The pink ’un, also sometimes known as the Financial Times, has accused one Thomas Piketty of hawking red herrings. Monsieur Piketty, who teaches at the Paris School of Economics, is the man the Left hopes will save socialism from its natural decline. These days, with its intellectual bankruptcy leavened with a pinch of grown-up sense (just a little), the Left wants to sell us socialism with capitalist characteristics. No one is seeking to nationalise wealth, they say, only to tax the “unfair” gains of the voracious top percenters – capitalism must pay its way.
More fuel for this argument comes from Mr Piketty’s assertion that wealth disparities are widening, supported by masses of data from historical sources. The FT, however, found the swooshes and dives in Mr Piketty’s charts a little wobbly. But don’t fret, le Prof tells us. It’s just that graphs had to be smoothed out and gaps in the data filled in – history has holes that require ingenious repair.
Still, “never mind” is not necessarily wrong. But not for the best of reasons. For while the broad outline of the claim is correct, the substantive nuance has been wilfully dismissed or even ignored.
The Left isn’t always wrong, of course. Indeed, they are right that the rich are getting wealthier (no one disputes this, just the degree to which it occurs). Where they are monumentally mistaken is that the poorer and the poorest suffer because of this.
Start with the Gini coefficient, a measure of income inequality, with the higher the number, the greater the inequality. The index for America rose to 0.477 in 2011 from 0.397 in 1967. And for the whole world, it’s calculated to have risen from 0.43 in 1820 to 0.68 in 2005, tipping beyond “quite bad” towards “Oh dear”.
Le Prof contends that the return on wealth grows faster than previously thought compared to economic expansion. So those with capital get richer quicker than those who depend on wages. No one disagrees.
Indeed, look at the average pace of stockmarket gains anywhere compared to the pace of economic expansion in the same anywhere. But wealth creation, although faster than economic growth, does not mean sod the rest. In fact, rapid wealth creation provides a salutary effect on general economic expansion.
The sum result is that people across the board are better off today than they were a half-century ago, two decades back, or even just 10 years ago. The world holds a larger store of prosperity.
There are various reasons why wealth grows at a disjointed pace between different economic cohorts. Principally, it’s because the top percenters’ investments are in rapid income-generating and capital-growing assets like shares, bonds and other such financial instruments, while those in the middle class and below see the most important investment in their future to be, well, a house.
But while bricks and mortar provide a sense of security so highly valued in bourgeois quarters, they are terrible investments. Yes, a house can appreciate perhaps twice as much in value in 20 years, but an owner-occupier would have paid that much in mortgages over that time (and gained no income from that home). The gains are notional. And really, if the Left wants something to rant against, it should be the myth of home ownership in the service of equity building.
But what’s more interesting in the newly framed class war are the underlying dispositions and prejudices. And there is no better way to see this than in the contrast between parts of Asia and the West.
Take China, perhaps the locus of the greatest wealth and income disparity anywhere on Earth today. Yet there is no new revolution brewing – so much for Marx’s version of economic determinism. Instead, when the sweatshop classes look at factory bosses, they think that with hard graft and a little luck maybe they too can some day achieve blingness.
In the West, where the most pressing labour issue is higher hourly wages and a reduced work day, the blue-and-white-collared alliance look at their bosses and think the latter’s earnings should move towards the former’s.
The contrast, thus, is between ambition and envy. And for the latter, perhaps it isn’t so difficult to understand why Monsieur Piketty resonates so mightily in the West. But economic revolutions of the virtuous kind are never built or sustained by envy. As for decline, well that’s another matter. For that reason, there should be wariness at the corrosive nature of the popularity Monsieur Piketty attracts.
Herring, anyone? Just avoid red ones.
Tion Kwa is assistant editor of The National
