Janerik Henriksson / AP

Thomas Piketty's 2014 book, Capital in the 21st Century, is the rarest of tomes — a 700-page best-seller on economic theory. The French economist was transformed into an international celebrity, arguing with uncanny timing that economic inequality has worsened since the 1970s, and contributed to social and political instability. The political upheaval of the last year has only made him seem more prescient.

But there is much debate over Pikkety's central premise explaining why inequality has grown worse. Among those challenging Piketty is Devesh Raval, an economist with the Federal Trade Commission, who tells Axios that the Frenchman wrongly blamed automation. Instead, says Raval, the culprit is globalization.

Between the lines: If Raval is right, and not Piketty, then we have already seen the worst, and inequality should stop becoming exacerbated. "If globalization and trade are the culprit, most of those effects should have already happened," Raval says.

In his book, Piketty argues that, absent major corrective events like destructive wars or aggressive government action, capitalist countries will always generate extreme inequality of income and wealth.

  • As an example, Piketty pointed to real estate. He said that rental income earned on a piece of property generally grows faster than the economy, and that this leads to the concentration of wealth and income in fewer and fewer hands. Prospective home buyers may have noticed this effect in today's housing market, in which the average home is three times more expensive, relative to the typical wage, than in the 1970s.
  • Piketty broadens out the argument: He says to expect this shift of wealth to continue as AI and automation technology enable robots and algorithms to do an increasingly wide range of tasks.

Not so fast: Raval argues that the data don't corroborate Piketty's thesis. Automation, he argues, hasn't increased the interchangeability of humans with machines. Instead, what we have watched is the one-time effects of radical post-war globalization.

  • Radical globalization: Chinese investors can now bid up real estate prices, Raval notes, and American businessmen can easily source their wares from low-wage Vietnam, both changes that have hurt workers. The upside, he argues, is that many of these shifts are one-offs that won't continue to suppress workers' share of income.
  • Looking ahead: Although Raval says automation isn't causing labor's share of income to decline, he concedes that new technologies could drive down pay. Raval writes, "If Piketty's feared scenario comes to pass," in which machines can increasingly replace labor, and population growth continues to slow, standard economic models say the world "would experience unbounded growth," he said. In other words, the economy could grow while people contribute no new innovations.

Why it matters: If automation is the culprit, as Piketty argues, we can expect the disruptions of the past two generations to grow much worse, possibly even making human labor obsolete altogether. But if Raval is right, the taxes on capital he has proposed could slow growth and hurt the median worker.

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