Modern economics has failed, misled and deceived us. Luckily, Thomas Piketty has brought the real core question of economics back onto the market: inequality.
The economics profession has made a pretty bad name for itself in recent years. Not only did economics fail in 2008, but many hold the laissez-faire and neoliberal politics that are the result of a certain school of economic thinking responsible for the burning of billions in bailouts, the existence of the so-called one percent, -- 85 people owning as much as 3.5 billion of the poorest -- climate genocide, the vanishing middle class and worldwide poverty and hunger.
How far laissez-faire and Chicago School economics (treated as gospel until the crisis) have fallen from favor became evident when I revisited some of Gary Becker's articles, blogs and spouts of analysis following his death two weeks ago. Again and again, I wondered how this man could have won a Nobel Prize. Probably without ever having met a drug addict, adopted a child, applied for citizenship, gone broke on a mortgage, wrecked a marriage or having had any life experience of poverty, Becker and his friends found simple formulae (so simple you don't even have to understand formulae, or logic, for that matter, to comprehend them) to derive rational behavior regarding all of the above.
Economic navel-gazing and blindness
As opposed to offering solutions to actual economic problems (such as interest rates, employment or inflation) they were, as Thomas Piketty (soberly) puts it, "preoccupied with petty mathematical problems of interest only to themselves." To them, everybody was entirely rational and anything except market failure was possible. Financial markets were considered particularly perfect. Failure, crisis and the system going bust were simply impossible.
The real tragedy, however, isn't that there are flaws in this kind of economics, but that such approaches to economics still seem inevitable and without alternative. Economics has basically become synonymous with "capture," and it is now commonly accepted that it serves only the interest of the few. Becker himself predicted that even this crisis "wouldn't bring about any meaningful change or re-introduce Keynesian style big government," never mind a Marxist-style revolution. He was right. Instead of more government intervention and wealth redistribution, we were served endless amounts of austerity.
Since meaningful change seemed evermore impossible, the critique from the left became purely ideological and centered around "calling out" neo-liberalism as a "religion" or "orthodoxy." But of course it is! Of course it is an elitist dream to look at the world through the prism formulas and perfect mathematical models, in the same way that Immanuel Kant saw the same patterns in the stars as he did in human thinking. But this criticism doesn't go far enough. If we have learned anything from Kant and the Enlightenment, it is that an ideological critique is insufficient. To change anything, you need to offer a counter-ideology, a new way of thinking and practical alternatives.
This is what makes the work of Thomas Piketty so remarkable. "Capital in the 21st Century" has brought the real core question of economics back onto the market: inequality. Though Piketty has been compared with de Tocqueville, Mandeville, Keynes and Marx, he is not revolutionary (the reason why both conservatives, and leftist radicals dislike him so much); he is just very good at demonstrating that we are not asking the right questions or tackling the right problems. Instead of worrying how markets will react and focusing only on growth, we should be distributing the wealth already in existence.
Inequality is not inevitable
Piketty also returns discussion of "capitalism" to the discussion of capital, and the relentless reign of wealth which never really ended. His colleague Emmanuel Saez has already proven conclusively that wealth doesn't magically "trickle down" and that if we are to make our societies more equal, legislative action needs to be taken. Inequality, as Piketty writes,
is becoming a 'wicked' problem like climate change -- one in which a solution must not only overcome powerful entrenched interests in individual countries but must be global in scope to be effective.
Despite the fact that his book sketches out the history of inequality since the beginning of mankind, the message is clear: Inequality is not inevitable. If we realize that the natural course of capitalism is to "create levels of inequality that are unsustainable" and that it will never serve the poor but only the capital and the accumulation of wealth, then our governments can and must choose to correct these errors both for the past and the future.
With Piketty, extreme wealth and inequality suddenly became illegitimate. Anybody who takes the time to read Mr. Piketty's book will see that he is right, but that may not be enough, because as Mr. Adam Smith once put it: "Wealth, as Mr. Hobbes says, is power."
Read more from Juliane Mendelsohn here.