Tuesday, June 10, 2014

I’ve finished Capital in the Twenty-First Century. Once again, I want to report the pleasure this book gave. Piketty’s historical approach has helped me achieve a bit more clarity about the economic transformations I’ve experienced in my life time: the end of the middle class myth in America and the rise of a new, globalized economy that richly rewards a meritocratic elite.

The final part of the book is also very useful. It’s given over to policy proposals designed to allow “democracy” to “regain control over globalized financial capitalism.” The main ones involve taxation: (1) increases in the top marginal rate for very high incomes, and (2) the development of global tax on capital itself.

These two proposals may be good ideas and I’m certainly not opposed to them in principle. I’ll leave it to the policy wonks to debate the pros and cons. My interest is different. I want to think about the political side of Piketty’s proposals, which troubles me.

As he recognizes, his idea of a tax on capital presents the greatest difficulties. That’s because in our day capital is highly mobile. I can buy factories in Germany, bonds in Brazil, and stocks in New York, and I can do so by way of corporations or business partners domiciled in any number of different countries. As a consequence, it’s very hard for a particular government to tax capital. Sophisticated capitalists will relocate their wealth to avoid a wealth tax. (That’s why real estate gets taxed—by definition it can’t be moved!)

Piketty’s solution is for “democracy” to “invent tools, adapted to today’s challenges.” In this instance, “democracy” needs to develop mechanisms of global financial and taxing authority. To a certain extent that’s what we’re already doing. The IMF largely dictates terms to smaller countries in financial crisis.
The United States government is presently imposing a global regime of banking regulation. We’re able to do so because we can make compliance a condition for doing business in America. And of course the European Union represents a continent-wide effort to build trans-national legal and financial institutions. Piketty wants us to continue developments along those lines. And maybe we should. But he seems blind to the anti-democratic nature of these globalizing trends.

What, exactly, is this “democracy” that is now working to “invent tools” like a global tax on capital? It’s certainly not a function of elections. On the contrary, were I a duly elected Swiss legislator, I’d be frustrated by the fact that Swiss banking regulation increasingly gets run in Washington. The success of various nationalist parties in the recent EU elections reflects a growing sense that people feel as though the “democracy” now inventing new tools “adapted to today’s challenges” isn’t very democratic.

Piketty’s book is not a call to revolution. He thinks we’re stuck with capitalism. And so his most significant call to action is largely technocratic: a progressive tax on capital that will require the construction of a global system of financial oversight and management.

Thus there’s a significant irony in Piketty’s project. He criticizes the American cult of the “super-manager.” Yet his own approach requires global “super-managers”—Representatives of the People—who are up to the challenge of restraining the anti-democratic, inegalitarian tendencies of capitalism.

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