Why Capitalism Isn’t Working For Dummies
Thomas Picketty (Photo Credit: Emmanuelle Marchadour)
Over the past few years, as I got more and more involved with movements and groups advocating for change, equality and social justice, among other causes, one system was repeatedly cited as one of the many “evils” that is destroying our society and the world. That system was capitalism. But I never truly understood how and why it was failing us until now.
In a new book called Capital in the Twenty-First Century, French economist Thomas Picketty, who specializes in the study of economic inequality, debunks the myth that capitalism improves the quality of life for everyone.
The book is being described as epic, groundbreaking, and the most important economics book of the year, if not the decade.
It mines 200 years of data and runs up to roughly 700 pages. I haven’t read it myself, and I doubt I will in the near future, however important or seemingly accessible it is. Forgive me if I dedicate the little time that I have to other more preoccupying tasks. But I finally wrapped my head around the failings of capitalism, thanks to the following articles about Picketty and his book:
- Occupy was right: capitalism has failed the world by Andrew Hussey, dean of the University of London Institute in Paris (ULIP)
- Capitalism simply isn’t working and here are the reasons why by columnist Will Hutton
I highly recommend you read both articles. If you have time, read the book too. But if you simply want a summary of Picketty’s ideas, consider the following roughly edited excerpts. They are my takeaways from the articles.
- Capitalists have a fundamental belief that capital will save the world, which isn’t the case. Not because of what Karl Marx said about the contradictions of capitalism, because, as Picketty discovered, capital is just an end in itself.
- Capital is blind. Once its returns exceed the real growth of wages and output, as historically they always have done (except a few periods such as 1910 to 1950), then inevitably the stock of capital will rise disproportionately faster within the overall pattern of output. Consequently, wealth inequality rises exponentially.
- This process is made worse by inheritance and by the rise of exuberantly paid “super managers.” According to Picketty, high executive pay has nothing to do with real merit. Rather, it has become an Anglo-Saxon social norm permitted by the ideology of “meritocratic extremism.” In other words, self-serving greed to keep up with the other rich.
- The rich are very good at protecting their wealth from taxation. Progressively the proportion of the total tax burden shouldered by those on middle incomes has risen. As a result, the burden of paying for public goods such as education, health and housing is increasingly shouldered by average taxpayers, who don’t have the means to sustain them. That’s why, the poor get poorer, and the rich get richer and more detached from the societies they live in: not by merit or hard work, but simply because they are lucky enough to have capital that yields higher returns than wages over time.
- The solutions Picketty proposes are taxes, including a top income tax rate of up to 80%, effective inheritance tax, proper property taxes and, because the issue is global, a global wealth tax.
- Are his solutions feasible? According to Hussey and Hutton, highly unlikely, especially that, as Hussey put it, we live in a “world where, from Beijing to Moscow to Washington, money, and those who have more of it than anyone else, still calls the shots.”
Note: If you want a more nuanced primer of Picketty’s book, read this Short Guide to Capital in the Twenty-First Century.
