Piketty Has a Point

Thomas Piketty's Capital was received in many different ways. Many see it as a thorough empirical denouncement of capitalism with an ingrained bias toward the evils of wealth accumulation at the expense of the common man. Some celebrate this conclusion as evidence of capitalism's evils while others fear and dismiss his conclusions as those of a French lefty. Very few take it at face value. Very few seem to believe Piketty's assertion that capitalism is not the real subject -- our management of its natural tendencies is. I would like to steer away from this ideologically plagued debate and see what some of his basic numbers tell us and why we should take comfort in them. Simple numbers generated carefully and with transparency, reflecting hundreds of years of human economic activity, suggest that just maybe, just maybe, the world is not coming to an end.

His brilliant jump is to illustrate that the 20th century and the beginnings of the 21st are historical aberrations as the world adjusts to modern capitalism. This, on the surface, can be comforting since the 20th century ended in an apocalyptic cocktail of environmental degradation, genocide, nuclear proliferation, over population, religious intolerance and a precedent for World Wars and all their horrors. Hollywood has made a fortune off of this terrible collective angst. One cannot dismiss any of it -- that is the problem. Like infectious diseases, constant warfare, starvation and infant mortality in the years preceding the modern world, these terrifying scenarios are both real and omnipresent. But we have beaten back those older terrors into manageable corners. Why won't we do the same with our new batch? Is there any evidence that we might have the opportunity to or are we fated to meet with our dreaded apocalypse? Piketty's numbers are a good place to begin to answer these questions.

The fact that the world's population grew from 1.6 billion in 1900 to over 7 billion today suggests that, like mice in a cage, we will breed ourselves to death. Anything close to the over 400 percent increase since 1900 is clearly unsustainable. But if one goes farther back in history -- back hundreds of years -- one discovers that the 20th century is one huge aberration. The world's population grew 14 times the pre 1700 average and 3 times the growth rate of the 19th century. If one charts a historically average growth rate as it trended through the 19th century, the population today would be a little under 4 billion. Something happened in the 20th century. That something is the rest of the world, what has been labeled the third word or the under developed world or even the developing world played a big and very successful game of "catch-up" with the developed world. Going back to life expectancy and war and other metrics of quality of life, this "catch-up" would seem both inevitable and a good thing. It has required enormous consumption of natural resources, terrible amounts of environmental degradation, seriously large and troublesome urbanization and a sense that things seem a bit too crowded. I might argue that our daily contact with this 400 percent increase in human beings does more to feed our apocalyptic fears than any other single factor. It is what we experience most viscerally whether on a packed freeway in Los Angeles, a delay-ridden airport in Chicago or a wall-to-wall congested sidewalk in Hong Kong. No zoo would dare pack us so closely together. The good news is that almost every country in the world is trending back to our historical average. Not the growth rate of the 18th or 19th centuries but our 2000-year historical average. We are doing so at an extraordinary rate -- as if the whole world suddenly got tired of its own species. Such a growth rate slowdown gives us a great opportunity. It can afford the space and time to repair the excesses of the 20th century. It can allow us to take a shot at the question: how much is enough?

How much is enough? We can only ask this question from the perspective of a half-full glass. Those who think of themselves living in a draining glass will always answer more. They will take their money overseas to avoid the taxes needed to maintain the social stability of the nation from which they derived their fortune. Please note the origin of the word "fortune". The word itself acknowledges what these very individuals cannot -- their good fortune. A CEO is now paid 240 times what an average American makes. In 1965 that number was 30. Not being able to acknowledge your good fortune, not see how full your glass is guarantees a deaf and dumb response to what is enough. Accumulating money, unfortunately, is an addictive pursuit guaranteed to generate both myopia and hubris. The man himself told us this quite explicitly in the Gospels. Visit Plato and you will be told that a man obsessed with money will soon think of nothing else. This is one of our 21st century treadmills. And if E.O. Wilson is right, that we have 50 years to get it right with our planet, we will have to start with that question and with our relationship with money. Piketty's numbers offer unanticipated hope.

The historic net growth rate of economies prior to 1800 hovered between 0.5 and 1.0 percent. After 1800 as capitalism matured into the Industrial Revolution and the non-Western worked jumped and played "catch-up", this number has averaged between 1.5 and 2.5 percent. Like the population number we discussed earlier, it also is gradually returning to the historic mean. The United States and Europe already show signs of a much lower long term NET (after inflation) growth rate. The emerging economies all show signs of a systemic slowdown as they begin to resemble, in part, their developed brethren. According to Piketty, we will be at or below 1 percent worldwide (on a good year) by the middle of the 21st century. While it is cutting it close with E.O. Wilson's deadline, it might force us to come to terms with that nagging question. If we do not worship growth, what will we lose and what will we substitute it with? A good, skeptical conservative might envision, with his survivalist brothers, a Blade Runner set, the rich elsewhere or high above the violent melee that is the common man's lot. The more faithful might envision the opportunity for enlightenment -- an expansion of our cerebral cortex such that we might really understand what is gratitude, what is enough. It is a lot to put into a number as small as 1. Maybe that is the operative metaphor. Just like E.O. Wilson and his bugs, it begins with appreciating what it means to be small.