Subject: The Book Every Plutocrat Should Read - Chrystia Freeland - POLITICO Magazine
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The Book Every Plutocrat Should Read

For students of the plutocracy, this season has been marked by two key events. The first is the continued sense of persecution among the super-rich, as measured by an uptick in Hitler analogies from embattled American magnates. The second is the English-language publication of French economist Thomas Piketty’s instantly influential new book, Capital in the Twenty-First Century.

Correlation, of course, is not causation, and I am pretty sure few of the Nazi-evoking plutocrats have worked their way through Piketty’s tome. But these two milestones of 2014 are nonetheless intimately related. Piketty’s groundbreaking perspective on how and why wealth is accumulating ever more at the very top explains why the 0.01 percent is feeling so threatened – and why that alarm is not as hysterical as it might seem.

The core of Piketty’s work is rooted in the international data sets of historical income that he has been assembling for more than a decade together with Emmanuel Saez, Anthony Atkinson and a group of collaborators around the world. These numbers show that the postwar era, when North America and Western Europe experienced both strong economic growth and shrinking income inequality, was a striking exception. Instead, today’s soaring income inequality, which equals or exceeds that of the Gilded Age – or, in Piketty’s preferred historical reference, the Belle Epoque – seems to be industrial capitalism’s norm. Piketty puts forward an economic theory about why that might be (basically, that capital grows more quickly than the economy as a whole) and some radical political ideas about how we should respond to these economic fundamentals.

Piketty’s book has been hailed as a landmark in economic thinking, and he was accorded full rock-star status as he toured the halls of political and economic power in New York and Washington over the last week, promoting his work. The welcome has been especially warm from thinkers and activists on the center-left, for whom it offers a meticulously data-based, intellectually elegant unified theory of how and why fortunes are surging, particularly at the very top. Paul Krugman, the New York Times’s Nobel Prize-winning economics columnist, hailed the book as one that will “change both the way we think about society and the way we do economics.”

This euphoric reception is richly merited. But amid the fanfare, what we haven’t focused on is the one crucial way in which Piketty’s thinking departs from what had been conventional wisdom among progressives. And this difference happens to be why Piketty’s work, and the wider shift it surely portends, poses a new, powerful, existential threat to the plutocrats.

Until now, left-leaning students of rising income inequality tended to prefer crony capitalist explanations for what was going on. You might call this the Elizabeth Warren school of plutocracy: The 0.01 percent were becoming filthy rich because, in cahoots with sympathetic right-wing politicians, they had tilted the rules of the economic game in their favor, and stacked the deck against those whom Senator Warren would call ordinary folks.

The right, by contrast, began with denial. It has taken years for conservatives to concede that income inequality was rising, or that if it was, that shift was worth thinking about –remember Mitt Romney’s quiet rooms comment, when the Republican presidential nominee was asked about why he seemed to equate discussion of income inequality with class warfare. “It’s fine,” he said in widely mocked comments, “to talk about those things in quiet rooms and tax policy and the like.”

But now that the gap between the 1 percent and everyone else has become a chasm, even Republicans have been reluctantly dragged into the discussion about income inequality. Conservatives have found that the most congenial explanations of this growing gap between the rich and the rest are those rooted in underlying, often global, economic forces. Income inequality, in this reading, isn’t about banksters. It is just the way capitalism works.

The politics of these preferences are obvious. For the left, it is easier to attack rising wealth at the top if it is the ill-gotten loot of crooked robber barons, abetted by venal politicians. The right’s fondness for more fundamental economic explanations is likewise self-interested and self-explanatory. Even if you don’t like income inequality per se – a point, of course, that many conservatives don’t concede – it is surely more acceptable if it is the product of the inexorable workings of the invisible hand, rather than a purse snatched by a thief.

Piketty’s work turns this political status quo upside down. His personal sympathies are unapologetically on the left – Capital, get it? Yet his chief intellectual accomplishment is to show how the basic forces of capitalism tend inevitably toward an ever-greater accumulation wealth at the tip of the pyramid. (Another important new book, Erik Brynjolfson and Andrew McAfee’s The Second Machine Age, focused on the power of the technology revolution and the uneven rewards it delivers, comes to an eerily similar conclusion. There is no economic law, the authors argue, which guarantees that technological innovation will bring economic rewards that are shared with most, or even many, of us.)

You might think Piketty’s argument is one a plutocrat would love. Super fortunes, in his world, aren’t chiefly the result of Matt Taibbi’s vampire squids or Michael Lewis’s malignant high frequency traders getting an unfair edge on the regular guy. They are, instead, the natural, even inevitable, result of capitalism in action.

Not surprisingly, that’s the view of most of the super-rich themselves, a conclusion I reached after interviewing dozens of them from Wall Street to Silicon Valley, Moscow to Mumbai, when I was writing my book Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else. As one of the plutocrats I quoted told me after reading my book, “maybe the post-war era was an aberration, and this is just the way capitalism works.” That’s Piketty’s thesis in a nutshell.

But while the plutocrats may agree with much of Piketty’s theoretical argument, his approach is politically more threatening to them than the previously reigning crony capitalist paradigm. No one wants to be called a crony capitalist, of course. And when it comes to igniting populist rage, specific indictments of individual cronies are both damning and effective.

Chrystia Freeland is the federal member of parliament for Toronto Centre and the author of Plutocrats: the Rise of the New Global Super-Rich and the Fall of Everyone Else.

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For students of the plutocracy, this season has been marked by two key events. The first is the continued sense of persecution among the super-rich, as measured by an uptick in Hitler analogies from embattled American magnates. The second is the English-language publication of French economist Thomas Piketty’s instantly influential new book, Capital in the Twenty-First Century.

Correlation, of course, is not causation, and I am pretty sure few of the Nazi-evoking plutocrats have worked their way through Piketty’s tome. But these two milestones of 2014 are nonetheless intimately related. Piketty’s groundbreaking perspective on how and why wealth is accumulating ever more at the very top explains why the 0.01 percent is feeling so threatened – and why that alarm is not as hysterical as it might seem.

The core of Piketty’s work is rooted in the international data sets of historical income that he has been assembling for more than a decade together with Emmanuel Saez, Anthony Atkinson and a group of collaborators around the world. These numbers show that the postwar era, when North America and Western Europe experienced both strong economic growth and shrinking income inequality, was a striking exception. Instead, today’s soaring income inequality, which equals or exceeds that of the Gilded Age – or, in Piketty’s preferred historical reference, the Belle Epoque – seems to be industrial capitalism’s norm. Piketty puts forward an economic theory about why that might be (basically, that capital grows more quickly than the economy as a whole) and some radical political ideas about how we should respond to these economic fundamentals.

Piketty’s book has been hailed as a landmark in economic thinking, and he was accorded full rock-star status as he toured the halls of political and economic power in New York and Washington over the last week, promoting his work. The welcome has been especially warm from thinkers and activists on the center-left, for whom it offers a meticulously data-based, intellectually elegant unified theory of how and why fortunes are surging, particularly at the very top. Paul Krugman, the New York Times’s Nobel Prize-winning economics columnist, hailed the book as one that will “change both the way we think about society and the way we do economics.”

This euphoric reception is richly merited. But amid the fanfare, what we haven’t focused on is the one crucial way in which Piketty’s thinking departs from what had been conventional wisdom among progressives. And this difference happens to be why Piketty’s work, and the wider shift it surely portends, poses a new, powerful, existential threat to the plutocrats.

Until now, left-leaning students of rising income inequality tended to prefer crony capitalist explanations for what was going on. You might call this the Elizabeth Warren school of plutocracy: The 0.01 percent were becoming filthy rich because, in cahoots with sympathetic right-wing politicians, they had tilted the rules of the economic game in their favor, and stacked the deck against those whom Senator Warren would call ordinary folks.

The right, by contrast, began with denial. It has taken years for conservatives to concede that income inequality was rising, or that if it was, that shift was worth thinking about –remember Mitt Romney’s quiet rooms comment, when the Republican presidential nominee was asked about why he seemed to equate discussion of income inequality with class warfare. “It’s fine,” he said in widely mocked comments, “to talk about those things in quiet rooms and tax policy and the like.”

But now that the gap between the 1 percent and everyone else has become a chasm, even Republicans have been reluctantly dragged into the discussion about income inequality. Conservatives have found that the most congenial explanations of this growing gap between the rich and the rest are those rooted in underlying, often global, economic forces. Income inequality, in this reading, isn’t about banksters. It is just the way capitalism works.

The politics of these preferences are obvious. For the left, it is easier to attack rising wealth at the top if it is the ill-gotten loot of crooked robber barons, abetted by venal politicians. The right’s fondness for more fundamental economic explanations is likewise self-interested and self-explanatory. Even if you don’t like income inequality per se – a point, of course, that many conservatives don’t concede – it is surely more acceptable if it is the product of the inexorable workings of the invisible hand, rather than a purse snatched by a thief.

Piketty’s work turns this political status quo upside down. His personal sympathies are unapologetically on the left – Capital, get it? Yet his chief intellectual accomplishment is to show how the basic forces of capitalism tend inevitably toward an ever-greater accumulation wealth at the tip of the pyramid. (Another important new book, Erik Brynjolfson and Andrew McAfee’s The Second Machine Age, focused on the power of the technology revolution and the uneven rewards it delivers, comes to an eerily similar conclusion. There is no economic law, the authors argue, which guarantees that technological innovation will bring economic rewards that are shared with most, or even many, of us.)

You might think Piketty’s argument is one a plutocrat would love. Super fortunes, in his world, aren’t chiefly the result of Matt Taibbi’s vampire squids or Michael Lewis’s malignant high frequency traders getting an unfair edge on the regular guy. They are, instead, the natural, even inevitable, result of capitalism in action.

Not surprisingly, that’s the view of most of the super-rich themselves, a conclusion I reached after interviewing dozens of them from Wall Street to Silicon Valley, Moscow to Mumbai, when I was writing my book Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else. As one of the plutocrats I quoted told me after reading my book, “maybe the post-war era was an aberration, and this is just the way capitalism works.” That’s Piketty’s thesis in a nutshell.

But while the plutocrats may agree with much of Piketty’s theoretical argument, his approach is politically more threatening to them than the previously reigning crony capitalist paradigm. No one wants to be called a crony capitalist, of course. And when it comes to igniting populist rage, specific indictments of individual cronies are both damning and effective.

Chrystia Freeland is the federal member of parliament for Toronto Centre and the author of Plutocrats: the Rise of the New Global Super-Rich and the Fall of Everyone Else.