Karl Marx describes in Capital how in mid-19th century Britain mainstream economists degenerated from being “disinterested inquirers” into “hired prize-fighters” for the capitalist class.
We’re being treated to a striking example of these economists still waging ideological class struggle on behalf of capital. It started on Friday a fortnight ago when the Financial Times announced, “Piketty’s findings under cut by errors: Rock star economist’s wrong sums on rising inequality.”
This story led the FT’s print edition the next day, with a whole inside page following up the headline on the front. It dominated the website for the entire weekend. It’s unusual for economists to receive such attention in the world’s leading business paper. The FT’s target was French academic Thomas Piketty, author of Capital in the 21st Century.
Piketty’s thesis is that, left to its own devices, capitalism tends to generate increasing levels of inequality of wealth and income.
It has attracted enormous interest since its publication in English three months ago, particularly in the US. His book assembles a massive amount of data. It demonstrates that, after dipping significantly during the two world wars, economic inequality is rising again towards the very high levels prevailing before 1914.
Chris Giles, the FT’s economic editor, sought to rubbish this argument by showing that Piketty has made basic errors in interpreting and transcribing his data. You would have to be seriously naïve to imagine this was an innocent statistical critique. Giles has been a strong defender of austerity against critics such as the FT’s chief economic commentator Martin Wolf.
There is, moreover, a recent precedent for this kind of attack. Three left wing economists last year exposed basic errors made by Carmen Reinhart and Kenneth Rogoff in a study about the relationship between growth and debt. The study had been widely used to justify austerity.
Giles’s attack looks like revenge for this. More broadly, it was an ideological police action aimed at discrediting an academic study that exposed fundamental contradictions in capitalism.
After all, the FT core readership (the odd Marxist aside) is the corporate rich and their hangers on.
As Paul Mason put it, “if Giles is right, then all the gross designer bling advertised in the FT’s How To Spend It [a magazine devoted to almost pornographic displays of luxury consumption] can be morally justified: it is evidence of rising social wealth in general, not the excess of a few Rolex types.”
Giles is particularly keen to show that wealth inequality has not risen significantly in Britain during recent decades. The interesting thing is that—to mix metaphors—this hatchet job has gone down like a lead balloon. Left liberal economists such as Paul Krugman and Branko Milanovic have sprung to Piketty’s defence.
More strikingly a blogger on the Economist—a magazine that is much more consistently on the free market right than the FT—was one of the first to dismiss the suggestion that Giles’s criticisms invalidated Piketty’s overall argument.
“If the work that has been presented by Mr Giles represents the full extent of the problems, then the answer is a definitive no,” they wrote. The blogger pointed out that other research “suggests that Mr Piketty’s figures actually understate the true extent of growth in the concentration of wealth”.
Piketty produced a powerful and detailed response to Giles’s criticisms. And another economist, Howard Read, pointed out serious errors in how Giles had interpreted the data for wealth in Britain.
The whole episode is about a lot more than numbers. Piketty’s political conclusions are timid. But he tries to show that rising inequality doesn’t arise from bad policies but from the structural logic of capitalism as a system.
The fact that he has been able to brush off Giles’s demolition job so easily is a sign that, thanks to the crisis, a lot of people also believe this. Ideologically at least, anti-capitalism is reaching a growing audience.