Let me begin this article by tracing the personal history of French economist Thomas Piketty, who has made himself world famous with his book, “Capital in the Twenty-First Century.”
Born in 1971, he passed the baccalaureat examinations at the age of 16. In France, acquiring that academic qualification is both necessary and sufficient conditions for advancing to university, and in principle, whoever has acquired that qualification can enter into any school of higher education of his or her choice.
Those who have achieved high scores in baccalaureat aim to move on not to universities but to grandes ecoles, which offer highly specialized education to a selected few. Famous among them are Ecole polytechnique, Ecole normale superieure and Institut d’etudes politiques de Paris (Sciences Po). Those aspiring to study at grandes ecoles first study their respective subjects of specialty under preparatory programs for one or two years. Since a majority of grandes ecoles offer curriculums in the fields of natural sciences and engineering, Ecole normale superieure, famous for its highest level of education in social sciences and humanities, is one of the most difficult schools to enter.
Piketty majored in mathematics when he attended preparatory programs for a grande ecole, but changed to economics at Ecole normale superieure. He subsequently received a joint doctor’s degree from Ecole des hautes etudes en sciences sociales (the School for Advanced Studies in the Social Sciences) of France and the London School of Economics and Political Science.
In 1993, when he was only 22 years old, Piketty was hired as assistant professor at the Massachusetts Institute of Technology. Obtaining an assistant professorship in economics at a top-level university in the United States requires that one’s doctoral dissertation deal with economic analysis based on a mathematical model and that the paper be so original and in-depth that it could be divided into about three parts, each printed in leading specialist journals.
As evidenced by the fact that American economists have virtually monopolized the Nobel Prize in economic sciences, the mainstream of economic studies the world over has been characterized by the American method of pursuing economic analyses based on mathematical models. Piketty’s doctoral dissertation was no exception as it analyzed redistribution of wealth and income by fully utilizing a detailed mathematical model.
During his short stay of only two years at MIT, he contributed nearly 10 of his treatises to leading specialist journals and had them published. If he had served as assistant professor at that institute for three years, a number of well-known U.S. universities would have scrambled to obtain him by offering him a position with tenure. But he was not satisfied with the American-style economics based on mathematical models, and at the same time, his thoughts went back to outstanding scholars in history, sociology, anthropology and political science he had met while he was at the School for Advanced Studies in the Social Sciences. This led Piketty to resign from his assistant professorship at MIT, a prized post beyond the reach of most young American economists, and returned to France at the age of 25.
Perhaps with a slight exaggeration, though, it may be said that he was disgusted with U.S. economists, who pay no heed to historical facts or to facts before their eyes, are ignorant of other social sciences like history, sociology and political science, and direct all their knowledge and ability to the manipulation of mathematical models.
Picketty apparently came to think that to deepen understanding of the historical movements in distribution of wealth and in social class structure, it would be essential for economists to collaborate with those in other disciplines of humanities and social sciences, like history, sociology and political science. As he placed greater priority on historical facts than on theories, he spent 15 years analyzing tax-related statistics kept for the past 100 years to estimate the changes in the share of income earned and assets held by the wealthiest top 1 percent of the population.
The “fact” which he discovered from massive data was that economic disparities that prevailed in the 19th century continued to shrink and equality became more prevalent over more than a half century due to a number of factors including the destruction of assets by the two world wars, a sharp fall in asset values triggered by the 1929 Great Depression, progress in industrialization and the Russian Revolution, which led governments in advanced countries to shift toward social democracy.
But in the U.S. in particular, inequality in income and wealth has expanded rapidly since the 1980s. Since the rate of return on investment consistently surpasses the economic growth rate, assets owned by the wealthy always follow the process of self-propagation, serving to expand disparity. This growing inequity, which is inherent in a capitalistic economy, could threaten the very basis on which democracy stands, thus giving rise to a call for policies to stop that tendency.
For this reason, Piketty proposes that taxes on income and assets be made more progressive and that international standards be established for the degree of progressiveness of tax rates on assets as a means of preventing flight of financial assets overseas.
For mainstream economists, international progressive taxation on assets would be out of the question and making income tax more progressive would be unacceptable. Yet Piketty’s views are being accepted as realistic in the highly unequal U.S. society, where more than 20 percent of individual income goes to the wealthiest top 1 percent of the population. This is evidenced by the fact that one of the slogans of the 2011 “Occupy Wall Street” protest movement was “We are the 99%!”
In Japan, an easy money policy of unprecedented dimensions — the first arrow of Prime Minister Shinzo Abe’s “Abenomics” economic policy — triggered a steep rise in stock prices and the current valuation of financial assets owned by the rich has doubled since.
Yet the structural inequality in Japan is fairly different from the disparity existing in the U.S. In the aftermath of the bursting of economic bubbles in Japan in 1990, prices of both stock shares and real estate plunged sharply. Although the easy money policy has helped the Nikkei Stock Average recover to a level close to 20,000 points, it is still only about a half of the 38,916 point peak reached late in 1989. Moreover, it is still uncertain whether the current rise in stock prices will be sustainable.
Japan is known for much smaller wage disparities within any corporation but there is a fairly big gap in salaries among corporations and among regions. The gap in wages between regular and irregular workers is also big.
The Japanese Economic Association, an academic society of economics scholars, is like a colony of the American Economic Association. Mainstream economists of both countries say that income disparity under equal opportunities to all is due to different degrees of individuals’ ability and of efforts made by individuals and that an attempt to narrow the economic gap through progressive income tax would lower people’s incentives to work and slow down the economic growth. They argue that if the economy grows, the resulting benefits are certain to trickle down to those in the lowest stratum of society.
As stated above, every piece of the policies proposed by Piketty clashes head-on with the views of mainstream economists in Japan and the U.S.
Whether the interest roused by Piketty in Japan will be short-lived or create a Copernican revolution in economic views here remains uncertain.
Takamitsu Sawa is president of Shiga University.
In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.