“Capital in the 21st Century” explains how the distribution of income and wealth (or capital) evolves according to the laws that govern economic growth, rate of saving, and returns on capital. Picketty argues quite convincingly the reproduction of capital tends to outpace that of the economic output (GDP). Once set in motion, therefore, capitalism inevitably concentrates wealth, creating a self-reinforcing spiral that ends with appallingly unequal distribution of wealth. By Picketty’s estimation, the accumulation of wealth in the developed countries has by 2010s returned to a level that the world has not seen since the eve of the World War I. As a shocking symptom of this extreme inequality, the bottom 50% of population collectively own close to nothing everywhere, including Sweden! If this process is to continue indefinitely, he warns, “the past will devour the future” and we will return to a society of “rentiers dominant over those who own nothing but their labor”.
It is tempting to reject out of hand Picketty’s thesis as Marxism dressed in a new costume, and his laser focus on inequality a dangerous rhetoric tacitly inciting class warfare. Such an interpretation would be unfair, however. His main argument against capital concentration, I think, is not a moral one. Rather, the concern is concentrating so much capital in so few hands may be socially destabilizing. Moreover, as the stock of capital continues to grow relative to GDP, the returns on capital may eventually converge to the rate of economic growth, at which point capitalists must reinvest all income from capital in order to merely preserve “their social status relative to the average for the society”. This last point, known as the golden rule, seems to me an ultimate manifestation of involution (内卷).
How do we avoid such apocalypse then? Picketty’s innovation is a tax directly levied on capital, including all financial assets such as (unsold) stocks and bonds. As utopian as it might sound, the idea has gained traction in mainstream politics lately. The Democratic Party in the US, for example, recently proposed a “billionaire tax” to pay for Biden’s ambitious social spending programs. Conceptually, the billionaire tax is exactly a tax on capital, though it limits the taxation base literally to “billionaires”. While this proposal died quickly, I suspect similar attempts will resurface in the future, if only as a novel revenue source for desperate governments.
Picketty is an articulate and persuasive writer, and “Capital” is absolutely worth reading. As a side note, I found his open refusal to recognize economics as a science remarkable and laudable. My jaw almost dropped when I read “the discipline of economics has yet to get over its childish passion for mathematics”. With that kind of candidness, I am sure the book did not win Picketty many friends in his profession; but whether you agree with him or not, you must admit to “tell it as it is” in such a dramatic fashion requires conviction, courage, and integrity.