Thomas Piketty on a warped economic system that lets rich get away with govt support: Financial Express July 10, 2016 Book review

hronicles On Our Troubled Times
Thomas Piketty
Penguin
Pp 181
R699

THOMAS PIKETTY must be one of the most controversial economists, thanks to his book Capital in the Twenty-First Century, a scathing attack on capitalism and greed. In that book, Piketty’s basic contention was that capitalism in the 21st century has evolved to make the rich richer. Hence, the only solution is to introduce a progressive tax system on both income and wealth. Capital put data together to prove his point.

As the title suggests, Chronicles is a set of Piketty’s writings between 2008 and 2015. Written in French in various publications, they have now been translated and published as this collection. The translation, it is said, has stayed honest with what Piketty wrote at that time and no attempt has been made to either adapt or change the words to suit the current context. Chronicles has around 45 pieces, each three-four pages long. Hence, it is easy to read. However, one may just say that these could be impressionistic views that have not been backed by data unlike Capital, which was a thesis. Hence, the basic theme of the book can be expected to be along the lines of Capital, as the thoughts in Chronicles have crystallised into the former.

Piketty’s main target is capitalism and the way economists went all out during the financial crisis to save banks, which were typified by cronyism and sheer incompetence. Yet there were no punishments meted out after these institutions were rescued. In hindsight, we do often contend that had the Federal Reserve been proactive during the Great Depression, things would have been better, just as it was when the Fed intervened in 2008. Piketty argues that while he is for such rescues, there should be punitive action on perpetrators. He says that even today they get away with ‘obscene’ compensation packages.

On the euro, Piketty argues that there is something intrinsically amiss with this concept of common currency. It has no state and the central bank doesn’t have a government, but still there is a common monetary policy without a common fiscal policy. This is interesting, as well as true. This is why the UK, Japan and the US have managed to tackle the crisis better even though they had higher debt-to-GDP levels compared with the euro region. An important observation is that France and Germany never talk of fiscal or political unions, as they’ve been big beneficiaries of low-interest rate regimes, unlike Spain and Italy, which have borne the brunt of high rates.

A third observation made is that banks continued to be very profitable after the crisis. The credit for this should go to central banks, especially the European Central Bank. They were giving loans to banks at less than 1%, which, in turn, were lending at 5-6%. These huge margins helped them register high profits in depressing times. Top management and shareholders, too, got high compensations. However, this wasn’t the case with labour, where wages came down and job creation became weak.

This leads to the fourth observation that inequalities have increased substantially across countries. Corporate balance sheets reveal that the share of wages in ‘value added’ remains two-thirds and has not changed over the years in France. However, this is because wages have been increasing at higher levels than lower echelons, which is unacceptable.

On the euro crisis, starting with Greece, Piketty is critical of the unfair solution. Banks got funds at 1% and lent to Greece at 6%, which went with austerity programmes, affecting the lower-income groups the most. Also, by buying back debt through these programmes, central banks have actually become the largest lenders to governments.
Another interesting article in the book is on inherited wealth. As expected, Piketty distinguishes the cases of wealth held through innovation and those through inheritance or exertion of monopoly power. Steve Jobs’ Apple, hence, is a case of hard work, while Liliane Bettencourt’s L’Oreal is a case of inheritance. Also,Microsoft and Bill Gates reached a dominating position due to what could be termed as unfair practices. There is not much continuity in Chronicles, as these articles have been written over the past eight years. The book highlights the warped systems, where the rich get away with support from the government through intervention of policies, which are justified to protect the realm. It’s the weak that bear the brunt. The only solution, hence, is a progressive tax on wealth. The International Monetary Fund has also finally come around to this thinking.

In the last few ‘chronicles’ in the book, Piketty takes on political issues and, of these, two stand out. The first pertains to the 2015 ISIL attacks in Paris, where several people died. While not defending terrorism, Piketty explains that the way the world has treated the Muslim countries, starting from Iraq, has led to dissatisfaction and this has led to terrorism. Rising inequality has aggrandised this schism in society, creating a new set of terrorists. The other issue is secularism, where Piketty blasts the French for imposing a dress code for Muslims, which, he argues, is not justified.

Will a reader like this book? Well, that depends on your mindset. If you think inequality has been exacerbated by a system, which is supported by the government, you will vote for it. If you believe that countries should be free, then, too, this is for you. But if you think or believe that the rich being rich is a case of survival of the fittest and that we can never have a just society, then you are advised to stay away from this book.