CHRONICLES
On Our Troubled Times
Thomas Piketty
Penguin
174 pages; £16.99
Thomas Piketty's critically acclaimed Capital in the Twenty First Century was majestic in its sweep. Drawing on carefully collated data, Mr Piketty created a compelling narrative around the contentious issue of rising inequality. Though there were legitimate differences of opinions over his prognosis, the book cemented Mr Piketty's place as the world's foremost thinker on inequality.
Following that up is undoubtedly a tall order.
Unlike Capital, Chronicles - On Our Troubled Times gives the reader a glimpse of Mr Piketty's views on a range of contemporary issues. The book is a collection of Mr Piketty's columns published in French newspapers Liberation and Le Monde which have been slotted into three sections.
The first, titled "Why Save the Bankers?", is a selection of his articles written during the initial years of the 2008 financial crisis.
Like many of his contemporaries, Mr Piketty's writings during that tumultuous period suggest that he supported the US Federal Reserve's decision to expand the scope of its interventions to stave off a deeper crisis. He presciently points out, though, that policy makers chose not to tackle the real reason for the crisis.
On inequality, which is really where he is at his best, his analysis is even more perceptive.
Mr Picketty's explanation for why inequality had risen in the post-1990 era despite the wage and profit split being stable is two-fold.
First, he argues that within the wage distribution there has been a marked shift in favour of those at the top end of the distribution. This explanation sits well with analysis offered by other economists, such as Isabel Sawhill at Brookings, who show that the share of income accruing to the top 1 per cent has now reached proportions seen before the Great Depression. This increase coincides with wage growth stagnation for the middle class.
Second, there's the sharp fall in taxes on capital. "If we look at the incomes, we find that capital income has risen continually while after-tax wage share has dropped relentlessly," he says.
But the solutions he proposes are familiar - impose higher taxes on very large incomes. It is also perplexing that the author has chosen not expand on his views on the nature of the political economy that resists higher taxes. He does talk of the need to shut tax havens, but the political economy of taxation merited more attention.
It is also a pity that the acclaimed economist has chosen not to dwell on the issue of rising inequality of opportunity, which has gained centre stage in the public discourse. Little has also been said on the how the structure of the job market has changed over the past decades and the impact it has had on inequality.
Mr Piketty argues that left to itself inequality will rise despite the financial crisis. The crisis will erode the wealth of the super-rich but they will bounce back. Thus, the notion that the crisis would reverse the trend of rising inequality just as the Great Depression was followed by a period of historic decline in inequality in all developed countries is simply not true.
Mr Piketty contends that the fall in inequality after the Great Depression was a result of policy action. He argues that it was concerted government action - "big tax hikes on profits and progressive taxes on very high incomes and wealth, all manner of new controls over capital" that drove the decline in inequality. Left to themselves, financial crises do not have a lasting effect on inequality.
The second section, which spans 2012 to 2015, deals largely with the Euro-zone crisis. Like others, including Paul Krugman, Mr Piketty views the European Union as an incomplete project. He is highly critical of the EU, saying that it is essentially "a currency without a state and a central bank without a government". This arrangement is bound to have structural problems.
He argues that "a single currency can't function with 18 different public debts and 18 different interest rates on which financial markets can freely speculate". His solution, one which has wide acceptance among economists, is to fully commit to a fiscal union. This would require empowering the European parliament with fiscal powers.
"In Europe we have to create a path to fiscal federalism, that path does not run through the IMF but rather through issuing European bonds." The idea of European bonds or common bonds is repeatedly mentioned in book.
This thinking is economically practical but politically naïve: it ignores the fact that many countries will be unwilling to give up their fiscal autonomy.
The final section is a collection of essays written between 2012 and 2015 that deal with wide-ranging issues such as a European wealth tax, the IMF's ideology and oligarchy in the US.
Surprisingly, despite his ideological moorings, Mr Piketty comes out in favour of examining the workings of the modern welfare state. Perhaps the growing fiscal burden of many European nations has forced this realisation. As he says, "Now is the time for a rationalization of the modern welfare state than for its development and indefinite expansion."
Overall, this book reveals the limitations of newspaper columns; some articles are enlightening, others inadequate.
Readers would be better off buying his magnus opus.
