Book Reviews

Which Side Are We On?

Thomas Piketty’s challenge to the economics profession: We are part of the problem, or part of the solution.

By Heather Boushey

Tagged EconomicsInequality

Capital and Ideology by Thomas Piketty • Harvard University Press • 2020 • 1104 pages • $39.95

In March 2020, the U.S. Department of Commerce’s Bureau of Economic Analysis arguably took a page from the 2013 worldwide best seller Capital in the 21st Century by economist Thomas Piketty. The agency released new data showing how the nation’s total income is distributed. For the first time, policymakers, economists, and the general public can see not only total personal income in the United States, but how much of that total goes to people at various points across the income distribution. This new data set presents economic progress in a refreshingly new way—these new statistics show new statistics show that in 2016, those in the top 10 percent of incomes (adjusted for household size) accounted for 37.6 percent of the nation’s total personal income, while those in the lowest 10 percent accrued only 2.1 percent.

Disaggregating national income statistics is just one of the many ways that Piketty recommends we reimagine our data infrastructure to measure economic progress more accurately, both back in 2013 and now in his latest book, Capital and Ideology. Incorporating these new distributional measures into the regularly released data from the Bureau of Economic Analysis would be a much-needed update to our national data infrastructure. They are especially important because research shows that aggregate metrics on economic trends tend to track the fortunes of the rich. Take this example based on Piketty’s own work: Average national income growth—a proxy for GDP growth, policymakers’ favorite aggregate metric—for 2016 was -0.5 percent. The average masks the reality that Americans in the bottom 20 percent saw a much worse 3 percent decline. It’s not difficult to understand why economists hear, “That’s your bloody GDP, not ours!” from the public. Since journalists report on the data we have, this misleads the public on how well the economy is performing, as these metrics do not reflect the typical, or the majority’s, experience. Indeed, new research shows that the media’s rhetoric about our economic performance is biased, more often reflecting the fortunes of the top 10 percent of income earners than that of the majority.

Throughout Capital and Ideology, Piketty seeks to explain exactly these kinds of interplays between ideas about how the economy works and how it works in practice. Over the course of 1,042 pages (before the glossary and other end material), he seeks to show that the way a society justifies economic inequality in large part creates the lanes in which policymakers have the ideological capacity to act. If a society casts itself as a meritocracy, then improving educational opportunities must be the way to lessen inequality; if it instead casts itself as governed by kings kissed by the gods, then inequality is naturalized through divine right. He believes that we can reframe how we see the economy—so long as we are armed with the right understanding and data—and conveys hope that policymakers will listen to his ideas. And, he makes his politics clear: “We must beware of anyone who tries to naturalize inequality or deny the existence of alternative forms of social organization.”

As he did in his 2013 bestseller Capital in the 21stCentury, Piketty in Capital and Ideology presents the economics profession with a clear challenge—they can be a part of the problem or part of the solution. In Piketty’s view, which path economics takes is up for grabs; it comes down to ideas such as measuring what matters and being willing to see the role that institutions play in how economies function and how economic outcomes are justified. And, this time, he very much wants to influence policymakers. Many passages seem written to affect specific political debates, such as where he says that unwillingness to have a “rational debate about a progressive wealth tax” strikes him “as a very dangerous political choice.” Indeed, reimagining what the economy looks like through new data is core to his policy agenda. Throughout the book, he puts forth a slew of ideas to reconfigure our national economic data—proposing that nation-states cooperate to compile a public financial register that would give political leaders the tools to assess the distribution of wealth and its movement over time, correctly measure the depreciation of “natural capital” so that we have the data to evaluate progress on climate justice, and rewrite national constitutions to require the publication of accurate annual estimates of the amounts of tax actually paid by different classes of income and wealth.

These are all good ideas to consider—and ones that governments can easily begin to do. I fear, however, that many of those in power will not heed his advice. The problem is that the audience for Capital and Ideology isn’t clear. For scholars, there’s a lot of interesting material, but I kept thinking about how there are entire disciplines that study the questions Piketty raises; in an era when economists are regularly seen as practicing disciplinary imperialism, I was left wondering how this volume connects with the literature on across fields of study. Case-in-point: I was shocked to not see the words “political science” until over halfway through the book. On the other hand, the book isn’t written for a general readership, or even politicians and policymakers, if for no other reason than that it took me approximately 17 hours and 21 minutes to read the whole book—and I’m a fast reader trained in economics.

The Evolution of Inequality

In the first half of Capital and Ideology, Piketty lays out what he calls “the evolution of inequality regimes.” He starts with this history lesson in order to explain to the reader how all societies must justify inequality and what this means for the interplay between ideology and economic outcomes. Looking across time and place, he traces out how societies traditionally had some variation of three basic classes—the nobles who controlled the military and delivered justice, the faith leaders who gave expression to (and enforced) an ideology and value system, and the commoners. Together, these triumvirates support both an economic system and an ideology justifying that society’s specific economic inequalities. Throughout this part of the book, Piketty pays attention to issues around race and imperialism and, specifically, the role of slavery in creating wealth in the United States. He examines how faith leaders of earlier eras sanctified inequality through systems of divine right, but then shifts focus to our current ideological systems, which justify unequal economic outcomes based on the inalienable right of ownership—what Piketty terms the “sacralised” nature of capital. He introduces the term “proprietarianism,” which he defines as “a political ideology based on the absolute defense of private property.” Specifically, he writes that “capitalism can be seen as an historical movement that seeks constantly to expand the limits of private property and asset accumulation beyond traditional forms of ownership and existing state boundaries.” In the current inequality regime, we believe that the laws of capital must be followed for the economy to deliver the most beneficial growth; we reify capital ownership and put our faith in the hope that the market delivers optimal outcomes.

If that sounds like a faith system, it’s because it is. As Piketty points out, empirical evidence shows that economic progress—measured as rising productivity and economic growth—comes from people, not “the sacralization of inequality and property.” We can see this today as the coronavirus has led policymakers to ask people to socially isolate, which is causing the economy to stop functioning; it turns out that the economy only exists if there are people who are able to engage in production and consumption. Yet, since 1980, the dominant economic narrative has been grounded in a set of ideas that purport to show that, given a set of endowments and budget constraints, the market can and does deliver optimal outcomes; constraints on the market or steps taken to address inequality—such as mandates that employers provide paid sick days or health insurance—are distortions to be avoided. As Piketty argues, this narrative is both a product of the history of the last few centuries, with the rise and fall of slavery, imperialism, fascism, and, especially, communism. It is also the result of “the fruit of ignorance and of disciplinary division in the academy.” That is, our current political and economic crisis is due to bad economic ideas, driven in large part by economic analyses grounded in a market fundamentalism that focuses far too little attention on whether and how social and political institutions constrain inequality or provide counterweights to concentrated economic power.

The idea that the neoliberal (or supply-side or trickle-down) narrative is both empirically wrong and a product of ideology is one that many others have been coming to acknowledge. In our work at the Washington Center for Equitable Growth with scholars across the country, we’ve found that there is robust empirical evidence that in the United States, high economic inequality constricts growth, by first obstructing the supply of people and ideas into the market, and then by subverting the market and our systems of governance to allow—and indeed encourage—rent-seeking over productivity-enhancing investments, all of which distorts our macroeconomic outcomes.

Piketty’scontribution is to expound (at length) as to how we got here and how we move forward. He argues that one specific challenge we face is that having established that market outcomes are optimal and that redistribution is a distortion of the natural laws of the (optimal) market has led people to focus their political energy on issues around identity and nationhood. In other words, he argues that it is precisely because those in power have claimed that we can do nothing about economic inequality that issues around racial identity and national heritage—and national boundaries—have moved to the forefront of our political debates. To quote Margaret Thatcher, “there is no alternative”—the market system is the only one that works. Piketty is optimistic that with the right understanding, we can move beyond adherence to this kind of market fundamentalism: “History shows that change can come only when social and political struggle converges with profound ideological renewal.” Capital and Ideology is the toolkit he’s giving the world for what he sees as an urgently necessary ideological renewal. And that toolkit starts with correctly measuring the economy.

Rethinking Ownership

The problem is that Piketty thinks his readers have all the time in the world. It isn’t until chapter 11 that Piketty tells us that social democracy suffers from both intellectual and institutional shortcomings regarding social ownership, education, the nation-state, and how to tax wealth. Having made this point, he starts to explain his agenda, core to which is the idea that society should both be in favor of individuals making the most of their skills and talents (and perhaps making a lot of money) while also ensuring that those high incomes do not calcify into wealth that is held by one person or one family over time.

Over the course of the remaining 500 or so pages, Piketty lays out four additional areas of ideological and policy reform on top of measurement issues, each of which addresses and deconstructs various aspects of the sacral nature of capital. First on the list is to replace the idea of permanent private ownership with one of temporary private ownership. In the United States, the top 1 percent controls 40 percent of all wealth, and these fortunes have benefitted from preferential rules for the taxation of wealth and investment income. In order to establish temporary ownership, Piketty shows what a tax system might look like. He imagines a progressive wealth tax based on the multiple of average wealth, rising to 90 percent for wealth holdings that are 10,000 times the average, and 10 percent on fortunes 100 times the average. For example, the owner of a chain of local restaurants with $7 million in the bank would be taxed at around 10 percent for the year; New England Patriots owner Robert Kraft, worth $6.9 billion, would be taxed at 90 percent. So would Jeff Bezos, whose net worth is estimated to be $120 billion—more than 170,0000 times the average.

In order to ensure a permanent circulation of wealth, Piketty shows how the proceeds from this tax could be parceled out to every citizen when they reach 25 years of age as a universal capital endowment equal to 60 percent of the average private wealth holding within the nation. In this way, everyone would receive an inheritance. Importantly, this is not a one-and-done redistribution of wealth; his policy presumes that the playing field needs to be releveled repeatedly and indefinitely. In Piketty’s view, the only reason U.S. policymakers would not enact this policy must be either ideological or political; he sees no technical or economic reason not to do so.

While this idea may seem radical, we need to recognize that it is in no small part thanks to Piketty’s earlier work—and that of his many colleagues—that there is now a vibrant debate going on in the United States about how to tax wealth. Alongside direct taxation of wealth, there are new proposals about how to enact higher taxes on capital income through ideas such as mark-to-market taxation. Taxing wealth directly and taxing capital income are closely related, and either reform could both address the inability of our current tax system to effectively tax investment income and raise revenue in a progressive way. And, of course, taxing wealth also gives the public the right to know who has wealth and how much they have, fundamentally altering our notion of the privacy rights of those that have massive property holdings.

Piketty also illustrates how a progressive income tax could include a tax on carbon emissions at the level of individual consumers. These taxes combined reach 90 percent on incomes 10,000 times the average. Some of this could be distributed to individuals as a basic income guarantee at 60 percent of average after-tax income, falling as other income increases. He estimates that doing this would cost about 5 percent of national income and apply to about 30 percent of the population. He notes that this kind of income guarantee is akin to what many countries do now. And he emphasizes it should not be seen as a substitute for basic institutions supported by taxation, including health care, education, pensions, unemployment insurance, family benefits, and the like.

The prevailing economic narrative is that higher taxes stymie growth. Yet, as Piketty points out, at least in the United States and Europe, more progressive taxes are associated with higher growth over the long term. Across countries, higher taxes at the top of the income distribution have been associated with faster growth. Economic growth, as it turns out, happens when humans come together to tax those with the most resources and invest those revenues in lifting up the majority, improving well-being and human flourishing through investments in health care and education, as well as ensuring there are public goods, such as transportation systems, that benefit everyone.

The second ideological shift Piketty encourages is to think differently about ownership itself. Over the past two centuries, he argues that people got bogged down in the idea that the only counterpoint to concentrated private ownership was government ownership and, because of this, ownership at the firm level was ignored both in policy and research. He calls for more extensive power sharing within firms, making the bold statement, “All available evidence shows that co-management has been a great success.”

Despite the importance of corporate governance, the impacts of shared governance and codetermination are understudied in the United States because we simply do not have these policies or practices. One study recently funded by Equitable Growth looks to Germany to study the effects of shared governance on wages, distribution of profits, and inequality of pay, among a variety of other outcomes. Economists Simon Jäger at the Massachusetts Institute of Technology, Benjamin Schoefer at University of California, Berkeley, and Jörg Heining at the Institute for Employment Research are studying a 1994 reform that abolished employee board representation in newly incorporated firms with fewer than 500 workers. Preliminary results show that shared governance increases capital formation as worker participation helps overcome coordination issues, improve information flows, and foster long-term employment relationships. It also leads to less outsourcing and increased worker productivity. This research can give us important insights on the effects of shared governance and perhaps on how to implement the policy in the United States.

Rethinking Justice

Piketty’s remaining two policy reforms focus on what we mean by justice and democratic accountability. Whereas the first two-thirds of the book take a fairly measured tone, when Piketty turns his eye to the role economics has played in justifying educational and transnational inequality, his tone becomes impatient and, at times, scathing. While the prevailing economic ideology claims that the market rewards merit, Piketty lays out ample evidence to the contrary. Figure I.8, reproduced below as Figure 1, shows a striking correlation between percentile of parental income and the rate of access to higher education for the United States in 2014, undermining the idea that there is equality of opportunity across our society. He is clearly quite angry about those who justify how elite schools perpetuate inequality. For example, on page 539, after laying out how the wealthiest parents “use financial contributions to win admission to the best universities,” he notes that “American university faculty are increasingly inclined to justify these practices and the secrecy that surrounds them because they are effective in raising funds from the generous billionaires who finance their research and teaching.” This focus on educational justice is about more than educational equity for today’s generation; it’s an imperative to ensuring temporary ownership.


Piketty’s third policy reform is to ensure that every child has the right to the same educational opportunity. He argues specifically that average teacher pay should not be an increasing function of the income background of the students, as is too often the case in the United States. Research funded by Equitable Growth confirms this, showing that school financing has a major impact on student achievement, and that school finance reforms can significantly reduce inequality between high- and low-income school districts. Economists Julien Lafortune at the Public Policy Institute of California, Jesse Rothstein at the University of California, Berkeley, and Diane Whitmore Schanzenbach at Northwestern University studied student achievement across high-income and low-income school districts by looking at a series of school finance reforms in more than 25 states in the 1990s. They found that these sharp, immediate, and sustained spending increases in low-income school districts led to a slow but steady rise in test scores of students in low-income school districts, suggesting that addressing school financing could be one of the most important tools available to policymakers to improve student outcomes.

As in Capital in the 21st Century, Piketty reminds the reader here that capitalism does not confine itself to national borders. This creates a specific set of intractable political economy problems for nation-states, which do not have the capacity or authority to constrain inequality at the top or effectively offer counterweights to concentrated economic power. This is especially important for the fiscal power of the nation-state and the capacity to address climate change. His fourth area of reforms to put in place are rules and treaties that govern the social and economic relations between states that make it possible for states act on fiscal matters. He calls, for example, for a transnational assembly for Europe that would make decisions around “global public goods … and global fiscal justice.” At the same time, he also elevates the need to equitably finance political campaigns, proposing to give every citizen an annual voucher worth a fairly small amount that they could donate to the political party of their choosing in what he calls a democratic quality voucher, building on work done by the economist Julia Cagé at Sciences Po Paris.

The Task at Hand

Ultimately, Piketty believes that statistical and mathematical data frames the way we see the world, which makes that data both powerful and politically potent. For him, data isn’t dull and is certainly not technocratic. As he points out, the very foundation of our democracy relies on data. In order to ensure a fair system of universal voting rights, we need a census of the population that allows policymakers to draw districts and ensures we can count every vote. Likewise, in order to levy taxes, nation-states must have data on the resources of citizens so that they can construct fair tax schedules. He’s right to elevate these as politically important; too often we now think of our statistics as technical processes rather than what make our democracy possible. Piketty is enormously frustrated with the complicity of the economics profession in justifying all forms of economic inequality, but he also aims to inspire hope that the profession can be a force for good. He points out that the United States was a leader among its economic competitors internationally in establishing an income tax in the early twentieth century and how economists were central to developing these ideas. He points out how Irving Fisher “bluntly told his colleagues that the increasing concentration of wealth was on the brink of becoming America’s foremost economic problem” in his 1919 presidential address to the American Economic Association. Piketty goes on to point out that early in the twentieth century, economists developed the intellectual framework for a progressive income tax, setting the stage for Franklin D. Roosevelt to raise rates when elected President in 1932.

Yet, while I generally applaud his focus on unpacking numbers to show who gains from growth, if Piketty was hankering to fill in the political economy story, the book After Piketty—which I co-edited with Brad DeLong and Marshall Steinbaum, and which was published in the aftermath of Capital in the 21stCentury,and also runs only ten pages shorter than it—we gave him lots of ideas. I was surprised that he didn’t engage with those of us who engaged so deeply with him. In particular, I remain frustrated that Piketty continues to fail to highlight the need to paint accurate portraits of the role of women in the economy, including around questions of ownership and the contribution of unpaid labor.

Yet in the end, I share Piketty’s hope. I see lots of indications today that a new cohort of economists is singing from a different playbook. The formation of Economics for Inclusive Prosperity is just one example of a new breed of economists seeking to focus on what empirical evidence shows about economic policy and coming to the conclusion that reifying capital—and the concentration of income and wealth among a small few at the top—is the not the best path forward. And our network of scholars and grantees at Equitable Growth is examining the many different aspects of economic inequality from an explicitly policy focus, arguing for new solutions such as the new income distribution data series just released by the Bureau of Economic Analysis. These are just two examples of the bright vision for the future Piketty and I both see for the economics profession.

Piketty calls his vision for a new political economy at times “participatory socialism” and at others, “social federalism.” It’s a world where the reining ideology is not an adherence to market fundamentalism upheld by economists. Instead, he imagines a world where everyone can engage in the economy and reap the gains from growth; he understands that this requires a set of governing institutions that are both democratic, which may mean more local control, and yet also operating at a larger—even global—scale to be able to act as a counterweight to global capital. This is a bold vision, one that will require greater collaboration and cross-fertilization across academic disciplines, alongside the willingness of the economics profession to engage in questions around the very purpose of the economy. The question is whether the challenge facing us now—of a new, deadly virus traveling around the world—will encourage us to start not from the question of inequality, but a more basic point: In order to have an economy, we need people who are healthy enough to act as producers and consumers. Perhaps we need to start with the more basic question of whether our societies are focusing enough on improving human well-being. Today’s answer is clearly no.

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Heather Boushey is President and CEO of the Washington Center for Equitable Growth and author of Unbound: How Inequality Constricts Our Economy and What We Can Do About It.

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