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.
Trollblog 
May 8, 2014 at 6:18 pm
In response to a comment elsewhere:
Yes, it could happen that even as relative inequality increased, the economic level of the poor would still improve in absolute terms. But first, that hasn’t happened, and second, the Democrats did claim that relative inequality could be decreased merely by giving the poor a larger share of the increase. I used to have a link to a Kennedy team author named Chester Bowles showing how, with a growing economy, everyone could gain at the same time, with the poor gaining faster than the rich. I will continue looking for that link.
In 1960 the argument was about the poor rather than about labor (“The Other America”), but the same factors hold, pretty much. An earlier argument had been that there were no poor in America.
What the Democrats did after 1948 or so was look at the hardfought gains of the New Deal and take them for granted, and then quit fighting. The famous win-win solution.
May 8, 2014 at 11:30 pm
That Pikeety is an elite academic economist whose conclusions are based on massive empirical evidence must dismay some of his critics, though probably not the American pundits, because they know that their uncorroborated opinions are every bit as valid as Piketty’s “data.” FWIW I think Piketty is coming from sort of a technocratic “social peace” position, which means he doesn’t understand us Americans very well.
May 12, 2014 at 11:55 am
Reblogged this on Reason & Existenz.
May 14, 2014 at 8:01 pm
This comment by Rich Puchalsky on an earlier post seems apt:
“Even though economics is supposedly about scarce resources, when it comes down to predictions of and planning for the future on a large scale, I don’t think that economists really understand that we live in a physical universe, much less a biologically bounded ecosphere. The numbers are supposed to just keep going up forever. Sure, there’s some hand-waving about substitution, which really means insofar as it’s taken seriously that economists are planning for physical and biological scientists to be much smarter than the economists are.”
What seems to be astonishing everybody, and I don’t think this contradicts your post, is that Piketty has demonstrated in a completely orthodox way that there is only so much pie, and if a small group of people keep taking more, eventually everybody else gets less and less. The political significance for Americans is that, while we understand that wealth is unequally distributed, we always offset this knowledge by assuming (as we are encouraged to do) that growth somehow will go up forever and thus everybody will get a bigger piece in the end, or at least their piece won’t get smaller.
Are you thinking of Chester Bowles, The Coming Political Breakthrough (1959)? You mentioned it a long time ago on this blog.
May 18, 2014 at 8:57 pm
«it would be possible to improve the lives of the poor and labor without demanding anything from the wealthy»
I tend to disagree with this. The neoliberal revolution happened when USA economists found out that they would get huge corporate consultancy contracts and sponsorship and collect fortunes worth dozens of millions if they never mentioned the distribution of income except occasionally to point out how exploited are the hard working, soberly living rich and middle class by the lazy, luxury loving (Cadillacs, t-bone steaks, …) poor.
The institutes of political economy were mostly renamed departments of Economics, and discussing vile subjects like the distribution of income was called class war and became a career killer.
Piketty had a brilliant start of career in the USA, but went back to France to do his research.
Perhaps for “personal reasons” or perhaps because in the USA no department head wants to risk to have some kind of “class warrior” in their department driving away corporate funding by talking about the distribution of income. Ken Lay endowed 35 (thirty five) chairs of accounting and Economics.,,,
http://chronicle.com/article/Larry-Summersthe/124790/
Most people aiming for a career in Economics would like to become as wealthy as Summers, Hubbard, Mankiw, Prescoot, Feldstein, people who deservedly get extremely lucrative corporate contracts.
Sure, in the USA some departments know that they have zero chance anyhow to get corporate sponsorship, so they tolerate off-message academics, who also have realized that while they will continue earning a middle-class income they will most likely never accumulate $135,0000 fees for 1-2 hours of speaking at a corporate events.
«Piketty has demonstrated in a completely orthodox way that there is only so much pie, and if a small group of people keep taking more, eventually everybody else gets less and less.»
That’s a bit of funny point. This is about *shares* of income always totaling 100%, and of course shares of income are a fixed-sum pie.
What some propaganda mouthpieces were saying was that a decreasing share of labor income was fine as long as that was going down slower than the size of the pie was increasing. So if the wages of the lazy, parasitical poor went up by 0.5% a year but GDP went up 4% a year and thus the share of productive, hardworking rentiers went up by 3% of GDP a year it was all wonderful, and it was envious the exploitative poor to want more at the expense of the creative rich.
While of course it would be never envious of the deserving rich to do whatever they could to push down the wages or the rate of increase in the wages of the undeserving poor to grab a chunk of their income.
August 16, 2014 at 12:19 am
Blissex, sorry for the very late answer, but “The rising tide raises all boats” was 1960 and before. Supposedly Chester Bowles worked out the idea, though I don’t have a link. I’m claiming that the foundations of neoliberalism were already there 55 years ago. Between 1945 and 1960 the Democrats renounced class war, populism, and movement politics, in the assumption that gains already made 1932-1960 were enough, and would be secure. But without the movements you had a steady dwindling, starting perhaps with Taft-Hartley.