Paris: Flaws in Piketty’s Analyses

The great difference between the two left-wing gurus John Rawls and Thomas Piketty is that Rawls was concerned about the poor, but Piketty seemingly only worries about the rich, Professor Hannes H. Gissurarson pointed out in his lecture on Piketty and Rawls at the Sorbonne in Paris on 19 April 2023. Rawls is right that poverty is a real problem, a recognisable social evil. But is wealth really a problem? Gissurarson asked. Piketty’s present prominence on the Left may indeed reflect the fact that world poverty has been greatly reduced over the last few decades and ceased to be a major issue.

Piketty teaches that our main problem is the existence of the very wealthy on whom confiscatory taxes consequently should be imposed. But there are several weaknesses in his analyses, Gissurarson argued. One is that global inquality (as measured by the Gini coefficient) has in fact decreased, while admittedly inequality has increased in the Western world. Hundreds of millions of people in the South have marched out of poverty, as a result of globalisation. Piketty’s figures on the wealth and income of the very rich in Western countries may also be less than accurate, for example because he does not correct for real estate bubbles, or for the effects of tax cuts on the revelation (in tax returns) of high incomes. Again, Piketty ignores the many unintended and invisible benefits for others from the rich: they have the means and often the will to resist the abuse of power by arrogant bureaucrats and power-hungry politicians; they reduce the cost of developing new consumer goods, initially expensive but becoming cheap in the experimental process of the market; and they act as sources of venture capital, essential to innovation.

Piketty’s assumption that wealth somehow clings to the rich also seems implausible, Gissurarson submitted. In the lists published regularly by the Sunday Times and Forbes of the richest people in the world, there has been a marked change in the last forty years. Now, most of the people on the lists have created their wealth themselves, whereas in the past most had inherited it. Gissurarson recalled that Piketty was fond of quoting Balzac’s novel, Père Goriot, about the historical inequality he thought was now returning. But if that novel was read closely, it demonstrated the fragility of wealth: the chief protagonists either had lost their wealth as a result of speculation, gambling or debauchery, or were penniless, desperately trying to get their hands on some money.

Gissurarson added that Piketty no less than Rawls ignored Hayek’s profound insight into the use of knowledge in society. Prices formed in a competitive market are, according to Hayek, signals which enable people to use their resources sensibly. Incomes are of course such prices, and they transmit to individuals information about where their abilities, talents and skills could best be developed and employed to satisfy the needs of others. This flow of information is distorted if government tries to change the income distribution brought about in free market exchanges, by individual choice. Income distribution is less about incentives than information.

The meeting was chaired by Economics Professor Pierre Garrello and organised by Professor François Facchini in partnership with IREF, Institute for Research in Economic and Fiscal Issue, and the Austrian Economics Center, as a part of the Free Market Road Show. Other speakers included Dr. Eamonn Butler, Craig Biddle and Dr. Barbara Kolm.

The venue of Gissurarson’s lecture was the venerable Law Faculty of Sorbonne. According to medieval legends Saemund Sigfusson the Learned was the first Icelander to study at Sorbonne in the 12th century, bringing back to Iceland a lot of knowledge.

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