Capital in the Twenty First Century (2/2): Piketty and CST (Kate Ward)

This is the second of two posts reviewing Thomas Piketty’s Capital in the Twenty-First Century and pointing out why it is of interest to those concerned with religious ethics and political theology. In the first installment, I summarized Piketty’s findings on the reality of inequality today and the distinction between income from labor and investments, with its implications for justice in societies. In this post, I examine some of Piketty’s broader conclusions.

 

Justifications for Inequality

The heart of Capital is data, including many previously published studies. But Piketty does not shy away from pointing out the moral implications of growing inequality and the moral failures inherent in its justification. He sharply criticizes the US for describing our compensation system as meritocratic. Jane Austen and Henry James described the unequal class systems of their eras without critique, says Piketty, but never claimed that those at the top had earned the right to be there through superior virtue: “Modern meritocratic society, especially in the United States, is much harder on the losers, because it seeks to justify domination on the grounds of justice, virtue, and merit, to say nothing of the insufficient productivity of those at the bottom.”[1]

Meritocratic justifications for inequality discourage empathy with and assistance for those left behind by inequality. This rhetoric also justifies soaring executive pay for the group of highly-compensated executives Piketty calls “supermanagers,”[2] who are often able in effect to determine their own compensation, and who were most affected by reductions in the top marginal tax rate in recent decades in the US.[3] In religious discussions, astronomical executive compensation packages are sometimes chalked up to the vice of greed, which is assumed to be more in evidence today than in previous generations. But Piketty shows that such unequal compensation structures are the logical result of recent changes to tax law, and that increasing tax rates on the highest incomes could reverse the trend without harming the productivity of the US economy.[4] This is equally helpful to citizens interested in building a more just society, and to ethicists interested, as I am, in pointing out that vices most likely remain consistent from generation to generation.

I want to emphasize the important service Piketty does for readers in clearly separating 1) the facts of the economic status quo 2) the choices made to create the status quo and 3) the justifications now given for way things are. Readers who are not trained economists, including me, can become overawed by economists’ power to describe and predict. While Christian readers may disagree with some of the justifications offered by free-market economists—for example, that people are poor because they don’t work hard enough—we can still fall into a scientism that assumes that economic realities came about “naturally” or “inevitably.” In the 2009 encyclical Caritas in Veritate, Pope Benedict echoed a consistent concern of Catholic social thought when he wrote that separating wealth-creating economic activity from redistributive political activity creates “grave imbalances.”[5] Catholic social thought always reminds us that economic conditions are created by humans and can, and should, be changed when they become unjust.

 

Taxation and Redistribution

Piketty calls for a global tax on capital, which would help slow the rate of gains on investment compared to economic growth, and, equally importantly, create transparency around global wealth accumulation where none currently exists. As he shows throughout the book, the contemporary financial system is not capable of accurately reporting wealth capture due to investments, or of preventing wealthy folks from hiding the extent of their true assets from government (which Piketty denounces as “theft” from the common good).[6] In his view, a modest tax on capital of no more than a few percent “would promote the general interest over private interest while preserving economic openness and the forces of competition.”[7] Such a tax could generate significant income for governments and provide transparency without confiscating all the returns on capital, leaving the incentive to invest in new projects intact.[8] Poorer countries, including many in Africa, where corruption does significant damage especially stand to gain from increased global transparency.[9]

Piketty’s proposal for a global tax on capital might remind Catholic readers of Pope Benedict XVI’s support for global government, a facet of Catholic social thought which dates back more than 50 years to Pacem in Terris. U.S. Catholics inherit such a suspicion of totalitarianism—and perhaps a comfort with our nation’s own global supremacy—that we rarely discuss this proposal within our own tradition. But both Piketty and Benedict XVI recognize that as globalization creates new ways of relating and transferring value, it is appropriate to discuss how the weakest in the world economy can be protected, including by intervention at the global level.

At the national level, Piketty argues that taxes should be structured progressively—that is, the rich would pay higher tax rates than the middle class, who would pay more than the poor—in order to preserve social consensus. Without progressive taxation, he says, the middle class will withdraw their support for the social programs that support the poor, because they will view the whole system as patently unfair. (Very similar concerns are raised in the Compendium of the Social Doctrine of the Church, which notes that fair taxation and redistribution “will increase the credibility of the State.”)[10] Piketty adds that since the rich benefit from globalization while it tends to hurt the poor in wealthy countries, who lose jobs to poorer markets, the poorest workers in wealthy countries should be taxed especially lightly.[11] Scholars in political theology generally agree on the value of broad social consensus, generated through robust dialogue, about the content of our life in common. Capital in the Twenty-First Century is helpful in thinking about practical ways this consensus can be encouraged—or how it may be discouraged by present practice.

 

In some ways, Piketty’s work does not fit predictably into the liberal/conservative framework as we understand it in the U.S. For one thing, he joins U.S. conservatives in being leery of public debt, which, he says, is usually held by a minority of wealthy citizens and thus constitutes an inequality in power.[12] He would prefer to see revenues needed for whatever social provisions are deemed appropriate raised through taxes on wealthy citizens, rather than public debt. He defends private property and markets, which “play a useful role in coordinating the actions of millions of individuals,” against Soviet-style socialism.[13] He does argue for significant redistribution through taxation in order to provide every member of society with “equal access to a certain number of goods deemed to be fundamental,”[14] including health care, education and pensions. Education investment has particular potential to decrease inequality within societies by increasing the earning power of poor and middle-class people.[15] Taxation, Piketty says, is a philosophical rather than a technical issue that lies at the heart of a society’s common life.[16] I agree, and encourage scholars and activists to consider investigating the assumptions about values and resources embedded in their local tax policies.

 

Conclusion

Public concern with economic inequality shows no signs of diminishing. Just this week, both the left-leaning U.S. Conference of Mayors and the financial ratings agency Standard and Poor’s published reports calling income inequality a threat to our collective future, an unusual confluence noted by writer Imara Jones at Colorlines.com. While consensus grows about the need to address inequality, scholars and activists can equip themselves by learning to disentangle facts, causes and justifications offered about inequality, and seeking solutions that equip people to participate in economic life and live with dignity. For anyone who heard the truth in Pope Francis’ tweet proclaiming that “inequality is the root of social evil,” Thomas Piketty’s Capital in the Twenty-First Century provides an exhaustively detailed map of the terrain of modern inequality, and bold, concrete suggestions about what we can do to address it.

 

Kate Ward is a doctoral candidate and Flatley Fellow in Theological Ethics at Boston College. Her dissertation explores the effects of privilege, particularly wealth privilege, on virtue formation in the context of growing inequality.

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[1]Thomas Piketty, Capital in the Twenty-First Century (Cambridge Massachusetts: The Belknap Press of Harvard University Press, 2014), 416.

[2]Ibid., 417.

[3]Ibid., 335.

[4]Ibid., 509–513.

[5]Benedict XVI, “Caritas in Veritate,” June 29, 2009, 36, http://www.vatican.va/holy_father/benedict_xvi/encyclicals/documents/hf_ben-xvi_enc_20090629_caritas-in-veritate_en.html.

[6]Thomas Piketty, Capital in the Twenty-First Century, 522.

[7]Ibid., 471.

[8]Ibid., 528.

[9]Ibid., 539.

[10]Pontifical Council for Justice and Peace, “Compendium of the Social Doctrine of the Church,” April 2, 2004, 355, http://www.vatican.va/roman_curia/pontifical_councils/justpeace/documents/rc_pc_justpeace_doc_20060526_compendio-dott-soc_en.html#II.%20MORALITY%20AND%20THE%20ECONOMY.

[11]Thomas Piketty, Capital in the Twenty-First Century, 497.

[12]Ibid., 135.

[13]Ibid., 531–32.

[14]Ibid., 479.

[15]Ibid., 306–307.

[16]Ibid., 493.