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Piketty's Unanswered Question

By: Don Watkins
November 30, 2015

 Theory of Justice (1971) was one of the most influential philosophical tracts of the 20th century, despite the fact that the author, John Rawls, never really got around to defining justice, his book’s central concept. In 2014 French economist Thomas Piketty wrote Capital in the Twenty-First Century. Like A Theory of Justice, it was very long (some 600 pages), forbidding to the lay reader, and immediately acclaimed as a work of profound importance.

There’s a further similarity. In all of those pages exploring the causes and consequences of economic inequality, Piketty never answers a central question: Why should we care about inequality in the first place?

Economic inequality, after all, can result from the rich getting richer and the poor getting poorer…but also from everyone getting richer, some more rapidly and others less. Indeed, the story of capitalism is of steady and, over time, dramatic improvements in living standards. Economic inequality in capitalistic societies refers not to absolute deprivation, of which there is less than ever in human history, but to relative deprivation, whose odiousness is not self-evident.

Enter The Economics of Inequality. The first English translation of a work that originally appeared in 1997 explicates why economic inequality is a problem so grave that it must be fought with the policy equivalent of thermonuclear weapons, such as a global tax on wealth and “confiscatory” income taxes. In Piketty’s view, success and failure depend more on luck than anything else. Since no one deserves to be rich or poor, morality requires leveling: elevating those at the bottom and diminishing those on top. If, he says, “inequality is due, in part, to factors beyond the control of individuals, such as inequality of initial endowments owning to inheritance or luck … then it is just for the state to seek in the most efficient way possible to improve the lot of the least well-off.”

This view, Piketty is quick to point out, is basically the one outlined in A Theory of Justice. Rawlsianism qualifies egalitarianism, which has always been beset by a fundamental problem: if we confiscate and redistribute all the rewards secured by diligence and audacity, innovators like Steve Jobs will have no incentive to create the products and services that have carried us from the Stone Age to the digital age. Making everyone equal would make everyone equally poor. The Rawlsian view endorsed in The Economics of Inequality allows for some economic inequality—if it serves the least well off in society. Steve Jobs should be allowed to profit from his efforts—but only to the extent that making Jobs better off also improves the condition of the society’s least advantaged member, to use Rawls’s term.

For example, addressing leftists who want government to equalize wages rather than redistribute wealth after the fact, Piketty writes that “in a complex world where many different goods and services are produced, a high price for skilled relative to less-skilled labor may not be the worst way to encourage firms and consumers to choose goods and services that make intensive use of less-skilled labor and less-intensive use of high-skilled labor.” A higher price for skilled labor might be justified—not because someone who has devoted time, effort, and money to acquiring skills that make him far more productive deserves to get paid more, but because unequal wages might make less-skilled workers better off.

The redistribution of income from high- to low-skilled workers, is, in Piketty’s view, “justified by considerations of social justice alone: human capital inequality [i.e., inequality that results from different skill levels] is at least partly a result of factors beyond the control of individuals, such as social background, natural talent, and unequal initial endowments.” As such, the question is not whether to redistribute, but “what is the best way to redistribute?”

If luck played any role in a person’s achievements, Piketty argues, then he doesn’t deserve his money. That is, there’s no moral argument against confiscating anything he has over that exceeds what others have, only the practical constraint of ensuring that this redistribution doesn’t end up harming the least advantaged. And since luck always plays a role—no one chooses his parents, or native intelligence, or the place and time in which he’s born—no one ever earns anything and the government has the right to take as much as it wants.

* * *

To earn something, however, doesn’t mean that factors outside your control played absolutely no role in the outcome. When we say that someone has earned something, we aren’t distinguishing people who chose their parents or place of birth from those who didn’t. Rather, we’re acknowledging that the knowledge, skills, or expertise that makes one person’s work more economically valuable required effort, ambition, and initiative, whatever one’s natural talents or social background. If you attained your wealth as a result of non-fraudulent, non-coercive exchanges with employers or customers, then you earned it—and it’s wrong for the government to seize it on the theory that it would be nicer if someone else had it rather than you.

Piketty concedes this point, albeit implicitly, when he goes out of his way to argue that most great fortunes and high incomes do not result from productive achievement. For instance, Piketty suggests that capital income, such as dividends and interest, is unearned, being effectively lifted out of workers’ pockets. He argues similarly that the rise in executive pay over the past forty years results from pliant boards of directors giving CEOs special favors.

Both opinions are debatable, but both also derive their moral force by appealing to an idea of what it means to earn and deserve wealth that is much wider than Rawls’s. On Piketty’s premises, there is no point in distinguishing the successful CEO whose decisions enhance his company’s value from the unsuccessful one who is the board members’ golfing companion—neither deserves his Learjet and stock options. Piketty’s argument that the wealth of the heiress or crony CEO is particularly objectionable, however, implies that the wealth of the genuine innovator and wealth creator is less objectionable.

This concession, however, opens the door to a robust defense of property rights, which treats the confiscation of private wealth as a moral wrong, not merely a practical mistake. The egalitarian project rests on the premise that the actual possession of wealth and the moral right to it are inversely related. This dogmatic indifference to the processes whereby wealth is created and acquired, and the habits and dispositions that have proven conducive to individual prosperity, as opposed to the habits and dispositions that reliably result in poverty, means that advocates of “social justice” like Piketty are devoted to perpetrating a profound injustice.