Binkley Report on economists speaking out

The Binkley Report

Economists are speaking out

and turning economics on its head

'Blind faith in the power of the market will only worsen the situation'

To borrow a succinct description of Capital in the 21st Century, Piketty argues that the current capitalist system isn’t working because it’s stacked in favour of the wealthiest and it will become even more unbalanced without changes. The Occupy Movement was right although its arguments lacked the detailed logic that Piketty brings to the issue. Pope Francis has made similar sounding arguments.

Now Mark Carney, former Bank of Canada governor and the current Governor of the Bank of England, hardly a wide-eyed radical, made the news, although not many business pages, for speaking against “unchecked market fundamentalism. Just like any revolution eats its children,” he told the Conference for Inclusive Capitalism, “unchecked market fundamentalism can devour the social capital essential for the long-term dynamism of capitalism itself. All ideologies are prone to extremes. Capitalism loses its sense of moderation when the belief in the power of the market enters the realm of faith.”

The 2008 financial crisis and ensuing crisis was the result of absolutist beliefs in many capitals including Ottawa in the power of low taxes, deregulated markets and limited government intervention in the economy. “In the decade prior to the crisis, such radicalism came to dominate economic ideas and became even a pattern of economic behaviour. We moved from a market economy towards a market society.”

Now Piketty, the Pope, and Carney aren’t communists or socialists. If anything, they would probably fall into the Canadian political category known as Red Tories. Piketty brings an exhaustive analysis to the topic and it’s one to keep in mind when considering everything from trade agreements to federal budgets and financial plans. To paraphrase him, inherited wealth will, on average, dominate wealth amassed from a lifetime's labour by a wide margin. Wealth will concentrate to levels incompatible with democracy, let alone social justice. Capitalism, in short, automatically creates levels of inequality that are unsustainable. The rising wealth of the 1% is neither a blip, nor rhetoric.”

Reading a wide selection of informed reviews of Piketty’s work it’s clear he doesn’t believe “an individual’s good education and training will translate into a greater share of a country’s wealth and that in its current form capitalism is on a one-way journey towards even greater inequality.” Blind faith in the power of the market will only worsen the situation. Piketty's solution is a global tax on inherited wealth. The rich will be still be the rich but the rest of the population will have a fairer share of the wealth, which will trigger more appropriate economic growth. His solution is a specific, progressive tax on private wealth: an exceptional tax on capital.

Piketty focuses on wealth and income in a way that observers say nobody has really bothered to before. The 20th Century revealed all the faults in the system. The book's terms and explanations are utterly simple; with a myriad of historical data, Piketty reduces the story of capitalism to a clear narrative arc, commentators note. “The long, mid-20th century period of rising equality was a blip, produced by the exigencies of war, the power of organised labour, the need for high taxation, and by demographics and technical innovation.” It’s not working now because “labour is too weak, technological innovation too slow, the global power of capital too great. In addition, the legitimacy of this unequal system is high: because it has found ways to spread the wealth down to the managerial class in a way the early 19th century did not.” He forecasts “a low-growth capitalism, combined with high levels of inequality and low levels of social mobility.” If you are not born into wealth to start with, then you will never experience it.

The 2008 recession wasn’t just lax regulation and greed but “the system working normally, and we should expect more.”

Alex Binkley