Doubting Thomas

If you want to sound “with it” at elite universities like the one where I teach, drop the name “Piketty” into a conversation involving politics or economics. Piketty is Thomas Piketty, a young French economist whose book Capital in the Twenty-First Century has just been translated into English. Paul Krugman calls it “truly superb,” and other prominent pundits agree that it is one of the best books ever written on income inequality.

Piketty’s is hardly the first book about income inequality. Why all the hoopla? One reason is that Piketty has waded through two centuries of data and compiled a much more complete picture than previous studies. (Full disclosure: I’ve only waded through bits of Capital’s 696 pages.) But it isn’t just the data; it’s also the way the data is packaged. Piketty focuses on capital—by which he means real estate holdings, stocks and bonds, and other property. The rich have a lot of capital, whereas ordinary workers contribute to a country’s overall Gross Domestic Product but do not usually have much capital. Thus, if capital is increasing in value faster than GDP, the gap between the rich and ordinary workers is probably getting bigger. Piketty shows that it is larger now than at any time in nearly a century, and he warns it could get far worse in the coming decades.

Here’s what makes the approach especially daring. Although he insists he is not hostile to capitalism, Piketty is intentionally echoing some of the concepts used by the author of Das Kapital, Karl Marx. It’s not hard to see why this framework would be irresistible to those who see the world in class terms.

Although criticizing the “one percent” has worked well for President Obama, true class warfare is a hard sell in America. Unlike Europe, we have never had a true aristocracy. And today’s rich are quite different from wealthy Americans of the Gilded Age, the last time when income inequality was comparable to today. Unlike the rich of that era, who could be attacked as “the leisure class” because many inherited their wealth, today’s rich generally earned their wealth and are still hard at work.

It is tempting to dismiss the income inequality fad as misguided. Piketty’s favorite solution doesn’t help. He proposes a worldwide tax that would be somewhat similar to the “Buffett tax” that President Obama promoted in the last election. The tax would impose an extra charge on the richest citizens all over the world. Needless to say, it’s a little hard to imagine President Obama and Vladimir Putin hammering out the details.

This doesn’t mean that income inequality is irrelevant, or that there’s no reason for Christians to care about it. After all, Jesus himself warned about the dangers of wealth. But income inequality often is a symptom of something else. In the developing world, it may reflect the stranglehold a small group of insiders have on the nation’s economy. In the United States, the disease is usually more subtle. To give just one example, the government’s decision to bail out big banks in 2008, coupled with the Federal Reserve’s efforts to stimulate the economy, seem to have fueled much of the expansion of income inequality in recent years. The stock market has soared as a result of the Fed’s zero interest rates, which has benefited those who have significant stock portfolios but has contributed to the extremely slow and sluggish economic recovery. A different approach would have meant less income inequality, at least in the United States.

Giving the government a new pot of money isn’t the best way to address the concerns hinted at in Piketty’s data. It makes a lot more sense to take aim at some of the underlying problems, and let ordinary market forces do the rest.

—David Skeel teaches corporate law at the University of Pennsylvania