A recent piece in the Economist (A new anthology of essays reconsiders Thomas Piketty’s “Capital”, May 20, 2107) ends with these words: "Economists set themselves too easy, too useless a task if they can describe how capitalism works only when politics is unchanging."
The article reviews After Piketty: The Agenda for Economics and Inequality a book that collects reactions by several economists to Piketty's Capital in the Twenty-First Century and it's central thesis that historically, the rate of return on capital has been greater than the growth rate.
The closing words of the review reaffirm a pet idea of mine. The separation of economics and politics is a mistake. In the universities, they're different departments. You'll hear no end of the Chicago-school lament that, "If the government would just stay out of the way, the economy would sort itself out!"
But, power and money are fungible. Money can buy access to power and influence over its exercise. The existence of the lobbying industry proves it. And, power can be used to acquire wealth in ways ranging from taxation to the business empire of the Iranian Revolutionary Guard. Power and wealth are two sides to the same coin. What is money other than the power to command resources?
From another point of view, both the economy and the political sphere are complex systems. Characteristics of such systems include that they are composed of many densely connected interacting parts and that they exhibit direct and indirect reactions to any perturbation. Second and higher order effects are significant, sometimes even dominant. Politics and money are deeply interconnected, and there's no reason to suppose the propagation of effects would politely stop at the border.
Imagining the economy in isolation from politics can be useful, the way a frictionless plane is useful in physics - as a device to make the math easier. But it shouldn't be forgotten that in reality there's no such thing.
