Capital and Ideology

Yesterday afternoon I had the pleasure to sit down with Thomas Piketty, Heather Boushey (President and CEO of the Washington Center for Economic Growth) and Martin Sandbu (European Economics Editor at the Financial Times) for a discussion of Thomas’ latest book, Capital and Ideology. A recording of the conversation will be up on YouTube in not too long. Until then, you can get a flavour of the discussion from the below. Both Heather and Martin have recently written important books on this topic, and I’ll have more to say about all three in due course. For now, here’s an overview (cross-posted from the Queen Mary website) of what we talked about.

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Thomas Piketty on Capital and Ideology

The Institute for the Humanities and Social Sciences at Queen Mary University of London has held its Annual Symposium which was given by bestselling author and economist, Professor Thomas Piketty.

Queen Mary’s Institute for the Humanities and Social Sciences (IHSS) aims to bring to Queen Mary, a scholar who has recently contributed a ground breaking piece of work in the humanities and social sciences. Professor Thomas Piketty discussed his 2020 release, Capital and Ideology during this inaugural event which was held online.  

Capital and Ideology is the follow-up to Piketty’s bestselling Capital in the Twenty-First Century (2014) which was influential in changing the way politics, ideology and history are thought about. In particular, Professor Piketty focused on inequality and economic structures. The presentation was followed by a response from President and CEO of the Washington Center for Equitable Growth Dr Heather Boushey and Financial Times journalist Martin Sandbu.

Continuing inequalities 

Professor Piketty opened the presentation with a discussion on inequality around the world. He argued that the French Revolution of 1789 was a failure in the sense that – against common perceptions – it did not lead to a reduction in inequalities. According to his analysis, inequality was only reduced following the world wars of the 20th century. 

Professor Piketty also examined the role of colonialism in continuing to perpetuate inequalities, including the role of the slave trade. “Colonial societies are among the most unequal in history,” he said. 

The relationship between politics and education was explored throughout the discussion. According to Professor Piketty, one of the most striking features of his book is that left-wing parties have become associated with voters with higher levels of education, where as in the decades before the 1950s this was not the case. 

One of the key messages from Professor Piketty is that countries do not exist in isolation, and should therefore not be governed as such. 

Wealth and power

Dr Heather Boushey responded by discussing the importance of bridging the gap between economic outcomes and social outcomes. She argued that these need to be at the core of what economics does. “We need to do even more with the profession,” she said.

Dr Boushey also discussed the economic implications of the current Covid-19 pandemic. In her view, in many ways it is a reminder of how fragile market economies can be. “We stopped believing we needed people to be healthy to be participating in our market economy,” she explained. “We need to understand how markets are embedded into our social institutions,” added Dr Boushey. 

On the subject of colonialism, Dr Boushey stated that much of the wealth of the United States was largely created through slavery, something which needs to be properly understood moving forward.  

Wealth gaps versus income gaps 

Martin Sandbu, leading writer at the Financial Times also provided a response to Professor Piketty’s presentation. He emphasised that there are many reasons for increases in inequality since 1980, including structural dynamics. “This is a debate about how we understand the economy. Ideas are important, and this is particularly relevant today since the pandemic has turned everything upside down,” he said.

Martin Sandbu also explored the issue of wealth and power in his response. “Wealth is what gives you power, and the power to influence ideas. Who owns what is an important question. The wealth gap between black and white Americans is much bigger than the income gap,” he explained, adding that this has influences for policy.

The topic of taxation was also discussed with Martin Sandbu arguing that a potential wealth tax could lead to tax breaks elsewhere. “Wealth taxes do not always have to mean taxing more, it is a question of taxing better, perhaps reducing other taxes which are less progressive.”

Professor Piketty responded by highlighting that there are other countries in the world where taxation policies are changing. He pointed out that in Germany wealth taxes have become part of the political discourse. “Things are changing fast,” he added.

Dr Simon Reid-Henry, Director of the Institute for the Humanities and Social Sciences at Queen Mary hosted the event and led the three economists in a discussion. He noted that a critical first step to introducing economic policy changes of any sort is to change the language of economics. This needs to include how and what we measure. There have been suggestions in Norway, for example, to introduce a measure of “common income” alongside that of “national income”. Likewise thinking about policies such as wage compression and higher minimum wages does not mean a brake on innovation and productivity but often quite the opposite. “It comes back to the issue of ‘switch points’,” he said. “There are moments when things can be thought differently. And now feels like one such moment.”