Piketty also predicts that, without vigorous public intervention in the marketplace - as the rate of return on investments continues to exceed the rate of economic growth - economic inequality will continue to accelerate. Not surprisingly, Piketty has been denounced on the right as a neo-Marxist or a dangerous social democrat because he has had the audacity to suggest, as a basic proposition of democratic governance, that economic policy should be subordinate to political policy.
Simultaneously, Piketty's colleague and collaborator at the London School of Economics, Gabriel Zucman, has reported in one of his many studies, Tax Evasion on Offshore Profits and Wealth, that U.S. corporations now declare 20% of their profits in tax havens - a tenfold increase since the 1980s - and that tax avoidance policies have reduced corporate tax revenues by up to a third. At the global level, Zucman argues that 8% of the world's personal financial wealth is now being held offshore, costing more than $200 bilion to governments annually and that decisions to shift to tax havens and offshore wealth havens are increasing.
In the current economic debate, Piketty and Zucman - along with a few
other prominent exceptions such as Paul Krugman and Joseph Stiglitz -
remain the outliers in a profession that is overwhelmingly dominated by
defenders of the status quo and conventional economic wisdom. One such
pathetic example of the latter is Tyler Cowan, an economist at George
In an op ed piece in the Sunday edition of the New York Times last month "(All in All, a More Egalitarian World," July 20, 2014). Cowan enthusiastically cited a study which noted that, although economic inequality was rising in countries such as the U.S., "the economic surges of China, India and some other nations have been among the most egalitarian developments in history."
Cowan piously concluded that "the true egalitarian should follow thee economist's inclination to seek
wealth-maximizing policies, and that means less worrying about inequality within the nation...
[C]apitalism and economic growth are continuing their historic roles as the greatest and most effective equalizers
the world has ever known."
In a prior book, Average is Over,
Cowan extolled the rise of what he chronicles as the "big earners" in
the emerging meritocracy that he foresees. He also argues that, rather
than expand the safety net, governments should curtail spending.
As an alternative and to maintain civic peace, Cowan suggests that
local governments might offer engaging distractions to those whom he has
identified in his Darwinian dystopia as the "big losers" and the "zero
marginal product" workers. These "big losers" and "zero marginal
product" workers presumably include the 162,000 U.S. architects and
engineers whose jobs were shipped to third-world counties between 2000
and 2009, according to Bureau of Labor Statistics, and the 180,000
computer IT and programming professionals who, according to Yale
Univesity's Jacob Hacker, lost their jobs between 2000 and 2004.
Perhaps taking an unconscious cue from Aldous Huxley's Brave New World, Cowan
proposes a palliative that he suggests would enable the 49% mooching
class that Mitt Romney decried to live contented lives, albeit with
reduced means and with substantially reduced expectations: "What if
someone proposed that in a few parts of the United States, in warmer
states, some city neighborhoods would be set aside for cheap living? We
would build some 'tiny homes' [that]...might be about 400 square feet
and cost in the range of $20,000 to $40,000. We would build some very
modest dwellings there, as we used to build in the 1920s. We would also
build some makeshift structures there, similar to the better dwellings
you might find in a Rio de Janeiro favela. The
quality of the water and electrical standards might be low by American
standards, but we could supplement the neighborhood with free municipal
Cowan's paen to globalization and the onward march of capitalism
blithely ignores the systematic, well-documented failures of the
capitalist system he extols. His apologia offers small solace
to the millions of Americans whose jobs have been lost to out-sourcing
and the de-industrialization of the U.S.; his soothing entreaty that, in
the long run, everything will work out nicely - some fine day - ignores
Keynes's sage observation that "In the long run, we will all be dead." One also suspects that Cowan would be less sanguine about the economic landscape he surveys if he were informed that his tenured position at George Mason University were about to be converted into an adjunct faculty position.
The defenders of the classical market model of unbridled competition
still refuse to concede that, left to their own devices, entrepreneurs
and corporations inevitably engage in practices that have harmful
consequences to the public. Their anti-regulatory biases are not
diminished, despite the fact that their business activities are heavily
subsidized by taxpayer money - e.g. roads, trains, airports, and
intangible infrastructure such as public education, employee training,
R&D, favorable tax policies, legal immunity for business entities,
and protection for trade secrets and intellectual property.
These guardians of the economic canon also continue to discount the
evidence that shows that entrepreneurs and corporations know that, if
they are unable to escape the ultimate consequences of their poor
decisions - if all else fails - they will be allowed to screw their
creditors, discharge their debts in bankruptcy, and re-emerge with a new corporate persona.
The sole goal is to maximize profits to enrich themselves and their
shareholders. Given a mind-set that sincerely believes that the pursuit
of self-interest is somehow a public good, they and their economist
defenders remain oblivious to the adverse effects of poverty, lack of
health care, pollution, climate change and to basic principles of social
Ultimately, the entire process is self-defeating and creates a
negative-sum game: As entrepreneurs seek to maximize their profits by
paying the lowest possible costs for labor and materials, the middle
class is hollowed out. As the income of the middle class contracts,
aggregate demand is reduced. As domestic spending contracts, the
purchase of goods and services contract. Without the intervention of the
government into market economies, the buyers and sellers of goods and
services become locked in mutually destructive death throes.
All of the empirical evidence, Cowan and other apologists
notwithstanding, suggests that out-sourcing, deregulation, austerity,
the commitment to the myth of "free-trade," -i.e. "laissez-faire" in
trade policies - and reduced government regulation have been major
contributing factors to the loss of manufacturing, stagnating wages and
the growing impoverishment of the former middle class.
The net effect of current economic policies - sadly endorsed by
Democrats as well as Republicans- has been an extraordinary
concentration of wealth and power into the hands of financiers and other
moneyed interests who have become the winners in this game of economic
Russian roulette. As a result, the decisions and predilections of fewer
and fewer individuals now determine the outcomes in the American
economy, while the overwhelming majority of Americans have little
ability to influence macro-economic trends or economic and political
the 1950s, John Kenneth Galbraith bemoaned the existence of "private
affluence and public squalor" in the America. The contrast has only
grown worse in the subsequent decades. The disparity between the few who
are wealthy and the many who are poor has widened alarmingly in the
United States since the advent of the Reagan era and the kind of
"trickle-down" economics to which he and his advisers subscribed.
In his General Theory,
Keynes observed that "the ideas of economists and philosophers, both
when they are right and when they are wrong, are more powerful than
commonly understood. Indeed, the world is ruled by little else.
Practical men, who believe themselves to be quite exempt from any
intellectual influences, are usually the salves of some defunct
economist....But, soon or late, it is ideas, not vested interests which
are dangerous for good or evil."
Political and economic philosophies, unlike religious dogmas, are
neither true nor false per se, irrespective of their competing attempts
to comprehend and to explain the Truth about the human condition.
Rather, these philosophies help us to define our understanding of
ourselves as political beings - who we think we are, and what we think
we can or cannot achieve as participants in the political process. Paradoxically,
through these political and economic philosophies, we simultaneously
modify and recreate social reality - "the shared field of meaning" - in
which we participate.
Equally important, because competing political and economic
philosophies inevitably suggest specific policies, they have important,
teleological consequences. For that reason, the consequences of any
particular policy suggested by a particular political or economic
philosophy can be observed, measured, and tracked.
As such, the political, economic and ethical effects of the policies
and programs can be scrutinized and evaluated. Policy makers and
informed citizens then become able to determine whether the respective
claims and promises of a particular political or economic concept should
be implemented as public policy, and whether the effects will be
beneficial or inimical to the health and vitality of the civil society.
There are no easy solutions to the present economic malaise, but it is a
serious mistake to confuse the purported "laws of economics" with the
laws of physics as so many do. Economic systems do not operate in a
vacuum; and there is nothing inevitable about the continuation of
economic trends. Economic systems and political systems are the products
of human imagination and ideology as shaped by historical forces.
Because there is nothing inevitable about economic trends and
developments, they can be countered by intelligent and carefully crafted
monetary and fiscal policies as well as intelligent legislation. In extremis, even the "laws of economics" can be suspended by operation of law, as was required during World Wars I and II.
The classical liberal paradigm of the market economy has long since ceased to explain present day economic reality, but the intellectual chains of that received wisdom from long since dead economists continue to control the public narrative. Unfettered competition, based upon allegedly free market decisions made by solitary actors in which goods and services are sold to the most willing buyers, is a myth that does not create individual opportunity for most Americans, nor has it maximized business opportunities.
Rather, the insecurities of the marketplace persuade those who are
successful to institutionalize their advantages. Monopolies and
plutocracy are the inevitable result and, as the Forbes 400 list shows,
economic inequality becomes more pronounced.
The critical need in today's politics is to restore the proper balance
between the pursuit of wealth - as a purely private activity - and the
public interest. In a democracy, citizens have the ability and the right
to imagine and to demand new political, economic and social structures
and arrangements that are rooted in a shared commitment to social
justice and that also recognize the mutual obligations that we owe to
one another as members of a political community. By law, policies can
designed and imposed to protect the rights of workers to join unions, to
create an industrial policy, to re-impose protective barriers and
selective tariffs (just as China, South Korea and Japan now do), to
enact a tax code that punishes out-sourcing and domestic disinvestment
and provides incentives for job-creation and domestic reinvestment.
Market economies are affected by the frailties and the foibles of human actors. Although many of these actors are motivated by selfish, short-sighted concerns, the consequences of their actions harm everyone else. It is for that reason that regulation in the public interest and investment in public goods by the government - as the agent of the people in a democracy - are essential antidotes to the temper the excesses of capitalism and to create the foundations for a truly just society.