Saturday, April 26, 2014

Piketty for Dummies

You look around.  Some people are rich, even very rich, and others are poor.  Most are somewhere in between.  It’s not equal, but you think this is how it has to be if we're going to reward talent and enterprise so that all of us can ultimately benefit.

It’s third grade all over again.  You look around the room.  Some kids are really smart; they know all the answers and it is obvious they will get ahead.  Others may not be quite as smart but they try very hard, and they'll be successful too.  Some are popular, with the ability to make lots of friends and get others to follow them.  A few of the kids have that special blend of imagination and courage that sets them apart.  They take risks to discover how far they can go beyond their “limits”; they explore hidden places, how toys and gadgets work, different ways of doing things.  Meanwhile, there is the majority, nice kids but ordinary, average ability, average motivation.  It’s already laid out who will be who in twenty or thirty years: you can see society separating into the leaders and followers, the rich and the rest.

This is a certain (conservative) view of inequality and how it comes about.  Liberals and lefties have a different view of that classroom, and there has been a lot of argument back and forth.  But now Piketty changes the story.

You're back in third grade again, and everything you saw is still there.  But now there’s something else: there’s another school across town, one you may never have heard of.  It’s at the end of a long private road, behind a locked gate.  The kids at this school live in a part of town you’ve heard rumors about but have never actually seen, with large houses set back from the road and, like the school, hidden from view.  These kids come from very rich families.  Some of them are talented and do well in their special school.  Others are average.  More or less all of them will stay rich when they’re grown up—richer than even the smartest and most motivated kids at your school.  Their families already own much of the town, and, since they’re making money at a faster rate than the town is growing (Piketty has measured this), over time they will own more and more of it.  The kids at your school, the smart ones and the ordinary ones alike, will mostly end up working for them.  Unless something is done to disrupt the process, your town will have a hereditary ruling class.  Piketty says, you have to tax this upper group to prevent them taking over completely.

What Capital in the Twenty-First Century does is to enlarge your perspective.  For decades, the discussion had all been about the kids at your school and how much to reward the ones who have what it takes to go further.  No one talked about that other school because it was smaller, and above all because it was behind a locked gate and hard to find out about.  Piketty and his coworkers have done the heavy digging to get the facts about this other school—who goes there and what awaits them after they graduate.  He’s found that the families of the kids at that school are getting richer by the year, and that the inequalities in your school pale beside the gap between yours and theirs.  He’s adding new questions you need to ask.


Bruce Webb said...

Excellent Peter.

On the flip side we have ALWAYS known about that school and those houses. In fact all you need to do is to watch such obscure art films as 'Animal House' and 'Caddyshack' to understand the fundamental dynamic. Oh sure Blutarski ends up as a Senator (only after the credits roll) and the hero of 'Caddyshack' actually gets that probably crappy Caddy Scholarship. But nobody kids themselves that they are going to end up like the Chevy Chase 'bullfighting on acid' character or Darcy that just walked into money.

So nobody my age (or dare I say it yours) wasn't aware of all this, there was just an assumption that things like accessible quality higher education would allow the talented kids among us to ascend into the professions that the ultra-wealthy needed or even valued. You know Doctors, Lawyers, Professors of Economics, even Engineers that at least could rub elbows with those folks.

What we didn't see was the elevation of Finance into a ticket that could launch relatively connected nebbishes who could manage to get into and out of Wharton or Harvard or Chicago's Business Schools and ascend into the the stratosphere of the elites. Maybe I am just an artifact of having gone to Berkeley in the 70's but in my day Biz School was kind of a place for losers and/or kids of the elites bound for beginning jobs as VP or something or other at their Dad's firm. It certainly wasn't something that the Best and Brightest aspired to.

molly cruz said...

We cherish genius because it is genius that will get us out of the mess that is the Universe's fickle habit of smashing things without a thought, since the Universe has no thoughts. The trouble is, genetics is such a crapshoot, we don't know where we'll find the next one; and chances are it won't be the offspring of a genius. This is why, like the Tibetans looking for their next Lama; we need to curry intelligence wherever we find it, and why we treasure and reward it when we do. Finding it is the art we must study; wherever it crops up. When we assume it will follow its kind, mediocrity holds sway, privilege takes the cake, and we all end up starving.

Kaleberg said...

The Rich and The Super-Rich, which came out in 1968, made a similar point, but focused on the ruling mechanics. Piketty emphasizes the economics, given how we were all sold a bill of goods in the 80s.