The young French economist rocked the world last year with his book, “Capitalism in the 21st Century,” claiming that income inequality is intrinsic to capitalism.
Thomas Piketty will deliver the prestigious Nelson Mandela annual lecture this weekend. He follows such eminent persons as Bill Clinton and Kofi Anan, taking a stage intended to highlight South Africa in the forefront of global development.
Piketty’s explanation for income inequality caught the economist world by surprise last year, leaving many jaws still open. His rather simple thesis is that accumulated wealth, capital, will always grow faster than the growth of the community in which that capital is held.
In other words, get rich just by accumulating wealth and renivesting it.
Piketty contends this works regardless of your financial acumen, regardless that the world around your bank account might be in a depression, and regardless of the particular currency in which your capital is held.
In other words, do nothing but reinvest.
Remember, this is a macro idea. Don’t go out and put all your marbles in the penny stock offering just appearing in your inbox. It isn’t true for every unique, individual case, but Piketty believes in the global context, it always works. There will never be enough bad unique individual cases to reverse the overall thesis.
Moreover, even if your portfolio is linked to the S&P, if the economy sinks 3% and your portfolio tumbles only 2.5%, that’s not exactly a compelling reason to embrace his theories.
Piketty therefore has no strong message for personal investors. His message is much more poignant: in today’s capitalist world, he explains why the rich get richer while the poor get poorer… no matter what.
Needless to say, this reportedly shy and now overwhelmed scientist has not received an especially welcoming reception by his peers here. Paul Krugman is an exception, embracing what he calls the Piketty “phenomenon.”
Robert Reich, now an announced supporter of Hillary Clinton, likes him …. sort of.
So Thomas Piketty hasn’t been invited to give a lecture here.
Piketty’s own data for South Africa shows that between 1910 and 1950, the top 1% took home between 22% and 25% of the national income. Though this declined to 11%-12% between 1950 and 1980, the alarming finding is that it has risen again to between 16% and 18% today.
That isn’t as bad as the chart for America from Wikipedia shown to the right. But, of course, America is the bastion of capitalism, so it stands to reason that Piketty’s theories would be most accentuated here.
So should I find it remarkable that it is a much smaller economy, albeit a very capitalist one like South Africa, that embraces Piketty?
No, because while in America the ignorant who hold much of the wealth are fostering greater ignorance, in the rest of the world the ignorant are becoming increasingly educated and powerful.
“Globally, we have rejected the equal sharing of misery that was the result of the socialist experiment,” the editor of South Africa’s top financial newspaper, Tim Cohen, wrote this week. Yet: “Personally, I find Piketty’s ideas fascinating…what I think is really unassailable is his central notion that … the disparity between economic growth and investment growth … is the foundation of inequality.”
I don’t think the disagreements over Piketty’s so obvious thesis are as complicated as critics suggest.
Economists like Cohen who embrace Piketty, like most of the South Africans, don’t want inequality. They might cherish it as much as Donald Trump, but they know in their society that it is the fuel of bloody revolution.
Economists like Paul Krugman embrace Piketty because they’re socialists who hate inequality with a passion.
Robert Reich doesn’t like inequality, but he likes Hillary, he likes being a capitalist Secretary of the Treasury and he’ll search till hell freezes over for some exception to the notion. Economists writing in The National Review know Piketty is right … and want it to stay that way.
Americans to a man are not pressed like South Africans. Our society is too stable. But when capitalism as practiced here in America begins to fall because of forward thinking from places like South Africa, we’ll have to pivot.
I don’t think that day is too far away.