Neely Young: Capital Plans
From time to time, a person with remarkable talents comes along who can change history with the written word. Is such a person named Thomas Piketty? The young professor at the Paris School of Economics has written a book that has taken the world by storm. On a recent visit to the U.S., he was treated like a rock star.
His 696-page book, Capital in the Twenty-First Century, proposes that the rich be taxed a reasonable percentage of their total assets, with the resulting proceeds redistributed to the poor. This would be an international tax on all countries and would not replace, but be in addition to, any other taxation used to fund local government programs.
Piketty’s theory is that today’s economic system leaves very few people at the top of the system (the so-called 1 percent) and more than 50 percent of the world’s households below poverty level, with no way to move upward. He compares the situation to 18th- and 19th-century Europe, where a few ruled as kings and princes, and the balance lived in abject poverty.
Understanding this latest trend in economic theory requires a short lesson on economic history, beginning with Adam Smith. Smith grew up in Scotland watching his father manage the rates and regulation of ships in a large port. He noticed that each ship captain would adjust his rates as the market and tides changed. Published in 1776, Smith’s book, The Wealth of Nations, proposed the idea that competition acted as an “invisible hand” serving to regulate the marketplace, without government interference.
An Italian named David Ricardo wrote in 1817 that international trade prospers and everyone’s interest is served when each country specializes in its most favorable endowments like natural resources, skilled or cheaper labor, and technology. This is the theory of comparative advantage; Walmart, for example, uses cheap labor overseas to manufacture clothing that’s shipped back to sell in the U.S.
The most cheerless economist in history, Thomas Malthus, predicted in the mid-1800s that population growth would exceed food production leading inevitably to famine, pestilence and war.
Deficit spending was popularized by John Maynard Keynes, trying to solve the problems of the Great Depression in the 1930s. In The General Theory of Employment, Interest and Money, he wrote that government intervention was necessary to stimulate the economy during periods of recession. The New Deal and macroeconomics were born at this time.
Keynes’ idea was reinforced by John Kenneth Galbraith, who wrote in The New Industrial State (1967) that corporations and big financial institutions dominated the economy and used their economic clout to their own, rather than society’s, interest. (Hello, Goldman Sachs?) Galbraith believed that the economy needs some oversight to prevent abuses and, like Keynes, that policymakers should focus on the short run and adjust deficit spending to fit every situation.
The early 2000s were dominated by the followers of Monetarism, created by Nobel Prize-winning economist Milton Friedman. They favor a laissez-faire approach similar to Adam Smith. The best economy, Monetarism disciples believe, is ruled by slow and stable growth in the money supply. They advocate keeping the amount of money in circulation carefully controlled so that wages, prices and credit policy will gradually adjust. In the long run they believe everything will work out fine.
Monetarists are strongly against any government intervention in the economy. They have misgivings about Social Security, foreign aid, minimum wage and food stamps.
Since the Great Recession in 2008, Republicans and Democrats have been debating how to fix our current economy, applying many, if not all, of the economic theories listed above.
And now Piketty’s book comes into the picture. Another failed economist, Karl Marx, called for a redistribution of wealth: “From each according to his ability, to each according to his need,” in the Critique of the Gotha Program. The policy was adopted by Russia and China and resulted in brutal forms of government.
Piketty’s book reads like an updated version of Marx’s theories. He claims he only wants to go after the super rich, like Bill Gates.
I grew up believing that we should all strive to build a better world for our children and grandchildren. To punish anyone for being successful in business is a terrible policy. Hopefully, Piketty will wind up in the dustbin of history.