Piketty: new poster boy for the Left

(First published in the Nelson Mail and Manawatu Standard, June 18.)

HANDS UP all those who have read French economist Thomas Piketty’s best-selling book Capital in the Twenty-First Century.

As I thought – not many of you. Perhaps you were put off by the fact that it runs to a dense 685 pages.

I admit I haven’t tackled it either, but I’ve read enough reviews to have a pretty clear idea what the book is all about.

The English translation was published only two months ago but already it has made Piketty the international poster boy for the Left. He contends that unequal distribution of wealth – a current political preoccupation throughout the Western world – is the inevitable result of a system which, over time, concentrates economic power in the hands of a tiny few.

Piketty argues that this is bad for democracy and should be countered by taxing the very rich until their pips squeak.

None of this strikes me as breathtakingly original, but his argument struck a chord in a world still reeling from the global financial crisis and understandably resentful of the corporate greed and dishonesty that caused it.

Such books seem to come along every few years, each one being rapturously acclaimed as exposing the iniquity of capitalism. A few years ago it was The Spirit Level: Why More Equal Societies Almost Always Do Better – a book that was similarly concerned with inequality, and made just as much impact.

The British academics who produced that tome are still dining out on its popularity. Only last month they were in New Zealand for a series of lectures at the University of Auckland, during which they preached to the converted about the corrosive effects of income disparity.

I have no doubt there is some truth in what they say. It seems obvious that a relatively egalitarian society – the type that New Zealand once took pride in being – will feel more cohesive than one in which there’s a yawning gap between those at the top and those at the bottom.

It’s also unarguable that there are far more conspicuously rich people than there were a generation ago. You can see that from the number of expensive cars on the road, the preposterous house prices in Remuera and Oriental Bay, and the even more preposterous salaries paid to corporate executives of often dubious calibre.

As I was writing this, I happened to hear a radio interview with the proprietors of a Hawke’s Bay game farm where the rich go to shoot pheasants. The fee: $2750 per person, per day. It sounded more like the England of Downton Abbey than the New Zealand I grew up in.

The conventional view is that this inequality is the outcome of a rapacious, winner-takes-all economic system. But the crucial point, surely, is how well the majority of people are doing. And my observation is that most New Zealanders enjoy a vastly higher standard of living now than they did, say, 30 years ago. They live in better houses, drive better cars, eat out more often and think little of taking an overseas holiday.

Internationally, too, statistics show that more and more countries are being lifted out of poverty. And though it may be hard for the Left to swallow, the inconvenient truth is that it’s happening as a result of global capitalism.

What’s more, “poverty” in New Zealand is measured in relative terms. It’s defined not by people’s ability to afford the necessities of life, but by how well they are doing compared with the majority. So there will always be people who are considered hard done by, no matter how affluent society as a whole becomes.

That doesn’t mean we shouldn’t be seriously concerned about the minority of people trapped at the bottom of the heap, but it does highlight the fact that a degree of inequality is built in to the way we measure things.

But back to Piketty. His solution to the supposed problem of inequality is as unoriginal as his explanation for the cause.

Imposing huge taxes on the rich will certainly punish them for their wealth, and thus give satisfaction to the many people who believe that anyone who is rich must also be evil.

But is that a sound basis, either morally or economically, for creating a fairer society? Are the people at the bottom of the pile, or even the great number in the middle, helped by the simplistic act of transferring wealth from those at the top, with the attendant risk of suppressing the economic activity that creates prosperity for everyone? 

From what I’ve read of it, Piketty’s book consists of familiar old resentments dressed up in new garb. It’s underpinned by the discredited belief that an omniscient and benevolent state, through taxation and other instruments of control, can produce a society where everyone is better off. 

I’m all for a more equal society, but my fear is that Piketty’s proposed medicine could be far more damaging than the illness.