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Piketty and public debt








Piketty goes on: “This heavy public indebtedness generally served the interests of the lenders and their descendants quite well – at least in comparison to a situation in which the British monarchy would have covered its expenditures by making them pay taxes. From the point of view of those who have the means to do it, it is obviously much more advantageous to lend a given sum to the State (and then to receive interest on it for decades) than to pay it in the form of taxes (without compensation). | 53 He adds that the massive recourse to public debt by the State enabled the bankers to raise interest rates, which was beneficial to the wealthy lenders such as entrepreneurs, the independently wealthy, and bankers.


Piketty offers a hypothetical case in which: “cumulative public debt ‘ is equal to 100% of the GDP. Suppose that the government does not seek to reimburse the principal, but only pays the interest each year ‘ if the interest rate is 5%, every year it will have to pay 5% of the GDP to the holders of this additional public debt, endlessly. That is basically what happened in the United Kingdom in the 19th century.” | 55 Now, let us travel in time and space: today in Greece, public debt is in excess of 160% of GDP. If we entertain the hypothesis that the State will reimburse that debt to the Troika and its other creditors at a rate of around 5% | 56 on average, and if we also take into consideration that growth is non-existent | 57 and that the rate of inflation is also nil, Greece will have to pay its creditors, indefinitely, the equivalent of 8% of its GDP without reducing the debt, since only the interest on it is being paid off. | 58


Piketty recalls the short work The Class Struggles in France, written in 1849-1850, in which Karl Marx denounces Louis-NapolÃ©on Bonaparte’s Minister of Finance , Achille Fould – a worthy representative of the bankers and high finance -, who decided to increase taxes on beverages in order to pay off wealthy holders of government bonds. Twenty years later, following the defeat at the hands of Prussia in 1870-1871, the French State further increased public debt to pay a war tribute equivalent to some 30% of national income. Finally, the indebtedness policy conducted between 1880 and 1914, which was favourable to creditors, brought public debt to a higher level in France than in the United Kingdom – around 70-80% of national income, compared to less than 50% previously.

Piketty adds, “Government annuities were a very secure investment throughout the 19th century in France, and contributed to reinforcing the extent and level of private fortunes, as was also the case in the United Kingdom.” He concludes that the policy of public indebtedness pursued during the 19th century in France and the United Kingdom “explains why the socialists of the 19th century, beginning with Karl Marx, were extremely mistrustful of public debt, which they perceived – rather clairvoyantly – as an instrument used to encourage the accumulation of private capital.” | 60 He goes on to say, very accurately, “A large portion of the public debt (‘) is held in practice by a minority of the population, so that the debt results in a major redistribution of wealth within a country (‘). Given the very high concentration that has always characterized the distribution of wealth (‘), studying these questions while ignoring the inequalities between social groups amounts to disregarding de facto a major aspect of the subject and the realities that are at play.” | 61





Piketty’s proposals








Ecuador and Iceland are two recent examples that should be examined carefully for they show that there are solutions for debt cancellation other than the Greek haircut. | 69 Those two examples offer proof that if you do not comply with creditors’ demands your country does not simply collapse, quite the opposite.


Let us now examine Piketty’s proposal on finding the means necessary to reduce the burden of public debt. After considering the possibility of “a 15% proportional tax on all private assets,” | 72 he rejects this idea, because as he writes “it would not make much sense to levy a proportional tax | 73 on all European private assets.” | 74 He claims that “it would be better to use a progressive schedule so as to spare those with the least amount of wealth, and levy more on those who have the most wealth.” | 75



The CADTM’s proposition on public debt


The CADTM adds that the following measures should be instituted:







1) It must be illegal to socialise private debt;



4) Illegitimate debt must be considered null and void; 79





1. All public borrowing must be used in a way that guarantees improved living conditions, and breaks with the logic of environmental destruction;




Piketty’s central idea to create a worldwide, progressive tax on capital



Piketty specifies that “In my opinion, the goal must be to levy an annual, progressive tax on capital | 82 at the individual level, i.e., on the net value of the assets each person owns.” | 83 He proposes three variants for this progressive tax on private capital.


Variant 2: upward adjustment, 5% or 10% beyond Ã¢”š¬1 billion

Variant 3: downward adjustment, 0.1% below Ã¢”š¬200,000, and 0.5% from Ã¢”š¬200,000 to Ã¢”š¬1 million.


Piketty adds: Ã¢€Å“At the present time, the international organisations in charge of regulating and monitoring the world financial system, such as the International Monetary Fund, have only extremely approximate knowledge on the distribution of financial assets throughout the world, and in particular the amount of assets based in tax havens.Ã¢€ |84 If it were established, Ã¢€Å“the tax on capital would be a kind of world finance registry, which does not exist today.Ã¢€ |85|




One of the characteristics and weaknesses of PikettyÃ¢€â„¢s approach is that he does not call for a mobilisation of the social movements to try to have an influence on current policies. He is conscious that the people played a decisive role in the orientations taken since World War I, and denounces the repression of the miners in Marikana, South Africa in August, 2012, but in the more than one hundred pages at the end devoted to his own propositions, which reflect on the solutions to the basic problems, no mention is made of organised citizen action, and no allusion is made to the Indignados movement, even if in the pages just before his propositions, he does mention the Occupy Wall Street movement. At best, he expresses the hope that the dissemination of research like his will raise peopleÃ¢€â„¢s awareness and thereby ultimately lead to change. This is a major weakness in PikettyÃ¢€â„¢s approach. It comes as no surprise then that he proposes to establish a Ã¢€Å“Eurozone Budget ParliamentÃ¢€ |88 alongside the European Parliament. He suggest that Ã¢€Å“This Parliament could include about fifty members for each of the big countries in the zone, in proportion to the population. Its members could be chosen from the finance and social affairs commissions of the national Parliaments, or appointed in some other way.Ã¢€ |89 In addition, he is favourable to Ã¢€Å“the election of a European Union President on the basis of the popular vote, a proposition which should be logically accompanied by an extension of his or her powers.Ã¢€ |90 Piketty embarks on a pathway to making reforms that does not question the European treaties and institutions in which the defence of the interests of major capital owners is set in stone. Yet, we all know that fundamental change is necessary, and that it must include the abrogation of those treaties and the initiation of a constituent process with the production of registers of grievances by citizens united in action.

To conclude, PikettyÃ¢€â„¢s work is extremely valuable in terms of the clear data it provides on trends in wealth inequalities over the past two centuries. His book gives us a very useful tool for understanding them, and will enlighten the debate on possible alternatives. Unfortunately, he fails to go far enough in terms of the need to join theory and action, issues relating to debt cancellation, and taxation thresholds.



Translated by CADTM

This review first appeared on the CADTM website http://cadtm.org/What-can-we-do-with-what-Thomas


|1 Thomas Piketty, Le capital au XXIe siÃƒ¨cle, Le Seuil, 2013, 970 pp. (Capital in the Twenty-First Century, Harvard University Press, 2014 996 pp. As the English version is not yet available, we have translated the citations ourselves from the French.) Several interesting reviews of this major work have already been published. Therefore, I will not cover a whole series of points analysed in those reviews, preferring instead to begin with some practical information. Among the reviews already published, see: 1. “RÃƒ©flexions sur Ã‚« Le capital au XXIe siÃƒ¨cle Ã‚» de Thomas Piketty” (in FrenchÃ¢€”Ã¢€Å“Reflections on Thomas PikettyÃ¢€â„¢sCapital in the Twenty-First CenturyÃ¢€) by FranÃƒ§ois Chesnais http://cadtm.org/Reflexions-sur-Le-capital-au-XXIe in the journalLes Possibles published by ATTAC France (and “Ãƒ”°lÃƒ©ments de rÃƒ©ponses Ãƒ FranÃƒ§ois Chesnais” (in FrenchÃ¢€”Ã¢€Å“A response to FranÃƒ§ois ChesnaisÃ¢€ by Thomas Piketty http://cadtm.org/Elements-de-reponses-a-Francois ); 2. Jean-Paul Petit in the journal Inprecor: http://gesd.free.fr/jppetit.pdf; 3. Robert Boyer: http://gesd.free.fr/boyerpik.pdf; 4. Michel Husson,http://hussonet.free.fr/piketcap.pdf

|2 http://piketty.pse.ens.fr/fr/capital21c

|3 A simple definition of wealth is Ã¢€Ëœthe total amount of tangible and intangible assets belonging to an individual minus that personÃ¢€â„¢s debtsÃ¢€â„¢. Piketty argues that today the total wealth of a country (private wealth + public wealth) such as France, the United States or Belgium corresponds in reality to total net private wealth, because net public wealth is more or less equal to zero since public debt represents nearly 100% of GDP. See Piketty for a fuller explanation of this notion.

|4 P. 542 Ã¢€” 555.

|5 Throughout this article, the term Ã¢€Å“wealthÃ¢€ corresponds to what Piketty takes into account in his calculations (see above). It does not include other items of wealth, which are priceless and vital for the survival of humanity and nature. For a discussion on the wealth and value that are beyond the bounds of this article, see Jean-Marie Harribey La richesse, la valeur et lÃ¢€â„¢inestimable (in FrenchÃ¢€”Wealth, Value, and what is Priceless), 2013.

|6 Table based on table 7.2, p.391 in French edition.

|7 http://en.wikipedia.org/wiki/Liliane_Bettencourt

|8 p. 109.

|9 120% of the EUÃ¢€â„¢s GDP!

|10 p.741.

|11 Nota bene: I am entirely responsible for the propositions made in this article, which should in no way be attributed to Piketty. When one of PikettyÃ¢€â„¢s propositions is presented, this will be stated explicitly.

|12 Piketty writes, Ã¢€Å“Let us consider for example the case of a wealth tax that would be applied at a rate of 0% on personal wealth of less that Ã¢”š¬1 million, 1% on the portion of personal wealth between Ã¢”š¬1 and Ã¢”š¬5 million, and 2% on the share of personal wealth beyond Ã¢”š¬5 million. Applied to all countries in the European Union, such a tax would concern about 2.5% of the population, and every year it would raise the equivalent of 2% of European GDPÃ¢€ (p.860). Even putting this modest proposition into practice would raise the equivalent of two times the EUÃ¢€â„¢s current budget!

|13 All figures in dollars are expressed in US dollars.

|14 p.692.

|15 Approximately 4.5 million adults.

|16 p.698.

|17 p.700.

|18 This table is based on data in Table 7.1, p.390 in the French edition.

|19 This table was created based on data in Table 7.3, p.392 in the French edition

|20 P. 544.

|21 Ã¢€Å“What is the Third Estate? Everything. What has it been until now in the political order? Nothing. What does it desire to be? Something.Ã¢€


|23 p.76





|28 p. 273.

|29 pp. 218-219

|30 p. 219.

|31 pp. 273-274

|32 p. 456

|33 p.458-459

|34 p.489

|35 p.469-470

|36 p.501-503

|37 p.506-507

|38 p.517-519

|39 p.805-806

|40 p.811-815

|41 p.707

|42 p. 820.

|43 p. 819.

|44 p.824-826

|45 p. 831.

|46 p. 832.

|47 Note 3, p.834.

|48 This does not imply PikettyÃ¢€â„¢s commitment to these actions.

|49 p.185

However, events evolved rapidly. In September 1790, the assignats no longer bore interest and became Ã¢€Å“legal tender for all public and private exchanges.Ã¢€ The amounts issued continued to increase through 1796. As this paper currency proliferated, the value of the national property that theoretically backed it was insufficient and the value of the assignats collapsed.Ã¢€http://sceco.univ-poitiers.fr/hfranc/assignats.htm (in French), accessed 17 January 2014.

|51 p.206-207

|52 p.206-207

|53 p. 208

|54 p. 208

|55 p. 209

|56 In reality, the rate is higher, but this is only a theoretical hypothesis.



|59 See http://fr.wikipedia.org/wiki/Loi_du_milliard_aux_%C3%A9migr%C3%A9s (in French)

|60 p. 210

|61 p. 216

|62 p. 212

|63 pp. 211-212

|64 p. 931

|65 p. 933

|66 p. 889

|67 I participated in the auditing process as a representative of CADTM for 14 months in 2007-2008.

|68 The Court of Justice of the European Free Trade Association States, though anything but an anti-globalization association, judged that Iceland was right. See CADTM, Ã¢€Å“EFTA court dismisses Ã¢€ËœIcesaveÃ¢€â„¢ claims against Iceland and its people,Ã¢€http://cadtm.org/EFTA-court-dismisses-Icesave, 29 January 2013.


|70 p. 888.

|71 The function of haircuts advocated by the IMF and the governments of creditor countries is precisely to limit the losses of large private creditors through organized restructuring. In my Ph.D. dissertation, I showed how the Brady plan is a model in these matters. See Enjeux politiques de lÃ¢€â„¢action de la Banque mondiale et du Fonds monÃƒ©taire international envers le tiers-monde (Political Aspects of World Bank and International Monetary Fund Actions toward the Third World), Ph.D. dissertation in political science completed at the universities of LiÃƒ¨ge and Paris VIII in 2004, http://cadtm.org/Enjeux-politiques-de-l-action-de . See also The World Bank: a never-ending coup dÃ¢€â„¢Ãƒ©tat. The hidden agenda of the Washington Consensus, 2008http://cadtm.org/The-World-Bank-a-never-ending-coup.

|72 p. 887.

|73 Here is the definition of proportional tax provided on the official website of the French tax office (our translation): Ã¢€Å“Proportional tax applies the same tax rate whatever the taxable amount is (e.g., corporation tax). The tax base refers to economic categories (income, assets, turnoverÃ¢€¦). Advocates of proportionality consider that this is a fair way of calculating tax as everybody contributes the same proportion of their income. (Ã¢€¦) Proportional taxes are also easier to calculate and hence cost less to collect. With progressive tax, the tax rate increases according to the tax base (e.g., income tax: the higher the income, the higher the tax rate).Ã¢€ http://www.vie-publique.fr/decouverte-institutions/finances-publiques/ressources-depenses-etat/ressources/qu-entend-on-par-proportionnalite-progressivite-impot.html. Piketty uses the same definition of proportional taxation.

|74 pp. 888-889.

|75 p. 889

|76 p. 890.

|77 See the International Citizen debt Audit Network – ICAN), http://cadtm.org/ICAN,750

|78 Thomas Coutrot, Patrick Saurin, and Ãƒ”°ric Toussaint, Ã¢€Å“Canceling debt or taxing capital: why should we choose?Ã¢€,http://cadtm.org/Cancelling-debt-or-taxing-capital

|79 See Eric Toussaint, Ã‚« La Constitution Ãƒ©quatorienne : un modÃƒ¨le en matiÃƒ¨re dÃ¢€â„¢endettement public Ã‚» (Ã¢€Å“The Ecuadorian Constitution: a model to follow in terms of public debt,Ã¢€ Ã¢€” in French) http://cadtm.org/La-constitution-equatorienne-un, 27 December 2010.

|80 p. 835

|81 p. 836


|83 p. 838

|84 p. 842.

|85 p. 843.

|86 See the aforementioned text by Thomas Coutrot, Patrick Saurin, and Ãƒ”°ric Toussaint, Ã¢€Å“Cancelling debt or taxing capital: why should we choose?Ã¢€ http://cadtm.org/Cancelling-debt-or-taxing-capital See also Damien Millet and Eric Toussaint, Ã¢€Å“Europe: What emergency programme for the crisis?Ã¢€ 1 July, 2012, http://cadtm.org/Europe-What-emergency-programme

|87 http://cadtm.org/Cancelling-debt-or-taxing-capital

|88 p. 916.

|89 Note 1. p. 916.

|90 p. 917.

|91 P. 337.

|92 p.674

|93 p. 62

Eric Toussaint is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and LiÃƒ¨ge. He is the President of CADTM Belgium (www.cadtm.org), and sits on the Scientific Council of ATTAC France. He is the co-author, with Damien Millet, Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. pprÃƒ©ciealisÃƒ©e en 2014aduction en anglais.ation.He is the author of many essays including ProcÃƒ¨s dÃ¢€â„¢un homme exemplaire (The Trial of an Exemplary Man), Al Dante, Marseille, 2013, and wrote with Damien Millet, AAA. Audit Annulation Autre politique (Audit, Abolition, Alternative Politics), Le Seuil, Paris, 2012. See his Series “Banks versus the People: the Underside of a Rigged Game!” http://cadtm.org/Banks-Fudged-health-report


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