There’s no question that Thomas Piketty’s book “Capital” is the most important book of the year (which is a real bummer for anyone else who happened to write a finance/econ book in 2014). He’s touched on a hot button issue and what will likely rage as the debate of our time.
But the real question is not whether the book is a smash hit (though Piketty’s publisher might disagree), but whether the book will actually steer the course of future policy. This is interesting considering other books like Flash Boys and the almost immediate outrage that it caused. Within hours it seemed like the FBI and SEC were initiating investigations and getting the policy ball rolling. But all seems to be quiet on the inequality front.
And this gets to the major problem in Piketty’s book. While the data appears convincing and certainly well researched there is a good deal of gray area in terms of how problematic inequality really is. Of course, to some people it appears crystal clear, but to others Piketty’s book sounds like political ideology and little more. But I don’t know if the people in the middle are convinced yet.
I’ve already expressed my view that Piketty might be overstating the argument to some degree and that the estimates about future growth appear almost naively bearish to me, but I also agree that inequality is a very real threat to our democratic and meritocratic well-being. In that regard, this is much more a social debate and not so much an economic debate. I also stated my case for a change in the way we tax investments like dividends and capital gains.
But I am also going to be honest – I don’t see material changes coming there any time soon. And broader taxes like a wealth tax look almost impossible to me – the political climate in the USA is just nowhere near big changes like that. So yes, while the book is certainly the most important economics text of the year, I doubt it will move the policy needle by much because I think Piketty’s argument left too much to be questioned.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.