Graph 1
April 29, 2014

A Piketty Primer: “Capital” in 10 Graphs

A Piketty Primer: “Capital” in 10 Graphs

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By Kunal Jasty

In the Piketty surge to the top of the best-seller list, there’s a misleading polemic evolving (and not from people who have read the book, it turns out):  it’s been attacked on the right as a new call for communism and heralded on the left as proof that capitalism simply doesn’t work. Here’s my take on Piketty’s arguments, in 10 figures from the book. 

1. A person’s income in the United States is comprised of labor income and capital income. Let’s look at labor income first. The top 10% of American earners currently receive 35% of all wages (labor income), while the top 1% receive 12%. Europe, and especially the Scandinavian countries, has far lower levels of labor income inequality.

DIVA

 2. But both Europe and the United States have high levels of capital inequality, with the top 10% owning 60% of all capital in Europe and 70% of all capital in the United States. We’re not yet at European turn of the century levels, though, when the top 10% owned 90% of all capital, but we’re certainly heading in that direction.

DIVB

3. When we combine labor income and income from capital, we get total income. 50% of total income goes to the top 10% in the United States, while 20% goes to the top 1%. In 2030, Piketty predicts that 60% of all income will go to the top 10% of Americans.

DIVC

4.  In the United States, the top 1% are doing well because of extraordinarily high wages, which leads to rapid capital accumulation. Piketty calls these high-earners “supermanagers,” the financial and non-financial executives who set their own salaries.

Screen Shot 2014-04-29 at 10.46.24 AM

5. Taxes, combined with huge capital losses in WWI and WWII, resulted in a rate of return to capital (r) lower than the global growth of GDP (g) during the last century. Because r < g, income inequality decreased during the postwar period and stayed flat until 1980.

Screen Shot 2014-04-29 at 10.51.31 AM

6. But global economic growth is largely an effect of population growth, which can’t continue at current rates. If today’s growth rate continued at 1.1% per year, the world’s population would be over 26 billion by the year 2100.

Graph 5

7. And top marginal tax rates are still low, especially in the United States.

Income tax rates

8. With r < g, income inequality dropped dramatically in the United States during the postwar period. Now that r > g,  income inequality is on the rise once again.

Graph 1

9. So is the world capital/income ratio

Screen Shot 2014-04-29 at 10.59.37 AM

10. And who benefits most from capital income (in other terms, who receives the majority of their income from capital income rather than labor income)? Not the top 10% or 5%, but the top .1%!

l vs c2

 

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  • Robert W Peabody III

    Questions for the author of this thread:

    Does chart # 8 say that “income inequality dropped dramatically in the United States”
    or does it say that the rate of capital growth and the rate of economic growth narrowed?

    Chart # 10 is inscrutable.
    Who/what are the various fractiles and does the chart go from 1929 to 2007?
    Even in the top .1% someone does benefit most i.e. the .1% can be graded or quartiled.
    The rich are fragmenting into rich, richer, and richest ?
    Sacrebleu !!!!

    Here’s an example of how flawed Piketty’s analysis of capital is because he makes no distinction in his definitions.

    In 1929 @ 17% of people were engaged by US agriculture. That percentage had shrunk to about 1% by 2007.
    At the same time the value of US farmland went up by a factor of 44 times the 1929 per acre value.
    ( 2007 $2160/ 1929 $49)

    Because the farm population shrank and land values skyrocketed, we should tax their incomes more heavily? tax away their land?
    This is precisely what Piketty is saying – and worse, he applies the definition of capital to non-productive land as well.

  • Kunal Jasty

    Chart 8 says that income inequality dropped dramatically when r < g during the postwar period.

    Chart 10 shows that a person needs to be in the top .1% of earners before they earn more from capital income than labor income.

  • Robert W Peabody III

    Not sure # 8 is saying that income got more equal – at least from the Huff vid were he explains that time frame.
    There were still rich and poor income disparities during the war years, no?

    re # 10:

    My mom is 85 and a retired librarian. She earns ALL of her income from non-labor activities – state pension, purchased annuities and investments.
    My mother is living the dream after a career as one of the working poor.
    She lives off inflated asset values – wealth created by the state pension fund which invested in insurance and financial schemes. Insurance annuities which were invested in spiraling commercial real estate values, and mutual funds which invested in growth companies.

    The question is how Piketty’s analysis accounted for all that in the ‘fractiles.’
    We already know he wants to close the gap between general economic growth and the rate of capital growth that funds her retirement.
    Without that gap, no one can retire – everyone has to keep being productive because that is what makes up the general economic growth rate.

  • Kunal Jasty

    Glad to hear your mother has a stable pension, and managed to acquire investments during her life. Unfortunately, Piketty is talking about averages, not your anecdotal mother…

  • Robert W Peabody III

    Yes, it is anecdotal, but also represents how the circus works.
    You, being Chris’ millennial huckleberry, are at the center of what all this means.
    Since closing that gap means your cohort will somehow have to be vastly more productive labor-wise to support the retiring baby-boomers, how will you do that?

    By 2030, the over-65 crowd will expand to 72 million people, up from 40 million in 2010.

    You can’t repatriate the retirement accounts because there are almost twice as many of them than there are of you !

    • DNM

      Easy, euthanasia

  • The Parrot

    Fascinating. Data & graphs. There is a bromide observed by those who pay for and cull data: you can prove nearly anything with data. Market research firms, statisticians, actuaries, and C-level executives understand this all too well. That said, it is fascinating to watch the numbers jiggle and crunch. Two things stand out in this data and its interpretation. (actually, quite a few things stand out, but I’ll refrain myself)

    (1) There is something missing. Perhaps it pops up elsewhere in the book. Given that we’re talking about inequality and its affects and degradation of the general welfare of all human beings (too broad?), I think it interesting that there is no mention of externalities. The 800 pound object in the room … No let me revise that, the earth-mass object in the room seems to be missing. The environment. Perhaps we should accept there is no inequality and disparity in this regard?

    For those who enjoy direct candor and cannot understand why someone would point this out, let me suggest why it’s missing: the environment is neither a consumer, customer, wage earner, maker, taker, client, partner, shareholder, nor is it a voter, parliamentarian, legislator, judiciary, council, president, citizen, nor is it a priest, shaman, general, warlord, captain of industry, board of directors, nor is it a celebrity, an venerated athlete, a hedge instrument, a cure for the common cold, etc.; thus having no anthropomorphic standing, it has no rights, no privileges, no voice in its own matters or concerns, save one: a continual reaction and correction towards equilibrium … in the current situation (decline?), equilibrium may tend towards a horror show.

    Perhaps the bio-tech industry will not only restore the woolly mammoth, but an inhabitable planet and mindset to go with it? Genesis V 2.0? I suppose it would be incorrect to say the environment doesn’t get a seat at the table, since seat and table components and parts are extracted and refined using it. More insult and damage neglected.

    It’s not surprising we give not a farthing’s concern about the degradation and inequality in regards to our habitat. Our ancestors, that is the rise of the European merchant and industrial classes didn’t need to care much about externalities. The big three concerns were: God, Man, and Nature (the sublime). Nature was exalted and invulnerable to much human mischief. It was sort of off-to-the-side in relation to God and Man. Not so these days, but the mindset has cemented itself in for the long, interesting ride. If we need not consider our habitat, why would we need to consider the common good and welfare of each other? It sort of follows, IMO. Religious ethics have seemed largely silent on the matter (Perhaps Pope Francis is a contemporary exception).

    (2) There is a misalignment of equity to risk. This is based upon a misunderstanding of risk. Small business owners tend to understand it. That is, there should be reasonably direct and proportional distribution of equity based upon when and where one practices and distributes one’s labor. Labor is not merely an obligation, it’s an investment into the firm.

    Notice I say ‘labor’ and not ‘speculation’ nor ‘ownership.’ In fact, the ultimate ownership is one’s reputation, integrity, character, etc. Labor is intimately coupled to these principles. Speculation and ownership are not. Speculators and owners are notorious for deceptions and incompetencies of all kinds (need I dredge up some names and practices?). Bluntly stated, anyone who has been out in the world, busting their ass with labor-toil, understands this difference all-too-well. Small businesses which launch with limited resources understand this all-too-well. (We can’t all be well funded valley start-up).

    Equity sharing and risk sharing should be mandatory for owners, speculators, investors, loan guarantors (e.g. tax payers), entrepreneurs, and workers/laborers/employees. It should not be left to ‘enlightened’ companies to decide fairness and incentives. This would help realign some of the inequality and disparity. It would tend to create close gaps between labor, management, and investors (all tied to the same concerns).

    The speculator and loan making class can smear their risk around, and thus absorb failures with much more alacrity than a person who is tethered to a firm, where the ownership and management team may or may not be able to competently navigate the market terrain. Labor is always at risk and vulnerable to competitive trade rules created by the speculator and ownership class meant to pit labor against itself. Labor is constantly at risk to youth and fresh skill sets, management competence, investor competence, market conditions, business and financial intangibles, etc. Labor tethers itself not merely to a firm, but a set of conditions for which it has little jurisdiction nor participation beyond honoring its obligation to perform it tasks. Little-to-no voice and much risk. A recipe for inequality. Such risks should be recognized and ‘rewarded’ in the standard way, equity (zero equity is not proportional to the risks). Labor invests itself in the firm, creating and making goods and services, but is often not treated as investment nor its risk honored.

    Vesting should occur upon termination of employment, or some reasonable term of employment, or due to some sort of wind-down of a business (I think we can assume right-to-work states would not enjoy this idea and see labor/risk/equity alignment as some sort of communist plot against Mother America). Some examples of where labor has been tethered to risk, acting in good faith, and punished without little-to-no equity due to market collapse or management incompetence or malfeasance are MCI, Enron, Northern Telecom, Detroit auto makers, financial services meltdown in 2008. This list could go on-and-on.

  • Robert W Peabody III

    heh – I thought you were going to say the debt bomb is missing, but the environment might be considered a stakeholder.
    And yes, risk is a factor in wealth dynamics – one Piketty subverts by bringing into the discussion inheritance. Inheritance is dissipated by birth and death. What have the Rockefellers been up to lately?
    Most of the mansions in Newport are museums, the inheritors unable to keep them in repair.

    • The Parrot

      Interesting thought about risk. I’ll have to mull that over a bit. As for talking about absent data, I suppose I view inequality in a similar way that I view debt and the environment. They enjoy the metaphor ‘deep sleep.’ One’s choice of sleeping entity, expresses something about one’s world view.

      I see debt and inequality as sleeping dogs who have been allowed to sleep to long. Someone is going tell someone else to go wake them up. The first few folks who wake them up are going to get a reprimand of growling and snarling. At some point the dog is going to get pissed off enough to bite someone or some persons. These people will now be angrier than the dogs they just woke up, so they’ll go marauding around looking to bite someone. And so forth it’ll go. The contagion will be like a zombie movie chain reaction. World War Debt? The Walking Inequality?

      I see the environment as a group of partied-out, old school gods and goddesses. They’re snoring hasn’t woke them up yet. When it does, it’ll likely be a planetary Moloch unleashed. This Moloch will be satisfied with a casual garroting for a while. I have news for those of us who consider the environment an externality. It ain’t, but we can easily become one at the present course (we could become one regardless of our behavior).

      The well-pedigreed, well-educated, well-feed, and well-stored among us have placed a bet (I know I have). The bet is the environment is a mere externality, and if it turns out not to be an externality, their DNA will survive any environmental degradation due to the resources their wealth can seize. I’ve got more news for them. Their DNA won’t find a life raft to seize. We’re in it. It’s called planet earth. I’m fairly certain that dismantling the life raft won’t create a better, sounder one. Perhaps the bio-tech folks, or some other techno-wonk will prove me wrong. Calling the bluff on the environment seems sort of, hubristic. IMO. I’ve been enjoying all the comments; the Kunal, Potter, and Robert back-and-forths have been helpful.

      • cuvtixo

        This discussion is a bit above my head, but reminded me of the recent movie Elysium, where the privileged live in a large self-contained orbiting satellite, while the masses suffer on an environmentally ravaged Earth. Is this what we’re heading towards? Is it the best scenario out of a number of mostly grim probable futures?

        • Pete Crangle

          I think you understood it much better than I explained it. I didn’t see the film “Elysium” so I’m not sure if it resembles a likely outcome. From my perspective avoiding or denying environmental problem(s), or hoping for technical solutions, where reality and nature remain decentered or inessential are either doomed to failure or doomed to luck. Failure may murder us, luck may run out. Worse yet, doomed to success.
          – The Parrot

    • Potter

      Anent inheritance and your point above, RW Peabody III, and also the voicemail question: why Piketty is such a sensation at the moment. He confirms with graphs, facts, figures, gives insight, to what we are experiencing. He gives weight to what some economists and politicians have been trying to warn about for quite awhile. I don’t think it would be such a sensation it it did not strike a cord within us here, especially if some are already pained by increasing developments in this direction.

      Krugman (again because he is so articulate)…… “his work greatly reinforces the notion that we may face a political-economy spiral of inequality, in which great wealth brings great power, which is used to reinforce the concentration of wealth. That was a concern even when we thought we were facing a one-generation dispersion of economic success. But it becomes much more of a concern when one realizes that we’re talking about creating an environment favorable to “patrimonial capitalism”, of sustained dominance by family dynasties.

      And let me say that while the core of Piketty’s work is his economic analysis, his discussion of the political economy of dynastic wealth is a major additional highlight. I was especially struck by the somewhat paradoxical contrast between Belle Epoque France and Gilded Age America: a notionally egalitarian society in which anything that might challenge the privileges of inherited wealth was beyond the pale, versus a society that celebrated financial success but in which it was considered reasonable and respectable to advocate high taxation for the explicit purpose of reducing inequality. It seems to me that we want some real scholarship — from political scientists, not (or not just) economists — to figure out that contrast, and learn lessons that might help us break the cycle of rising dynastic power we face today.”

      from Piketty Day Notes

  • http://kuow.org Jeff Hansen

    This is a fascinating analysis Kunal! I look forward to hearing this episode. Good to meet you at Lydon Barn last month.

    • Kunal Jasty

      Thanks, Jeff! It was a pleasure to meet you as well.

  • David

    Kunal, what is “total wage bill”?

    Real glad ROS was allowed these graphs. It was IMO a good decision on someone’s part, and I’m thankful for it, and to you KJ for putting this together.

    To “figure out the contrast” it’s my opinion someone (ones) will have to return to psychology as well as to political science [presuming the U.S. gilded age was the one more accepting of the tax ethic]. Back, for instance, to “group narcissism” as discussed by Fromm. Orwell’s Prolefeed seems to have been completely realized. It’s impact seems to have reduced political talk to fearful, cynical, and cryptic “soundbytes” on the part of individuals. One opinion I heard that impressed me, for instance, was that healthcare provisions for immigrants would wreck the nation with debt…voiced in this case by a smart Afro-American (granted, he is vastly outnumbered by mistaken whiteys with degrees). On a simple level (with respect to what’s gone down above) I go back to Lasch…in terms of the extremeness of the limb out on which our “symbolic analyst” models…and entire blarney-gobbling society have gotten themselves. When we were exporting our manufacturing [the last vestiges of quasi-sane capitalism] there was the accompanying hype/propaganda re in-the- future-everyone-will-do-financial-services. The whole country bought it and thought Silicon Valley was the beginning…I guess turning out systems that made us the highest frequency traders. The hype just just grew and grew (and now we also have the equivalent of 2 min hate with NYT & NBC blarney re Russia). In terms of this propaganda, I think supply siders simply adopted “symbolic analyst” style. Or, conservatives went along with it too. Ended up craving it themselves. Now, Fox can find any number of blabbermouths who believe they can argue intelligently for shock doctrine and/or militias out in Nevada, and somehow they manage to convince millions they are doing so. If I had the time I would like to go into it farther; yet and still, there’s not much to go on. This morning, for example…found this:

    “Compared with the violence of intellectual life, the conflicts of politicians and businessmen seem relatively limited and benign. For them victory is measured by a profitable deal or the passage of a bill, clear standards of success or failure that allow everyone to move on. But where will-to-power is engaged in the creation…” http://www.academia.edu/5472258/Tocqueville_Girard_and_the_Mystique_of_Anti-Modernism

    Speaking of risk, I think it’s pretty clear the intellectual property thing is leading to trouble. We have crops that need petro products. We have bugs that have whooped antibiotics. We have prions, MERS (in SA), and a scary strain of H5N1 [recombinant DNA projects may have nothing to do with 2 out of these three, but where's a solution?]. Vanishingly small are the odds I believe, Parrot, the bio tech folks’ll prove you wrong. Yeah, Commoner’s “debt to nature”

    • Kunal

      David

      The total wage bill is the total amount of money paid out in wages by corporations. The chart shows that the share of the total wage bill the 1% receive has doubled, resulting (partly) in the rise of the top 1% in total income.

      • theCrowdisUntruth

        So, a lot of them must “work” and earn salaries, but where? What percent of the one percent work? Michael Hudson is stressing that they don’t work, but live on investment income. It seems I’m forgetting how much exactly those NFL coaches are making. Is the real “work” for tax purposes?

        • Kunal

          Piketty talks about a new class of “supermanagers,” i.e. the top 5 or 10 or more compensated executives at large corporations. 20% of these execs work in financial firms, 80% in non-financial firms.

          Executive pay is something I’ve been conflicted about for a while. Paying out millions to CEO seems absurd at first glance, but when you think about the scale of their decisions, it doesn’t seem so crazy.

          Blaming Wall street and financial firms is politically easy, though. The real story is far more complicated IMO

          • theCrowdisUntruth

            I remember when the US hit one million millionaires. To determine the number of one percenters, first you need to know how many Americans are legally obtaining money? Or already have what amount?

            I blame Wall Street. Owing to the convolutedness of their manifold instruments, whether they were ignorant the big glitch could happen or not (known to Hudson, a few other smart folks and probably a number of supercomputers)…what kind of a gamble was it that gov & Fed would shell out $14 trillion? The economy cannot be built on speculation–the economy needs to create something real and sell it. The only instruments they can drum up add no new value to the overall American economy. It doesn’t take a Hudson to see this, and when they saw it they could have suggested specializing in at least some kind of sustainable tech…as Blyth has pointed out has been the case with Germany (only they specialize in all kinds of advanced/sustainable energy deriving tech).

          • theCrowdisUntruth

            I remember when the US hit one million millionaires. To determine the number of one percenters, first you need to know how many Americans are legally obtaining money? Or already have what amount? Do you count all people, or just earners? If you count all people, then to get to just the individuals that own the earned money in said percentile [salaried, compensated & dividend types], I very, very roughly subtract out three quarters for spouse and kids [from 3.17 million; though spouse is often bringing in a fair amt too]…giving 790,000 such people. Divide by 10 (top compensated), and we are talking about 79,000 such firms? But I suppose you can’t make the latter figure accurate until you first remove the portion of the 3.17 million who could work but who aren’t actually “working.” So, what’s that?

            It seems we the polity were living on a fluff cloud in regard to the SEC, but the dudes on Wall Street and their wonks were the ones proclaiming what the street was doing was good and natural for the country. Owing to the convolutedness of their manifold instruments, whether they were ignorant the big glitch could happen or not (known to Hudson, a few other smart folks and probably a number of supercomputers)…what kind of a gamble was it that gov & Fed would shell out $14 trillion? The economy cannot be built on speculation and bailouts–the economy needs to produce something real and sell it. The only instruments they can drum up add no new value to the overall American economy. It doesn’t take a Hudson to see this, and when they saw it they could have suggested specializing in at least some kind of sustainable tech…as Blyth has pointed out has been the case with Germany (only they specialize in all kinds of advanced/sustainable energy deriving tech).

          • Steve Fernandez

            “Paying out millions to CEO seems absurd at first glance, but when you think about the scale of their decisions, it doesn’t seem so crazy.”

            Thank you for this comment. I have heard this often. Would you mind considering some of the following questions:

            Who is our economic system designed to benefit?

            What is appropriate compensation – compensation as a function of work, compensation as a function of level of decision making, or something else?

            Many who work as leaders in the fields that support underdeveloped populations take part in decision making that has an impact on the lives of large numbers of people. Yet, these people are paid well below that of corporate CEO’s. Given similar scale of decision making, to what extent is pay related to the target population of the decisions?

            The United States government plays a fundamental role in establishing legislation, infrastructure, and public/private agencies that promote our market/capitalist economic system.

            Given that less than 2% of the top Fortune 500 CEO’s are Black, less than 2% are Asian, less than 2% are Hispanic, and less than 5% are women, and the government support for the economic system, what
            role does the US “democratic” government have in addressing these disparities?

            Researchers such as Bowles and Gintis
            (http://www.hks.harvard.edu/inequality/Seminar/Papers/BowlesJEP.pdf) and United for a Fair Economy (http://faireconomy.org/sites/default/files/BornOnThirdBase_2012.pdf ) have identifies the inherited quality of wealth. Here is a list of a few CEO’s who inherited their positions: http://money.msn.com/investing/ceos-who-inherited-their-jobs-businessweek.aspx

            Given the inherited nature of wealth, particularly as it related to opportunities to attain CEO status, In whose interest is it for the government to perpetuate our present economic system?

            Given the fact that intellectual capability and talent is equally distributed among populations, doesn’t the lack of ethnic/gender diversity among CEO’s and the higher likelihood of CEO status among those born into wealthy families imply that our economic system is operating below its potential?

          • Kunal

            I think, in this country, compensation is related to scarcity (supply and demand): the idea that a CEO can make unique and immensely beneficial decisions for a firm that the average worker cannot. However

            “Given the fact that intellectual capability and talent is equally distributed among populations, doesn’t the lack of ethnic/gender diversity among CEO’s and the higher likelihood of CEO status among those born into wealthy families imply that our economic system is operating below its potential?”

            simply means that a) this country does a poor job of educating all populations, and b) the system is obviously not completely meritocratic

          • Steve Fernandez

            “I think, in this country, compensation is related to scarcity (supply
            and demand): the idea that a CEO can make unique and immensely
            beneficial decisions for a firm that the average worker cannot.”

            My sense is that there is more than just supply and demand involved with CEO compensation.

            I would say that it depends on the ability to pay by those who have the demand.

            From my experience, there are a lot of people, in the US and worldwide, who lack sufficient access to energy and can benefit from low output sustainable energy systems. Even among engineers, few specialize in the mechanical/electrical/thermal engineering, advanced statistical math, and computer algorithms development to optimize such design. Yet despite their need (demand), the millions in the US (and billions worldwide) who have this need, lack the resources to pay such engineers anywhere near the compensation of the highly paid corporate CEO’s.

            So, isn’t CEO compensation also a function of the wealth of population the CEO serves?

            Again, I am left wondering. In a democratic state in which part of the function of the government is to support the economy, who is the economy designed to serve most?

          • SteveTheTeacher

            A point of clarification on my previous comment.

            I am arguing that the standard definition of “Supply and Demand” incorporates a generalized oversimplification that is misleading. In particular, defining “Demand” to include the desire to acquire an object or service and the willingness to pay a given price conditioned on the existence of a segment of the population that is able to pay said price, leads to conclusions that often overlook this conditionality.
            The contention that highly paid CEO’s deserve their high incomes because of scarcity or the “Demand” for their level of decision making should, more appropriately, be expressed as:

            Highly paid CEO’s deserve their high incomes because of the desire for their level of decision making and the willingness to pay an amount that supports this income given the existence of a subgroup of the population that is able to pay said amount.

            This does not negate the existence of CEO’s (or individuals with equivalent positions) that engage in high level decision making impacting institutions and the lives of many, who serve a subgroup of the population that is unable to support paying them a high income.

            Doesn’t this imply that the pay of a CEO (or individual with an equivalent position) that engages in high level and impactful decision making, is contingent of the wealth of the subgroup they serve?

            In fact, such a system engenders a disincentive to provide goods and services to those who are at the lower ends of the wealth divide.

            I contend that it is not in the overall interests of our society to promote an economic system that provides great economic incentives for those who serve wealthier subgroups of the population and economic disincentives for those who serve lower income subgroups.

          • Kunal

            And don’t forget that that subgroup (high execs, board of directors) largely determine their own salaries!

          • theCrowdisUntruth

            Far out landscape on ROS’ main page!

            OK, many of us are in a rush these days and possibly end up only going through what’s not clipped and stuck in curled-up “see more” dimensions. Of course, sometimes doing so here with this format, one could get opposite impressions re who is championing exactly what. For instance, nothing at all wrong with the way you wrote it, Steve, but if you had put your last paragraph first, I would have known you weren’t barking up some defense of the system 22 days ago (in disbelief that comments have stopped I had to go over things here a little more thoroughly). The Disqus format here, Kunal, is none too shabby; but the order of posts combined with posts omitted can end up confusing [don't ask me how to change it; the lack of exact times and dates does mean less clutter]. An example is how it appears above [or it may end up below!] you, Kunal, were responding to comments I made about my mother’s investments.

            My particular bias is that many common assumptions re what our economy functions to accomplish are mistaken, my notion of the “truth” being that almost all facets of it have been stamped or overlaid with some kind of hegemonic technique…or tribute system (tantamount to mafia protection fees). You could assume the big incentives, for instance, have relevance somewhere…say, in catering to or “serving” the wealthy [like selling'em tulips in the midst of a tulip craze]; but actually, whomever whatever CEO is serving, if some potential for profit is detected…it’s assumed under the Trump-Ayn-Rand frame that that means you plop some tribute-hegemony on top the thing. Coach’s salaries (whom are they “serving”?). HMO profits. Monsanto. And on and on. That every economic phenomenon in our system is overlaid with this tribute thing goes back I think to Jack Ramus’ sort of summary remarks I quoted above/earlier (they’re summary in nature, while citizens need a more detailed understanding of how the extractive mechanisms work):

            Manipulation ‘of global financial assets and speculative financial trading, on the one hand. That is, from returns on capital from global stock & bond trading, foreign exchange speculation, interest, real estate, commodity futures, structured finance and derivatives in myriad proliferating forms, rents, and so forth—to mention just a short list. This is just money making money and doesn’t involve…’

            Writers are definitely “serving” someone who keep circling around this thing to get a better picture…

            “Economics Professor Costas Lapavitsas says that capitalists have learned how to make huge profits without producing anything useful” http://www.truth-out.org/news/item/23942-the-financialization-of-big-business

            BTW, adjustments are always changing everything, and today a password’s required here, so I’ll revert to the facebook/Disqus associated ID…but it’s the same dude!

          • Kunal

            Yeah this thread is completely confusing at this point! I think the key is for people to click “Reply” when they want to reply to comments, and post a self-standing comment otherwise. Do we vote yea or nay for Disqus?

          • theCrowdisUntruth

            Firstly, I’m really curious regarding if automatic adjustments, or personal IT operator adjustments or tweeks, of all Disqus message boards…can be made or are made on some kind of scheduled basis. The way things have ended up here, for example, it’s clear, as one can’t determine easily enough what the latest comment was…that the thrust or “life” or dynamic or dialectic of the conversation…is not evident. Thus, issues and dialogue can appear to be a bit dead.

            I’m going to suggest something radical: offer two separate comment spheres. Tastes change, and Disqus has the advantage of looking aesthetically nice…few distracting exact times of postings, etc. But go to The New Cafe, register, and check out the “Motet” format; it’s pure genius. http://newcafe.org/

            This was the old Utne Magazine collection of forums, which is now Independent (as Utne claimed they couldn’t allocate labor for its management). With Motet each post has a number, and any poster can type in the number in brackets, and it becomes a hyperlink to whichever post. Moreover, newer posts always end up below older. Given what it can do, I think its aesthetics are fine. It’s a real case, Kunal, of “appropriate technology” IMO. The “look” may not be as absolutely contemporary, but it might be a progressive thing to set an example and return to “appropriate technology” whatever the look.

            If there’s a backdoor to Disqus, and someone’s screwing around with the natural order of discussion, the look isn’t worth the integrity sacrificed. Note, I say if.

  • theCrowdisUntruth

    Thanks for your answer below, Kunal. Anticipating your next answer down there too.

    Looking forward to rest of the Listen. Sounds, Chris, like you know how to pronounce the name! Looks like the book and all the talk could lead to proliferation of some important information, and to something positive. There’s some agreement amidst some astute comments below…encouraging. Don’t mean to hog space, but there are some general unschooled impressions I carry around that I’m feeling bout ready to unload. Probably already realized by most here commenting, but I’m ready anyway.

    I don’t earn that much, and I’m not a prof. But I have done some reading and, in this era…listening.

    An MIC does it’s true does create jobs. But an MIC whipping up blowback is incurring costs (future costs). If gov allocates money for thus and such, and hires contractors…that creates jobs. But if the state of FL pays a contractor firm millions for software to purge felons and ex-felons from voter registries…whilst it payed its own employees thousands for same just prior…well, one can see the multiplied costs to wage earners, and in the case we know about…to democracy itself. If our Fed gov is paying contractors over $500 a day to destroy hard drives in Iraq…same deal. If it’s paying a contractor to build vinyl emergency trailers, when it should be contracting for tents and solar powered fans…same deal. I believe James Galbraith has written about this.

    What I’ve been convinced of is that merely redistributing the one percent’s scam income, or the taxes that should be derived from same…wouldn’t fix all our problems. I also sort of believe that there aren’t enough infrastructure repair jobs to adequately address our unemployment problem. I do think, though, that when gov tries to move the nation generally towards “growth” with stimuli and/or allocations…that a principle of observable product should be brought to bear, and that some sunlight up front be allowed right where ye olde sweet heart contractor deals are likely to go down. Even if infrastructure repair wouldn’t provide enough jobs, there’d be a product. There’d be value added to the economy. If the state of PA takes 1.5 billion from schools and at the same time gives said amount to race horse owners…then there is very small yield associated in terms of product (value added to the economy, which in turn adds, AFAICS, value to our currency) and small yield in terms of creating jobs as well, not to mention the immediate valuable services to students and families of students subtracted from the overall economy.

    It may seem crazy to write this, but manual work in fields (organic fields) would add value to the economy, and would add many, many jobs. It would be a good thing IMO if labor advocates in theory and environment advocates in theory…come someday to re-evaluate “symbolic analyst” professions in terms of they’re being the only ones with any meaning. If you’re for single payer, then you should be equally for increased Social Security. If there’s adequate (and I mean real adequate) Social Security, and there’s single payer…and affordable housing also [the latter presupposing adequate controls on banks], then actually a great deal of honor could be bestowed once again on the kind of work this country was founded on to a big extent (no, not to suggest all the cotton early on was produced by small family farms). I also recognize the fact that while hands-on care giving isn’t a super “observable” product, it is beyond a shadow of a doubt a product that adds value to the overall economy. Yes, some “service” jobs do add value, but our wonks seem to have lost track of which ones.

  • Steve Fernandez

    Some econophysics graphs showing the patter of distinct modes of inequality in accumulation (wealthiest 5 to 10% versus remaining population) found in review of market economies over a large span of times and locations. From Chaterjee, Sinha, Chakrabarti. (“Economic Inequality: Is it Natural” and “Toward a Physics of Economics”)

  • theCrowdisUntruth

    Here’s Michael Hudson again with a vastly improved reaction to the tome (he was right in the 3CR interview I linked here, but the one linked in this more recent share of his…text at his site plus The Real News…is more comprehensive). Did anyone here listen to the 3CR interview? Well…seven days and the buzz now is crickets? Whether we like it or not (like real chores or not), the task of discussing an economy both sustainable and labor-intensive is a’wait’n on us. Stats are fine. Who ever said they can’t help? But we are gonna have to return to what Michael Hudson and Jack Rasmus call the “real economy”…have to begin some suggestions re how to change it in order to preserve it. http://michael-hudson.com/2014/04/the-1-and-piketty/

  • theCrowdisUntruth

    Recommend for sure actually reading the following article first, but below I offer my outline of same, unfortunately not quite finished. “ECONOMISTS DISCOVER INEQUALITY” BY JACK RASMUS 5/13 Tuesday
    http://prn.fm/economists-discover-inequality-jack-rasmus/

    Everything emboldened in this outline was emboldened by me. Things in italics indicate my own immediate, less-studied, and/or non-professional counter opinions.

    “Explaining inequality—not just reporting it—requires an analysis of how these various ‘forms of wages’ have been reduced in recent decades and especially since 2009. That deeper analysis leads to explanations of trends of destruction of unions and thus the higher union wage, the growing trend of outright ‘wage theft’ by businesses, the avoidance of paying overtime pay by reclassifying millions of workers as ‘exempt’ instead of hourly paid, the atrophying of the real minimum wage, the wage reduction effects of free trade, the shift to contingent labor, and all the reasons why the total unemployed (in and out of the labor force) are rising steadily and are chronically longer term jobless.”

    “The tax system changes are but one of a ‘three legged stool’ of income inequality forces at work.”

    The Three Legs

    1. Wage reduction

    2. Increased “income” generated by wealthiest households

    3. Changes in the tax system

    I would emphasize, in addition, two other factors

    4. Offshoring large sectors of production (cited in Ramus’ text above, free trade reduction effects)…enhancing profit margins…removing wage earning opportunities

    5. Failure to anticipate appropriate & profitable products

    6. Psychology-wise or zeitgeist-wise. In the “casino nation” ethos, lady luck somehow bestows “merit” (on, among all imitators out there, the worthiest…those willing to gamble), and even replaces the infamous abundant living doctrine.

    Saez focused a little on trends with respect to trends in senior executive pay in business. Such trends, however, “represent more an internal transfer of potential capital income’s rising share from stockholders and bondholders of a corporation to active CEO and senior management” versus focusing on “how the overall share of incomes from Capital in general is rising at the expense of workers’ earned incomes, i.e. wages and salary incomes—and especially the sub-category of hourly wages and weekly earnings for the roughly 110 million production and non-supervisory workers in the U.S.”

    Rasmus notes Saez and Picketty have elucidated the fact that the top 20 have been doing better continuously through the “half dozen or so” recessions since 1980 while the bottom 80% “working class households are stagnating at best, or actually declining in terms of real wages, real earnings, and real disposable income…getting poorer over the longer term.”

    2 ways the 20%’s increasing income is generated

    1. Manipulation “of global financial assets and speculative financial trading, on the one hand. That is, from returns on capital from global stock & bond trading, foreign exchange speculation, interest, real estate, commodity futures, structured finance and derivatives in myriad proliferating forms, rents, and so forth—to mention just a short list. This is just ‘money making money’ and doesn’t involve…”

    2. “…shifting income from workers by reducing their real wages, cutting their health care and retirement benefits, stealing all their productivity gains, and the many other ways their corporations shift income from the working class to themselves.”

    Refuting the Happy Recovery-trend Hype. “Government data reporting on ‘wages and compensation’ in general include salaries and benefits for CEOs and senior managers, whose ‘wage’ and salary increases may be significant and thus ‘bias upward’ the total average for wages and benefits in general.”

    1. “…deferred wages previously paid in the form of workers’ pensions and healthcare contributions that are reclaimed and taken back.”

    2. future wages “reduced by means of issuance of credit and debt to workers”

    3. Social wages reduced in ones “account.” “Workers pay into the social security fund in expectation of a claim on that payment when retired. A reduction in social security monthly benefits and/or a rise in co-pays by retirees for Physician or Prescription drug coverage represents a reclaiming of part of the social wage previous paid.”

    4. Inflation. “US government inflation indices have been ‘smoothed out’ over recent decades by introducing statistical estimation techniques that reduce the volatility of price inflation.”

    Causes in accelerating corporate profits

    1. “…manipulation of financial asset prices by investors, by creating new forms of money and credit, and recycling money capital to create still more money capital where nothing is actually being produced except for money capital.”

    2. Profits from making goods and providing non-financial services. “Here profits grow by either selling more goods, raising prices of the goods sold, or reducing costs of producing those goods—especially labor costs. Since the June 2009 recession, the data show profits from production quickly escalated to record levels in the US, exceeding the historic high pre-recession 2007 levels. But this profits escalation has not primarily resulted from selling more output or at higher prices. Today’s record pre-tax corporate profits are primarily the outcome of the growth of ‘profit margins’; that is, profits generated from reduction of operating costs, in particular labor costs and therefore by raising productivity and/or reducing wages and compensation.”

  • theCrowdisUntruth

    What does Piketty have to say about derivatives? I saw this article on a Real News interview the other day with Costas Lapavitsas (Univ of London). Was thinking about Steve the Teacher mentioning those who serve wealthier subgroups of the population. Well, he was sure as heck talking about a relevant group vis a vis this below…

    “Big Risk: $1.2 Quadrillion Derivatives Market Dwarfs World GDP”
    http://www.dailyfinance.com/2010/06/09/risk-quadrillion-derivatives-market-gdp/

    According to Lapavitsas, only 10% of this amount is really helping farmers hedge risk, manufacturers hedge risk, etc. The rest is simply money that floats back and forth amidst derivative bets. So, all the value that could have been paid to minimum wage earners (value which they helped create, but was kept by the corporations)…a lot of it ends up confined strictly for casino usage (from across the entire planet, about 1,100 TRILLION). Since workers helped create this value (represented by dollars), I wonder if they think this portion of their product is doing very much for the betterment of the world.

    Let’s say America’s share of dough in global derivatives ($1.2 Quadrillion) is 10% of the big number, one hundred trillion roughly. Since at worst only half could be lost to a scattered host of high rollers elsewhere [say if one day half of US hedge funds and half the US billionaires put all of their wads on a "NO" vote on a bill to ban GMO seeds in the US, the other half voting "Yea"], in such case only $50 Trillion owned by US entities would go down the tubes. The question is, though, would the bets be “insured” by another AIG type entity, and would Treasury & Fed, as in 2009, have to bail such an entity that insured all the losers? [everyone here so far knows this but here goes: the cumulative "national debt" incurred over 200 & some years I peg at 20 T, while politicians only brag re how their thriftiness would reduce the debt racked up in the next fiscal year, always in such cases meaning that year's "budget"...again, denoting shortfall for whatever particular year [but oh how they want you to think their projected surpluses refer to the sum total "national debt"]]

    Isn’t this in fact the real “crowding out”?

    “…Conservative economists, whose intellectual heritage includes decades-old attempts to refute Keynesian theory, disagree with this view. They argue that government spending cannot possibly increase overall economic activity, and that the stimulus plan is therefore doomed to fail. This position is sometimes known as the ‘Treasury view’ (because it mirrors the arguments of the British Treasury Department during the Great Depression) or the theory of ‘crowding out.’ The new government spending, these economists argue, ‘has to come from somewhere,’ either from higher taxes or increased government borrowing. Either way, the increase in government spending will come at the expense of private spending.” Emphasis mine; go to link for the refutation. http://www.dollarsandsense.org/archives/2009/0509reusskeynespartI.html