles, very few of their worst problems come from the gap between their income and the incomes of some random Facebook squillionaire. … Crime is better, lifespans are longer, our material conditions have greatly improved – yes, even among the lower middle class. What hasn’t improved is the sense that you can plan for a decent life filled with love and joy and friendship, and then send your children on to a life at least as secure and well-provisioned as your own.
How much of that could be fixed by Piketty’s proposal to tax away some huge fraction of national income from rich people? Some, to be sure – but writing checks to the bottom 70 percent would not fix the social breakdown among those without a college diploma – the pattern of marital breakdown showed up early, and strong, among welfare mothers.
Yeah, but it would help, although in the severely conservative Federalist, David Harsanyi knows a damned Marxist when he sees one:
Like many progressives, Piketty doesn’t really believe most people deserve their wealth anyway, so confiscating it presents no real moral dilemma. He also argues that we can measure a person’s productivity and the value of a worker (namely, low-skilled laborers), while at the same time he argues that other groups of workers (namely, the kind of people he doesn’t admire) are bequeathed undeserved “arbitrary” salaries. What tangible benefit does a stockbroker or a Kulak or an explanatory journalist offer society, after all? …
The thing is, some of us still believe that capitalism fosters meritocratic values. Or I should say, we believe that free markets are the best game in town. Not that long ago, this was a nearly universal position. A lot of people used to believe that even the disruptions of capitalism - the “caprices of technology” as Piketty dismisses them – that rattle “social order” also happen to generate mobility, dynamism and growth. Today this probably qualifies as Ayn Rand-style extremism.
She had to come up. He’s telling us that Ayn Rand is a much misunderstood woman. Give her a chance. Greed is good. Consider the virtue of selfishness, one more time, for old times’ sake.
That’s why the Piketty book, full of actual data, is dangerous. It makes all of Ayn Rand’s books seem kind of stupid, even if the sex scenes in them are pretty damned hot. We can thank James Joyce for that. But Steve M at No More Mister Nice Blog sees a scam here:
If you doubt that modern right-wing propagandists are evil geniuses, just look at the effectiveness with which they’ve contained class anger in the heartland. They’ve done this by rechanneling it: out in the heartland, people have bad feelings about the upper crust, but they’re conditioned to believe that the upper crust consists of cultural elites – college professors, unionized teachers, Prius drivers (formerly known as quiche eaters), rappers and Hollywood stars (and, of course, Democratic politicians). The actual upper crust – the richest and most powerful people in America – are deemed “job creators”; heartlanders are told that they don’t do anything that harms the folks in the middle.
The heartland actually believes this, and votes accordingly, at least in non-presidential elections.
This infuriates him, as does David Brooks’ latest column, saying big-city progressive types like what Piketty is saying because they actually envy the amazingly wonderful rich:
Up until now they have described a big problem but they have no big proposal to address it. Now they do: a global wealth tax. Piketty proposes that all the governments in the world, or at least the big ones, get together, find all the major wealth in the world and then tax capital progressively.
Piketty wouldn’t raise taxes on income, which thriving professionals have a lot of; he would tax investment capital, which they don’t have enough of. Think of what would happen to the Manhattan or Bay Area real estate markets if the financiers had to sell their stray apartments in order to get liquid assets to pay the tax bill. Think of how much more affordable fine art would be. Think of how much more equal the upper class would be.
In short, urban liberals, who are doing well, want what the filthy rich have. They want their stuff. That’s why they like the Piketty book.
Steve M:
There you have it. The superrich, who maintain armies of lobbyists to ensure that they and their heirs will keep all of their money forever and pay as little tax as possible, aren’t the people seeking to rig the system — it’s upper-middle-class liberals who are the real system-riggers! Or at least they will be if given half the chance!
And there’s something repugnant about the image of the envious members of the upper middle class making off with superrich people’s apartments and paintings.
That was Brooks’ intention, but then he can’t really call for the Piketty book to be banned – that sort of thing just isn’t done these days. The wealthy few and the Republican Party that services them know this isn’t 1922 – and besides, Jimmy Walker was right. No one was ever ruined by a book. People do that all on their own. And that’s what they have done.