Piketty on Ireland

Thomas Piketty’s theory of rising inequality has made him one of 2014’s best-selling authors. As the French economist prepares for a visit to Dublin, he talks about Ireland’s place in Europe, why we were right not to burn the bondholders, and our country’s ‘unfair’ property tax

French connection: Thomas Piketty. Photograph: Ed Alcock/New York Times

French connection: Thomas Piketty. Photograph: Ed Alcock/New York Times

Sat, Jun 14, 2014, 01:00

Since its publication in English, in March, Thomas Piketty’s Capital in the Twenty-First Century has been hailed as the most important economics book in decades. The Nobel laureate Paul Krugman declared that the French economic historian had “transformed the economic discourse”.

Piketty, a professor at the Paris School of Economics, has become not only a bestselling author, pushing diet and self-help books out of the way to top the Amazon charts, but also a global celebrity, pictured on magazine covers as a kind of pin-up and appearing on countless US talkshows.

This sudden fame appears to have had little impact on the youthful-looking 43-year-old. Dressed in a white casual shirt and blue chinos, he makes the coffee, answers his own phone and seems unhurried as we talk for an hour in his tiny book-lined office in southern Paris.

“I’m just another academic, and I’m trying to do my job as a scholar and a social scientist,” he says. “I have no problem with the publicity as long as it induces more people to read my book. When you write a book you want people to read it. The problem, of course, is that with all the publicity you have some people who write about the book who have not even opened it, so sometimes there are some strange reviews or comments.”

As the book is almost 700 pages long, and includes numerous graphs and tables, it’s perhaps no surprise that some of its most strident critics have not taken the trouble to read it. “I didn’t read his book, though you don’t have to in order to understand why it’s mostly wrong,” Keith Weiner, a Forbes contributor, blogged last month, in a post illustrated with a hammer and sickle.

Despite its length and the weight of data and technical information, the book is remarkably accessible for a work of economic history, illustrated with cultural references including the works of Balzac, Jane Austen and Quentin Tarantino.

Patrimonial capitalism

Piketty and a team of researchers spent more than a decade investigating the distribution of wealth over two centuries across the world, focusing on France, Britain and the United States. He concludes that, if the market is left to its own devices, wealth inequality could return to levels not seen in Europe and the US since before the first World War, producing a “patrimonial capitalism” where inherited wealth takes on ever greater importance.

The reason is that the return on capital has always tended to be greater than the rate of economic growth, so the share of income earned by wealth tends to increase compared with that earned by labour.

The trend was reversed in the middle of the 20th century, when economic growth outpaced the return earned by capital, partly because so much wealth had been destroyed by the two World Wars, and inequality was reduced. This has been reversed since the 1980s, however, with inequality rapidly rising once again.

“Inequality is not bad per se. Inequality up to a point can actually be useful for growth and innovation,” he says. “The problem is that, when inequality gets too extreme, first it’s not useful for growth any more. It can even have a negative impact on growth, because extreme inequality often goes with limited mobility and perpetuation of inequality across generations, which can be bad for growth.

“And extreme inequality can be a danger for our democratic institutions, because it leads to extremely unequal access to political voice and political influence.”

Piketty has provided a theoretical rallying point for progressives throughout the West who have been disappointed by both the revolutionary left and by the compromises social democrats have made with the liberal market system. In the United States outrage about increasing inequality not only spawned the Occupy movement but has also helped to elect figures such as Bill de Blasio , the new mayor of New York, and Elizabeth Warren, the Massachusetts senator. Everyone from Pope Francis and Barack Obama to the global elites who meet at the World Economic Forum, in Davos, have identified inequality as one of the greatest challenges of the age.