Four Economists Who Support Statism at the Expense of Freedom - Part I: Piketty and Zucman

Every generation produces its slew of mouthpieces for state power at the expense of freedom. Statist economists are some of the most sophisticated of these, for three reasons. Firstly, they appear to criticize the current crony capitalist system, when in reality they defend it and want it reinforced in different ways. Secondly, they usually rely on statistics and mathematics to make their cases “scientifically”, making it more difficult for the layman to see through the flaws in their thinking. Third, they couch their argumentation in “feel-good” moral values, to which superficially the public can feel drawn, such as the fight against inequality.

Using these three devious methods, such macroeconomists have managed to strongly influence public opinion over decades in favour of more state involvement in society. Their policies justify the concentration of even more power at the hands of the state, which harms society as it reduces individual freedom and impedes the natural market process. These statist economists must therefore continually be exposed.

In 1959, Henry Hazlitt dealt a significant blow to the popular post-war Keynesian system with his bestselling book “The Failure of the New Economics”. Today, the critique should be directed at well-known Western economists like Stephanie Kelton, Mariana Mazzucato, Thomas Piketty, and the upcoming Gabriel Zucman.

Piketty and Zucman are probably more easily debunked for a younger public today than the intellectually savvier and more attuned Kelton and Mazzucato. The Frenchmen Piketty and Zucman develop their ideas from a more standard socialist analysis of “capitalism”. But being American academics, Kelton and Mazzucato’s arguments are more subtle since they push for an “entrepreneurial state” model that does drive wealth and job creation and that does not disqualify capitalism to the same extent.

Piketty’s and Zucman’s Unsound Obsession with Inequality

Piketty is obsessed with the eradication of inequality, to the point where he defends confiscatory levels taxation believing that would solve it. Yet, inequality cannot be unjust if it is a natural consequence of the increasing division of labour of a free society. Piketty views extreme wealth concentration as a feature of markets; yet this inequality is unjust precisely because it ensues from crony capitalism; the fascist cooperation of state and corporations that benefits oligarchic rule.

The central “inequality” thesis in his work “Capital in the Twenty-First Century” (2014) relied on his formula r > g, which states that the rate of return on capital (r) is historically greater than the rate of economic growth (g), axiomatically causing wealth to concentrate in fewer hands over time, as Marx also tried to demonstrate in Das Kapital. Yet, this is not an "iron law of capitalism"; rather, it shows a fundamental misunderstanding of what capital is, how markets work, and how wealth is created. Wealthy families routinely lose fortunes over generations because of bad investments, market competition, and dilution among heirs.

Carl Menger, the founder of the Austrian school of economics, showed already in 1871 that capital doesn't magically possess value that then dictates its return. Rather, the value of capital is entirely derived from the discounted subjective value of the future consumer goods it can produce. Additionally. interest rates in a free society go down over time and automatically reduce the rate of return of capital as society develops and time-preference decreases among entrepreneurs.

A major weakness is Piketty’s underestimation of the essential role of the entrepreneur in the market economy. He mentions “entrepreneur” only a handful of time in his over 1000 pages long “Capital and Ideology” (2019). He clearly has a caricatural and disparaging opinion of the entrepreneur, obviously not grasping the difference between “natural” entrepreneurs and those whose capital accumulates when the state hands out regulatory privileges and protectionist subsidies to the politically connected.

Further, one critic showed that Piketty’s rising capital-to-income ratio is almost entirely driven by housing prices. In turn, it is important to understand that rising housing costs are not caused by the free-market capitalism but state-induced distortions, specifically construction prohibitions, zoning laws and central bank monetary expansion.

Zucman, an intellectual and ideological disciple of Piketty’s, also wants to eliminate inequality with massive wealth taxes, oblivious to the fact that great wealth moves across borders with ease when attempts are made by the state to seize it. He wants to combat tax havens by aggressively advocating for a global wealth tax (up to 2% or more annually on billionaires) to prevent tax evasion and curb inequality. He does not see that the reason there are tax havens, or tax “heavens” as the French call them, is that there are tax “hells”, namely the many Western nations where the tax pressure is above 45% of total income. The best way to eliminate tax havens is the opposite of Zucman’s proposal: it is to reduce dramatically the fiscal pressure in Western nations. But this is ideologically impossible for Zucman to accept.

In “The Counter-Revolution of Science”, Hayek called "scientism" that slavish and misplaced imitation of the natural sciences by the social sciences. Piketty and Zucman are obvious victims of this phenomenon. They use hundreds of pages of massive datasets, regressions, and algebraic formulas (yet also cherry-picking data) to promote their socialist ideology. They use the appearance of hard, objective data to give the impression that their political conclusions are neutral, scientific facts.

The situation is a little different with economists Stepanie Kelton and Mariana Mazzacuto; that will be discussed in part II of this article.