Book Review: “Capital and Ideology”, by Thomas Picket. Part 1, because hoo boy was it long.

Capital in the Twenty-First Century, Thomas Piketty’s #1 best seller about the economics of inequality, was in one sense a bit of a dud.  Supposedly, the main point of Piketty’s book was the following dry equation: When r, the rate of return on capital, is greater than g, the rate of economic growth, inequality of wealth increases.

For the most part, economists were not impressed.  Specifically, they were not impressed by the r > g thing; even Paul Krugman, definitely a Picketty fan in general, calls the book’s central thesis an “intellectual sleight of hand.”  If you’ve paid attention to nerdy online debates about Piketty, you’re probably familiar with the following irony: Piketty’s book about inequality was a runaway success because the 1% have been getting richer and people are upset about that; however, even Piketty himself admits that the r > g isn’t the reason the 1% are doing so well; r > g tells us the rich are getting richer because they’re accumulating ever-greater returns from capital, but in recent decades, what’s actually happened is that CEOs are pulling astronomical salaries.

If you’re not familiar with that debate, don’t worry; we’re moving right past that stuff.  The book was not a best seller because of r > g; the book was a best seller because it’s a comprehensive, data-driven, and engaging economic history of inequality in the United States and Europe during the past hundred and fifty or so years, and a warning that inequality is likely to keep increasing unless we do something about it.

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The Great Leveler: Violence and the History of Inequality from the Stone Age to the Twenty-First Century, by Walter Scheidel

I can tell a straightforward, partisan story about inequality in the United States:

  1. The colonial United States was a remarkably egalitarian place ⁠⁠— for white people, at least.  But as the United States industrialized, from the Civil War through the Gilded Age and all the way until the Great Depression, the government made few efforts to redistribute wealth, and inequality grew and grew.
  2. Franklin Delano Roosevelt’s New Deal policies reduced inequality dramatically and established a bipartisan consensus in favor of egalitarian redistribution that lasted for decades.  Democrats controlled the White House and Congress for most of these years, and even the two Republican presidents elected during this time — Eisenhower and Nixon — basically accepted the New Deal consensus.  During this time, inequality remained low and even declined slightly.
  3. But backlash against the Civil Rights Act ultimately shattered public confidence in Big Government, eventually leading to the election of Ronald Reagan in 1980.  After this point inequality began to rise again, such that today we once again see levels of inequality we haven’t seen since the Gilded Age.

This is a common story — for example, it’s pretty much exactly the one Paul Krugman tells in The Conscience of a Liberal.


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