‘I dislike the expression “economic science” which strikes me as terribly arrogant because it suggests that economics has attained a higher scientific status than other social sciences’. This sentence is extracted from Piketty’s conclusion chapter. From the very beginning of the book and throughout all the pages, one thing that I constantly felt is that Piketty has shaken or rather challenged Economics as a discipline and hurt the pride of most economists. I am not an economist but my interactions with some economics scholars (am talking about young but serious academic economists in universities…not self proclaimed wannabe economists in the streets…lol) have often highlighted their ‘superior feeling’ to other social sciences. Just last week, one of them told me I felt like other people only write stories…uugh! Well, this attitude has cost Economics high price as a discipline. For instance, Economics as a discipline did not clearly foresaw the economic crisis of 2008, and it failed to acknowledge the political, social, and historical explanations to that. However, exceptional Economics scholars (at least those that I know of, or have read their works) such as Stiglitz and Krugman are very aware. Now Piketty has taken this exceptionalism to a level that other (majority) of economics will have to rethink and (hopefully) remedy their arrogance.
Well, due to my null knowledge on Economics theories and models, I am not capable of saying much about Piketty’s main argument. Moreover, there are already hundreds reviews of the book out there some of them from prominent economists both left and right leaning. So if you really need to get into discussion of the main arguments go to those…in fact Piketty has responded to some…so you can also read his responses.
Nevertheless, to recap, Piketty’s main argument is that Inequality has been the result of higher returns on capital than growth (r is greater than g). Discussing this with my father, he gave me a simple but real life example of how a certain capital investment has a 13% returns while the economy of Tanzania grows at 7%…and that was a very good way of me to understand Piketty’s formula. Piketty further shows that income from labour does not create inequality as much as returns from capital. Of course he explains the (outlier) ‘supermanager’ case in the USA (which I find it similar to Stiglitz’s argument in the ‘Price of Inequality’), but over the centuries, Piketty proves with data and systematic mathematical calculations reflected in many graphs and footnotes that high returns on capital have been responsible for inequality rather than incomes from labour. That is why inequality was reduced in the inter-war period (1914-1945) as capital was heavily destroyed.
Piketty recommends two solutions – diffusion of knowledge and global progressive tax on capital returns. Most reviews have focused on global progressive tax …which is fair enough as Piketty, I also think, highlights this to be a more efficient way to deal with high returns on capital – the main cause of inequality.
For me, the most impressive part of the book is his writing style and the incorporation of history (including examples from 17th and 18th Century novels) in his analysis. Piketty’s writes as if he is in class giving a lecture. He keeps recapping key concepts to his readers and reminding them that he will come back to a particular point. In the first chapters of the book, I felt like Piketty is sitting next to me teaching/instructing me basic economic concepts to understand inequality. How I wish, I can be his student in real life! Anyways, he teaches about capital/income ratio, etc. I kept highlighting and underlining “lessons” from his book…I think (apart from my Bible) this is the most underlined/highlighted copy of any book I have.
I am not sure if I can criticize Piketty at this point, as I am not conversant with Economics and its models. I found his arguments appealing and have answered most of my questions on why we see growth along persistent poverty and increased inequality. But in the beginning as I was thinking about his diffusion of knowledge- as an equalizer concept, I kept thinking on what about ‘education as an instrument to perpetuate inequality’…then I found sections on education where Piketty talks about unfair education system citing examples of elite universities that produce the so called ‘supermanagers’ in the USA who further exacerbate inequality and (on my own perception have killed the spirit of ‘american dream’).
Anyways, I should end here as I need to rush to the airport en route Paris…where I hope (in my 3 months research tenure) I’ll somehow cross path Piketty…lol
Meanwhile, I urge everyone who is disturbed by increased inequality in the world which is reflected in our very own societies, to read Capital in the 21st Century. It’s a classic book that have touched the nerves of both Marxists (and those who were baptised with his Capital and Communism manifesto) as well as the right wingers… Piketty uses data and he has boldly confront Marx and many other scholars who have influenced academia (social sciences- including Economics if there’s a need to specify) over centuries…. I love his confidence which is informed by rigorous research!