Review of Thomas Piketty's Capital: Capitalism vs Democracy(nytimes.com)
nytimes.com
Review of Thomas Piketty's Capital: Capitalism vs Democracy
http://www.nytimes.com/2014/01/29/opinion/capitalism-vs-democracy.html?_r=1
69 comments
As far as I can tell skimming through these comments, no one else here has actually read the thing.
Given it's a 696 page economics text just released in English, this doesn't much surprise me. I've only managed to 1) acquire a copy and 2) start looking at reviews and interviews with Piketty and others. Anyone who's actually read him in depth either 1) had an advance copy (and still not much time to digest the work), 2) has been following Piketty for some time (e.g., Krugman), or is fluent in French and read the original. Anyone else either hasn't, is lying, or hasn't fully processed the work.
The only conclusions I've drawn so far are that Piketty is respected by many, feared by many, and has clearly struck a nerve. I have a nagging suspicion he's missed a few points I consider to be key, though that is, absolutely, based on not having read the actual book. Briefly: I put a lot of stock in the thermoeconomics / biophysical economics, and complexity economics schools (see, e.g., Herman Daly or Charles A.F. Hall, or J. Doyne Farmer and much of the Santa Fe Institute / Institute for New Economic Thinking), which at least in his interviews Piketty doesn't address.
My sense is that he's hit a very strong nerve, and that yes, inequality is a significant problem. It's more symptom than a cause, though it also has both effects on the economy as a whole and can likely be addressed in at least part. The work will, I'm pretty certain, be considered important, but it's not the earth-moving revolution which economics clearly and so desperately needs.
http://www.reddit.com/r/dredmorbius/comments/23jqiy/j_doyne_...
dang recently posted a link to an excellent overview of the life of Karl Polanyi as well. It generated upvotes but no comments of note:
https://news.ycombinator.com/item?id=7610550
http://prospect.org/article/karl-polanyi-explains-it-all
Given it's a 696 page economics text just released in English, this doesn't much surprise me. I've only managed to 1) acquire a copy and 2) start looking at reviews and interviews with Piketty and others. Anyone who's actually read him in depth either 1) had an advance copy (and still not much time to digest the work), 2) has been following Piketty for some time (e.g., Krugman), or is fluent in French and read the original. Anyone else either hasn't, is lying, or hasn't fully processed the work.
The only conclusions I've drawn so far are that Piketty is respected by many, feared by many, and has clearly struck a nerve. I have a nagging suspicion he's missed a few points I consider to be key, though that is, absolutely, based on not having read the actual book. Briefly: I put a lot of stock in the thermoeconomics / biophysical economics, and complexity economics schools (see, e.g., Herman Daly or Charles A.F. Hall, or J. Doyne Farmer and much of the Santa Fe Institute / Institute for New Economic Thinking), which at least in his interviews Piketty doesn't address.
My sense is that he's hit a very strong nerve, and that yes, inequality is a significant problem. It's more symptom than a cause, though it also has both effects on the economy as a whole and can likely be addressed in at least part. The work will, I'm pretty certain, be considered important, but it's not the earth-moving revolution which economics clearly and so desperately needs.
http://www.reddit.com/r/dredmorbius/comments/23jqiy/j_doyne_...
dang recently posted a link to an excellent overview of the life of Karl Polanyi as well. It generated upvotes but no comments of note:
https://news.ycombinator.com/item?id=7610550
http://prospect.org/article/karl-polanyi-explains-it-all
Thanks for the comprehensive comment.
I completely agree on the discussion here and that Piketty has struck a nerve. I was just a bit annoyed that no one was even attempting to claim actual knowledge of the book at hand, but was ready to make statements on its content, without any kind of qualifier (really, all I wanted). I have a feeling this is going to be one of those books whose influence, at least in discussion, will be greater than expected given the people in those conversations who didn't read it. I have found it an easier read than I expected though. Right now I alternate between it or Infinite Jest each night, which is a really nice change of pace in either direction.
I got the ebook on my tablet to just speed through in bed, but I've realized this is going to be one I'll need a physical copy of eventually to annotate. Thanks for the link to your subreddit, I've subscribed.
I completely agree on the discussion here and that Piketty has struck a nerve. I was just a bit annoyed that no one was even attempting to claim actual knowledge of the book at hand, but was ready to make statements on its content, without any kind of qualifier (really, all I wanted). I have a feeling this is going to be one of those books whose influence, at least in discussion, will be greater than expected given the people in those conversations who didn't read it. I have found it an easier read than I expected though. Right now I alternate between it or Infinite Jest each night, which is a really nice change of pace in either direction.
I got the ebook on my tablet to just speed through in bed, but I've realized this is going to be one I'll need a physical copy of eventually to annotate. Thanks for the link to your subreddit, I've subscribed.
My attempt at uninformed commentary:
http://www.reddit.com/r/dredmorbius/comments/23njva/piketty/
Well -- informed by Thomas Edsall's review in The New York Times, specifically:
According to Piketty, those halcyon six decades [from 1914 - 1974] were the result of two world wars and the Great Depression. The owners of capital – those at the top of the pyramid of wealth and income – absorbed a series of devastating blows. These included the loss of credibility and authority as markets crashed; physical destruction of capital throughout Europe in both World War I and World War II; the raising of tax rates, especially on high incomes, to finance the wars; high rates of inflation that eroded the assets of creditors; the nationalization of major industries in both England and France; and the appropriation of industries and property in post-colonial countries.
While all of that is true, it's a still very incomplete picture of what resulted in the six golden decades.
http://www.reddit.com/r/dredmorbius/comments/23njva/piketty/
Well -- informed by Thomas Edsall's review in The New York Times, specifically:
According to Piketty, those halcyon six decades [from 1914 - 1974] were the result of two world wars and the Great Depression. The owners of capital – those at the top of the pyramid of wealth and income – absorbed a series of devastating blows. These included the loss of credibility and authority as markets crashed; physical destruction of capital throughout Europe in both World War I and World War II; the raising of tax rates, especially on high incomes, to finance the wars; high rates of inflation that eroded the assets of creditors; the nationalization of major industries in both England and France; and the appropriation of industries and property in post-colonial countries.
While all of that is true, it's a still very incomplete picture of what resulted in the six golden decades.
I definitely haven't read it, but it's going on my list.
How does he contrast the current unemployment situation with the boom-bust cycles during the industrial age? It seems completely different to me. Currently, we've got people being priced out of the job market forever based on their skills and what robots and asian child labor can do. That seems way different from the problems faced by factory workers in the 1900s.
How does he contrast the current unemployment situation with the boom-bust cycles during the industrial age? It seems completely different to me. Currently, we've got people being priced out of the job market forever based on their skills and what robots and asian child labor can do. That seems way different from the problems faced by factory workers in the 1900s.
There are a lot of parallels. The Industrial Revolution rendered obsolete a great deal of the agrarian-based economy that preceded it, and many farmers were forced out of work "forever" -- at least as farmers. They had to take up entirely new lines of work, and the transition was messy.
In today's context, replace the transition from farming to industry with the transition from industry to knowledge-work and services. Robots and child labor will put a lot of people out of work, indefinitely, depending on the line of work they're in. So they'll need to find new lines of work. But it'll be a long time before robots have rendered all human work obsolete, despite what Singularity proponents would have us believe.
There isn't too much fundamentally different between what happened back then and what's happening now; only the set dressing has changed. We're not yet in the era of fundamental shifts in the way labor works. We have not reached the end of history.
What's changed between then and now? Predominantly, freer trade and more fluid and fungible labor markets. These have had at least as big an effect on labor as technology has (though the two forces have often worked in tandem).
The book is generally pessimistic in its outlook. Some critics argue that even this book, despite the breadth of its historical analysis, doesn't rely on enough data to make predictions. In essence, the book discusses how the postwar decades were a local aberration in a global data set. But one could argue that even the book isn't global enough in its analysis. (Though I'd argue that a more sweeping, global view of history would tend to bear out the book's thesis more than confound it.)
In today's context, replace the transition from farming to industry with the transition from industry to knowledge-work and services. Robots and child labor will put a lot of people out of work, indefinitely, depending on the line of work they're in. So they'll need to find new lines of work. But it'll be a long time before robots have rendered all human work obsolete, despite what Singularity proponents would have us believe.
There isn't too much fundamentally different between what happened back then and what's happening now; only the set dressing has changed. We're not yet in the era of fundamental shifts in the way labor works. We have not reached the end of history.
What's changed between then and now? Predominantly, freer trade and more fluid and fungible labor markets. These have had at least as big an effect on labor as technology has (though the two forces have often worked in tandem).
The book is generally pessimistic in its outlook. Some critics argue that even this book, despite the breadth of its historical analysis, doesn't rely on enough data to make predictions. In essence, the book discusses how the postwar decades were a local aberration in a global data set. But one could argue that even the book isn't global enough in its analysis. (Though I'd argue that a more sweeping, global view of history would tend to bear out the book's thesis more than confound it.)
> But it'll be a long time before robots have rendered all human work obsolete, despite what Singularity proponents would have us believe.
I'm jumping on a detail here, but even if that time is near, it doesn't really matter, because the most likely scenario is intelligence explosion: the day the machines render all human work obsolete is the day they are at least as smart as us. Which means they can design AIs on their own. Smarter AIs. And those…
Well this eventually means a super-intelligence that could take over the world —and will do so, if it's initial programming includes any unbounded goal, implicit or explicit. (To give you an idea of the potential gap: the other great apes don't rule the world. We do. 'Cause we're smarter, and though of things like picking up some hot blazing stick and taming it for food and shelter —or bridges and nukes, which can't even be explained in terms a chimp can understand. To the AI, we won't even look like chimps. More like mice, or bugs.)
So at this point, we're not thinking about the economic consequences of human obsolescence. We're thinking of not being used for spare parts.
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In the meantime, all humans won't be obsolete, so your main point looks okay. I'll just add that however long it takes to reach intelligence explosion, it will probably be a period of perpetual transition: more and more automation, less and less human labour. Technological unemployment has already started, it will only amplify. Whether that's a tragedy or good news depends on how we handle it as a society. (Like, we could have ever more massive unemployment and inequality, or we could have basic income and 4-3-2-1 days work-week —or whatever I haven't thought of and actually works.)
I'm jumping on a detail here, but even if that time is near, it doesn't really matter, because the most likely scenario is intelligence explosion: the day the machines render all human work obsolete is the day they are at least as smart as us. Which means they can design AIs on their own. Smarter AIs. And those…
Well this eventually means a super-intelligence that could take over the world —and will do so, if it's initial programming includes any unbounded goal, implicit or explicit. (To give you an idea of the potential gap: the other great apes don't rule the world. We do. 'Cause we're smarter, and though of things like picking up some hot blazing stick and taming it for food and shelter —or bridges and nukes, which can't even be explained in terms a chimp can understand. To the AI, we won't even look like chimps. More like mice, or bugs.)
So at this point, we're not thinking about the economic consequences of human obsolescence. We're thinking of not being used for spare parts.
---
In the meantime, all humans won't be obsolete, so your main point looks okay. I'll just add that however long it takes to reach intelligence explosion, it will probably be a period of perpetual transition: more and more automation, less and less human labour. Technological unemployment has already started, it will only amplify. Whether that's a tragedy or good news depends on how we handle it as a society. (Like, we could have ever more massive unemployment and inequality, or we could have basic income and 4-3-2-1 days work-week —or whatever I haven't thought of and actually works.)
"(Like, we could have ever more massive unemployment and inequality, or we could have basic income and 4-3-2-1 days work-week —or whatever I haven't thought of and actually works.)"
This is what kills me about the fear of automation and progressive taxation. There is a real shot here at capitalizing on the opportunity--less work and more, better living for all by reducing working hours. It's not talked about AT ALL in the media, which leads me to believe voters aren't even thinking about it. Worse, I suspect most people haven't considered it as a possible solution.
This is what kills me about the fear of automation and progressive taxation. There is a real shot here at capitalizing on the opportunity--less work and more, better living for all by reducing working hours. It's not talked about AT ALL in the media, which leads me to believe voters aren't even thinking about it. Worse, I suspect most people haven't considered it as a possible solution.
I have just finished "Understanding Power" by Noam Chomsky. I believe his interpretation would be that the media don't talk about it because those in power don't want them to: it would lead to less profit.
See, reducing working hours would drive down unemployment, which means more bargaining power for the working class, leading to higher wages, and ultimately, inflation. Not hyper inflation, but enough to be an effective tax on wealth. With relatively few exceptions, those people want to keep they money, so they don't want inflation, nor anything that might lead to it.
Therefore, the media don't speak of it. Those who do simply lose advertising revenue, possibly driving them out of business. Which is why I'm surprised to see this article on the New-York Times. Is this book welcome in the current intelligentsia? Is it simply an article that slipped through the cracks? Or are media becoming less eager to serve power?
See, reducing working hours would drive down unemployment, which means more bargaining power for the working class, leading to higher wages, and ultimately, inflation. Not hyper inflation, but enough to be an effective tax on wealth. With relatively few exceptions, those people want to keep they money, so they don't want inflation, nor anything that might lead to it.
Therefore, the media don't speak of it. Those who do simply lose advertising revenue, possibly driving them out of business. Which is why I'm surprised to see this article on the New-York Times. Is this book welcome in the current intelligentsia? Is it simply an article that slipped through the cracks? Or are media becoming less eager to serve power?
You got me thinking about inflation as a tax on the wealthy but after thinking about it some, I quickly realized that most wealth is stored in real estate or stocks/bonds- not cash. Future business earnings would also scale up with inflation.
The only people losing out are those who store their wealth as cash, and really, who does that?
The only people losing out are those who store their wealth as cash, and really, who does that?
Oops, good point. Still, even without inflation, more bargaining power means less money for the other party: more money would go to the workers, and less would go to the capitalists.
This is even more direct than this inflation stuff, I should have mentioned it right away.
As for how people store their money… I believe many rather important financial "products" are sensitive to inflation. I'm not a specialist, but here is an example: insurance. You give an insurance company something (money, bonds, debts…), and ask for money in return. Not now, but later. If that sum is not indexed to inflation somehow, it will be sensitive to it. One also need some cash to exchange all those bonds and stocks and what have you. By reducing the money supply, inflation may reduce the fluidity of the market, which may have effect on the market value of stocks.
This is even more direct than this inflation stuff, I should have mentioned it right away.
As for how people store their money… I believe many rather important financial "products" are sensitive to inflation. I'm not a specialist, but here is an example: insurance. You give an insurance company something (money, bonds, debts…), and ask for money in return. Not now, but later. If that sum is not indexed to inflation somehow, it will be sensitive to it. One also need some cash to exchange all those bonds and stocks and what have you. By reducing the money supply, inflation may reduce the fluidity of the market, which may have effect on the market value of stocks.
He does address it to some extent in that he's very pessimistic about the future. While I am quite enamored of his data and general skill as a researcher/writer, I choose to be a bit more optimistic about the future. If you go back and read some publications from the late 19th century any of the same concerns over job availability and mechanization appear. It is possible though, that we're past a different sort of tipping point now, and our robots will have a greater impact than the past's factories.
While I enjoy thinking and reading about these things and trying to piece together data into global narratives, I'm also realistic, we can't ever 100% know what's coming. I will try to remain upbeat about the future, enjoy what I have, and strive to put myself into positions to create clearly positive value for the country/world around me, no matter what the overall picture looks like.
While I enjoy thinking and reading about these things and trying to piece together data into global narratives, I'm also realistic, we can't ever 100% know what's coming. I will try to remain upbeat about the future, enjoy what I have, and strive to put myself into positions to create clearly positive value for the country/world around me, no matter what the overall picture looks like.
The original Luddites were skilled artisans being priced out of the job market forever based on their skills and what robots and child labor could do, too:
http://en.wikipedia.org/wiki/Luddite
My beef with economics is the lack of experiment and falsifiable hypotheses. Or perhaps it's a failure to integrate repeated failure of hypotheses into a larger theory. Once you've finished could you report back if there is any attempt to make predictions that can be checked?
In the case of this book, he's proposing a new "theory" (I'm putting it in quotes because it's weaker than a scientific theory, but stronger than the popular use of the word), with the most comprehensive and far reaching national-level economic dataset that has existed up to this point (as far as I am aware). In that sense, I feel his work is more concrete than most economic research I've read, and it's several orders of magnitude away from the typical economist op-ed with a single chart, and some cherry-picked data. His predictions for the future are pessimistic, and down the line they will certainly be at least partially verifiable. Only partially, because economies are huge and ghastly things, that we apply numbers to, but don't really have a complete handle on. There are almost always enough extraneous or unaccounted for factors for an opposition group to claim an opposing viewpoint. I think part of the value from Piketty's work is that he tries to account for as much of the data that is integral to his theories as possible (moreso than most economists).
Writing this has made me a bit thoughtful, so I'll also take this an an opportunity to go off on a related personal tangent/ramble. Hopefully I don't bore you too much, feel free to ignore.
I have always, always, been frustrated with economics. A field that is so divisive, but represents itself as a "science", has always annoyed the hell out of me. However, my academic and professional track has brought me further into economics over time, rather than away. Right now I have a BS and MS in environmental science, and an MPA in energy policy. I'm nearly certain I want to pursue a PhD in the future, and it looks more and more like it will probably be in energy economics. One way I have calmed down my inner turmoil over this is to more frankly assess my economist and scientist sides.
Basically, the scientist is in love with raw, pure, data generation, while my inner economist is about using that data to generate a picture (or a graph, so many graphs). Another side to this is that my inner economist constantly wants to generate an interesting narrative and draw out the connections between trends, while my inner scientist tears down those hypotheses or works to find the data points which are not influenced by a "narrative".
I've been happy on a lab bench centrifuging, pipetting, and doing PCR in the process of splicing soybean embryos, but I also enjoy sifting through census data and plotting $/kWh trends. Ultimately, I still maintain a distrust of the broad field of economics, but I think the phenomenon we broadly place within it could do with a more thorough explication via more scientific methods.
Writing this has made me a bit thoughtful, so I'll also take this an an opportunity to go off on a related personal tangent/ramble. Hopefully I don't bore you too much, feel free to ignore.
I have always, always, been frustrated with economics. A field that is so divisive, but represents itself as a "science", has always annoyed the hell out of me. However, my academic and professional track has brought me further into economics over time, rather than away. Right now I have a BS and MS in environmental science, and an MPA in energy policy. I'm nearly certain I want to pursue a PhD in the future, and it looks more and more like it will probably be in energy economics. One way I have calmed down my inner turmoil over this is to more frankly assess my economist and scientist sides.
Basically, the scientist is in love with raw, pure, data generation, while my inner economist is about using that data to generate a picture (or a graph, so many graphs). Another side to this is that my inner economist constantly wants to generate an interesting narrative and draw out the connections between trends, while my inner scientist tears down those hypotheses or works to find the data points which are not influenced by a "narrative".
I've been happy on a lab bench centrifuging, pipetting, and doing PCR in the process of splicing soybean embryos, but I also enjoy sifting through census data and plotting $/kWh trends. Ultimately, I still maintain a distrust of the broad field of economics, but I think the phenomenon we broadly place within it could do with a more thorough explication via more scientific methods.
You are of course at liberty to have a beef with economics, but the idea that it is not an empirical discipline that values falsifiable hypothesis is itself a false hypothesis. Furthermore, the idea that economists do not learn from failed hypothesis or attempt to embody that learning into new hypotheses is also false. You write like someone who has an observer's impressions of economics rather than any real exposure to the discipline.
As far as I can tell skimming through these comments, no one else here has actually read the thing.
This is the internet. You don't need to read something, or even know what it's actually about to have an opinion on it.
(No, I haven't read the book yet, either; I'm waiting for Amazon to ship my copy. They said it'll be here by the end of the week.)
This is the internet. You don't need to read something, or even know what it's actually about to have an opinion on it.
(No, I haven't read the book yet, either; I'm waiting for Amazon to ship my copy. They said it'll be here by the end of the week.)
TLDR : rising inequality a return to "normal" after 2 huge destructions.
Inequality is returning to pre world-wars level - ok, that's an easily verifiable fact.
However, how do we know it's a bad thing? There is no conclusive evidence that rising inequality will have bad consequences on say growth - it might. We just don't know for sure.
OTOH, we know quite well how we got into that "equality" period - destruction of huge amounts of capital and human lives in 2 world wars that turned European countries from world leaders into 2nd rate places - yet very equalitarian (Gini coefficients etc) compared to other places.
It doesn't strike me as a "good thing".
Inequality is returning to pre world-wars level - ok, that's an easily verifiable fact.
However, how do we know it's a bad thing? There is no conclusive evidence that rising inequality will have bad consequences on say growth - it might. We just don't know for sure.
OTOH, we know quite well how we got into that "equality" period - destruction of huge amounts of capital and human lives in 2 world wars that turned European countries from world leaders into 2nd rate places - yet very equalitarian (Gini coefficients etc) compared to other places.
It doesn't strike me as a "good thing".
If you're interested, check out the Economist's 2012 special report on inequality (http://www.economist.com/node/21564414).
To quote from another Economist article around the same time (http://www.economist.com/node/21564556#sthash.AXidvmgE.dpbs):
"It is also true that some measure of inequality is good for an economy. It sharpens incentives to work hard and take risks; it rewards the talented innovators who drive economic progress. Free-traders have always accepted that the more global a market, the greater the rewards will be for the winners. But as our special report this week argues, inequality has reached a stage where it can be inefficient and bad for growth."
This is due to, but not limited to, cronyism and lack of equality of opportunity (e.g., college).
But also, I think the new Princeton/Northwestern study that says the US is an oligarchy provides enough reason to be worried about inequality. If we agree democracy is important -- which means we value the voices of all citizens -- then growing inequality in its current state is concerning because it means the average citizen has a "miniscule...impact on public policy."
To quote from another Economist article around the same time (http://www.economist.com/node/21564556#sthash.AXidvmgE.dpbs):
"It is also true that some measure of inequality is good for an economy. It sharpens incentives to work hard and take risks; it rewards the talented innovators who drive economic progress. Free-traders have always accepted that the more global a market, the greater the rewards will be for the winners. But as our special report this week argues, inequality has reached a stage where it can be inefficient and bad for growth."
This is due to, but not limited to, cronyism and lack of equality of opportunity (e.g., college).
But also, I think the new Princeton/Northwestern study that says the US is an oligarchy provides enough reason to be worried about inequality. If we agree democracy is important -- which means we value the voices of all citizens -- then growing inequality in its current state is concerning because it means the average citizen has a "miniscule...impact on public policy."
but we don't agree that democracy per se is important. There are plenty of cases where "the value of the voices of all citizens", can create inequality or severe injustice.
If you are measuring public policy in a nationalistic sense, then yes, an individual does have a miniscule impact on public policy because the per-individual impact is decreasing as the population increases. Then perhaps a presciption would be to decentralize governments, so that an an individual has more net political agency.
The anti-capitalist prescription, however, does exactly the opposite by concentrating political power in larger organization with broader oversight over bigger populations of individuals. Which, of course, exacerbates inequality because the mean marginal impact of an individual necessarily decreases.
If you are measuring public policy in a nationalistic sense, then yes, an individual does have a miniscule impact on public policy because the per-individual impact is decreasing as the population increases. Then perhaps a presciption would be to decentralize governments, so that an an individual has more net political agency.
The anti-capitalist prescription, however, does exactly the opposite by concentrating political power in larger organization with broader oversight over bigger populations of individuals. Which, of course, exacerbates inequality because the mean marginal impact of an individual necessarily decreases.
I think you'd also agree with this review [1] of the book, concluding
Over the course of history, capital accumulation has yielded growth in living standards that people in earlier centuries could not have imagined, let alone predicted -- and it wasn't just the owners of capital who benefited. Future capital accumulation may or may not increase the capital share of output; it may or may not widen inequality. If it does, that's a bad thing, and governments should act. But even if it does, it won't matter as much as whether and how quickly wages and living standards rise.
That is, or ought to be, the defining issue of our era, and it's one on which "Capital in the 21st Century" has almost nothing to say.
[1] http://www.bloombergview.com/articles/2014-04-20/the-most-im... (hat tip:Tyler Cowen)
Over the course of history, capital accumulation has yielded growth in living standards that people in earlier centuries could not have imagined, let alone predicted -- and it wasn't just the owners of capital who benefited. Future capital accumulation may or may not increase the capital share of output; it may or may not widen inequality. If it does, that's a bad thing, and governments should act. But even if it does, it won't matter as much as whether and how quickly wages and living standards rise.
That is, or ought to be, the defining issue of our era, and it's one on which "Capital in the 21st Century" has almost nothing to say.
[1] http://www.bloombergview.com/articles/2014-04-20/the-most-im... (hat tip:Tyler Cowen)
>But even if it does, it won't matter as much as whether and how quickly wages and living standards rise.
>That is, or ought to be, the defining issue of our era, and it's one on which "Capital in the 21st Century" has almost nothing to say.
It seems odd for the Bloomberg review to state that the book says nothing about this issue. In fact, it appears to be the very premise of the book, or at least a primary implication.
This Bloomberg review appears to be attempting a de-linking of the two issues. That is, it implies that rising inequality is independent of the rise of wages and living standards. It glosses over the inequality issue by saying that it's essentially unimportant as long as wages rise.
In fact, the book itself is making the case that inequality and labor-based living standards are interdependent. It goes through history to show where forces conspired to create more equality--be it destructive to capital (e.g. wars) or beneficial to labor (e.g. unions). It's during those periods of greater equality that wages and living standards tended to rise (or at least track with the overall economy).
Here's a key assertion from the book that refutes the Bloomberg review in a nutshell:
>The main driver of inequality--the tendency of returns on capital to exceed the rate of economic growth--today threatens to generate extreme inequalities that stir discontent and undermine democratic values.
That is, when returns on capital exceed the rate of economic growth, those who depend on growth (laborers) are left with stagnating or declining wages and living standards.
>That is, or ought to be, the defining issue of our era, and it's one on which "Capital in the 21st Century" has almost nothing to say.
It seems odd for the Bloomberg review to state that the book says nothing about this issue. In fact, it appears to be the very premise of the book, or at least a primary implication.
This Bloomberg review appears to be attempting a de-linking of the two issues. That is, it implies that rising inequality is independent of the rise of wages and living standards. It glosses over the inequality issue by saying that it's essentially unimportant as long as wages rise.
In fact, the book itself is making the case that inequality and labor-based living standards are interdependent. It goes through history to show where forces conspired to create more equality--be it destructive to capital (e.g. wars) or beneficial to labor (e.g. unions). It's during those periods of greater equality that wages and living standards tended to rise (or at least track with the overall economy).
Here's a key assertion from the book that refutes the Bloomberg review in a nutshell:
>The main driver of inequality--the tendency of returns on capital to exceed the rate of economic growth--today threatens to generate extreme inequalities that stir discontent and undermine democratic values.
That is, when returns on capital exceed the rate of economic growth, those who depend on growth (laborers) are left with stagnating or declining wages and living standards.
As most of us commenting here, I haven't read the book. That said...
Your quote does not support your conclusion. It says that (given Piketty's assumptions) inequality is likely to escalate. This says absolutely nothing about whether the standard of living of the poorest will improve or decline.
And as far as I can tell, this whole discussion (not just the book, but the broader complaints of inequality) are founded on a mistaken idea that accelerating growth of the richest somehow means that the poorest will be worse off. All of history shows us that this is false. Even the poorest today enjoy a life that was unimaginable to kings of a couple centuries ago, and rivals in most ways the hyper-rich of just decades ago.
If the poorest really were "downtrodden" - that is, that the rich achieved success by actually pushing down the poorest, there's be something to get excited about. But the actual fact, that the poorest are getting rich more slowly than the richest, is morally a non-issue to me.
Your quote does not support your conclusion. It says that (given Piketty's assumptions) inequality is likely to escalate. This says absolutely nothing about whether the standard of living of the poorest will improve or decline.
And as far as I can tell, this whole discussion (not just the book, but the broader complaints of inequality) are founded on a mistaken idea that accelerating growth of the richest somehow means that the poorest will be worse off. All of history shows us that this is false. Even the poorest today enjoy a life that was unimaginable to kings of a couple centuries ago, and rivals in most ways the hyper-rich of just decades ago.
If the poorest really were "downtrodden" - that is, that the rich achieved success by actually pushing down the poorest, there's be something to get excited about. But the actual fact, that the poorest are getting rich more slowly than the richest, is morally a non-issue to me.
>...inequality is likely to escalate. This says absolutely nothing about whether the standard of living of the poorest will improve or decline.
I believe you are making the same mistake as the Bloomberg reviewer in separating inequality from the fate of the poorest.
To see the connection, you have to look deeper. That is, you must consider the causes of inequality that Piketty offers. You might argue that inequality in itself doesn't produce a negative outcome for the poorest, but that the causes of our current inequality produce those negative outcomes as a side effect. I would say that's semantics, but in any case, what Piketty lays out does support the notion of a rising inequality along with a comcomitant stagnation/slippage for the poorest/others.
So, let's say it the other way, if you prefer: some of the primary reasons (increased productivity, automation, etc.) for the rate of wealth-accumulation for the rich that we're seeing also produces negative outcomes for the poorest (unemployment, downward wage pressure, etc.). This has led us to (or, rather, is by definition) the growing inequality that we're seeing.
Finally, these arguments of the ilk that "inequality must be OK because the standard of living for the poor has risen even in the face of historical inequality" fall flat. It really is a false equivalence.
Firstly, such arguments imply that degree is irrelevant and that no degree of inequality would produce (or represent) a negative outcome for the poor. In fact, there is some point at which capture by one party must come at the expense of others to the extent that the latter parties slip backwards. Secondly--and to the first point--Piketty outlines that the degree of inequality was historically kept in check by various forces in other examples where the outcomes for the poor weren't detrimental.
In those cases, the threshold for negative outcomes was simply not crossed. However, this is certainly not proof that they cannot be.
I believe you are making the same mistake as the Bloomberg reviewer in separating inequality from the fate of the poorest.
To see the connection, you have to look deeper. That is, you must consider the causes of inequality that Piketty offers. You might argue that inequality in itself doesn't produce a negative outcome for the poorest, but that the causes of our current inequality produce those negative outcomes as a side effect. I would say that's semantics, but in any case, what Piketty lays out does support the notion of a rising inequality along with a comcomitant stagnation/slippage for the poorest/others.
So, let's say it the other way, if you prefer: some of the primary reasons (increased productivity, automation, etc.) for the rate of wealth-accumulation for the rich that we're seeing also produces negative outcomes for the poorest (unemployment, downward wage pressure, etc.). This has led us to (or, rather, is by definition) the growing inequality that we're seeing.
Finally, these arguments of the ilk that "inequality must be OK because the standard of living for the poor has risen even in the face of historical inequality" fall flat. It really is a false equivalence.
Firstly, such arguments imply that degree is irrelevant and that no degree of inequality would produce (or represent) a negative outcome for the poor. In fact, there is some point at which capture by one party must come at the expense of others to the extent that the latter parties slip backwards. Secondly--and to the first point--Piketty outlines that the degree of inequality was historically kept in check by various forces in other examples where the outcomes for the poor weren't detrimental.
In those cases, the threshold for negative outcomes was simply not crossed. However, this is certainly not proof that they cannot be.
> There is no conclusive evidence that rising inequality will have bad consequences on say growth - it might.
Of course, if the government can't be malicious on behalf of malicious people, then a less representative government could be a good thing for those with lesser means.
That's an excellent point. I wish I could think of an alternative that would be an improvement, though. The "benevolent, incorruptible dictator" is kind of a cliche in the political science world I think.
As an entrepreneur, it worries me a fair bit. If most of the capital is tied up in a relatively small number of families, then it will be much easier for existing players to defend their financial turf.
It won't matter much for me, but I'd be sad to see America's broad culture of entrepreneurship die in future generations.
It won't matter much for me, but I'd be sad to see America's broad culture of entrepreneurship die in future generations.
"There is no conclusive evidence that rising inequality will have bad consequences on say growth". Lets say economy is an organism like a human and money is the blood. Would you say that this organism is healthy and grows normally, if up to 90% of the blood would flow to the brain and only 10% would flow to the other organs, despite of a 1:40 brain to body proportion ? No one denies that the brain should receive more blood flow than the liver or pancreas but when the disproportion is so extreme and the only organ that "grows" is the brain, there should be no surprise when the liver is not able to sustain the functioning of the organism with the disproportionate head.
What is so good about growth if proceeds only go to the people who already have capital?
Right. It is high time that percentage change in GDP is not the sole consideration when measuring growth. While GDP will always be important, measures like Gini and HDI (or others which measure overall human "happiness") be taken into account when judging if a country is prosperous.
Now there's a solid question. Seriously.
He's not just saying inequality is rising, he's also pointing out how: it is because in our time, capital grows at a faster rate than labour output (this is my lay person's reduction, please do correct me if needed).
Is the latter a bad thing? It depends what kind of world you'd favour. Let me put it this way: if people whose great-grandparents were innovators but who are now simply in the business of owning stuff get greater rewards in life than people who take risks, innovate and work hard to build new things, is that a bad world?
Is the latter a bad thing? It depends what kind of world you'd favour. Let me put it this way: if people whose great-grandparents were innovators but who are now simply in the business of owning stuff get greater rewards in life than people who take risks, innovate and work hard to build new things, is that a bad world?
It's not clear to me how one would measure 'labor output'. What constitutes 'labor'? Is sitting at home playing a video game 'labor'? What if you're beta-testing for a games company?
So fundamentally this thesis is flawed because there is no well-defined concept of 'labor'. You could take the value theory of labor, which states that 'labor is any non-property that you're willing to pay for', but in that case capital cannot grow at a faster rate.
Really inequality is growing because we have legions of administrator working to redistribute wealth. These are usually well-intentioned ideas that are designed to elevate the less fortunate, but result in corruption and redirection of those funds to the already-rich (who are generally more adept at lobbying for those funds, perversely, especially under the regime of stronger campaign finance laws)
Consider the case of Bell, California, a city with a median income below ~40k, where the city administrators took it upon themselves to line their own pocketbooks (to the tunes of half a million dollars in annual salaries) with city funds. 5 out of 6 administrators were convicted of corruption. http://articles.latimes.com/2013/dec/09/local/la-me-1210-ang...
Or, the case of the centinela valley school district, again, a low-income area, where SCHOOL officials lined themselves with money (600,000 salaries, interest-free loans on property, etc etc), and awarded very lucrative construction contracts to their cronies. http://www.latimes.com/local/la-me-centinela-probe-20140417,... Meanwhile the teachers are underpaid and the kids are not getting educated in failing-grade schools.
When the poor get screwed, it's often not the free market that's screwing them. It's the people with authority that are warping the bureaucracy and taking advantage of the fact that they are spending 50-60 hours a week on tenuous employment and have little time to concern themselves with arduous bureaucracy and regulatory minutiae, that we 'vote' people in to handle.
So fundamentally this thesis is flawed because there is no well-defined concept of 'labor'. You could take the value theory of labor, which states that 'labor is any non-property that you're willing to pay for', but in that case capital cannot grow at a faster rate.
Really inequality is growing because we have legions of administrator working to redistribute wealth. These are usually well-intentioned ideas that are designed to elevate the less fortunate, but result in corruption and redirection of those funds to the already-rich (who are generally more adept at lobbying for those funds, perversely, especially under the regime of stronger campaign finance laws)
Consider the case of Bell, California, a city with a median income below ~40k, where the city administrators took it upon themselves to line their own pocketbooks (to the tunes of half a million dollars in annual salaries) with city funds. 5 out of 6 administrators were convicted of corruption. http://articles.latimes.com/2013/dec/09/local/la-me-1210-ang...
Or, the case of the centinela valley school district, again, a low-income area, where SCHOOL officials lined themselves with money (600,000 salaries, interest-free loans on property, etc etc), and awarded very lucrative construction contracts to their cronies. http://www.latimes.com/local/la-me-centinela-probe-20140417,... Meanwhile the teachers are underpaid and the kids are not getting educated in failing-grade schools.
When the poor get screwed, it's often not the free market that's screwing them. It's the people with authority that are warping the bureaucracy and taking advantage of the fact that they are spending 50-60 hours a week on tenuous employment and have little time to concern themselves with arduous bureaucracy and regulatory minutiae, that we 'vote' people in to handle.
what's even more amazing is that in the US, us as voters seem to insist on our higher level elected officials to have had 'experience' as a prerequisite for advancement to higher office. Are these really the people we want to elevate to have broader authority? And there is a bootstrapping? The country is really 'federalizing'; giving more authority to the federal government, so there is less of a 'filter' against local officials, because there's just simply less to do, and less incentive for voters to look carefully at who their, say state and local level representatives are.
It wasn't anything inherent in the wars themselves that caused this. It merely put financial pressure on governments, who then had raise to money, and proceeded to raise it from the people who had it.
This pressure need not be caused by war. Any big, ambitious, inspirational project like fighting climate change or colonizing Mars will do just as well.
This pressure need not be caused by war. Any big, ambitious, inspirational project like fighting climate change or colonizing Mars will do just as well.
> Any big, ambitious, inspirational project like fighting climate change... will do just as well
I'm curious, which of the following is the most compelling argument for "fighting climate change" with government authority?
I'm curious, which of the following is the most compelling argument for "fighting climate change" with government authority?
a) The survival of the planet depends on it
b) Developing cleaner economies is necessary, even ignoring the science
c) It is a suitable project for the purpose of lowering economic inequality
d) All of the above[deleted]
Here is a more critical reading of Piketty (http://business.financialpost.com/2014/04/10/terence-corcora...).
One thing that surprises me when I read reviews about Piketty (I haven't read the book) is that they state as if it's a surprising fact that the inequality is inherent in free market Piketty was smart enough to find out about it. Is this a news to even trained economists?
One thing that surprises me when I read reviews about Piketty (I haven't read the book) is that they state as if it's a surprising fact that the inequality is inherent in free market Piketty was smart enough to find out about it. Is this a news to even trained economists?
I was a student in the different Master’s Piketty taught ten years ago. The debate, at the time, was a bit binary; I know the 2007 crisis changed things a bit, but not significantly.
Binary: one side people arguing with simple models that one should look into rules and regulations that would promote growth, inherently leading to new elites. Cases mentioned include new wealth from tech, telcos & construction, where marginal cases where key (should software be copyrightable, licensed to be used but not copies when ‘proprietary’, patentable; should incumbent offer access to ‘essential assets’ to encourage investment in infrastructures). The support from old-money to the handful of cases of new-money was not mentioned; neither was the large role played of investment — simply (deregulated) algorithmic trading as another example of the lack of regulation replacing the old guard. Bluntly put: the assumption of perfect rationality meant that investment went to good ideas, therefore social access to wealth wasn’t supposed to be an issue. I am not making it up that any model without perfect rationality was until 2006 laughed out of most polite society: mentioning in passing a coherent model for financial bubbles with something as simple as private success information, two periods and two types of agents got two of my teachers in trouble repeatedly.
The other side, namely ‘heterodoxes’, was, and probably largely still is, a very varied group: from Transaction costs economists, the closest to mainstream, who argue things similar to what I mentioned, but with consistent models, nuances and many exceptions; to more exotic animals, including self-confessed Marxists and neo-Marxists. Piketty was part of the most vocal and least theoretical sub-group; mainly thanks to amusing cases of institutional ‘hacking‘ to access national databases for wealth and revenue, he was able to prove something that can come off as obvious to non-theoretical economist. However, redistribution hasn’t really been the focus on that discipline since the 70’s. “New economics” postulated Cliton-inspired steady strong growth, fueled by the digital revolution. One was only allowed one critic: Solow’s Missing computers (“You can see computers everywhere, except in production growth.”) I’ve personally tried to mention that computeres needed a different kind of company structure, with more ad-hoc internal communication tools: that got me “Yeah… Maybe”-s; but if I tried to argue that this meant a thousand employees (Google headcount at the time) could do the work of a million, potentially leaving a generation of obsolete workers, unable to find an explanation of what to do to find a job (with detailed official data in hand), I got into real trouble and I was scolded into remembering that “New economics” meant jobs for everyone. I never dared stay in public that internet-based job search meant faster finds, a lower structural unemployment and that the stable overall numbers actually meant a growing population of long-term unemployed, dropped out of sight by counting standards. Digital Lumpen-proletariat wasn’t a word, and describing Amazon warehouse working condition wasn’t acceptable.
Thanks to his incredible skill-set, Piketty was also able to stay active at the most prestigious institutions, rather than be labeled a marginal and ignored by national media. Until 2007, his position were fairly ignored by specialists. Since, critic has come, but still evolving slowly; the current leading edge to me was McAfee & Brynjolfsson last year, and more recenlty Piketty apologising for assuming that the 1% got rich, while it was the 1% of the 1%.
Binary: one side people arguing with simple models that one should look into rules and regulations that would promote growth, inherently leading to new elites. Cases mentioned include new wealth from tech, telcos & construction, where marginal cases where key (should software be copyrightable, licensed to be used but not copies when ‘proprietary’, patentable; should incumbent offer access to ‘essential assets’ to encourage investment in infrastructures). The support from old-money to the handful of cases of new-money was not mentioned; neither was the large role played of investment — simply (deregulated) algorithmic trading as another example of the lack of regulation replacing the old guard. Bluntly put: the assumption of perfect rationality meant that investment went to good ideas, therefore social access to wealth wasn’t supposed to be an issue. I am not making it up that any model without perfect rationality was until 2006 laughed out of most polite society: mentioning in passing a coherent model for financial bubbles with something as simple as private success information, two periods and two types of agents got two of my teachers in trouble repeatedly.
The other side, namely ‘heterodoxes’, was, and probably largely still is, a very varied group: from Transaction costs economists, the closest to mainstream, who argue things similar to what I mentioned, but with consistent models, nuances and many exceptions; to more exotic animals, including self-confessed Marxists and neo-Marxists. Piketty was part of the most vocal and least theoretical sub-group; mainly thanks to amusing cases of institutional ‘hacking‘ to access national databases for wealth and revenue, he was able to prove something that can come off as obvious to non-theoretical economist. However, redistribution hasn’t really been the focus on that discipline since the 70’s. “New economics” postulated Cliton-inspired steady strong growth, fueled by the digital revolution. One was only allowed one critic: Solow’s Missing computers (“You can see computers everywhere, except in production growth.”) I’ve personally tried to mention that computeres needed a different kind of company structure, with more ad-hoc internal communication tools: that got me “Yeah… Maybe”-s; but if I tried to argue that this meant a thousand employees (Google headcount at the time) could do the work of a million, potentially leaving a generation of obsolete workers, unable to find an explanation of what to do to find a job (with detailed official data in hand), I got into real trouble and I was scolded into remembering that “New economics” meant jobs for everyone. I never dared stay in public that internet-based job search meant faster finds, a lower structural unemployment and that the stable overall numbers actually meant a growing population of long-term unemployed, dropped out of sight by counting standards. Digital Lumpen-proletariat wasn’t a word, and describing Amazon warehouse working condition wasn’t acceptable.
Thanks to his incredible skill-set, Piketty was also able to stay active at the most prestigious institutions, rather than be labeled a marginal and ignored by national media. Until 2007, his position were fairly ignored by specialists. Since, critic has come, but still evolving slowly; the current leading edge to me was McAfee & Brynjolfsson last year, and more recenlty Piketty apologising for assuming that the 1% got rich, while it was the 1% of the 1%.
I remember in that in high school when I got writing assignments that I didn't like, I made my life easier by implying that the author is just a communist.
Since people in the media were doing exactly that all the time and I did had a very cool teacher I got away with it from time to time.
Since people in the media were doing exactly that all the time and I did had a very cool teacher I got away with it from time to time.
Yeah it's always easy to argue that one's wrong because his opinion doesn't work in the actual world.
I find it to be the worst, most myopic and misleading argument kind. That's like telling a cow is a bad cow because it's not like the other cows.
I find it to be the worst, most myopic and misleading argument kind. That's like telling a cow is a bad cow because it's not like the other cows.
Judging from the abundance of "left", "neo-Marxist" and "class warfare" it's quite critical, but no matter how they spin it (with straw men like "there will always be inequality in capitalism", "Mises said, inequality elimination would destroy the market place"), it's hard to defend the extreme inequality the author is warning us about.
[deleted]
Seems sort of like 'inequality' is the meme of the day and all this attention is just because somebody wrote a big weighty book about it, rather than another documentary with emotional music behind all the dialogue.
If we are to believe this [0], it's actually the other way around: inequality is the meme of the day precisely because he's been writing big weighty books about it for a while.
[0]: http://www.nybooks.com/articles/archives/2014/may/08/thomas-...
It's a long review, but even just the first paragraphs are worth a skim - for me as a lay person they were very enlightening as to why this work makes a difference.
[0]: http://www.nybooks.com/articles/archives/2014/may/08/thomas-...
It's a long review, but even just the first paragraphs are worth a skim - for me as a lay person they were very enlightening as to why this work makes a difference.
[deleted]
One question that popped in my mind after reading the headline: can you possibly have a non-capitalist free democracy? You can't forbid people from "being capitalistic".
It depends on what you mean by "non-capitalist". For that matter, it depends on what you mean by "free" and "democracy", too, but at that point I'm just being pedantic.
You can forbid people from axe murdering their neighbors. What is special about "being capitalistic" that makes it unforbiddable?
You can forbid people from axe murdering their neighbors. What is special about "being capitalistic" that makes it unforbiddable?
> You can forbid people from axe murdering their neighbors. What is special about "being capitalistic" that makes it unforbiddable?
Murdering someone is an act; "being a capitalist" isn't. Forbidding "being a capitalist" is like fighting thoughtcrime. You can forbid certain actions that seem "capitalist", but that's not a free society anymore.
My definition of "free" is simple: able to do anything you wish, as long as you're not hurting anyone (in general, I mean hurt physically). I'll agree that the definition of "hurting" gets complicated in practice: in a competition, the losers could claim the winners are hurting them by winning (in fact, in the economic competition we all live in, that's exactly what is happening).
Murdering someone is an act; "being a capitalist" isn't. Forbidding "being a capitalist" is like fighting thoughtcrime. You can forbid certain actions that seem "capitalist", but that's not a free society anymore.
My definition of "free" is simple: able to do anything you wish, as long as you're not hurting anyone (in general, I mean hurt physically). I'll agree that the definition of "hurting" gets complicated in practice: in a competition, the losers could claim the winners are hurting them by winning (in fact, in the economic competition we all live in, that's exactly what is happening).
> You can forbid certain actions that seem "capitalist", but that's not a free society anymore.
Why not? If we can agree (and I doubt we can) that certain "capitalistic actions" do in fact hurt people, does that not make it possible to forbid capitalistic actions without losing abstract aspirations of freedom?
> My definition of "free" is simple: able to do anything you wish, as long as you're not hurting anyone (in general, I mean hurt physically).
To me, this reads, "able to do anything you wish, as long as you can get away with keeping others from proving you directly hurt anyone". We're actually pretty okay with people hurting each other in this society, because freedom is more important to us than human beings.
Let's do a fairly standard capitalistic action: constructing a building. This is a generally uninteresting conversion of capital, through some risk, into developing property to produce more capital. Can we ever forbid this? Does that restrict freedom? Does it hurt anyone? How can you really tell? The Law of Wheaton works fine for internet conversation, but it's woefully inadequate when discussing political philosophy.
You never really answered what "non-capitalist" means to you. That was kind of a more important question.
Why not? If we can agree (and I doubt we can) that certain "capitalistic actions" do in fact hurt people, does that not make it possible to forbid capitalistic actions without losing abstract aspirations of freedom?
> My definition of "free" is simple: able to do anything you wish, as long as you're not hurting anyone (in general, I mean hurt physically).
To me, this reads, "able to do anything you wish, as long as you can get away with keeping others from proving you directly hurt anyone". We're actually pretty okay with people hurting each other in this society, because freedom is more important to us than human beings.
Let's do a fairly standard capitalistic action: constructing a building. This is a generally uninteresting conversion of capital, through some risk, into developing property to produce more capital. Can we ever forbid this? Does that restrict freedom? Does it hurt anyone? How can you really tell? The Law of Wheaton works fine for internet conversation, but it's woefully inadequate when discussing political philosophy.
You never really answered what "non-capitalist" means to you. That was kind of a more important question.
Here'a a different view on Piketty's book: http://www.bloombergview.com/articles/2014-04-20/the-most-im...
TLDR: The Most Important Book Ever Is All Wrong
TLDR: The Most Important Book Ever Is All Wrong
I really don't understand why all this Marx 2.0 stuff is on Hacker News. Marx's ideas have been tried, over and over again, and failed. There are far better essays on capital and technology out there.
The Mouse and the Market "If you are for technological progress, and its wide availability, then you should be an enthusiastic supporter of capital accumulation and its rational investment." http://mises.org/daily/1786/
Taxing income is horrendous enough, but necessary. Taxing accumulated capital is just plain destructive.
The Mouse and the Market "If you are for technological progress, and its wide availability, then you should be an enthusiastic supporter of capital accumulation and its rational investment." http://mises.org/daily/1786/
Taxing income is horrendous enough, but necessary. Taxing accumulated capital is just plain destructive.
Didn't take the media long after this book came out to trot out old Marx.
http://en.wikipedia.org/wiki/Association_fallacy#Guilt_by_as...
In the capitalist west in the 20th century, it seems to me we've experienced what Marx envisioned, the struggle (sometimes violent) between the upper and lower classes, again and again. It is possible to be right in your assessment and wrong in your prescription.
Strangely enough, I think we're more socialist than we think we are. A huge part of the massive US Govt is pure income redistribution, and even so we're still farther to the right than any European country that comes to mind.
http://en.wikipedia.org/wiki/Association_fallacy#Guilt_by_as...
In the capitalist west in the 20th century, it seems to me we've experienced what Marx envisioned, the struggle (sometimes violent) between the upper and lower classes, again and again. It is possible to be right in your assessment and wrong in your prescription.
Strangely enough, I think we're more socialist than we think we are. A huge part of the massive US Govt is pure income redistribution, and even so we're still farther to the right than any European country that comes to mind.
Marx was wrong. Provably wrong. His ideas were put to the test across various cultures and geographies (Russia, China, Vietnam, Cuba, Angola, etc.). Failed. Failed. Failed. Failed. Failed. And the response to this is that they didn't go far enough. There were still capitalists somewhere. It would've worked if the whole world (echoed here by Piketty's world wide tax) was communist.
Perhaps Marx was right in his assessment, but maybe there is no prescription. That is never brought up. Perhaps you're condemned to have a standard of living better than most royals enjoyed a century ago (CAT scans, Internet, Jet Travel - capital, capital, capital) and the price is ennui and jealousy of someone with 2000x more paper wealth. Maybe there is no alternative, or all the alternatives are just a lot worse.
In the meantime, I will continue to think that any tax on accumulated capital is evil and label it as Marx 2.0.
Perhaps Marx was right in his assessment, but maybe there is no prescription. That is never brought up. Perhaps you're condemned to have a standard of living better than most royals enjoyed a century ago (CAT scans, Internet, Jet Travel - capital, capital, capital) and the price is ennui and jealousy of someone with 2000x more paper wealth. Maybe there is no alternative, or all the alternatives are just a lot worse.
In the meantime, I will continue to think that any tax on accumulated capital is evil and label it as Marx 2.0.
That article is not too compelling. It talks more about a group of people recognizing a good idea over the original inventors. Sure it took capital to make it a valuable consumer product, but that is hardly a defense of hording large amounts of capital. It ends with "rational investment" = "free market", which worked great for the housing investment market in the early 2000s.
It is hard to "horde" a large amount of capital. I would say there are only 4 ways it can be done:
1.) Invest in a natural monopoly. That's fine, but most of these are highly regulated (e.g., utilities) and limit your returns.
2.) Invest in real estate. This is rent seeking at its finest. Henry George [1] addressed this issue, but his ideas have not been widely implemented (unlike Marx).
3.) Invest in government debt. I'm always surprised that people like Krugman and Piketty never bring this up, but the fastest way to reverse inequality would be to default on the national debt. The debt is just a transfer payment from tax payers to wealthy debt holders. It is almost like Feudalism.
4.) Buy and hold a nonperishable commodity.
Even your example, the housing market crash, is not an example of hording. In fact, it is the opposite. It is the squandering of capital. Piketty might even argue it was a good thing (like WWII) since it reduced inequality. Or at least it did until the government intervened.
[1] http://www.henrygeorge.org/whowashg.htm
1.) Invest in a natural monopoly. That's fine, but most of these are highly regulated (e.g., utilities) and limit your returns.
2.) Invest in real estate. This is rent seeking at its finest. Henry George [1] addressed this issue, but his ideas have not been widely implemented (unlike Marx).
3.) Invest in government debt. I'm always surprised that people like Krugman and Piketty never bring this up, but the fastest way to reverse inequality would be to default on the national debt. The debt is just a transfer payment from tax payers to wealthy debt holders. It is almost like Feudalism.
4.) Buy and hold a nonperishable commodity.
Even your example, the housing market crash, is not an example of hording. In fact, it is the opposite. It is the squandering of capital. Piketty might even argue it was a good thing (like WWII) since it reduced inequality. Or at least it did until the government intervened.
[1] http://www.henrygeorge.org/whowashg.htm
My fault for insinuating the housing crash was an example of hording. Clearly it was not. I meant that sentence as a critique for the statement in the article that the free market necessarily produces a rational investment.
A priori, no investment is "rational." That is, was the construction of 100,000 tanks to export the Communist revolution a rational investment by the Soviet Union? How about the $2 billion in private equity that went into building Facebook, a system designed to let people "like" their friends? The point of a free market is that many experiments are run in parallel. Some of these are deemed rational via feedback. Some fail, and are deemed irrational. A free market is not more rational than a planned economy; however, unlike a planned economy, a free market isn't dependent on a single plan.
I see the vanguard is already down-voting. That's fine, but anyone with any knowledge of start-ups should instantly see how the ideas put forth by Piketty are destructive. If I invest in a start-up, that's property. So next year, if the start-up grows and I'm taxed on that growth, I might be forced to sell my private shares to meet my tax obligations. How am I going to do that? And, the year after that, maybe the start-up tanks to a very low valuation, yet I still owe a tax. How is anything supposed to be created in that environment? Or are start-ups somehow special? Do they get special treatment? What about a family farm? Does the farmer have to sell off some land every year to meet his tax obligation? Or does he just continuously raise the price of food every year to offset the wealth tax? I would love to hear some answers from the Marx 2.0 crowd.
I up-voted you, I think you make some very good points. There are some big errors I keep seeing in the "tax the rich arguments" over and over:
1) High income and high wealth are not the same thing. People keep mixing the two together (switching between "tax high incomes" and "tax the wealthy" like they're the same thing).
2) Many rich people don't have huge piles of money lying around, but instead own valuable companies or other assets. For example, Mark Zuckerberg owns a large part of Facebook, but that's not directly convertible into its equivalent in dollars. In fact, after the IPO, he had to pay an enormous amount of taxes on that, which was money he didn't have at the time [1].
1 - http://www.forbes.com/sites/robertwood/2013/12/20/mark-zucke...
1) High income and high wealth are not the same thing. People keep mixing the two together (switching between "tax high incomes" and "tax the wealthy" like they're the same thing).
2) Many rich people don't have huge piles of money lying around, but instead own valuable companies or other assets. For example, Mark Zuckerberg owns a large part of Facebook, but that's not directly convertible into its equivalent in dollars. In fact, after the IPO, he had to pay an enormous amount of taxes on that, which was money he didn't have at the time [1].
1 - http://www.forbes.com/sites/robertwood/2013/12/20/mark-zucke...
> In fact, after the IPO, he had to pay an enormous amount of taxes on that, which was money he didn't have at the time [1].
He got that tax bill by exercising his options--he bought shares at $.06 that were worth significantly more, thus giving him a great deal of taxable income. It was in the form of shares, but it was still income. To say he didn't have the money at the time is a bit dishonest--those shares were (and are) highly liquid.
He got that tax bill by exercising his options--he bought shares at $.06 that were worth significantly more, thus giving him a great deal of taxable income. It was in the form of shares, but it was still income. To say he didn't have the money at the time is a bit dishonest--those shares were (and are) highly liquid.
> those shares were (and are) highly liquid.
Are they? If he tries to sell all of them, will he get exactly what they're valued at? Selling a quantity like that will probably pull the price down significantly.
Are they? If he tries to sell all of them, will he get exactly what they're valued at? Selling a quantity like that will probably pull the price down significantly.
I'm guessing purchasing all those shares drove the price up, too. Might've been the whole point in buying up that many shares when the IPO was teetering.
Interesting, but my guess is something else happened. Since he bought the shares at a fixed price, I assume they came directly from the company itself (how can you buy at a fixed price on a competitive market?). Since he was allowed to do this, I assume those shares were never for sale on the market, so they couldn't impact the price.
This is all guesswork though. Anyone here more knowledgeable that can jump in?
This is all guesswork though. Anyone here more knowledgeable that can jump in?
wrt Zuckerberg you are mistaken. You are only liable for tax on a gain when you realize that gain. He became liable for tax when he sold stock and by selling it he had more than the cash needed to pay the tax.
No, [1] says that he was taxed on exercising the option to buy stock at a certain price. He had to sell stock to have money for taxes. Quote:
On the day of Facebook's initial public offering, Zuckerberg exercised a stock option and purchased 60 million Facebook shares at a "strike price" of 6 cents each. Even if those shares are never sold, the IRS treats them as ordinary income at the time the options are exercised. The rationale is that such options are a form of compensation, just like regular wages.
1 - http://money.cnn.com/2013/03/28/technology/zuckerberg-tax-bi...
On the day of Facebook's initial public offering, Zuckerberg exercised a stock option and purchased 60 million Facebook shares at a "strike price" of 6 cents each. Even if those shares are never sold, the IRS treats them as ordinary income at the time the options are exercised. The rationale is that such options are a form of compensation, just like regular wages.
1 - http://money.cnn.com/2013/03/28/technology/zuckerberg-tax-bi...
I wonder if an equivalently argued book, that didn't encourage more government intervention and control, would get the same level of press?
"high rates of inflation that eroded the assets of creditors"
So, in theory, even higher rates of inflation would be even better for income redistribution! How did that work in Zimbabwe or Yugoslavia? Sweden, with its low headline inflation over the past 4 decades, must be a cesspool where the rich are eating the children of the poor as a delicacy!
So, in theory, even higher rates of inflation would be even better for income redistribution! How did that work in Zimbabwe or Yugoslavia? Sweden, with its low headline inflation over the past 4 decades, must be a cesspool where the rich are eating the children of the poor as a delicacy!
I'm not finished with it yet, so I won't offer a final opinion, but to the page I'm on it's been an impressive work. He's very apt at weaving together a narrative spanning far, far, longer than nearly all economics research, which is backed up with real data they (him and collaborators) spent quite a long time digging up and parsing. The book uses this sweeping dataset to color the major research/writings of prominent economists from several eras. Up to this point I had not read anything that had stepped back to this extent in terms of considering a history of economic thought, but which also backed up the history with data.
Personally, I find the basic tenets of his thesis pretty convincing, although, again, I have not yet finished the book. I think this was published at a very opportune time as people begin to read more about the similarities between the wealth structure of the early 20th century and today. Considering the middle of the 20th century as something of an aberration is difficult to wrap my head around, because (like most of us I assume) I've had so little exposure to people and their experiences from before 1940.
EDIT: To be clear, the foundation of this book began with research in the 1990s, so it's not as if I was trying to imply it was a completely opportunistic publishing. Rather, I consider it to be somewhat fortuitous to be able to gain a historical appreciation of these trends as they reach new peaks.