Can Government Solve Inequality?

Before the coronavirus hit, inequality was the buzzword of the chattering classes: income inequality, wealth inequality, inequality in access to healthcare and education, housing inequality, marriage inequality, and racial inequality. Annie was the decoder ring of American politics: billionaires versus the little guy, and which side is virtuous depends on whether you are in the one or the 99 percent. The Occupy Wall Street movement precipitated by the fall of Lehman Brothers and the staring-into-the-abyss moment for global capital put inequality permanently on the political map. Inequality could stand as the symbol of our age.

Compelling studies of the origins and mechanisms of the present “inequality regime” include the late David Graeber’s complicated, lively, and thought-provoking Debt: The First 5,000 Years (2011). Charles Murray, the late Walter Williams, and Thomas Sowell have also contributed substantively to the study of inequality. Naomi Klein and other saucepot-bangers have added some noise to the otherwise high-order discussion about what inequality is, where it comes from, whether we should have any of it, and how it can be managed or even eliminated.

But no one has swayed the inequality debate like Thomas Piketty. The guru of who gets what, Piketty achieved prominence virtually overnight with the publication of Capital in the Twenty-First Century (2014). His tome received dozens of “best book” awards and garnered accolades from just about every professional talker and scribbler you can think of, defining a generational debate in a way few other books have. Capital in the Twenty-First Century will surely be regarded as doing what The Feminine Mystique or The Second Sex did for feminism, what Silent Spring did for the environmental movement, or what The Population Bomb did for anti-natalist hysteria. Whether one agrees with his arguments, one cannot credibly discuss inequality, post-2014, without, at the very least, mentioning Thomas Piketty.

A slight irony in this is that the main arguments in Capital in the Twenty-First Century are largely a subtext to the book. Most of the volume is a kind of white paper on inequality, especially in Western Europe and North America, using sources that go as far back in time as Piketty could reliably locate. Capital in the Twenty-First Century surely has a higher graph-to-text ratio than any other bestseller in world history, but the mathy bits are manageable even for lay readers because Piketty’s point, which he repeats again and again, is quite simple: inequality increases over time. The rich get richer,… and the poor either stay the same or slip deeper into poverty. Piketty makes frequent use of Balzac, Jane Austen, and other period novelists to drive home his point that inequality has been a constant of Western life. What we read in literature Piketty reinforces with equations and graphic depictions based on a trove of economic data.

Piketty, a professor at the School for Advanced Studies in the Social Sciences in Paris, is a prolific author of scholarly articles on a wide range of topics in economics and economic history. In Capital in the Twenty-First Century he displays a great knowledge of European and American economics past and present, but a common critique of his big-book debut was that his scope was, despite its 793-page heft, entirely too limited. In other words, Piketty covered inequality unequally. He would have to revisit the subject. Most scholars would build a career on such a massive effort as Capital in the Twenty-First Century, but Thomas Piketty was just getting started.

Piketty’s much-anticipated follow-up, the even fatter Capital and Ideology, is, in many ways, a corrective to Capital in the Twenty-First Century, an attempt to extend and ramify his original insights throughout a much broader swath of disciplinary and historical territory. It is only at the end of Capital in the Twenty-First Century that Piketty comes out and says what any reader will have guessed long before, namely, that inequality should be combated by setting up a “social state” and redistributing wealth by means of a steeply progressive income tax. Piketty states that high earners and big hoarders should have their huge stashes confiscated beyond a certain amount, and generational wealth transfers should be filtered through a very stringent tax filter so that all of society can share in accumulated fortunes. Whatever Piketty wrote next would have to bring this argument into the open.

Piketty’s latest book is a triumph in that sense. He has clearly challenged himself to follow his instincts, and Capital and Ideology is a world tour of the economic history of inequality. Following the lead of economic philosopher Karl Polanyi, especially his classic Great Transformation (1944) about the social embeddedness of market activity, Piketty uses many pages to examine what in society causes inequality, and what inequality, in turn, causes in society. Piketty investigates colonial and slave societies, for example, and shows how the extreme inequality of domination created legacies of economic and social injustice, which, Piketty thinks, exist to this day in some form or another.

One key instance of inequality that Piketty explores in detail is the tragic case of Haiti, a French slave colony (Saint-Domingue) and the site of a horrific race war in the early 19th century preceded by an uprising of chattel slaves. Amazingly, the French government at the time, though in the throes of its own revolution against inequality and proud of the high-flown phrases enshrining equality in the Declaration of the Rights of Man and Citizen, refused to deal with the former slaves as equals and even demanded that the new Haitian government compensate former slave-owners for their loss of human property. This the Haitians did. The debt was not finally repaid to French satisfaction until the early 1950s.

This example looms large in Piketty’s thinking, for he is interested in exploring not just the what of inequality but also the why. The historical examples he marshals — the caste system of India, or inequalities in post-Soviet Russia, Brazil, South Africa, and other places where there is a glaring gap between the haves and have-nots — are revealing, but what Piketty really wants to know is how these inequalities are justified. He focuses also on the standoff between the Greeks and the Germans (with the rest of Europe arrayed roughly on one side or the other) over sovereign debt and imposed austerity over the past decade. He thinks sovereign debt is largely a way for the rich to hold taxpayers hostage through “proprietarianism” — the idea that private property, including debt, slaves, and capital, is sacred and inviolable — an ideology that insists that what is owed by law be repaid in full. For Piketty, inequality is perpetuated by ideologies like this.

Indeed, Piketty’s overall argument in Capital and Ideology is that the perpetuation of inequality is always ideological. All kinds of reasons have been given to explain why the rich are destined to be so and why the poor should accept their lot and not cause trouble. For Piketty, none of these excuses is convincing. He weaves his prescriptions for ending inequality with his explorations of inequality in history and the present. Piketty wants, essentially, international socialism. Anything else is ideological excuse-making. He sees a progressive wealth tax and a redistribution of money from the rich to everyone else as the cure for the massive inequality that has prevailed in the past and looms even now.

Piketty finds insufficient the Pandora’s Box argument that once government is given the power to tax everyone and everything unto equality it will never stop. In the final analysis, he wants what the ancient Hebrews had: a periodic jubilee. He wants to reshuffle the deck of wealth from time to time (or possibly continuously) in order to ensure that as many people as possible enjoy as even a share as can be divvied up of the world’s goods and services. He even includes in his leveling paradigm the notion of carbon justice, advising the establishment of a carbon tax. The poor live in slums, the rich live in air-conditioned castles, and the ideologies of inequality keep these extremes apart and further diverging, he believes.

The search for economic justice is a noble one. Our Catholic faith demands that we give alms to and love the poor, and it is in this spirit that much of what Piketty suggests should be given serious consideration. Piketty is interested, for example, in seeing instituted some version of a basic income, an idea favored by free-marketeer Friedrich Hayek, by big-government Republican Richard Nixon, and by recent Democratic presidential candidate Andrew Yang and other younger members of the rising Left. Piketty notes, correctly, that the Earned Income Tax Credit (EITC) in the United States is basically a kind of universal income disguised as tax credits for those earning below a certain income floor. As such, Americans are already closer to having a basic income than we might believe. If such a measure truly helps lift the poor and brings us closer to a just distribution of material goods, then it ought to be afforded a fair hearing.

Catholics might find themselves in agreement with other thoughtful suggestions in Capital and Ideology. Piketty introduces in detail, for example, Rhenish shared-governance capitalism and the Nordic model of social-democratic corporations, which are predicated on the principle (hard-won over decades of labor disputes) of broad representation by workers and others at corporate board meetings. Instead of allowing companies to be taken over by outside mergers and acquisitions firms, which almost always leads to lost jobs and devastated communities, it is better to make corporations places where management, labor, and other stakeholders work out how to steer the organization toward what is best for all. Piketty also advocates for greater corporate transparency, which would go a long way toward eliminating tax evasion and loophole-sheltering, largely facilitated by setting up shell companies in places like Monaco or Panama, a practice that is common today. In addition, Piketty suggests that schools should be funded more evenly across districts. These are sensible, even welcome, suggestions.

These steps in the right direction are, unfortunately, marred by the fact that the democratic socialism Piketty recommends is itself an ideology. Piketty admits that there are endless variations of democratic socialism and that every society will have to experiment endlessly to overcome inequality. But this need for endless monitoring and rejiggering of wealth is precisely why democratic socialism terrifies so many, and why it is so attractive to those who lust for power. Socialism sounds to Fabians like a cure for the obvious social ills of the world, and to sociopaths like the perfect way to take over a country and then, for the particularly ambitious, the entire world. It is no coincidence that the worst regimes of the 20th and 21st centuries have all been rooted in some variety of socialism. Pope Leo XIII’s warnings in Rerum Novarum (1891) about “crafty agitators” who prey on human misery in the name of social justice are not only Catholic teaching but also common sense. Socialism is the recipe for endless class warfare, which benefits only those crafty agitators and never helps the poor. If the alternative to inequality is Bolshevism, National Socialism, or Chinese socialism, then most people will prefer to stick with what they’ve got, rather than roll with violent and permanent revolution. Sensible people intuit, and those who once lived under socialism know, that socialism promises what Piketty thinks it does but then delivers misery and death.

Piketty laments the demise of the Soviet Union because it seemed to lend credence to the neo-liberal revolution of Margaret Thatcher, Ronald Reagan, and other market capitalists, but also because the collapse of communism led to cynicism about the possibility of large-scale economic justice. To be sure, the fall of the USSR gave rise to the Russian oligarchs whom Piketty disdains, the handful of people who cheated their compatriots out of the remains of the communist state and built massive fortunes for themselves. And it is true that Thatcher and Reagan, though their made-for-TV histories are linked with economic strength, have much more complicated legacies. But, all things considered, the demise of the Soviet Union, far from being lamentable, was one of the great blessings modern man has received.

Piketty assumes that democratic socialism will be relatively benign, wherein well-meaning policy wonks do their disinterested best to make sure everyone gets his fair share. However, the history of virtually every socialist experiment reveals that dictators justify looting and mass murder in terms of achieving economic justice and righting past wrongs. Piketty counters that failure to implement democratic socialism will perpetuate the right-wing, nationalistic violence he sees as the inevitable consequence of inequality: the “socialism or street brawls” argument, as it were. Fistfights in breadlines are hallmarks of socialist societies, however, and far worse can be expected if history is any guide. Piketty’s habit of quoting from novels leaves aside quotations from Solzhenitsyn, Dostoyevsky, or Jung Chang, whose works show what socialism does to a civilization.

History speaks against Piketty in other ways as well. His extensive research reveals that the history of human endeavors has been a kaleidoscope of inequality. Inequality is, and almost always has been, the common condition of human civilization. Long before Victorian dandies were carried around Africa in litters by native bearers, the pharaohs were being buried in pyramids built by generations of slave labor. Apart from a very few societies renowned for their strangeness, most of human history has been wildly unequal. The Spartans stick out precisely because, from India to the Incan Empire, the world has almost always been divided into vertical groups, and wealth has tended to match status. As Italian theorist Gaetano Mosca pointed out, man’s tendency to sort into strata is empirically demonstrated by studying virtually any society at any point in history.

More recent history is perhaps the most damning for Piketty’s arguments. In both books he shows that, according to all the statistical evidence we possess, inequality peaked on the eve of World War I. This is surely true. By every measure, inequality of wealth and income reached a crescendo in or shortly prior to 1914. Piketty thinks, with important caveats for diplomatic and historical complexities as exacerbating factors, that this inequality is, by and large, what gave rise to the Great War. No matter how one parses the causes of that event, Piketty argues that World War I, and then World War II, reset the inequality clock and enabled the kinds of innovative solutions to socioeconomic problems that were thwarted by full-bore communism, stymied by its collapse, and then buried by the free-market gloating and globalist rampaging of the past 30 years.

Yes, to a degree. But consider also that governments consumed an enormous amount of wealth in fighting one another during those horrific wars. Inequality was remedied, in large part, by states’ burning through accumulated capital and human resources. The taxes that were levied and then increased to pay for the killing — and the Keynesian accounting tricks that instituted inflation as a permanent tax on the underclasses to finance all wars finished and to come — were justified by states approaching total military mobilization. Piketty wants to give governments the power to tax. But what do governments do with money? Sometimes they build hospitals and playgrounds. But they also nuke Hiroshima and Nagasaki. They send young men to swim in the trench-mud of the Somme. They figure out ways to gas or firebomb foreign populations. States with money often fight wars, and states at war need virtually infinite supplies of money.

Competition between nation-states has, thus far, limited this bloodletting “merely” to world wars. Imagine a transnational, stateless cabal of all-powerful bureaucrats capable of taxing and spending at will. At first, they might seek to achieve economic justice, filling potholes in ghettos and paying for elective hip-replacement surgeries for the disadvantaged. More likely, given human nature and the historical record of human depravity, a cabal with unchecked taxing power would incinerate cities and hold the rest of the world’s population hostage for a ransom of even more taxes to come.

Naturally, Piketty would disagree with this scenario. All indications are that he is sincerely interested in questions of inequality and wants to overcome the ideological barriers he sees as preventing the fairer distribution of worldly goods. If only the whole world were as forthright. I do not think for a moment, and of course neither does Piketty, that Jeff Bezos and Mark Zuckerberg obtained their billions ethically. The uncomfortable fact for Piketty’s arguments is that billionaires get their billions not despite governments but because of them. Billionaires are billionaires because they have friends in high office. Jack Ma, Carlos Slim, George Soros: show me a billionaire, and I will show you a person who has the political resources to maintain gross inequality. The wealthy feast as long as governments favor them, and they fall when someone in government decides to end their streak of good luck. (Just ask Jack Ma.) If we give governments enormous power to level the world into equality, we will only exchange one group of fat cats for another.

The best way to read Capital and Ideology — and Capital in the Twenty-First Century, as the two form a set and are well worth the effort — is, therefore, strategically, against the grain. Piketty delivers an invaluable study of inequality (and one suspects there will be other books to come). He has performed a tremendous service by laying out a relatively accessible, factual basis for debates about economic justice in our time. He has probed the history the fair and unfair share and offered serious proposals for alleviating inequality at the micro and macro levels. Let us take the micro and leave the macro alone. The Catholic principle of subsidiarity would instruct us to do as much. Piketty’s ideological wrapping of socialism should be rejected, and the humane and useful suggestions he makes, such as about corporate governance and basic incomes, ought to be chosen very selectively.

Let us remember: Thou shalt not steal. It is as bad for the billionaire to use government cronyism to enrich himself unjustly as it is for the disadvantaged to wage class warfare against the rich by means of punitive taxation. This, too, is a kind of cronyism, and it is guaranteed to replace the search for justice with the search for revenge. Justice is achieved by acting justly, not by giving government greater power to tax society into some version of “equality.” Military cemeteries are filled with those whom some government or another has made equal. The poor deserve better than that. Lord Acton’s famous maxim, that “absolute power corrupts absolutely,” refutes Piketty’s calls for government-based solutions to our social problems. We can achieve economic justice by following what may be Piketty’s greatest lesson of all. He reserves much of Capital and Ideology for a discussion of the importance of education. Indeed. A well-formed Catholic conscience, the product of a Catholic upbringing spanning home, school, and parish, is the remedy for social ills. A just economy is, after all, not the product of any ideology, capitalist or socialist or otherwise; it is a function of loving one’s neighbor. Had we but done that, all the evils Piketty describes could have been avoided.

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