Monday, May 12, 2014

Inequality, Piketty and an Interesting Middle Ground

I haven't read Thomas Piketty's recent blockbuster, Capital in the Twentyfirst Century, because I am already so far behind on my reading intentions, but I intend to read it at some point of time. This 700 page economics tome has already sold 200,000 copies and caused quite a stir because of its popularity. One would hope that this will not become like its eponymous predecessor, Marx's Capital, a book popularly bought but seldom read. Like the latter, Piketty is trying to explore a great contemporary problem, inequality, and is doing so at the onset of another gilded age.

The immediate trigger of this post is another post by Sudhakar Ram, whose writings on New Constructs I closely follow (see here). Sudhakar's response to the critique of Piketty's work - that it is no good talking about a problem if you can't solve it - is right on the money: Should I not tell you that you have cancer even if I don't know the cure for that? Besides, he also picks up on the other critique that inequality does not matter if the conditions of the poor improves at the same time and points that an unequal playing field may not be good for anyone. 

From my past conversations with Sudhakar, I know about his deep insights about the 'connected age' (as he calls it), where he believes new values and ideas, 'constructs', will be needed for progress. Personally, I couldn't be more in agreement. However, we seemed to differ on what these 'constructs' should be, in our minds. Sudhakar has been a firm believer of the power of the markets, of the invisible hand in Classical economic tradition, in bringing forth the transformation we need. My own conviction has always been that the markets need regulating and moderating, hence there is a role for the state, to achieve progress. Though I am skeptical of the top-down schemes and grand programmes that the governments come up with, hence have a disagreement with the socialists, I am instinctively uncomfortable that markets have all the answers. To be fair, Sudhakar talks about 'pure markets' whereas I believe that markets are quite easily rigged.

It is interesting to see, therefore, that how completely I agree with Sudhakar's position on inequality. Central to Piketty's argument is that the wealth accumulates faster than economic growth and one must find a mechanism to spread the benefits of growth more equally. Sudhakar's position is that this is right as this is morally justified, and sustainable in the long run; failing to do so will break the social consensus that the modern society operates with. This is indeed an important basis why we must seek equality. I have, however, another additional reason to offer.

I believe progress usually comes from bottom up. My own interest is in stories of ideas and progress and how they come about, and I notice that they happened mostly instead of, and seldom because of, the rich and the powerful. It is indeed human nature that if you are successful in something, you want things to remain as it is, even if there was a better way to do it. Marx talked about this tension in terms of the dialectic between means of production and production relations; Schumpeter talked about this in terms of creative destruction. If we see this in the context of the convergence of economic power and political power, at a time when religions have declined and a democratic consensus has emerged, unlimited economic superiority results in unrestrained political power. Koch Brothers may have become a prime example of this in the United States, but there are local variants of them everywhere, and most developing economies are fast becoming Tycoon economies.

My point, therefore, is that inequality is not just a moral problem but a clear problem on the path of regeneration of our economic system. Indeed, anyone talking about these things are immediately labelled socialist, but that is not very helpful. It is important that we are able to debate about progress, prosperity and democracy without being labelled into something or the other. This is therefore so interesting to find myself on the common ground with Sudhakar, who is by no measure a socialist. But he is indeed right - this is an important issue with implications for different things we care about, our communities, our environment, the education we receive, the relationships we have, the values we nurture and pass on. Inequality does matter, and Piketty has done a great job (along with other authors of important recent works, such as Angus Deaton, David Stuckler and Sanjay Basu) in bringing it back in conversation.

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