We are looking at a stack of sources today that
center on a figure who manages to be, well, incredibly
polarizing while primarily dealing with spreadsheets.
Yeah, that's a good way to put it. It's pretty
rare that an economist breaks out of the academic
bubble, you know, to become a household name.
It is. But when they do, it usually signals a
pretty major shift in how we're starting to understand
the world. Right. And usually economics is kind
of... confined to the business pages or these
really dense policy journals. But today we are
dissecting the work and the life of Thomas Piketty.
And the reason this deep dive is so necessary.
Yeah. It isn't just because he wrote a bestseller.
No, not at all. It's because he fundamentally
altered the vocabulary we use to talk about wealth
and inequality. It's interesting you say vocabulary.
I mean, before Piketty's capital in the 21st
century hit the shelves in 2013, the conversation
about inequality was often. Well, it was anecdotal.
It was a feeling. It was about feeling like the
system was rigged. Piketty just drops this this
800 page doorstopper of a book that essentially
says here. Here are three centuries of tax receipts
that prove you are right. It was a moment where
data just completely caught up with intuition.
And we need to be clear about the scale of this.
He didn't just write a popular book. No. I mean,
he became a Clarivate Citation Laureate in 2023,
which a lot of people see that as sort of the
waiting room for the Nobel Prize. He's won the
Euro Johnson Award. But at the end of the day,
the accolades matter less than the mission he's
on. And that mission, based on all the materials
we have in front of us, seems to be a total deconstruction
of the idea that capitalism just naturally balances
itself out. Exactly. The sources suggest he's
arguing that... That inequality is a feature.
It's not a bug of the system. But I want to move
beyond just the headlines here. We need to understand
the man, the specific mechanism of his theory,
that famous larger dollars and maybe most importantly,
his diagnosis of our current political dysfunction.
And we also have to look at the criticism because,
you know, when you propose something like a global
wealth tax and. you claim the rich are basically
devouring the future, you're going to make some
enemies. For sure. And not just on the right.
There's a lot of serious academic pushback on
his methodology that we really need to unpack.
Okay, so let's start at the beginning, the origin
story. Because when you look at his biography,
there's a paradox right at the start. There really
is. He was born in 1971 in Clichy, France. His
parents were involved with the Trotskyist group
and were active in the May 1968 protests. Now,
for those who aren't, you know, steeped in French
history. May 68 was the closest Western Europe
came to a full blown revolution in the post -war
era. It was a massive, massive event. It was
a huge upheaval. I mean, you had students and
workers uniting. The entire country was paralyzed
by strikes. De Gaulle actually fled the country
for a bit. Right. So Piketty is born into this.
this milieu where the default assumption was
that capitalism was on its last legs. The revolution
was just around the corner. So you would absolutely
expect him to inherit that specific brand of
anti -capitalist fire. You'd think so. But he
didn't. And this is the pivot point I really
want to drill into. In 1991, just as the Soviet
Union is collapsing, a 20 -year -old Thomas Piketty
takes a trip. A trip to Moscow. To Moscow. And
this trip is absolutely crucial to understanding
him. 1991 was the end of the line for the Soviet
experiment. So when Pagetti arrived, he wasn't
seeing the, you know, the glory of the worker
state. Not at all. He was seeing the wreckage,
empty shops, the gray market everywhere, the
absolute lack of basic goods. He's spoken about
this pretty viscerally. He saw firsthand that
without private property and without market mechanisms,
basic human needs were simply not being met.
And it's a really stark contrast to the romanticized
version of socialism his parents' generation
might have debated in Parisian cafes. Well, completely.
For the 68 generation, the USSR was sometimes
this abstract ideal or at least a geopolitical
counterweight. For Piketty, you know, standing
in a grid line in Moscow, it was a practical,
undeniable failure. He came back to France, basically
inoculated against that kind of anti -capitalism.
He became a staunch believer in markets, in private
property, and the necessity of capitalism to
generate wealth. So just to be crystal clear,
the guy who is often painted by his critics,
especially in the U .S., as some kind of Marxist,
he actually started his career thinking, thank
God for capitalism. Precisely. He views the market
as a necessary tool, a tool for personal freedom.
His critique, which develops much later, isn't
that we should abolish markets. It's that markets
have this mechanical tendency to concentrate
wealth that eventually undermines the very democracy
that supports them. But back in the early 90s.
In the early 90s, he was all about the math of
the market. And he was clearly in a hurry, too.
I mean, he enters the École Normale Supérieure
at 18, which... For listeners, it's basically
the training ground for the entire French intellectual
elite. And he finishes his Ph .D. at 22. 22 years
old. It's just it's incredible. Most people are
just finishing their undergrad degree. He wrote
his thesis at the London School of Economics
and E .S. And it wins the French Economics Association's
award for best thesis of the year. And then he
jumps straight to MIT. Yep. Massachusetts Institute
of Technology, the absolute pinnacle of the American
economics establishment. It really is. He was
an assistant professor there from 1993 to 1995.
You have to picture this. He was teaching students
who were practically his own age. But this is
where the second pivot happens. OK. He's at MIT.
He's on the tenure track. He's basically made
it in the world of American academia. And he
hates it. Why? That's the dream job for an economist.
He found American economics to be too obsessed
with these abstract mathematical models. There
was a tendency, and this is still a big debate
in economics today, to treat the economy like
a physics problem. A physics problem, how so?
You build a model, you assume these perfectly
rational actors, and then you assume your model
perfectly describes reality. Piketty felt it
was completely disconnected from history, from
the messy reality of politics and social class.
So he felt they were mistaking the map for the
territory. That's a perfect way to put it. Exactly.
He wanted to look at what actually happened in
the past, not just what a model said should happen
based on its own assumptions. So what did he
do? So he packed his bags. He went back to France
to join the CNRS and later ESS. He wanted to
do social science, not just pure math. And this
return to France wasn't just a retreat, right?
It was a strategic move. He helps build the Paris
School of Economics in 2006. He did. He was trying
to create an institution that would do economics
the way he thought it should be done, grounded
in real history and massive data sets. Which
brings us directly to the methodology. And this
is the part that, for me, really separates Piketty
from a lot of his predecessors. Before Piketty
and his collaborators like Emmanuel Saez came
along, how did we even know how rich the rich
were? I assume we asked them. Or maybe looked
at census data or something. We relied heavily
on surveys. You call people up or you send them
a questionnaire. But there's a massive, massive
problem with that when you're trying to study
the ultra wealthy. Well, first off, I imagine
they don't answer the phone. Right. That's problem
number one. And secondly, statistically speaking,
the super rich are outliers. If you survey 10
,000 people, you might not catch a single billionaire.
That makes sense. And if you do, they might underreport
their income. or not even know their full income.
It's so complex. Surveys are great for understanding
the middle class. They are terrible for understanding
the top 0 .1%. It's what statisticians call the
fat tail problem. You miss the extreme end of
the distribution. So Piketty decided to look
at the one place where you can't really hide.
or at least where it's much, much harder to hide.
Tax records. But we have to appreciate the sheer
grunt work involved here. This wasn't a matter
of, you know, downloading a CSV file from a government
website. He was looking for long -run historical
trends. This meant going into the archives of
the French Ministry of Finance, dealing with
handwritten ledgers from the early 20th century.
Even the late 19th century. He was literally
digitizing the analog history of wealth. He and
his team, including incredible people like Facundo
Alvarado and the late Anthony Atkinson, they
practically reconstructed the national accounts
of France, the U .S., and the U .K. from scratch.
They painstakingly stitched together centuries
of data to see how the top incomes evolved over
time. So it's this massive, historical, data
-driven project. Huge. And when they finally
crunched these numbers, particularly for France,
what was the aha moment? What was the big reveal?
The aha moment was that the story we had all
been telling ourselves about the 20th century
was wrong, just fundamentally wrong. What was
the old story? The prevailing theory, which came
from Simon Kuznets back in the 1950s, was something
called the Kuznets curve. The idea was that as
a country industrializes, inequality goes up
for a while. But then as the economy matures
and gets more advanced, inequality naturally
comes down. It follows a kind of bell curve shape.
That's a very comforting narrative. Oh, it's
the most comforting narrative. Stick with capitalism.
It'll all work out. Eventually, the wealth trickles
down. And the middle class expands. Exactly.
And Kuznets, to be fair, he looked at the data
he had from roughly 1913 to 1948 and he saw inequality
dropping. So he projected that trend forward.
But Piketty's data, which went back much further
and then extended to the present day. You showed
something different. It showed that the drop
Kuznets saw wasn't a natural feature of capitalism
at all. It was an anomaly. It was a massive historical
accident caused by the incredible chaos of the
mid -20th century. You had World War I, the Great
Depression, World War II. These events destroyed
capital on a scale we can barely imagine today.
How so? What do you mean by destroyed capital?
I mean, factories were bombed to rubble. Foreign
investments were wiped out overnight. Hyperinflation
destroyed cash savings. And then after the wars,
governments had to impose these massive progressive
taxes to pay for rebuilding. So the relative
equality of the 1950s and 60s, that sort of golden
age, it wasn't because the market worked. perfectly
no it was because the world blew up that is Piketty's
Dark, and I think a very compelling conclusion.
Once those shocks wore off and the tax rates
were lowered, starting in the 80s and 90s, inequality
started marching right back up. To where it was
before. Right back up to the levels you saw in
the Belle Epoque in France or the Gilded Age
in America. I mean, look at his data for France.
By 2012, the top 10 % were taking more than half
of the country's total income, a level unseen
since the data collection began over a century
ago. This leads us directly to the formula, the
one that became the tagline for the entire book.
$3. I want to pressure test this because it sounds
so simple, but the implications are just huge.
So $2 is the rate of return on capital and $2
is the growth of the economy. Correct. So $2
captures everything you earn from owning stuff.
Dividends from stocks, rent from your properties,
interest on bonds, capital gains when you sell
an asset. Okay, so money from money. Money from
money. And Duda Lauder represents the growth
of income and outflow. So basically how much
wages are rising and how much the overall economy
is expanding. And the central thesis of the whole
book is that historically, $2, the return on
wealth, is almost always higher, the growth of
wages and the economy. Yes. Piketty estimates
that over the long, long run, the return on capital
tends to be about 4 % to 5 % per year. Meanwhile,
economic growth historically hovers somewhere
around one to one and a half percent. So if I'm
a worker and my income is tied to two dollars,
I'm just inching forward year after year. Yeah.
But if I'm an heir and my income is tied to two
dollars. We're sprinting. And because of the
magic of compound interest, that gap just widens
exponentially over time. If you have a large
fortune, you only need to reinvest a portion
of that 5 % return to see your personal wealth
grow much faster than the economy as a whole.
Meanwhile, the average worker's wages are barely
keeping up with inflation if they're lucky. This
just completely challenges the meritocratic argument,
doesn't it? The story we tell ourselves. It's
a direct assault on it. We like to think people
get rich because they're brilliant or they're
hardworking innovators. But Piketty is saying
that past a certain point, you just get rich
because you're already rich. He calls this patrimonial
capitalism, the idea that we're returning to
a society dominated by inherited wealth. He uses
literature to make this point really effectively.
He references Jane Austen and Balzac. Right.
I remember that from the book. In those novels,
no one talks about making it by getting a good
job. The only way to live a good life, a comfortable
life, is to inherit money or marry into it. So
work is for the peasants. Essentially. And Piketty's
warning is that we are slowly but surely drifting
back to that world. He notes that in France,
the tax cuts since the late 90s are helping to
rebuild these huge dynastic fortunes. But wait,
I have to play devil's advocate here for a second.
Because there was significant pushback on this
core theory. Specifically, I remember the story
about Matthew Roggeley, who was a grad student
at MIT at the time. Oh, yeah, the Roggeley critique.
That was a big deal. He argued that Piketty's
data was skewed by one particular asset class.
Housing. Housing. That's a very, very important
critique. Roggeley dug into the data and argued
that if you look closely at the capital that
has been increasing in value so dramatically,
it's not really factories or robots or innovative
software. It's mostly housing. Real estate. So
the story isn't that capitalists are extracting
more and more value from workers in the factory.
It's that homeowners in, say, San Francisco,
London and Paris have seen their land values
skyrocket. Right. And that's because of things
like zoning restrictions and scarcity, not necessarily
because of some inherent feature of capitalism
itself. Roggenly's point was that if you strip
out housing, the droguide dynamic looks much
less severe. So maybe the problem is bad land
use policy. You know, NIMB -ism rather than a
fundamental flaw in the market system. It's a
powerful counter argument. Now, Piketty, did
he concede that? What was his response? He acknowledged
the importance of housing. Absolutely. But he
argues that for the person who doesn't own property,
the distinction doesn't really matter much. Whether
the elite control the factories or they control
all the apartment buildings, the result is the
same. A rentier class extracting a larger and
larger share of income from the working population.
He would argue that real estate is capital. And
it functions as a store of value and a source
of returns, just like stocks or bonds do. That's
a fair point. I mean, if I'm paying 50 percent
of my income in rent to a landlord, I don't really
care if you call it housing scarcity or capital
accumulation. The effect on my bank account is
identical. The effect is identical. And this
growing economic divide, he argues, has spilled
over into a massive political realignment. And
this brings us to his 2018 paper on the Brahmin
left and the merchant right. Yes. This is, in
my opinion, one of his most brilliant and useful
sociological insights. It just explains so much.
I completely agree. It explains the confusion
so many of us feel when we're looking at election
maps. I mean, traditionally, the left was the
party of the workers and the right was the party
of the rich. Simple. The standard class politics
model. Yeah. Labor versus capital. But Piketty
and his team, they crunched voter data from the
U .S., France and the U .K. over the last 60
or 70 years. And they found this. dramatic structural
shift. What exactly changed? The left has been
captured by the highly educated. It's a total
reversal. In the 1950s, if you had a university
degree, you were much more likely to vote conservative
or Republican. Okay. Today, education is the
single strongest predictor of voting Democrat,
labor, or socialist. The left became the party
of what he calls the Brahmin left. The intellectual,
the cultural, the credentialed elite. The PhDs,
the journalists, the tech workers, the media
class. That's the coalition, right? Meanwhile,
the right remained the party of the merchant
right. So the business owners, the investors,
the wealthy. But the merchant right also started
picking up the working class voters who felt
abandoned by this new highly educated Brahmin
left. This is the deplorables moment in the U
.S. or the red wall collapsing in the U .K. Exactly.
The working class looks at the left and sees
a group of people. living in expensive cities,
maybe scolding them about cultural issues, and
they look at the right and see, what do they
see? Well, they see a party that at least pays
lip service to their economic anxiety, or perhaps
more powerfully, shares their cultural resentment
against the Brahmins. Piketty argues this leaves
the working class effectively... politically
homeless. And the two elites, the Brahmins and
the merchants, are just fighting each other for
power. They're fighting over power, but neither
one truly represents the economic interests of
the bottom 50%. The interests of the working
and lower middle classes are just off the table.
So we have a multiple elite system. It's the
degree holders versus the account holders. That's
the dynamic. And Piketty warns that this is incredibly
dangerous because it stabilizes inequality. The
Brahmins are generally fine with inequality as
long as it's meritocratic, you know, based on
education and degrees. And the merchants are
fine with inequality because it preserves their
capital. So nobody is actually fighting for broad
based redistribution anymore. No one with real
power. Which segues perfectly into his 2019 book
Capital and Ideology. Because if the numbers
are so stark, if $2 really is greater than $2
and the system is rigged. Why aren't people,
you know, in the streets with pitchforks? Right.
Why aren't we seeing a revolt? That's the central
question of that book, which is even longer than
the first one. He argues that inequality is never
just about economics. It's always sustained by
an ideology. A story. A story. Exactly. Every
society, from feudal Europe to caste -based India
to modern America, constructs a narrative to
justify why some people have everything and others
have nothing. It makes the arrangement feel natural
or just or inevitable. So in 1789, the story
was God appointed the king so he gets the palace.
What's the story we tell ourselves today? Today,
the story is a powerful combination of meritocracy
and property rights. We tell ourselves that billionaires
are billionaires because they are geniuses who
added value to the world and that touching their
wealth would be theft and would crash the whole
economy. Piketty calls this the sacralization
of property. We treat property rights as if they're
on the same level as human rights. We do. And
he argues we've gone way too far. He points out
that historically, real human progress didn't
come from protecting property at all costs. It
came from challenging it. What are some examples?
Well, the end of slavery was a massive violation
of the property rights of slaveholders. The introduction
of progressive income tax was decried as communism
and theft in the early 20th century. But those
violations of property were absolutely necessary
to create a more just and stable society. So
he's essentially calling for a new story, a new
ideology, which brings us to the so what part
of this? The prescription. The prescription.
If his diagnosis is right, what does he want
to do about it? Because this is where the rock
star economist usually gets into trouble with
the policy wonks. And his flagship solution is,
it's a big one. It's the global wealth tax. Okay,
break that down. He proposes a progressive tax
on net wealth. So not your income, but your total
assets minus your debts. If you're worth $100
million, you pay a certain percentage of that
every single year, not just when you sell something.
But the key word there is global. And that, to
me, feels like the Achilles heel of the whole
thing. It is the biggest challenge. Because if
France implements a wealth tax and the U .S.
doesn't, the French billionaires just get on
a plane and move to Miami. We've seen this happen
in France specifically when they had a wealth
tax before. Capital flight. Oh, Piketty knows
this. He's not naive about it. That's why he
insists it has to be international and coordinated.
He envisions a system where huge economic blocks
like the U .S. and the EU combined and force
the tax and impose heavy sanctions on tax havens
like the Cayman Islands or Switzerland. So he
essentially wants to end banking secrecy on a
global scale. That's the goal. Now, you can look
at that and say, realistically, in a world where
we can't even agree on basic climate targets,
getting every major nation to agree to tax their
own elites. Optimistic is a very kind word. It
is utopian. But Piketty would argue that utopian
ideas are necessary because they move the Overton
window. They shift the boundaries of what's considered
possible to discuss. And what would he do with
that tax revenue? Well, he also proposes something
he calls inheritance for all. Basically, using
the revenue from these wealth taxes to give every
single 25 -year -old a lump sum of capital, say
120 ,000 euros, to start their life. A capital
endowment. Yeah. So instead of waiting for your
parents to die to get a start, the state gives
you a stake in the economy from day one. Right.
It's a direct attempt to break that patrimonial
cycle of inherited advantage. And he's also moved
more into climate activism lately. I saw that.
The private jets. Yes. Calling for outright bans
on private jets and for progressive carbon taxes
that specifically target the wealthy. He links
the climate crisis directly to inequality, pointing
out that the top 1 percent emit vastly more carbon
than the entire bottom 50 percent of the population
combined. He's certainly not afraid to be radical
in his proposals. But when he tries to apply
these ideas in the real world of politics, the
results have been, well, mixed. To put it mildly.
Mix is being generous. He has a track record
of jumping into the political arena and then
storming out in frustration. Tell us about that.
OK, so he advised Céline Royale in her presidential
campaign in 2007. Then he supported François
Hollande in 2012. Hollande won. Hollande won.
But then Piketty later described his presidency
as hopeless and a catastrophe because Hollande
pivoted to more pro -business supply side policies.
He felt completely betrayed. And what about the
stint with the British Labour Party under Jeremy
Corbyn? That was a big deal at the time. A huge
deal. He joined their Economic Advisory Committee
in 2015. It gave Corbyn's program a lot of intellectual
credibility. Piketty was advising that tax rates
over 50 % on the highest earners wouldn't hurt
the economy. So why did he leave? That was even
shorter lived. He quit in June 2016 because he
felt the party was too weak and ambivalent on
Brexit. He wanted a robust, passionate, pro -European
campaign. And he felt Corbyn was lukewarm at
best. So it seems like he has very little patience
for the compromises and... frankly, the messiness
of actual governance. I think that's the intellectual's
prerogative, isn't it? He can demand ideological
purity. A politician has to build a coalition
and win votes. There's a fundamental clash of
cultures there. We see that same spirit in his
refusal of the Legion of Honor in 2015. Oh, absolutely.
That was a huge moment in France. The government
tries to give him their highest civilian award
and he publicly rejects it, just turns it down
flat. And what was his reason? He said I do not
think it is the government's role to decide who
is honorable. It was a direct slap in the face
to the socialist government he had previously
supported. It really reinforced his brand as
this incorruptible outsider someone who couldn't
be bought or flattered. However we can't discuss
his biography without mentioning the darker controversies.
There are aspects of his personal life that have
complicated his standing as a public figure.
particularly in the hashtag MeToo era. Yes, and
we need to address this carefully but clearly.
In 2009, he was the subject of a legal complaint
by his former partner, Aurelie Filippetti, who
is herself a prominent politician and novelist.
And the complaint was for domestic violence?
Domestic violence, yes. How was this resolved?
Well, according to the sources, Piketty acknowledged
the facts of the violence to the police at the
time. Filippetti later withdrew the formal complaint,
which is not uncommon in these cases, but the
incident is on the public record. And then more
recently, in 2022, there was a libel case where
Piketty was found guilty for comments he made
that were... We're seen as downplaying the severity
of the incident. This raises a really difficult
question for the listener and for us. In France,
there's a strong tradition of separating the
man from the work. L 'homme est louve. But for
many readers, especially in the U .S. and the
U .K., it's very hard to reconcile a public champion
of social justice with a history of private abuse.
It is a contradiction that hangs over his reputation.
He is married now to Julia KJ, who is a brilliant
economist in her own right, and they collaborate
closely on research. But that history with Filippetti
remains a significant stain on his personal character,
even as his academic work continues to define
the entire field. It's a sobering reminder that
we're looking at the work of humans, not saints.
So, OK, let's try to synthesize all of this.
We have the data, the theory, the politics, the
personal controversies, the man. If we step back,
what is the lasting impact of Thomas Piketty?
What did he change? I think his greatest contribution,
hands down, is that he ended the era of economics
without history. He forced the discipline to
look at long -term multigenerational trends rather
than just short -term abstract models. Right.
And he put distribution back at the absolute
center of the table. That's so important. For
a long time, it felt like economists only cared
about efficiency and growth. How big is the economic
pie? Bickety came along and reminded us that
it doesn't matter how much the pie grows if one
person is eating 90 percent of it. That's it.
Exactly. So even if you think his global wealth
tax is a complete fantasy or if you agree with
Rogling that he overstates the role of capital
versus housing, you cannot ignore his diagnosis.
The gap between three dollars is real. The concentration
of wealth at the very top is real. And the political
realignment into Brahmins versus merchants. My
God. That's playing out on the news every single
night. It's the defining political cleavage of
our time. Which brings us back to that final
powerful idea of ideology. Piketty argues that
the only thing holding the current system together
is the story we tell ourselves about why it's
fair. And stories are fragile. They can break.
They are very fragile. If the story that capitalism
benefits everyone stops being believable for
the majority of people, the system becomes dangerously
unstable. Piketty's work is essentially a warning
shot across the bow, he's saying. If we don't
fix the distribution of wealth through democratic
means like taxes and regulation history, suggests
it will eventually be fixed by much uglier means.
Like social unrest or revolution. Exactly. The
charts in his books are dry, they're academic,
but the message is anything but. It's a desperate
call to rewrite the social contract before it
tears itself apart. So that's the so what here.
We are living in the world that Piketty described
for us. The question he leaves us with is whether
we're willing to use the democratic tools he
suggests to try and change it. It's a heavy question.
It's a very heavy question, but one we have to
sit with. We've covered the prodigy, the data,
the theory, and the flaws. Thomas Piketty has
given us the map of our current predicament.
It's really up to us to decide where to steer
the ship. And hopefully we can steer it away
from the rocks he's pointed out. Indeed. Thanks
for going on this deep dive with us. There is
always more to learn, but for now that's all
the time we have.