I am in Hawaii to help a friend with a plumbing project. As usual, when I faced a flight longer than an hour or two, I decided to take a book I wanted to read. Since I heard so much about it, I chose Thomas Piketty’s book Capital In The Twenty-First Century. I found it to be a great read. It is a serious and long book, so I certainly did not finish it on the flight over. But I became so hooked on it, that I continued to read it rather than help my friend with his plumbing. But now both are done, and I will explain why I became so interested in it.
First of all, Piketty is one of those wonders — an academic who can write very readable prose that includes a large amount of data, theory, and information without using jargon and analytical tools specific to his/her discipline. This is particularly a failing among many academic economists, who seem to want to turn a topic that contains human behavior and emotion into an exact science. Fortunately this dream is breaking down, and Piketty seems to me to have an excellent grasp of both the theories and human behavior. In fact he makes the point that economics is a social science, not a physical one, and therefore must account for our foibles.
The book is amazingly well timed, since it focuses upon the aggregation of capital over time and the resulting inequality. It is based on a large amount of data on many nations spread over a large span of time. His charts often begin with the year 1700 and go into the future (based on projections of population growth, and other pertinent trends taken from other fields). He shows that over long time periods, capital growth tends to be larger than growth in population and wages. Also that this capital tends to become focused among fewer and people (top 1% owning over 30% in U.S. at present) until we reach the point that awareness and disapproval result He does not waste time portraying the difficulties with this situation, but his data and comments do highlight the revolutionary behavior that has occurred when this inequality became too high (French revolution, rise of communism/socialism, political break-up of wealth, etc.).
To me, the book also shows the short-term mentality of we Homo Sapiens. The amount of capital in the world was rising sharply until World War I. This war followed by the great depression, followed by World War II, dramatically reduced the world’s wealth, and in particular the peaks in Capital. The period between World War II and the present has been one of re-growth, and is resulting in peaks of capital again. Piketty says this is normal economic behavior until interrupted. But he points out that we became used to the unusual growth in wages and productivity in the latter half of the twentieth century, and count on ever increasing rapid growth in wages and opportunity. Perhaps that may be the case for a while in countries playing “catch-up” (China, India, African countries), but maybe not everywhere. As a good economist, he does point out the necessity of growth. But as a non-economist and a resident of the San Francisco peninsula, I have always thought counting on eternal high growth is a bit risky. Strange things happen as one approaches infinity.
The comments about the Piketty book in and out of the media are interesting. He is a young and attractive guy (French, yet), and was featured recently in the Sunday New York Times on the front page of the Style section—perhaps a first for academic economists. And of course the reactions to his book tend to be biased by people’s beliefs. I have always thought that when problems become difficult, people retreat to faith and defend their faith viciously. Economics is a good example. In the U.S. it is much more comfortable to believe in capitalism, even though history suggests that pure capitalism does not take care of everyone. But many in the U.S. seem to be becoming less enchanted with it. Piketty seems to be neither economically far left nor far right. As he points out in the book, he is young enough to have missed the extreme feelings of the 1950’s and 60’s. He is therefore getting quite a bit of attack from protectors ofpure capitalism such as Forbes magazine. To his credit, he takes some good swings back, in particular at their handing of individual wealth. He is probably being attacked from the left as well, although apparently his book is being taken as the textbook for the Occupy Wallstreet crowd.
I found the book incredibly thought provoking (perhaps because of my ignorance of economics), even though I did have to occasionally look back in order to try to keep all of the material in my head. I think it deserves the wide-spread reading and discussion it is apparently receiving. More details in the recommended reading list at the left.