I personally believe in highly taxed and regulated capitalism, not thorough-going socialism, and I regret that Zohran Mamdani has not abandoned all of the very woke positions he took a few years ago when they were so fashionable. I would however have voted for him if I lived in New York City and I think his election is an important milestone in American life. Far more than the career of Bernie Sanders or Alexandra Ocasio-Cortez, his victory in the nation's largest city reflects the political impact of the economic changes of the last few decades. He may not have the best solutions to the problem in mind, but he is determined to face it head on.
Back on May 2, 2014, when I was nearly a year into retirement and No End Save Victory had just come out, I published the first of four blog posts here on Thomas Piketty's new book, Capital in the 21st Century. Reviewing what I wrote, I was struck by the breadth of his research, his knowledge of history, and his intellectual ambition, but most of all by the simple mathematical insight around which he had built the book. Under capitalism, he showed, the natural tendency is for capital to grow more quickly than the economy as a whole. I have never read Marx's original Capital but I have the impression that Marx had said the same thing, and he was right. Piketty showed, too, that the United States and other western countries had overcome this tendency in the middle of the 20th century thanks to the consequences of the two world wars and the Depression, which had led among other things to almost confiscatory high marginal tax rates. That era came to an end just as I was reaching adulthood, however, and the natural tendency of capitalism took over, making the rich richer while the lower half of the population stood still. And that trend has had extraordinary economic and political consequences.
It makes perfect sense, therefore, that Mamdani won half the vote in the world's most capitalistic city. Although the financial and real estate barons of New York are losing ground relative to the tech giants of the West Coast, they still dominate much of economy and our politics. The crisis in higher education over the last two years has shown that they are the ultimate authority over our universities as well, and they have enormous influence over some aspects of US foreign policy. The economy those elites created helped give us Donald J. Trump. Their wealth has pushed real estate prices in New York and other major metropolitan areas to undreamed of heights. When I read Piketty, I had bought the property I live in in suburban Boston less than two years earlier, and Zillow tells me that it is now worth more than twice as much as it was then. At that time the median US household income was $53,657. Today it is $83,730, leaving my property considerably less affordable than it was then. If one corrects the current median income figure for inflation, it becomes $61,206 in 2014 dollars--an increase of 1.27 percent per year. During that period GDP growth has averaged 2.52 percent a year--almost exactly twice as much. The rest of that GDP growth, presumably, has been turned into capital, which is held by relatively few people. Piketty was right.
Hysterical financial interests are now warning that the superrich will leave New York because of Mamdani's victory. I am only speculating here, but I am not certain that would hurt the average New Yorker. It could depress the housing market, but that is what New York needs to make it more affordable. When the superrich ran General Electric and General Motors they created more ordinary jobs when they did better, but now it seems the superrich are at least as likely to reduce ordinary jobs as to create them--a trend that will become clearer as AI and robotics make new advances. (See Bezos, Jeff.) At least since Reagan we have been hearing from the leadership of both parties that economic growth benefits us all. The lower half of the population knows better.
And not only the lower half. Harvard and MIT assistant professors can no longer afford single-family homes around here. Two-career professionals see one salary eaten up entirely by childcare. Etc. Mamdani built his campaign around a simple message: our economy is making life impossible for too many of us, and this can't go on. That is the message that Barack Obama, Joe Biden and Kamala Harris refused to emphasize, and the problem they did nothing about. Donald Trump, meanwhile, inhabits a fantasy world in which we have no inflation (it's 3 percent, not 0, at the moment), and job creation is at undreamed of levels (it is actually quite slow and getting slower.) He will do nothing about the underlying problem.
For a long time now I have been pessimistic about the growth of the new aristocracy and its consequences. The trends we have lived with for the last half century may well have gone too far to reverse now. But I am glad that the electorate of our largest city resoundingly delivered the message that this must not go on. I don't know what Mamdani will actually be able to do to try to reverse the trend, but I wish him well.
2 comments:
I have always admired your historical range, but your reprise of Capital in the 21st Century just reproduces Piketty’s weakest analytical errors. The entire edifice of the r > g story rests on two assumptions that are not just empirically dubious but conceptually confused: first, that risk-adjusted returns to capital will remain high, stable, and non-diminishing relative to other factors; and second, that this can all unfold while real wages flat-line indefinitely. Neither claim survives contact with the actual behavior of modern capital markets.
If the rate of return really does run persistently ahead of overall economic growth, basic economics - not right-wing apologetics, just Econ 101 - implies rising wages as capital deepens. Historically, that is exactly what happened in the nineteenth century once industrialization matured and demographic pressures eased. Piketty’s attempt to resurrect a rentier dystopia requires ignoring this common-sense dynamic, as well as the inconvenient reality that risk-adjusted returns have been falling for decades. Low returns and stagnant wages may be disappointing, but they cannot be marshaled as evidence for a thesis about exceptionally high returns and stagnant wages.
More fundamentally, his forecast that “rates of return will not diminish” over the next half-century is not analysis, it is wishcasting. His explanation relies on a narrow slice of the market (elite wealth management and foreign investment in emerging economies) and pretends those highly specific mechanisms will outperform the basic logic of diminishing returns and the informational efficiency of markets. Perhaps they will; perhaps they will not. But staking a grand theory of twenty-first-century capitalism on that speculation is indefensible.
Nor the empirical record help him. The rise in income inequality since the 1980s is driven overwhelmingly by labor income at the top, not capital income, a fact that fits awkwardly, at best, with the rentier morality tale. Piketty’s most egregious move is to collapse the entrepreneur into the rentier, erasing risk from capitalism altogether. But without risk, the distinction between productive investment and passive extraction disappears, and so does the real engine of growth.
You gesture toward contemporary hardship, but doing so through the lens of Harvard and MIT assistant professors unable to afford Cambridge real estate unintentionally illustrates the problem: this is not evidence of a return to the rentier age; it is evidence that supply-constrained housing markets make even highly compensated professionals feel put upon.
Many readers will forgive Mamdani his rhetoric more easily than they will forgive that complaint.
"The rise in income inequality since the 1980s is driven overwhelmingly by labor income at the top, not capital income..." Are you serious? Anyone in the Top 1 % relies on capital for his/her lifestyle, not their income. Income is irrelevant.
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