There is zero chance that Donald Trump has read the 577-page book, ‘Capital in the Twenty-First Century’, by progressive French economist Thomas Piketty (in photo at top). But watching Trump as he rolls out policy after policy, one might conclude he has studied the tome closely and then done exactly the opposite of what each and every insight, analysis, and recommendation implies.
Trump’s decision to withdraw from the Paris Climate agreement is only the latest and most wrongheaded action Trump has taken in perfect contradiction with everything that Piketty’s book has to say. For a book written by an economist, ‘Capital’ is remarkably clear and free of jargon and complex formulas. The main thesis and the logic by which Piketty arrives at his conclusions are accessible.
Piketty’s book turns the analysis of what has been happening within capitalism in the last few decades on its head. The sluggish rate of growth and rising inequality that the United States (and other rich countries as well, to varying extents) have been experiencing is not the exception. It is just how capitalism has worked for most of the system’s existence. The exception was the period between World War I and the 1970’s, during which a vast amount of capital was destroyed by two world wars. This reduced capital’s share in economic growth and brought rapid growth from the 1950’s to the 1970’s as economies like Japan and Germany raced to rebuild while the United States reaped the benefit of being the only economy left standing after the war.
The point is that most people assumed that high growth, low unemployment, an improving standard of living, and modest inequality was the new capitalist normal. Instead, what has been happening lately is that capitalism has completely absorbed the shocks of the twentieth century’s two world wars and is reverting to its normal state of modest growth and ever-increasing inequality. Trump, in spite of his campaign promises, is making things worse.
To be sure, trends in inequality within capitalism have been affected by the political choices of states. The consequences of inequality have been much less severe in continental Europe than in Great Britain and, especially, in the United States. The former used the fruits of economic growth to build a strong social safety net, what Piketty calls the “social state” and others call the welfare state. Britain also built a social state, but Margaret Thatcher and her successors have significantly weakened it, but not shattered it. The United States never built a comprehensive or cohesive social state. Moreover, to the extent that some elements of a social state had been built piecemeal from the 1930’s to the 1970’s, since 1980 they have been systematically decimated, mostly by Republicans, but also by “new Democrats” like Bill Clinton. Now Trump and the Republican Congress are trying to totally dismantle what little of the social state is left.
But the basic engine driving snowballing levels of inequality is that throughout the history of capitalism, with only a few exceptions, the returns to capital (profits, dividends, capital gains) always comfortably exceed the rate of economic growth. The rate of economic growth is basically the ceiling for wage increases. These two factors, that returns to capital exceed the rate of growth and that growth is low relative to post-WWII standards, are the main reasons inequality is skyrocketing.
Thus, basically the only way to prevent inequality from spiraling to unprecedented heights is to tax capital directly. The Trump administration’s policy instead is to reduce taxation of capital held in corporations — and the one held by very rich individuals. That is like adding a rocket booster to a runaway train. Piketty thinks such a course will, at some point, cause a derailment of the system.
As for climate change, it amounts to degrading natural capital (fossil fuels, wood, metals, etc.) and public goods like clean air and water. No wall can stop air or water from circulating. The United States too will suffer from the insane, self-centered policies of the Trump administration.