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What is Wealth?

Thomas Piketty’s Capital in The Twenty First Century, has spawned a cottage industry of dissent.  Piketty uses masses of data to illuminate a growth in inequality, that he surmises is an inevitable result of capitalism and can only be resolved by painfully high taxes on the rich. For the left it is a pivotal work that brings data and credentialism to their ideology that capitalism is so flawed that it requires constant and strong control from the state.

Anti-Piketty is a collection of noted economists and political thinkers that find significant flaws with Piketty’s work.  These critiques include serious flaws with the data itself and how it is used, the difficulty of measuring the forms of income and inequality itself, conclusions that are not supported by the data, and a philosophically flawed concept of wealth, growth and capitalism.

From Anti- Piketty Chapter    17. Get Real: A Review of Thomas Piketty’s Capital in the 21st Century by Donald Boudreaux

No principle of economics is more essential than the realization that, ultimately, wealth isn’t money or financial assets; instead, wealth is ready access to real goods and services. (Every semester I ask my freshman students how wealthy they would be if they each were worth financially as much as Bill Gates but were stranded with all those stocks, bonds, property titles, and bundles of cash alone on a desert island. My students immediately see that what matters is not the amount of money they have but, rather, what the amount of money they have can buy.) Piketty seems barely aware of that reality. He’s concerned overwhelmingly with differences in people’s monetary portfolios. Piketty doesn’t ask what people— rich, middle class, and poor— can buy with their money.

Yet, surely, the only economic inequalities that matter in the end are inequalities in access to real goods and services for consumption. Such “real” inequalities do exist— Bill Gates’s house is larger and more elegantly furnished than is that of any American or Dane or Aussie of ordinary means. However, two relevant facts about ability to consume undermine Piketty’s tale of capitalist woe. First, even the poorest people in market economies have seen their ability to consume skyrocket over time. Second, the poorer the person, the greater has been the absolute enhancement of his or her ability to consume.

Today, the middle classes in America (the country that is the bête noire of Piketty and other “progressives” obsessed with monetary inequality) take for granted their air-conditioned homes, cars, and workplaces— along with their smartphones, global positioning system (GPS) navigation, safe air travel, Lasik vision correction, and pills for ailments ranging from hypertension to erectile dysfunction. At the end of World War II, when income and wealth inequalities were lower than at any time in the past century, such goods and services were either unavailable to everyone or affordable only for the very rich. So, regardless of how many more dollars today’s plutocrats have accumulated and stashed into their portfolios, the accumulation of riches by the elite has not prevented the living standards of ordinary people from rising spectacularly.

 

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Category: Economics

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