Steven Pressman - Understanding Piketty’s Capital in the Twenty-First Century

Part Four concerns public policy. It is about the role of the state and what the state can do about inequality. It addresses issues such as how large the state should be, appropriate tax policy, and the problem of government debt. Part Four has been the most criticized part of Capital in the Twenty-First Century , especially its main policy proposal, a global wealth tax. On the other hand, it is probably the least read part of the book.

Criticism of the global wealth tax has come from across the entire political and economic spectrum. Those on the right have objected vehemently to it. Some opponents of higher taxes have engaged in gratuitous name calling, deeming anyone a socialist who proposes higher taxes for whatever reason. Ross Douthat (2014) suggests in his New York Times op-ed column that conservatives attacking the book have not really read it. Yet, he thinks he understands the argument well enough to proclaim that Karl Marx is back from the dead. Likewise, James Pethokoukis (2014) in The National Review proclaims that Piketty is some sort of Marxist. These are people who understand neither Marx nor Piketty. Yes, there is a similarityboth Marx and Piketty see problems with capitalism. But who doesnt see problems with capitalism, especially after the fall of Lehman Brothers and the Great Recession. Based on this criterion, nearly everyone counts as a Marxist.

Almost as bad have been objections that higher taxes would give the government more money to wasteas if businesses never wasted money and consumers always spent their money cautiously and rationally (e.g., households would NEVER apply for or get mortgages they couldnt possibly repay). The more reasonable objections from the right have focused on the disincentives to work hard, earn money, accumulate wealth, and provide for ones children and grandchildren as a result of the wealth tax (Mankiw 2014).

Those on the left and toward the center of the political spectrum have generally supported a global wealth tax in principle. However, their main objection is that this policy proposal is impractical because it could never get passed by legislators. Political and popular opinion in the US runs strongly against any tax increases. Opposition would run stronger against a tax stemming from some international agreement requiring nations to share information on individual wealth holdings. Somewhat ironically, after contending that such a global wealth tax would never be enacted, these critiques typically push other policies, invariably the personal favorites of those criticizing Piketty, that are just as unlikely to get enacted. Moreover, these are all policies that Piketty supports; he just does not think that they can remedy the problem of wealth inequality. This is why he does not advocate them as strongly as he does a global wealth tax. Before we get to the wealth tax, however, we need to take a step back with Piketty and look at public policy in general.