In 2010, the British science writer Matt Ridley debuted as a classical liberal with his book The Rational Optimist. Ridley’s “coming out” was eventful and exciting for libertarians all over the world. A former staff writer and head of the Washington bureau of The Economist, a successful science author and, more importantly, a gifted narrator, Ridley condensed in his thick book much research and wisdom. The financial crisis appeared to many to have dispensed with free market ideas once and for all. Ridley pointed out that, to the contrary, free markets were actually producing prosperity, food, cleanliness all over the world—particularly for the world’s poor.
Thomas Piketty’s book Capital in the Twenty-First Century has gotten a better reception from left-liberals than any book since Limits to Growth. The books have important similarities. Both posit societies in the grip of a doomsday pincer. Limits foresaw a future of poverty and hunger, as inevitably declining resources outrun inevitably increasing population. Piketty sees a future of increasing inequality, as capitalists enjoy an ever-greater share of global income than workers. Both books are also used to justify government intervention. Limits to Growth was the basis of attempts to slow down population growth and require conservation of resources. Capital in the Twenty-First Century expressly calls for a global wealth tax.
Most importantly, both books share a similar, fundamental flaw, although Piketty’s book is far more interesting and sophisticated. They do not take sufficient account of innovation– of the manner in which human ingenuity again and again benefits us all. The mistake in Limits of Growth has already become clear, as Matt Ridley reminded us in the Wall Street Journal last week. We are not running out of energy, for instance. We have more usable oil than ever as we have learned to exploit shale. Innovators are creating wide variety of energy sources that were either not well understood or even imagined in 1972, when Limits to Growth was first published.
Piketty’s book has the same flaw. In his lucid and favorable review, Robert Solow shows that Piketty’s claim of increasing inequality is based partly on his belief that the rate of return on capital will stay constant, even as economic growth slows. In Piketty’s view, a sluggish economy means that people who own capital will gain a greater share of income than people who earn wages. This projection depends on a technological slowdown . But with the relentless increase in computational power, there are more reasons to believe in technological acceleration than stasis.