Elizabeth Warren Simplies Piketty: Trickle Down Doesn't Work

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Elizabeth Warren Simplifies Thomas Piketty: 'Trickle Down Doesn't Work. Never Did'

Posted: 04/25/2014 2:52 pm EDT Updated: 04/25/2014 3:59 pm EDT Print Article



The No. 2 author on Amazon's best-seller list, Sen. Elizabeth Warren, weighed in Thursday night on the No. 1 book, identifying overlapping themes.



At a reading at the Harvard Book Store, the Massachusetts Democrat, author of A Fighting Chance, was asked about Thomas Piketty's new book, Capital in the Twenty-First Century, and specifically about its contention that trickle-down economics "definitively do not work."



Warren cut in. "Can we say that part again? 'Definitely do not work,'" she repeated. "Not as in that's somebody else's opinion or this comes out of a long-held political opinion. The data don't lie on this. He's got good historical data, and boy, what it shows is trickle down doesn't work. Never did, doesn't work. Just so we're all clear on the baseline. I just saved you 1,100 pages of reading." (The book is shorter than that; Warren may have assumed the audience would also read the online technical index.)



Warren, whose own book was going to be titled Rigged but ultimately went out with a more hopeful title, said that while Piketty's book could elicit despair, she found a hopeful note in it, too.



"You can read his book and you just wanna say, 'Ugh.' Because it says over and over -- look, I'll tell you the basic theme: The rich get richer," Warren said.



Piketty argues that the 200-plus years of income and wealth data complied by him and a team of researchers demonstrates that returns on capital (r) significantly outstrip growth in the real economy (g), which relentlessly drives up inequality. His basic equation -- r>g -- has upended the way economists understand wealth and income distribution.



"Here's the hopeful part in Piketty's book: Piketty makes the point that although the data keep documenting this happening, it's not like an act of nature. It's not like gravity and you can't fix it," Warren said. "Piketty's book makes the point that how much equality there is ... is a matter of the policies you choose to follow and that, for example, progressive taxation and investment in everyone's education helps to level the playing field."



Warren pointed to the period from the Great Depression up through the deregulatory era that began in the 1980s as reason for hope -- a period that she noted Piketty found to be an aberration in many ways.



"It is a time when we made those investments that built America's great middle class and we made those decisions -- not we in this room, but our parents, our grandparents, they made those decisions. They said, 'You put a cop on the beat so nobody steals your pension, you do that on Wall Street.' But they also said, 'You tax progressively and then you make those investments.' For those who made it big, God bless 'em, that's great, but they've gotta pay a piece of that forward so the next kid has a chance to make it big and the kid after that and the kid after that. That's what defines America."



Piketty indeed credits high marginal tax rates on wealth in the middle of the 20th century as a driver of flattening U.S. inequality during that period, although he also cites the destruction of capital from the world wars and the anomalously high economic growth rates that carried into the late 1960s and, in some countries, into the 1970s. He describes that high growth as "catch up" and suggests it will be difficult to repeat such a phenomenon in the 21st century.



Piketty proposes a steeply progressive wealth tax, which Warren referenced favorably on Thursday. The suggestion was widely panned by the political class, but it is already earning dividends. On Friday, New York Times columnist David Brooks suggested that conservatives respond by embracing a "beefed up inheritance tax" and "progressive consumption taxes."



Warren also joked with the audience that they may find her book a bit more digestible. "Have you seen Piketty's new book?" she asked. "His book has tables and graphs; this book doesn't. It's one of my first books with no graphs in it, just pictures."