Capital in the Twenty-First Century, by Thomas Piketty

Although “Capital” is one of the most recent books I have read I wanted to post a short text about it at the same time as a posted my text about “The new digital age”, as “capital in the 21st century” is the opposite to the “digital age” in so many ways. It is intelligent, focus on important issues, is funny and thought-provoking. It is a book where I often found myself agree and disagree with the author a number of times on a single page.

I initially just thought I would read the introduction and the conclusions, as I heard it was long and mostly about methodology. But once I started I just kept on reading. For once the term “page turner” made sense in a high-quality book. It such a well researched book (that also celebrate transparency by putting all the data out there for people to use), that focus on patterns through history that are of fundamental importance. Still it is humble and ambitious at the same time, but more than anything challenges you to think, both about the content, but also the method/approach.

I do not know if the title “Capital” was Piketty’s own idea, but he does not comment on it in the book so I must assume that Piketty was behind it, or at least is OK with it. For me that is a clear sign that he has humor, as it is easy to see how many of those who see themselves as economic experts in media, most still with a neo-classical approach, will be provoked with a reference to Marx. Especially in a book about equity.

I find the book particularly rewarding on three levels:

1. The fact that Piketty actually spent time researching the book and thought about the major trends in society while also being 100% transparent with all his data. This in a time where most authors do not even use footnotes, or if they do it is to newspaper articles, to back up their arguments. In the future I would like to see a situation where we can rank/measure books based on the actual research and number of ideas in the book? If this is 90+ on a 1-100 scale for quality research. As a reference I would say that most airport literature that is on the best-seller lists would be in the 8-12 range (this would include “the new digital age” and “the fourth revolution”).
2. The fact that he has a long-term perspective, that focus on the evolution of income and wealth over the past 300 years, makes the book a tool that makes it easier to separate important trends from noise today. It is also an inspiration for all of us who want to make sure that anything significant we do today should be evaluated based also on its impact beyond the year 2100.
3. The contribution to a simple framework where tax levels are discussed on a structural level, i.e. what do you get if you have 10% of GDP through taxes, 30% or 50%. This is particular interesting in relation to the emerging countries. It is interesting that Piketty notes that China has done progress and could potentially build a new social state (with Chinese characteristics), while India is struggling to put a system in place that supports equity and a social state. Obviously taxes can be good or bad, and you can have all the money in the world and still do not get anything of value if you do not have a state that can deliver. Still it is interesting to compare how all current developed countries have built a social state that is way beyond what you can get for 10% of GDP (e.g. in terms of health, education and redistribution).

The focus on the book is inequality when it comes to capital. Piketty defines capital a little special, and it is possible to argue with that (like James Galbraith does in this article in a way that is both a good contribution to the discussion, but also feels like a way to try to link his work to Piketty although it is much more limited). Regardless, Piketty’s contribution is something that I think can be seen as a mirror image of Manuel Castell. Where Castell’s tried to make sense of a new world by gathering a lot of data Piketty use a lot of data to explain long-term trends. I really would like to see them work together.

The two main weaknesses with Piketty’s book in my view are that

1. He hardly discuss our current situation with new information technology, new forms of power and a society that is very different than the one we have had so far. When knowledge and information (and this includes totally new ways of speculation) becomes capital in a way that we have never seen before. It would have been interesting to hear what Piketty think about these new trends. Does he consider these new phenomena to be ripples, or are they are so significant that he will include them in future work?
2. His recommendations are not developed and discussed enough. Still it is a relative weakness as his recommendations are so much better than 99% of the books written by policy makers and others that spend their time telling others what to do. The fact that he has a structure that the recommendations fit in so that he can provide both “utopian” and incremental suggestions is something that few seem to understand as many have criticized Piketty, e.g. for suggesting a progressive global tax on capital and wealth. The fact that he has recommendations and they are interesting make me want to hear more.

It should be obvious that I do not really see these two weaknesses above as real weaknesses, but rather potentials to develop the ideas even further.

The one real weakness as I see is that Piketty does not clearly explains the relation between his definition of capital and equity in enough details, nor how it relates to other definitions of capital. I hope he will expand on this in the future. Both are important as we develop more detailed recommendations to address unsustainable trends and inequity in particular as well as strategies for them.

Beside further work with integrating a new connected economy and develop the recommendations further it would be interesting to have some skilled experts use the data for visualizations as soon as possible. So much of the visualization work today is done by people that seem to find a few circles moving based on simplistic data as something amazing and capable of telling us chocking truths (obviously if they show that everything moves in the right direction they get media time and are invited to entertain on scenes around the world).

PS One small thing that I find very funny is the following quote from the Economist leaders page “Mr Piketty’s focus on soaking the rich smacks of socialist ideology, not scholarship.”

Piketty focus on equity and how that increased income/capital difference can be reversed. He spent 700 pages trying to explain that. If the Economist, John Micklethwait, could explain how “baby bonds” and “government top-ups of private saving accounts” could deliver this it would be interesting. But judging by the surprisingly low intellectual level on the book they put together (I say surprisingly low as have great respect for the Economist Intelligence Unit and many of the articles in the Economist are very good) that is not likely to happen anytime soon.