The main reason why Piketty has made such a big splash is that he strikes at the heart of liberal Democrats’ first principle of political economy: “A rising tide lifts all boats”. This may be a neoliberal principle, but it’s not at all recent. During the 1940s and 1950s Democrats came to believe that there was no conflict between rich or poor or between labor and management, and that just by “growing the economy” (Clinton’s later slogan) it would be possible to improve the lives of the poor and labor without demanding anything from the wealthy, and that for this reason a large part of the Democratic political tradition could be jettisoned without really losing anything. From this point on Democratic “populism” (much less radicalism) was discouraged and almost disappeared, and in 1960 the “rising tide” slogan was a Kennedy campaign slogan.
And wasn’t just a political slogan. Mainstream liberal economists were committed to this principle. In his “Introduction to Positive Economics” (ca. 1950) Milton Friedman claimed that the only differences between liberal and conservative economists were about means: both sides agreed that increasing the size of the economy was the economists’ main (if not only) goal. Few liberal economists disagreed, and by and large this consensus survived until very recently.
Piketty’s “r>g” formula denies specifically this point. And not only did he disprove the liberal economists’ fundamental principle, he did it using the tools of liberal economics. For forty years or so American workers’ incomes have been stagnant or declining, and as the years have gone by this tendency has intensified. But there has been no theoretical explanation for these very evident facts, and without a theoretical explanation liberal economists felt that their hands were tied; these were things that everybody knew, but no one knew it in a proper scientific way.
What Piketty did was to accumulate an enormous amount of data which could be presented in forms acceptable to economists, and then to develop a proper orthodox theory, based on this data, which was not based on heterodox economics or (God forbid) anecdotal data and common sense. At this point, liberal economists, like Nixon going to China, could finally acknowledge the existence of the 500-pound gorilla that had been tearing things up for a few decades.
P. S. You might also ask: “Did the Rising Tide Theory ever have to meet the rigorous standards required of Piketty’s thesis?” The answer is “No, of course not! The Rising Tide Theory was the null hypothesis — the default position that made economists happy, happy, happy! for sixty years.”
P.P.S. Why now? Because the economic growth part of the Rising Tide Theory failed too, five or six years ago, and the lag time built into professional economics to prevent hasty action is five years.