Shattered Consensus. James Piereson

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that things will not get worse over his final two years in office, though that possibility cannot be discounted. If the president and his supporters wanted to find inspiration in the New Deal, they could have done worse than to look to FDR’s successful efforts to modernize the financial system as a foundation for economic recovery. FDR understood, even if many of his aides and advisers did not, that if a party in power cannot deliver economic growth, there is little else that it can hope to accomplish.

      A version of this chapter appeared in The Weekly Standard, January 19, 2009.

       CHAPTER FOUR

       American Capitalism and the ‘Inequality Crisis’

      Just as the Great Depression launched an expansion of government powers and programs, and the financial crisis of 2008 led to calls for another New Deal, liberals and progressives over the past five decades have announced a variety of other “crises” as reasons to raise taxes, adopt expensive government programs, impose new regulations on business, or, perhaps, to increase their own influence. In the 1960s they gave us the “poverty crisis” and the “urban crisis,” followed in the 1970s and 1980s by the “environmental crisis,” the “energy crisis,” and the “homeless crisis.” More recently we have had the “health-care crisis” and a civilization-threatening “global warming crisis,” now rebaptized as a “climate crisis.” Some progressives have found it useful to turn multifaceted problems into crises in order to stampede the voters into supporting policies they might otherwise (quite sensibly) reject.

      Today, the issue of the hour is the “inequality crisis,” another complex subject that is being seized upon in some quarters as an opportunity to raise taxes, attack “the rich,” and discredit policies that gave us three decades of prosperity, booming real estate and stock markets, and an expanding global economy. In recent years, journalists and academics have been turning out books and manifestos bearing such titles as The New Gilded Age; The Killing Fields of Inequality; The Great Divergence: America’s Growing Inequality Crisis and What We Can Do About It; and The Price of Inequality: How Today’s Divided Society Endangers Our Future—to list just a few of the many dozens on the subject. The common message of these books is not subtle: “the rich” have manipulated the political system to lay claim to wealth they have not earned and do not deserve, and they have done so at the expense of everyone else.

      In the past, those who wrote about inequality focused on poverty and the challenge of elevating the poor into the working and middle classes. No more. Today they are preoccupied with “the rich” and with schemes to redistribute their wealth downward through the population, as if it were possible to raise the living standards of the bottom “99 percent” by raising taxes on the top “1 percent.” Many of the new egalitarians—professors at Ivy League universities, well-paid journalists, or heirs to family wealth—are themselves materially comfortable by any reasonable standard. Their complaints about “the rich” or “the 1 percent” call to mind Samuel Johnson’s barbed comment about the reformers of his day: “Sir,” he said, “your levelers wish to level down as far as themselves; but they cannot bear leveling up to themselves.” Judging by recent polls, the wider public has not bought into this new crisis. In essence, members of the top 2 or 3 percent of the income distribution are waging class warfare against the top 1 percent while everyone else looks on from a distance, apparently feeling that the new class struggle has little to do with their own circumstances.

      * * *

      The controversy over inequality gained more fuel in 2014 with the publication of Thomas Piketty’s Capital in the Twenty-First Century,a a dense and data-filled work of economic history that makes the case against inequality far more extensively and exhaustively than any that has appeared heretofore. The book quickly climbed to the top of the bestseller lists and remained there for several weeks. All the attention quickly turned Piketty, a scholarly-looking professor at the Paris School of Economics, into something of a literary celebrity and made his treatise a rallying point for those favoring income redistribution and higher taxes on “the rich.”

      The New York Times called Piketty “the newest version of a now-familiar specimen: the overnight intellectual sensation whose stardom reflects the fashions and feelings of the moment.” Paul Krugman, in a review essay in the New York Review of Books, called the book “magnificent” and wrote that “it will change both the way we think about society and the way we do economics.” Martin Wolf of the Financial Times described it as “extraordinarily important,” while a reviewer for the Economist suggested that Piketty’s book is likely to change the way we understand the past two centuries of economic history. The Nation called it “the most important study of inequality in over fifty years.” Not since the 1950s and 1960s when John Kenneth Galbraith published The Affluent Society and The New Industrial State has an economist written a book that has garnered so much public attention and critical praise.

      Liberals and progressives have hailed Capital in the Twenty-First Century as the indictment of free-market capitalism they have been waiting decades to hear. The market revolutions of the last three decades have placed them on defense in public debates over taxation, regulation, and inequality, and Piketty’s book provides them with intellectual ammunition to fight back. It documents their belief that inequalities of income and wealth have grown rapidly in recent decades in the United States and across the industrial world, and it portrays our own time as a new “gilded age” of concentrated wealth and out-of-control capitalism. It suggests that things are getting worse for nearly everyone, save for a narrow slice of the population that lives off exploding returns to capital. It pointedly supports the progressive agenda of redistributive taxation.

      Some reviewers have compared Capital in the Twenty-First Century to Karl Marx’s Das Kapital, both for its similarity in title and for its updated analysis of the historical dynamics of the capitalist system. Though Piketty deliberately chose his title to promote the association with Marx’s tome, he is not a Marxist or a socialist, as he reminds the reader throughout the book. He does not endorse collective ownership of the means of production, historical materialism, class struggle, the labor theory of value, or the inevitability of revolution. He readily acknowledges that communism and socialism are failed systems. He wants to reform capitalism, not destroy it.

      At the same time, he shares Marx’s assumption that returns to capital are the dynamic force in modern economies, and like Marx he claims that such returns lead ineluctably to concentrations of wealth in fewer and fewer hands. For Piketty, as for Marx, capitalism is all about “capital,” and not much more. Along the same lines, he also argues that there is an intrinsic conflict between capital and labor in market systems so that higher returns to capital must come at the expense of wages and salaries. This, in his view, is the central problem of the capitalist process: returns to capital grow more rapidly than returns to labor. Rather like Marx in this respect, he advances an interpretation of market systems that revolves around just a few factors: the differential returns to capital and labor, and the distribution of wealth and income through the population.

      Though he borrows some ideas from Marx, Piketty writes more from the perspective of a modern progressive or social democrat. His book, written in French but translated into English, bears many features of that ideological perspective, particularly in its focus on the distribution rather than the creation of wealth, in its emphasis on progressive taxation as the solution to the inequality problem, and in the confidence it expresses that governments can manage modern economies in the interests of a more equal distribution of incomes. Piketty is worried mainly about equality and economic security, much less so about freedom, innovation, and economic growth.

      The

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