Courtney McGrailCapital in the Twenty First Century
Frank Litton
Pope Francis’ preaching is much admired; its Franciscan simplicity greeted as a welcome change. That is as long as he remains in the ‘Church’. Once he speaks out on social justice and calls the inequalities that mark our societies and divide nations a scandal, questions are raised.
Economists work long and hard to master the complexity of the economy and the hard maths required to explicate its laws. And the Pope has the temerity to blunder into their world and challenge the supremacy of its laws. What has religion to do with economics?
Family, church, work, politics, economics make up the texture of our lives. Once tightly woven together, now they unravel as we move among them as through self-contained compartments.
Thomas Piketty, a French economist has also had the temerity to cross boundaries. Educated in economics in the LSE (London) and MIT (Boston) where the brightest students are tutored by the most learned professors, he returned to Paris where together with colleagues he started to research inequality in wealth and income, a topic largely ignored by his fellow economists.
Patterns
Unlike most of them, he did not believe that mathematical models alone could explain the patterns found in the data. So he called on history, literature, sociology to assist his enquiries. His report on the research was published in English last February. It was very well received.
Economists, whether or not they agreed with the analysis, united in acknowledging that the work was a major contribution to their discipline.
What is more remarkable, it found a readership beyond economists. It was a best seller in the United States and figured in the Irish non-fiction, hardback best seller list for 11 weeks. If Pope Francis had bucked the trend to compartmentalise, so too had Piketty.
(Mind you, Pope Francis is another best-seller. His Evangelli Gaudium – the Joy of the Gospel was 10 weeks in the non-fiction, paperback list for 10 weeks selling a total of 2205 to Piketty’s 1366.)
Piketty’s success is not hard to understand. While economists might not have considered inequality worthy of attention the rest of us do. The Christian takes side with Lazarus and large discrepancies in wealth should – and sometimes do – trouble our conscience. So we are concerned to find out what are the facts. Piketty provides them in abundance. The range and scope of his data is extraordinary. The facts are troublesome.
There are two ways in which we might explain the good fortune of Dives, the rich man in the Gospel at whose gate poor Lazarus sits. Perhaps he is the CEO of a large corporation and enjoys the staggeringly high income that comes with the job. Perhaps he has inherited a fortune, and lives off the dividends and rents from stocks, shares and properties.
Piketty reports that income inequality has increased since the 1980s.
Though the most spectacular increases have been in the US, all European states have seen a disproportionate amount of their national incomes going to their richest citizens. In Europe, in 1980, the top 10% of earners got 30% of total income; in 2010 35%. In the US in 1980, the top 10% got 37% and in 2010, 47%. The distribution of wealth has always been more unequal than that of income. Today, in most European countries, the richest 10% own 60% of the national wealth.
Some have argued that the economic laws that produce these inequalities are also those that deliver increasing prosperity. Inequality is the price we must pay for economic progress.
Piketty’s data that ranges over centuries allows him identify the dynamics. Capitalism does produce inequality.
The outcome is not, however, benign. The evidence shows that the return to capital is higher than the rate of economic growth over the long term.
In other words, to those that have, more will be given. The ‘invisible hand’ of the market is not providential. Unless checked, the growing inequalities will undermine social order and challenge the legitimacy of the regimes that allow it.
The difficult task of aligning the dynamics of capitalism with the demands of justice and good social order cannot be avoided.
Only sinking ships have need of water tight compartments.