Good intellectual books take a long time to arrive on Indian shores (I define "good" very narrowly in terms of how influential these books are). So, I have not yet been able to read Thomas Piketty's much-talked about book on inequality, whose reviews I have read.
Academic works in economics can be regarded as being highly influential for one - and only one - reason: they change the way politicians think about very large issues. To use Thomas Kuhn's phrase, they shift the paradigm. Marx was the 19th-century example of this and Keynes the 20th century's.
The 21st century is now waiting for its messiah. Given that it started with a massive financial collapse, wealth and its concentration or, what is the same thing, its distribution, have become central to western economic thinking. Welcome to the Third World, lads.
Lesser mortals like you and I have to focus on three things in this regard: a book's concerns, its method, and its conclusion. Usually, the concerns define the method and then the method leads to the conclusion, which is arrived at intuitively in the first place - which then often determines the concern. So purely from a point of view of logic, there is a very strong element of circularity in such works.
Indeed, without such circularity, much of democratic political economy would become a huge bore. That is perhaps why politicians love it. It doesn't tax the brain, but does tug at the heart.
However, since that is the way of the world, we must, at the very least, have clarity on the current concern: wealth and its distribution on the one hand, and its consequence - economic inequality - on the other.
It's political
Here it is worth bearing in mind that inequality is not about economics but politics, because the redistribution of wealth, regardless of how it is done, has a desirable political motive behind it, not an economic one.
Indeed, I would go so far as to say that inequality is not merely a consequence but also a cause of rapidly expanding economic output for several sound reasons, and is, therefore, not unwelcome if it is merely only increasing. All that societies need to do is to fix an upper bound (as with inflation) and keep it below that.
The primary 20th century political reason for reducing inequality was the threat of communism and the chosen method was the steeply increased taxation of the rich. Once it became clear in the 1980s that communism was not going anywhere, tax levels were gradually brought down because the political threat disappeared. This spurred rapid growth and greater inequality.
But now, even without any re-appearance of a political threat comparable to communism, calls for higher taxes on the rich have been renewed because greed is assumed to be asymmetrical between the rich and the poor. But there is no evidence for this.
An aberration
Whether we need to worry too much about inequality depends on whether you regard the 20th century as the norm or as the aberration. If you look at it clinically, instead of through the several available lenses of compassion, it was indeed an aberration because, in order to keep communism at bay, an entirely new concept had to be introduced - that of full-time, full employment, which means getting paid for eight hours a day for around 40 years.
It was lousy economics, but so what? It was politically very seductive. So it worked for a while.
But all aberrations resolve themselves. We have reached that point. We have to forget about 20th century style full-time, full employment, and start thinking about work. What the 21st century needs to do is to create work because, as many would argue, full-time employment is inimical to work.
Or, in jargon, labour markets have to become fully flexible by making sure that jobs are not an entitlement protected fiercely by the law. Unless you do this, you will not create work for those who are not employed who don't have to work anyway!
In fact, one can go further and say in the 21st century we can have 20th century-type lifetime employment only if (and perhaps if and only if) all industries become state monopolies because - a la Marx - in competitive markets there is no room for extra baggage.
You can have one or the other but not both. It is Heisenberg - and the Taylor rule - all over again.
To put it baldly, there is a glut of both capital (in terms of viable projects for it) and labour. This is reducing the return on both. Something has to give and it will be the one that is relatively more abundant, namely, labour.
But if in the process, more work is created, why become apoplectic?
The author will respond to comments on this column on Monday - see www.business-standard.com
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
