The French Sensation: Income Inequality in 700 Pages and a Hundred Graphs

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The hottest book everybody is talking about, that no one has read and no can get their hands on, is a giant, data-packed tome on income inequality covering three hundred years of history by the French economist Thomas Piketty. Is there a reason he’s getting the rock star treatment? Is it the symptoms that resonate (our drift into oligarchy), or is it the cure (a progressive tax on wealth)?

 

  • Piketty_Che
  • Piketty_Tocqueville
  • Piketty_rockstar
  • Piketty_prophet
  • Piketty_savior

A rock star?

For a French economist, sure: Capital in the 21st Century is expected to sell 200,000 copies in the first month. Both The New Yorker and New York have covered the book’s success and Piketty’s whirlwind tour of the States, which is surprising everyone. It’s being praised as a ‘watershed’ entry in economic thought by Paul Krugman, blogger Tyler Cowen, and Sen. Elizabeth Warren, whose own book, A Fighting Chance, was for a while runner-up to Piketty on Amazon’s bestseller list.

When asked about the book’s appeal, Warren told a crowd in Cambridge: “He’s got good historical data, and boy, what it shows is trickle down doesn’t work. Never did, doesn’t work… I just saved you 1,100 pages of reading.” The book shows more and less than that, but Warren should understand the book’s appeal. Piketty’s earlier research into income distribution helped provide the Occupy Wall Street protests with its rhetoric of 99% vs. 1%. He’s long been setting the conversation on the structure and the consequences of inequality; now he has announced himself. (Maybe if half the people who bought the book read it, there could be “Piketty clubs” the way there were once “Bellamy clubs”. Or maybe Capital could be the next Brief History of Time — millions of unread copies worldwide.)

A new Tocqueville?

Maybe. It seems strange that, months after our president abandoned the rhetoric of inequality, that Piketty, who left MIT years ago, has such a great resonance. In fact much of his book is about Britain and France, which have the deepest stores of tax data going back to the 18th century. But he does make insights, in the style of Tocqueville, into economic life today — for example, “wealth is so concentrated that a large segment of society is virtually unaware of its existence, so that some people imagine that it belongs to surreal or mysterious entities.” These aren’t necessarily unfamiliar truths, but they mean more coming from non-pundits. Arthur Goldhammer, Harvard professor and translator to both Tocqueville and Piketty, draws the comparison in The Daily Beast:

Because Tocqueville was such an assiduous researcher, who returned from his travels in the U.S. with trunkloads of documents filled with statistical data of all kinds, I have no doubt he would have found the data compiled by Thomas Piketty fascinating… He was not wedded to his preconceptions about American society; he came here with his eyes open and modified his opinions as he gathered information and talked with experts who knew more than he did about how the American political system and economy worked.

 

a Marxist?

Not really, though he’s been accused of that and worse. In the Wall Street Journal, Daniel Schuchman reads Piketty as a “bizarre ideological screed” in support of authoritarian, Communist government. Schuchman has supporters among the Amazon reviewers and in the New York Post. But  readers of the book will note that Piketty criticizes Marx for his “anecdotal” approach to economic data and disagrees with features of his picture of capitalism from the very beginning. In an uncharacteristically political interview with the Guardian, Piketty still hesitated to argue for outright socialism.  Piketty’s readers, and especially his non-readers on the American right, are conflating Marxist economics with critical thinking about the current capitalist economy, and that’s too bad.

But, as Matthew Yglesias writes a long, helpful ‘explainer’ at VoxCapital isn’t mainstream American economics, either. It bears its Marx-ish title for a reason: Piketty is worried about capitalism. From the book’s introduction, the book’s central claim is made in relation to Marx’s economic theory:

Modern economic growth and the diffusion of knowledge have made it possible to avoid the Marxist apocalypse but have not modified the deep structures of capital and inequality— or in any case not as much as one might have imagined in the optimistic decades following World War II.

 

a prophet of doom?

 Not according to Piketty himself, who sees himself as (almost) an optimist, according to an interview with Tim Fernholtz at Quartz. Three-quarters of the way into the book, Piketty launches into his solution to the problem of inequality: a progressive tax, coordinated globally, on wealth. He believes that a pro-tax, populist movement like the one that emerged in America in the early twentieth century could materialize and change the political realities. If not, there are problems, however: in the Guardian interview, Piketty argues that the other two roads out of the crisis are Russian-style oligarchy, which he considers “barbaric”, and inflation — a tax on the poor.

 

a savior?

As much as economists left and right have praised the book, there is far broader disagreement about Piketty’s proposed taxes. Tyler Cowen, economist behind Marginal Revolution, concluded in Foreign Affairs that “large wealth taxes do not mesh well with the norms and practices required by a successful and prosperous capitalist democracy. It is hard to find well-functioning societies based on anything other than strong legal, political, and institutional respect and support for their most successful citizens.”

And Paul Krugman, an ardent believer in Piketty and his book, still argued in the New York Review of Books that the prospects of such a tax aren’t good, when the Republican Party, on their way to more political success, “already emphasizes and celebrates capital rather than labor” even though we’re decades behind Europe’s regression into the patrimonial capitalism like that of Balzac and Austen.

Pick your Piketty, and tell us why in a voicemail or comment!


  • David

    Both. Scanned an article on him today. His solutions look right, but so is an amendment to overturn Citizens United. Hope he’s a good enough speaker to get folks out in the street! As always, Chris Lydon, I miss hearing you on my local station. Speaking of citizens, I think citizens are gonna be challenged…or should be challenged by the complexity of where we’ve arrived. The youtube “Obey” set to Chris Hedges text says unwinding the issues could eventually just turn off the millions increasingly tuned to thinking in images. But keep on going, man. Don’t know why there aren’t more comments here; you’re just as sharp as you were 15 yrs ago. By the way, anyone who likes ROS may enjoy Dr Jack Rasmus at Progressive Radio Network. That archive and his facebook page are both called “Alternative Visions.” Things role along divergently, just as with Chris. No constraint, no uptight contrivance. Hope no one here’s scared of “academic.” He’s as valid as Blyth but usually just a mite slower in delivery; which doesn’t mean he’s slow at all. And warning, he’ll outline 5 questions before he goes back to the first (none of’em are ever fluff). He’s like the Michael Toms of economics.

  • Steve Fernandez

    I look forward to reading Piketty’s book and to hearing it discussed on Radio Open Source. Also worth discussing is “Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens” by Martin Gilens and Benjamin I. Page. They used statistical analysis to demonstrate that the US is an oligarchical – an elite wealthy few have vastly disproportionate political influence while the political influence of the majority is negligible. (http://www.princeton.edu/~mgilens/Gilens%20homepage%20materials/Gilens%20and%20Page/Gilens%20and%20Page%202014-Testing%20Theories%203-7-14.pdf)

    More fundamentally, I’d like Chris Lydon, and Radio Open Source to discuss the mathematical-economic analysis on the nature of accumulation of wealth in the hands of a few in all capitalist/market economies. Statistical kinetic asset exchange modeling of capitalist/market economies indicate that such economies result in the following:

    ==> Log normal distribution of income for the bottom 90 – 95%. Thus, the rate of growth of population below any given income grows exponentially for this population.
    ==> Power law distribution of income for the top 5 – 10%. Thus, for any income x, there are a high occurrence of people with this income or higher.

    http://www-m8.ma.tum.de/personen/matthes/papers/economy6.pdf
    http://www.imsc.res.in/~sitabhra/papers/sinha_chakrabarti_physicsnews_09.pdf

    It would be good to hear discussion of alternative economic systems such as those proposed by Manfred Max Neef, Mike Albert, Vandana Shiva, etc.

  • Mary Fonseca

    At 700+ pages M. Piketty´s book (including citations from Balzac and Austen) is probably meaty enough for one radio show…leaving statistical kinetic asset exchange modeling for another day. A nice clear exegesis is needed for people like me who are hugely intrigued by what we´ve read re Piketty but not likely to crack the 700 pp volume. A very witty scholar of French culture who might place P. in the framework of Gallic thinking might be a good addition to the team of discussants.

    • Steve Fernandez

      Piketty’s book is in vogue now and does merit a deep discussion.

      But, no discussion of the math and physics that indicate that income and wealth accumulation in the hands of the richest few are inherent features of market/capitalist economics?

      Solely discussing Piketty’s findings seems a little akin to discussing statistics on smokers that have lung disease without identifying the underlying science related to the causal relation between smoking and the development these diseases.

      I would agree, though, that an entire show should be dedicated to mathematical/scientific models indicating the inherent nature of wealth accumulation in market/capitalist economies including: dynamic game theory, modeling using cellular automata, and, within the last decade or so, econophysics including statistical analysis on kinetic modeling of asset accumulation.

      At the least, the work of Gilens and Page (“Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens”) should be discussed because they point out that the political implication of this wealth divide, oligarchy, is well established in the United States.

  • John

    Robert Paul Wolff has written extensively on Piketty’s book and probably would be an entertaining guest: http://robertpaulwolff.blogspot.com/

  • David

    How would FDR sound today if he was able to address Americans? Try to imagine it. The task of bringing everyone up to speed is the greatest challenge education on this planet ever faced. The greatest any democracy ever faced. At the upper reaches is high frequency trading, a very high peak. Many try. Hudson tries. Kuttner tries. Rasmus. Blyth. Baker. And many, many others. I haven’t heard or read Piketty (read him straight up).

    Sorry to say it, Chris, but those who introduce these writers are not doing there job. I’m begining to take Lasch’s writing real seriously, and I’m going on beyond and thinking the problem with conservatives is truly that they have been becoming too much like the liberals Lasch described …way, way, way too dedicated to technospeak. Seems to go along with single issue private Idahos. The voices behind the names I just mentioned come from a great height, though Rasmus has a divergent approach which I think gets around the problem effectively.

    If I were to make recommendations from an issue standpoint, I’d say the money-creation issue is important: get Kucinich and Ellen Brown on together for that one. Then there’s the circularity issue, the so-called circular flow of money. Some experts say this concept is too far from the reality, but I think the theory of the circuit has been around long enough such that it needs to be reviewed. IMO there’s nothing wrong with it, even if our borrowing in this era is getting more and more astronomical. Hope Piketty has a good circular flow illustration in his tome. Meantime, though, when you get Stephen J. Rose on there, ask him why he hasn’t put his “poster” out in the public domain…free (if he’s legally able to do so). He could even make a program out of the thing where average people could plug in numbers they prefer and see what happens. By now his wonderful chart is old, but if it were a program anyone could update it (a newer version should have more numbers germane to the global shadow economy…get Loretta Napoleoni on for that topic). Afraid I’m convinced the profession is holding back. Sorry, but the impression is they believe if they don’t talk in riddles they’ll be out of a job on down the line.

    Another issue are the oligarchs that arose in Russia after the fall of the wall. Don’t we now know how much Americans know about that?

  • http://dialogic.blogspot.com Michael Benton

    David Graeber
    David Harvey
    Richard Wolff

  • David

    In my last comment when I accused talking heads of attempting to speak Greenspanese on their own (and some economists), I didn’t mean a guy like Ross Perot hadn’t been too hopeful in terms of what he thought he could get across in the “language of the people.” The language of the people is the medium in which I want to hear the message, but it’s gotta be forged a little over the’ol anvil (some effort required).

    For sure, if there’s not a degree of digression, subtlety, and the anecdotal, then those of us who’ve read a little aren’t gonna believe we’re dealing with someone who’s done likewise [although thankfully the anti-fracking movement and the anti-GMO movement are demonstrating populisms wherein folks without degrees can be pretty hip to what's happen'n].

    Judging by the Huff Po youtube I’m linking here, Piketty, thus far, impresses me as an economist fully backed by data extracted from the real world. So, his “scientificness,” one would think, shouldn’t be subject to too much ridicule…ridicule that will endure anyway [some graphs included]. Yeah, and his discourse includes those elements I just mentioned, the kind you expect with that French acumen that comes along with its gifted bearers. Regarding that after-the-wall-Russian-experience I mentioned in my last comment, around 15:29 you have to listen carefully to what Piketty is saying. To his credit he talks about “markets” like a scientist of economics. He begins talking as though the event exploded possibilites, but what that leads into is an implication about unwarranted idealism. For me, there could have been a bit more direct allusion to the chaos, anarchy, and looting that went on, but…oh well. If anyone would like to give some paraphrasing re the points on taxes immediately prior, I would appreciate it. http://www.youtube.com/watch?v=XC_SdUvMBUc

    Would hope that he’s also researched data to justify what kind of “growth” is appropriate in the situation in which we find ourselves today. Of course, such would cross over into environmental data a bit. So far, Thom Hartmann is the only guy I’ve come across who is mentioning another CCC. Some may disagree, but IMO we just aren’t going to find or create what’s appropriate in terms of more jobs…utilizing and/or supporting “approprate technology” in the Schmacharian sense…by resorting to the shunt-to-the-dark-satanic-cubes/warehouses model. Weird irony we want to deport the folks who could best adjust to the vast numbers of jobs we need to create. In terms of the cyber generation, though, Piketty could be a sign of it shifting its attention (and its considerable potential) from hard tech (and hard tech’s diversions) over to the real world. A natural development IMO. If the FCC’s gonna enable de facto targeting of blogs, however, I would underscore that we completely abandon the superstar thing. We need right now to give voice to as wide a range of critics with real insight as are out there [will stick by the names in my first comment]. There are enough so that no superstar who gets tailed or bribed or distracted will end up crashing hopes. In a truly pluralistic or democratic academia none of us should ever have made one guy the be all and end all. But the academia we have lived with recently has been caught up with the same “merit” hooplah/zeitgeist our two-bit cable talking head philosophers are so fond of spewing. Like: so and so was just born with all the merit. So bogus. It was this way in the sixties too (when actually the hidden persuaders were hatching (or at least adding video to 30s audio)), but we only see it in hindsight. If our learning finds something, then it’s the something that matters, not some giant. Not some hero. These somethings can be, for example, sociological relationships….or production/consumption relationships…each in particular an individual phenomenon…no little handful of which ever signifies we’ve embarked into some salvation-dimension where hysterical laughing and/or clapping naturally rewards every other gifted sentence.

  • David

    3CR’s not wanting to stream for me at the moment. Does it work for you?

    “I think his conclusion, the gilded age is just beginning, is correct but the logic is not the logic that I’m following in my exposition. He’s saying the exact opposite of Adam Smith. Adam Smith said that the rate of interest is often highest in countries going fastest to ruin. So the fact is you can go to ruin for high interest or low interest.” Michael Hudson

    from “Piketty’s Wealth Gap Wake Up” with Michael Hudson & Karl Fitzgerald
    http://michael-hudson.com/2014/04/pikettys-wealth-gap-wake-up/

  • David

    Somewhere in my encounter with the first citation of the Hudson & Fitzgerald weekly shows (on Austraila’s 3CR Community Radio) the first stream icons I ran into were bringing up “script error” warnings in red, and the stream wouldn’t load. But from Michael Hudson’s site, the transcript of this show bears a tiny little “Listen” icon near the top (also in red IIRC) that is working after all. The link given in my previous comment links to this page at Hudson’s site.

  • David
  • Robert W Peabody III

    Guests to invite on the show:
    Paul Krugman

  • Robert W Peabody III

    Notes from the Huffington vid with Thomas Piketty.
    1914 – 1945 Capital returns low
    1945+ baby boom & productivity growth kept the gap narrow.
    1980: Rates of return on capital went back to their norm – outstripping general economic growth rates.

    @13 minutes The meaning of the work is that expectations of capitalism closing the economic gap between people didn’t happen.

    @ 17 minutes Piketty seems to delink the capital growth rate versus the economic growth rate differential from market inequalities. He also says there is nothing in market forces that guarantees fairness.

    Piketty suggests that changes in tax rates accounts for CEO compensation – it was an incentive.
    He didn’t comment on the rise of professional managers post WWII and their uh, lack of concern for other stakeholders, risk etc. But – 80% of the wealth crated by non-financial types – so the finance sector is no big deal.

    @25 minutes shift from compensation dynamics to wealth dynamics is his focus

    @31 minutes Piketty wants to tax net worth i.e. savings which promotes consumption. Odd, since Piketty is undoubtedly familiar with VAT. ( He is proposing revenue neutral taxes.)

  • Robert W Peabody III

    Oh, and one other significant thing Piketty did was forecast that the disparity between capital growth rate and the economic growth rate would increase “forever’ is the word he used.
    If you look at a graph of the Dow Jones Industrial Average from the 1950’s forward and plot GDP and population growth against the rise in the DJIA, you notice that they all bump along together until 1983-4. At which point the DJIA rises exponentially while GDP and population trundle along.
    I think it was Robert Schiller who said those out-of-trend DJIA returns will have to be reduced to plot along their normative average.
    I believe that is called ergodicity. Piketty is basically defying the laws of physics with his prediction.

    Chris, ask your Harvard peeps about taxing investments – Washington would love to clip some of that 32 billion of endowment. Piketty doesn’t seem to know that investments are after-tax and it would require a change of the US Constitution to tax them away.
    Forget Krugman, get Schiller on the show – he’s in Beantown isn’t he? Or is he still at Yale?

  • Potter

    Don’t forget Krugman! (If he will come). He presents simply, as does Stiglitz. Get people who can talk in terms we can understand. I am listening to Piketty at CUNY linked on Krugman’s blog. Piketty himself is not that difficult here. I’d like to understand Piketty better and objections to his argument. Again just like with the Big Bang, there is a level of understanding we normal people can get to (or try to)- but when you get all this economeeze happening I get lost and I get the feeling it’s a club and I am outside and I should get on with my life. (That said I am willing to do some work.)

    http://krugman.blogs.nytimes.com/2014/04/24/piketty-at-cuny/

    • Robert W Peabody III

      Funny you mention the Big Bang show. Prof. Alan Guth’s asymmetrical inflation theory corresponds with Piketty’s asymmetrical gap theory. I wonder how much of MIT’s 10.9 billion endowment Guth would be willing to give up so we lumpen minions could pay less taxes.

      All we’re gonna get from Krugman is his ‘final language,’ which we’ve heard before.
      He endorsed Piketty but criticized him for not referencing the populist boogeyman i.e. the financial sector.
      All you need to understand about finance Potter is that money goes where money grows.
      Billy Holiday sang it in the 1940’s:
      Them that’s got shall get, them that don’t shall lose, so the Bible says, and it still is news….

      • Potter

        No it’s more than that. It’s short term and long term and there is what kind of society do we want- you know, morality and the leadership we choose based on what we understand. This discussion covers all aspects of life. By the way I did finish the CUNY discussion- it was good. Krugman, is leaving ivy league for “my” City University of NY I hear.

        • Robert W Peabody III

          Piketty seems to be suggesting that wealth dynamics are somewhat amoral. Money would flow to Bangladesh because it will grow faster there. It grows faster because of a low wage. I think Piketty saying the low wage is a function of market forces and not wealth dynamics.

          Money flow is a good thing. In the case of Hurricane Katrina, money flowed towards the damage zone. Corruption, fraud, and bureaucracy slowed the benefits ready capital could provide.

          • Kunal Jasty

            He’s not suggesting some wealth inequality is bad. In fact, he describes his ideal wealth distribution, in which the top 1% own 10% of all capital, and the top 10% own 30% of all capital (even this has never been observed in any society). It’s the top 1% owning 40% of all capital that I think most of us have a problem with

          • Kunal Jasty

            Here is the complete distribution (from table 7.2):

            Top 1% —– 10% of capital
            Next 9% —– 20% of capital
            Middle 40% —— 45% of capital
            Bottom 50% —— 25% of capital

          • Potter

            My sense is that the discussion of which Piketty is a part, has to do with wealth dynamics getting so out of whack that intervention is needed lest it continue for a long time on this trajectory which is not to anyone’s benefit with a lot of suffering to go along. Piketty gives more substance to those who are arguing about income inequality being so harmful even now but too if this continues this way on into the future. But what do I know.

          • Robert W Peabody III

            Just so we are on the same page:
            Income is something you earn.
            Capital is something you own.
            Income becomes capital after it is taxed.

            If capital flows to where it grows, it doesn’t matter who owns it. In fact, the poorest person and the richest person on earth might own the same mutual fund.

            One thing Piketty didn’t go into was risk. One of the reasons the wealthy can earn more is because they can take more risk.

          • Kunal Jasty

            Potter and Robert, please leave us a voicemail – how would you solve the problem of economic inequality in America? (or would you?)

          • Robert W Peabody III

            Kunal Jasty says: how would you solve the problem of economic inequality in America? (or would you?)

            Is economic inequality in America a problem?

            Yes, because there might not be enough asset bubbles in the future to keep all the debt rolling over.

            You’re squeezing a balloon – you don’t know where it will break…..

  • http://LinkedIn Henry W Jones III

    Your repeat-guest economist with the Sean Connery schtick (the feisty expat Scot teaching in New England), please. More Euro-perspectives (and interesting accents! ) are good for souls who want broadening and real education, particularly for those of in these united states.

  • mary

    Henry, and so it shall be done. We got him for you!

  • The Parrot

    “If all economists were laid end to end, they would not reach a conclusion.” –George Bernard Shaw. Given the predicament of inconclusive consensus, I’d like to hear from: Dean Baker, Richard Wolff, Teresa Ghilarducci, Anat Admati. And of course, Mark Blyth is always outstanding.

    Since we are still in the phase of existence of “too big to fail (… and too big to jail)” perhaps someone from the lofty heights of the dismal science will explain how we can enable our financial services sector to embrace Beckett’s bromide: “Ever tried. Ever failed. No matter. Try Again. Fail again. Fail better.” It would seem we still have a fragile and gullible system that is not positioned to fail better (in the resiliency sense).

    • The Parrot

      Steps to improve transparency, increase fairness, from a macro-level: One step could be an implementation of a complete and transparent audit history attached to all financial transactions. That is, the monetary units themselves should be able to talk about where they have been (and who they have been with) with full disclosure (bit-coin?). This of course will put a gag into the gaping maw of junk spewing which drones out of the political, economic, and talking head pundit class. Part of their shtick is to dazzle us with the economic pull-a-rabbit-out-of-the-hat rhetoric; to ‘splain to the great unwashed where our tax dollars go and how they are used. Imagine a time when we can see for ourselves which shores the monetary units have washed up upon. Why shouldn’t we be able to query our money about where it’s been, where it’s present location is, and how it’s been used? Unlike the quantum conundrum, we should be able to determine position and movement of any monetary unit in such a closed, quasi-complex system. The monetary system is a public common, consensual in its core principle. With the advent of computational monetization and transactions, such a data-oriented feature is feasible; privacy and security issues notwithstanding.

      Another step for improvement would be an effective public domain patent and copyright system. A system where IP developed with public funding is held in public trust, and not exploitable for private profit. Thus, no more absconding of public IP for private profits. (Why are we even having to justify net-neutrality?) Of course, our current military-industrial-academic complex would be shown out for the anemic parasite it’s become. But, a minor concern on the road to ridding ourselves of these shackles. I’m not pious about the efficacy of a corruptible market system where public tax dollars fund private profit and absorb the risks through financing R&D, and then bail-outs in a boom-bust mentality. A market which reports itself as a rational actor, an arena of “fair” and “efficient” competition, turns out not be so.

      As Frederick Jameson once wrote: “Someone once said that it is easier to imagine the end of the world than to imagine the end of capitalism. We can now revise that and witness the attempt to imagine capitalism by way of imagining the end of the world.” Not one to suffer from this dead-ender syndrome, I find a consideration of not only post-capitalism, but a post-economic society to be a potentially uplifting beginning. Of course, new & different isn’t always an improvement. But, perhaps not all us serfs serve at the pleasure of the lords of the manor, nor are constrained by the pessimism or indoctrination of a burnt-out thinking class. I would not expect any professional economist to be willing to posit such a world view as possible; professional suicide is not much of a rallying cry.

      Lastly, a quick note on flow, as monetary redundancy. Instances of a fiat monetary system (call it what you will: capital, income, money, fat-stacks-yo, …) must flow, though depending on the venue, at differing rates. Ultimately, if it doesn’t flow, it’s no longer a relevant instance of the monetary system, be it an asset, be it a liability, be it equity. Monetary units tend to be unbound by the orthodoxy of constraint of inertia that physical matter adheres. Which is not a problem, since these instruments are fictional and consensual. Which is also not a problem, since most of humanity organizes a great deal of its activities around the flow of such fiction in a non-fictitious setting.

      Looking forward to listening…

    • The Parrot

      I enjoyed the updated framework for this show. I’m particularly interested with this sentence fragment: “… Piketty argues that the other two roads out of the crisis are …” Since we are talking roads, we should examine ‘where’ crisis the exists. It’s terrain.

      It’s sort of astonishing (to me) how many professional economists and political wonks have either missed an important feature of contemporary life, or remain silent or opaque about it. It’s right under our collective noses, though you wouldn’t know it from the prattle about taxes, externalities, entitlements, Marx, Smith, etc. (what next? the production possibility frontier in a Facebook world?…are ‘likes’ a commodity?). The where is extremely important, because it tells us something about the nature and scope of the problem. It involves an examination of empire, and I believe that to be abundantly germane to any understanding of inequality as it pertains not only to citizens of various states, but how state power behaves. Though war is an ancient enterprise and the mother’s milk of the continuation of politics by other means, I don’t think Marx and Smith grappled with perpetual war for perpetual profits (is war a commodity? Rupert Murdoch, Roger Ailes, Erik Prince, John Rendon, et al. might think so).

      We are still in a time of empire and imperialism. However, as Mark Blyth points out in an earlier ROS talk, it’s a strange sort of empire (one Mark seems to indicate is probably non-existent?). The nature of current empire is strange because the territory of primary concern and concentrated effort is not the physical territory of land, sea, air, nor physical resources held with a stranglehold through practices of enslavement of native peoples (ala Conrad). The territory of empire is the conceptual territory of the capital market system. U.S. wars and weapon proliferation serve the necessities of markets and market ideology. One should factor in the matter of ‘defense’ as a thriving economic sector of continual growth. The post WWII U.S. insurgencies (yes, the U.S is the insurgent force) are not fought as engagements for physical occupation per se, but are insurgencies to expand markets (sucking others into the vortex) and to continue the grip of dominance upon existing markets. Terrorism is not so much a homeland threat or clash of civilizations, but a destabilizing influence upon capital markets. As was Saddam Hussein. States with large concentration of energy reserves are not so much coveted as territory for occupation, but territory for access. Access helps create market stability. (Of course, there are inconsistencies, such as efforts to defoliate large regions of the globe that contribute to the narcotics trade… not all market activity fits into the glove of U.S. market policy it seems).

      Thus, the primary function of the U.S. government (executive and legislative) is to exercise imperial management control over the capital market system, for which the U.S. still maintains a measure of dominance. What this does *not* mean is that the U.S. government, nor corporate entities, considers fairness and equality as a primary concern for it’s citizenry. Where it places its bets, is where it places its focus, attention, and care. And those bets have been in market infrastructure and expansion (NAFTA, TPP, Tax code, healthcare, deregulation or moribund regulation of various sectors, reduction in collective bargaining, etc), and an erosion of civil infrastructure and civil opportunity. That’s not to suggest some folks don’t make it out of the wage slave mosh pit to live a life of economic luster-lust. But, it’s important to note that the primary focus of empire is not on how well the civil population is doing. It’s how well markets are doing. To wit: at least three jobless recoveries since 1992. “Jobless recovery.” The media lexicon is a never ending mystery of paradox and careless honesty. Jobless recovery, indeed. Markets are an extremely dehumanizing influence on the culture. This must be part of any assessment of inequality of opportunity and income.

  • Potter

    wow, Parrot.

    Kunal, As to how I would “solve” inequality, no one magic bullet would do it but you have to start with educating the public. Pikkety himself seems accessible enough and other economists who are praising his work seem to be able to talk in plain language too. So making him a sensation is good. I think the point must be made that this is not just about income inequality in the narrow sense. It hits every phase of our lives. So this has to be explained and talked about, not just in the left corners. It’s not about what to do because I think we know (generally change taxation laws and then where/how we spend), but rather how to get out of this slide. So you need the education about it, then the will derived from conveying the necessity, the urgency. It’s like getting movement on global warming/climate change. Unfortunately it will be so slow moving, too slow, in the case of climate change. But first, people have to have an understanding of the situation, how far along we have gotten in inequality, this imbalance and how harmful it is, how unsustainable, what the consequences are, what we are losing: liberty (equality) and justice- our democracy. Ronald Reagan’s “it’s your money you should have it” should be changed to”it’s your country, you should have it”.

    Then you can get to very important things like improving education at the lower levels and access to higher education for all (it should be free). For that and before all else, huge amounts of money (corruption) have to be taken out of politics… which is a huge problem.

  • Michael Melford

    Piketty’s book a bigger deal in America than in France? Tyler Cowen and Veronique de Rugy of George Mason University say it is, and give their reasons in today’s Times.

    http://www.nytimes.com/2014/04/30/upshot/why-pikettys-book-is-a-bigger-deal-in-america-than-in-france.html

  • Robert W Peabody III

    Piketty on Ashbrook’s On Point:
    http://onpoint.wbur.org/2014/04/29/thomas-piketty-inequality-gregory-mankiw
    Tom’s guest backs up what I said above – tax consumption, not savings.
    Notice Piketty backs off the ‘forever’ comment in the interview.

    Also, this criticism of the fundamental flaws in Piketty’s definitions.

    Google translation from French:
    http://translate.google.com/translate?hl=en&sl=fr&u=http://www.contretemps.eu/interventions/capital-xxie-si%25C3%25A8cle-richesse-donn%25C3%25A9es-pauvret%25C3%25A9-th%25C3%25A9orie&prev=/search%3Fq%3DLe%2Bcapital%2Bau%2BXXIe%2Bsi%25C3%25A8cle.%2BRichesse%2Bdes%2Bdonn%25C3%25A9es,%2Bpauvret%25C3%25A9%2Bde%2Bla%2Bth%25C3%25A9orie%26rlz%3D1T4GGLS_enUS496US496

    The article reaffirms that there are three kinds of lies:
    lies, damned lies, and statistics.

    • Steve Fernandez

      I feel that the discussions that have been generated, in response to Professor Piketty’s work, are generally a positive development. One of the common trends that I have observed is critique aimed at economic models indicating that vast accumulation of wealth in the hand of the richest few is an inherent trend in capitalist systems.

      Yes, there are lies, damn lies, and statistics. However, suppose that instead of the US government’s structure support for capitalism as the nation’s economic system, the US government were to be structured to provide support for tobacco smoking as the nation’s fundamental recreational activity. Suppose people like R.J. Reynolds were given the veneration awarded to Adam Smith. Suppose that the government developed an infrastructure to support the smoking as a recreational activity similar to the infrastructure supporting business and commerce. Suppose, as with laws relating to commerce, a large percent of the nation’s legislation were aimed at providing rights to the tobacco industry, tobacco smokers, and businesses that support tobacco smoking as a recreational activity. Then, when critics of the government support for recreational tobacco smoking brought of the notion of negative health effects of tobacco smoking, they were dismissed on the grounds that:

      - Recreational activity does not solely consist of tobacco smoking.
      - There are a number of non-smoking causes to lung cancer.
      - Many tobacco smokers are healthier than many non-smokers.

      Human activity is complex and our economic system is not strictly governed by the elements stipulating in economic modeling. Yes math, science, and statistics can be used to confuse and misdirect focus. And yes, disruptive technologies, external factors such as war, internal conflict, epidemic, and the benevolence of wealthy philanthropists can briefly change some of the socio-economic dynamics inside of a country.

      Nonetheless, historic analysis in addition to economic models indicate that capitalist economics leads to accumulation of wealth in the hands of the richest few. These economic inequities are not benign. On the contrary, as researches such as Page and Benjamin (“Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens”) and Matt Taibbi (“The Divide: American Injustice In the Age of the Wealth Gap”) such inequality results in an un-meritocratic social structure, an anti-democratic political system, and inequities in health, criminal justice, and quality of life among the population.

      Is it right that our government should exclusively support this economic system?

      Should we be investigating and discussion the pros and cons of other economic models such as cooperative systems (Madrogon model), participatory economics, human development economics, etc.?

  • Potter

    I am not sure exactly what a progressive consumption tax would look like, but a consumption tax in general hurts the people with the lower/est income. I keep looking at the proliferation of extreme luxury goods on the market.

    What Gregory Mankiw of Harvard was saying is that there is no problem with wealth accumulation at the top nor with handing that wealth down. Instead, he says concentrate on the standard of living and wealth accumulation at the bottom, of the lower/lowest 90%. (This comes on a day when the Congress failed to get any movement on raising the minimum wage.) The problem with Mankiw’s prescription as I heard it on the Ashbrook show is that it seemed incredibly callous almost “let them eat cake”, certainly unbelievably out of touch – not reality based. He seemed to have no sense that money is power.

    Mankiw says force people to save. (This comes, I think, from the notion that poverty is something you can blame the poor for.) (Somehow) improve the education system (how?). Well when you can barely make ends meet for your daily living, can barely afford health insurance, day care, private schooling when public schools fail, a college education, a home or even rent, you can’t save, not even for retirement.

    (Mankiw advised Bush and Romney.)

    • Kunal Jasty

      If I could “like” comments I’d certainly like this one!

  • David

    Thanks for the graphs, ROS.

    1992. Dated [and almost looks benign at this moment], but you’ll get the point (I think). “People in the upper 20 percent of the income structure now control half the country’s wealth. In the last twenty years, only they have experienced a net gain in family income. In the brief years of the Reagan Administration alone, their share of the national income rose from 41.5 percent to 44 percent. The middle class, generously defined as those with incomes ranging from $15,000 to $50,000 a year, declined from 61 percent of the population in 1970 to 52 percent in 1985.” Lasch
    http://brandon.multics.org/library/Christopher%20Lasch/lasch1994revolt.html

    Does anyone know if there’s a graph somewhere that plots the shrinking “middle class” along side the 20%’s or the 1%’s (or a number of percentiles’) increased ownership…or along side the changing rate of increase of “transfer payments” to the top 1%?

  • Robert W Peabody III

    @ Potter

    “….progressive consumption tax would look like”
    Well, after a revenue neutral flat tax I would favor a consumption tax targeted at items bad for the environment – things that burn fossil fuels – motor boats, high performance cars, big tires etc.. The money would then used for green initiatives.

    “He seemed to have no sense that money is power.”
    But this is an economic topic Potter. One of the problems is that everyone here is linking this topic with politics and avoiding the fact that the analysis is flawed. Yeah, everyone knows where they are politically and that is precisely why this guy is celebrity. Not for the clarity of his analysis but because he is saying capitalism doesn’t make everyone equal.
    This was the first time I ever heard that capitalism was supposed to do that. My understand was that the rising tide floating all boats means the yacht and the dingy have less chance to run aground – not that everyone is suddenly floating around in a 50 foot Defever yacht.

    “Mankiw says force people to save.”
    Uh, you’ve heard of social security? It is a bogus forced savings plan – or pyramid scheme.
    In Chile they have this plan:
    By law, 11% of every employee’s salary is automatically transferred into a retirement account. Employees select their preferred level of risk, with the following restrictions: They may not choose either 100% equities or 100% bonds, and the percentage of equity that they can select diminishes as they age. When employees reach retirement, their savings are converted into annuities. The government auctions off the rights to annuitize retirees in groups of 250,000.

    Mankiw is correct, the poor need help with saving.

  • Potter

    M. Piketty says: I sink zat inegualite iz fine az long az eet iz in zee interest of zee most deezavantagzd.

    @M. Peabody le troisieme:

    The tax on motor boats and high performance cars would be a pittance towards green initiatives. So what else?

    But this is not just about economics; economics is not just about narrow economics either and this particular discussion proves it further. There is a political component and Piketty says as much, though we did not need him to say so. And too there is a moral philosophical component which Piketty acknowledges. Since we collectively and individually make choices, we have the power to fashion the kind of society we want. Piketty is giving us the evidence of history, showing where we are, and where we possibly, maybe probably, will go if we do nothing. We are being asked if we want the kind of society that we saw in La Belle Epoque, a very top heavy rich class and a huge underclass with an increasingly eroding middle class. I think he is also saying that this is not even good for the rich class ultimately. The first thing that comes to my mind is the probability of social unrest when things get worse. We are not beyond that.

    Re: Privatizing Social Security. How do you take salary away to pay for retirement from people who barely earn enough for today IF they have a job at all? How do you ask people to to risk at whatever level they choose in either a privatization plan or government run operation to invest for you? Don’t folks need personal advisors for this don’t they? When the market went south what did people in Chile do? But this was roundly rejected here. The big discussion during GWBush’s term was also about how do you transition without increasing the debt enormously? Consider (my bold):

    Chile’s private pensions system was implemented by the right-wing military dictator Augusto Pinochet, and was not voluntary. New workers coming into the system were required to use the private system — based around an individual mandate of compulsory contributions to private investment — while the choice of sticking with the old public one was only offered for then-current workers up until a certain cutoff.

    http://talkingpointsmemo.com/dc/here-there-and-back-again-sharron-angle-s-circular-journey-on-phasing-out-social-security

    And this assessment of the result:
    On Chile and Social Security:
    Remember the 2005 Social Security debate? George W. Bush had just been returned to office; his campaign was focused on national security and social issues — as I like to say, he ran as America’s defender against gay married terrorists — but as soon as the returns were in, he declared that he had a mandate to … privatize Social Security.
    During the war of ideas that followed, conservatives repeatedly pointed to the example of Chile, with its privatized retirement scheme, as a shining role model for America to follow. Nonetheless, American voters, it turned out, really really didn’t like the idea of meddling with Social Security, and the Bush campaign fizzled away into slow debacle.
    And then a funny thing happened: it turned out that the Chileans didn’t like their system either; it was massively reformed in 2008:
    The cornerstone of the new law sets up a basic universal pension as a supplement to the individual accounts system.
    In other words, Chile moved its system a substantial way towards being like, um, Social Security.

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  • https://www.flickr.com/photos/22549175@N02/ Robert W Peabody III

    Re the show:

    Good show – it flowed really well, except for one off-topic foray, which was embarrassing

    Some specific comments:

    Mark Blyth, focused on the financial. Piketty actually downplayed financial sector as the wealth source changer in the Huff vid. He said 80% comes from non-financial sectors, those that Mark claims are non-productive landlords.Why start a business when you can just rent property?

    One of the things that is not asked is what the wealth does once it is created. Mark is suggesting it just rents things out – to who? Wealth is reinvested. (Nice you got Milton Freidman in the show.) Sometimes it sounds like people think wealth is just locked away somewhere doing nothing.

    Another problem with citing financial wealth is that we are only looking at one side of the equation. Insurance companies held in 2010 @ 3.5 trillion in investments which support actuarial liabilities – those liabilities are due directly or indirectly to the 99%.

    Railroads – the government gave the grants but would not take the risk !

    The answer to Mark’s tax loopholes is a flat tax.

    I did like Blyth’s “Why not give the poor a piece of the action” in privatizing Social security.
    Vanessa Williamson was a great POV on the micro vs the macro.

    Question:
    if the country has been stolen, does it matter if no one has noticed?
    People still believe in education as a way to a better salary.

    Yes, this would be a great follow-up show: why has the middle class not bought into the
    doom and gloom?

    Mark seems to suggest they are just ignorant, but how is it possible the don’t feel it?

    Surely, they are anxious about money, but Bill Gates used to wake up in the night in a cold sweat, anxious that he might not be the richest man on earth, so…..

    @ Potter

    “The tax on motor boats and high performance cars would
    be a pittance towards green initiatives. So what else?”

    Since you are concerned with the kind of society we live
    in, I’m sure you are not dismissing the environment and its role as a stakeholder in that society. The point of consumption tax is to keep the environment the fore of one’s thoughts in that their consumption has consequences.

    What else? My list would include things like overnight shipping and all things Kitsch. My list would be very unpopular and never pass Congress. There would have to be compromise that we would live with. Anything other than compromise would not be Democracy, but fascism.

    “And too there is a moral philosophical component ……
    maybe probably, will go if we do nothing.”

    Indeed. But if we don’t comprehend the economics, we are
    plotting a course to utopia.
    In 1516, Sir Thomas invented the word from two Greek
    words, οὐ (“not”) and τόπος (“place”); utopia means “no place.”

    Re SS:

    “How do you take salary away to pay for retirement from
    people who barely earn enough for today IF they have a job at all? How do you ask people to to risk at whatever level they choose in either a privatization plan or government run operation to invest for you? Don’t folks need personal advisors for this don’t they? When the market went south what did people in Chile do?”

    As I pointed out elsewhere on this site, pension values have come roaring back from the lows of 2008 -2009. Also, if you had read the link in Krugman’s NYT’s article, you would know that in the later stages of
    these plans people were being forced into lower risk vehicles.

    Sans fraud and corruption, these schemes do work. Nonetheless,
    they are not risk-free.

    Re Krugman:

    It is difficult to know whether people like Krugman are
    leading us to facts or using facts to mislead us.

    In the NYT article you linked to, there is a link to a paper written by the Division of Program Studies, Office of Research, Evaluation, and Statistics, Office of Retirement and Disability Policy, Social Security Administration. That paper details the Chilean retirement plan.

    It is there for anyone to read and draw conclusions about
    Krugman’s assertion:

    “In other words, Chile moved its system a substantial way
    towards being like, um, Social Security.”

    The changes Chile are growth oriented. They focused on
    social issues of gender and disability -which effect economic growth. The core of the plan, investment in the private sector, is opposed to the US social security system. The changes to the core where to liberalize choice in investment vehicles regarding risk.

    In effect Chile has shorn up the private sector with their changes. Similar to our affordable health care act, the key is to get more people in the plan – to grow the plan. That means growing the economic basis by which society operates.

    I’m going to have to rate Krugman’s assertion as 51% misleading.
    The core of the plan was revitalized and certain items added that do reflect
    more equality as a way to bolster the core. (e.g. disability insurance – disability is a huge drain on the family unit.)

  • David Kaiser

    It was a great pleasure to participate int his discussion with Christopher Lydon, Mark Blyth, and Vanessa Williamson. Drawing on previous discussions that we have had, Chris has asked me to add another perpepctive.

    My new book, No End Save Victory, draws on the generational approach to American history developed twenty years ago by William Strauss and Neil Howe. They identified an 80-year cycle in American history, punctuated every 80 years by a great crisis: the American Revolution and the Constitutional period (1774-94), the Civil War and Reconstruction (1861-68 or so), and the Depression and the New Deal (1929-45). I immediately extended the theory to other parts of the world, finding that the western European nations are on approximately the same cycle–perhaps a few years behind. Strauss and Howe predicted a fourth great crisis in American national life sometime between 2005 and 2015, and they were not disappointed.

    Piketty realizes that politics are important to economic change, but I don’t think he realizes exactly how important they are, or how closely the major changes he focuses on grew out of what I call the great Atlantic crises of 1774-1803, 1859-71 or so, and 1929-55 or so. Thus, as he points out, the wars of the French Revolution and Napoleon destroyed enormous amounts of public and private capital, and Britain in particular spent the rest of the 19th century paying off the huge debts the British government had incurred to fight them. The Atlantic Crisis of 1859-71, marked in the United States by the North’s victory in the Civil War, led to the advent of some form of democracy based on more or less universal male suffrage in all the major European countries between 1861 and 1871. Because the European wars of that era were relatively brief, they did not destroy huge amounts of capital, and the rentier class remained in charge. But it was no accident that the rights of labor began to increase and economic growth became slightly more rapid over the next four days. Most significant of all, however, was the era of the two world wars.

    Piketty repeatedly notes that the two world wars destroyed a great deal of capital in Europe–partly, though not mainly, through physical destruction. But they also led to vastly increased state intervention in the economy, and unprecedentedly rapid economic growth. That, I would argue, also reflected a political response to the economic crisis of the 1930s and the 1940s, one that began with Franklin Roosevelt’s New Deal. The Russian Revolution, the Nazi seizure of power, and the Great Depression convinced Roosevelt that American capitalism had to be transformed to benefit the whole population and provide economic security. Indeed, as I commented during our Thursday discussion, the New Dealers seemed to understand Piketty’s key insight, and wanted to favor economic growth at the expense of the growth of capital to develop greater purchasing power. While they were only somewhat successful during the 1930s, their ideas triumphed during the Second World War and in the immediate postwar era, and unprecedented economic growth resulted. The postwar regimes in Western Europe adopted similar policies with similar results.

    The new postwar consensus favoring economic growth at the expense of capital accumulation lasted until the 1979-81 period, when Margaret Thatcher and Ronald Reagan embarked on new paths in the UK and the US. As Piketty shows, other nations copied their example, and capital has once again accumulated rapidly, the state’s role in the economy decreased, and economic growth slowed.

    In my opinion, the fourth great crisis in American national life began with the 2000 Presidential election and accelerated after 9/11. It was further accelerated and spread to Europe by the 2007-8 financial crisis. The Administration of George W. Bush took drastic steps that have reduced the role of the federal government still further, cutting taxes on wealthy Americans in the midst of two long and expensive foreign wars. As a result, President Obama’s response to the Great Recession in 2009 turned out to be relatively modest, and he has not been able to alter the tax code more than marginally, or institute fundamental financial reforms. Capital accumulation as continued, and we are well on our way to another Gilded Age. Similar things are happening in Europe, where the austerity mania has prevented a resurgence of state intervention in the economy, and has kept economic growth at very low levels. We must ask whether the political changes of the last few decades–including the Republican Supreme Court’s abolition of campaign finance restrictions–have given us a new ruling elite dedicated to the accumulation of capital at the expense of rapid economic growth and greater economic equality. If that is the case, only a new great political movement will undo these changes, and it may take many years to build.

    • Chris

      Brilliant! This is a marvelous big and flexible framework, David, and I can’t thank you enough for drawing it out. Maybe there’s another radio gab in all that. Under your influence I’ve bought the fascinating Strauss-Howe finale: The Fourth Turning. I am wary, and weary, of the generation labels, from Silent to Boom to X to Millenial, but there seems to me a lot more in these 80 year tides, especially when you integrate them with Europe and technology and migration and many complex strands. There still seem to be figures in the carpet.

  • Cambridge Forecast

    The ROS show on Piketty was scintillating.

    I want to situate Piketty in a way that’s not tendentious but informative:

    1. Go back to 2004.
    Harvard University Press publishes the book “Capital Resurgent” by two respected French leftists which tries to show how Capital (private and corporate wealth) has come to govern the world.

    2. Go back to 2007. Harvard publishes “Capital Rules” by Rawi Abdelal of the Business School.

    One of the unexpected arguments of this book by Abdelal is that the 1981-1983 failure of the new Mitterand Socialists in France who tried to put a firewall around French wages and hours and society led ironically to various initiatives to liberalize the
    capital account (money on the move) globally and this paradoxically amplified the movement to financial globalization.

    Abdelal mentions that foreign exchange constituted a 15 billion dollars per say market in 1973 and grew by leaps and bounds. A recent Bank for International Settlements paper placed
    foreign exchange transactions worldwide in recent years as upwards of 5.7 trillion dollars a day.
    Thus financialization is now a prime mover in the global system.

    Piketty seems to be a Social Democrat who wants to arrest bad wealth dynamics because the onward progress of these
    dynamics will lead to an extractive politics with rigidified economics and stultified societies. This is to an extent a nuanced triangulation of “Capital Resurgent” and “Capital Rules” just mentioned above.

    There’s another “deep history” dimension along which Piketty may be “perspectivalized” avoiding both mechanical adulation and kneejerk rejection:
    Between the “bookends” of
    Adam Smith and Marx were the friends/antagonists Ricardo and Malthus. In 1817, Ricardo who is an orthodox “economistic” analyst publishes his classic treatise defending the idea of “comparative advantage.” “Homo economicus” and nations do what they’re best at and everybody benefits.(economists will know the current phrase Ricardian Equivalence from Robert Barro of Harvard).

    In 1819, two years later, a French economist called Sismondi—whom Marx bashes as “petit-bourgeois”–published what might be called the inverse of Ricardo, what we might call ”the law of comparative disadvantage” which is in line with Piketty.
    Sismondi is a deeply original voice who sees that laissez-faire, a la the Anglo-Saxon “Adam Smith” fundamentalists might be very damaging to weaker players in society and also that overseas countries like “Hindoostan (Bengal or India) could also be
    destroyed and that economistic reasoning a la Ricardo’s, without socially relevant dimensions, could be extremely destructive in a Piketty mode.

    What Piketty is trying to express could be summarized like this: there can’t be a meaningful economics without society-watching. That means there isn’t something called economics but rather what we might call “power-nomics.”

    Market fundamentalism and“sauve qui peut” principles (“save himself who can”) are not “onward and upward” benign because there can be situations (provable by high schoolalgebra) where wL (total wages) could be parasitized by rK (profits) (where K=capital
    stock or machines and structures, r=rate of return.). This what we mean by upwards redistribution or “Robin Hood in reverse.”

    This would mean that the lower income levels of society would be “colonized” by the upper levels and you would have a democratic American shell containing an “internal Hindoostan.”

    The reason that Piketty is so successful, all accidents and caprice aside, is that he has tapped into the sense of “trading places” (cf Eddie Murphy movie) where Hindoostan booms and America trades places. In other words, a system of “immiserizing” economic growth.

    Lastly, a puzzle. Prof. James Robinson of Harvard (co-author with Prof. Daron Acemoglu of “Why Nations Fail” as discussed on recent ROS show) intensely dislikes Piketty’s book and might be invited to a followup ROS discussion.

    Richard Melson

  • Shelby Calvert Morss

    Thank you, Chris, for organizing such an articulate panel. In the discussion, I think it was David who wondered if the venture capital/private equity contribution was positive. While I am not aware of data actually indicating a negative overall return of that overall business, an article I read a couple of years ago said that the concentration of finance jobs in our economy is now at 27% (not quite but nearly doubling over the past twenty years), but that many finance jobs are no longer playing the role of a utility as they did in the past: i.e., providing the capital used to create jobs and thereby securing its modest, or at least understandable, returns. Instead, there are now more roles tantamount to gambling that certainly create nothing other than income concentration. I have taken to calling this “extractionism,” vs. capitalism. It seems most appropriate for private equity investors (who load debt onto companies in order to pay their transaction fees, lay off American workers, and then often declare bankruptcy some years later having themselves profited handsomely). Extractionism is also nicely exhibited by commodity speculators who corner markets, drive prices up for needed raw materials and never need the hedge that these markets were designed for.

  • Equitable

    Choice of topic, guests with total command of their aspects of it, and profound
    ability of the host to make it all comprehensible and valuable for the
    audience– these are why I became a renewed donor to WBUR today.

  • Cambridge Forecast

    Three perspectival “flashlights” on Piketty:

    I. Piketty and Globalization

    In a piece called “Piketty’s “Capital” and the Rest of the World”, April 28 2014, the Blog http://capitalisthistory.com/ makes a sharp and valid critique of Piketty’s book and methodology:

    “Giant Economies like China and Russia woke up after decades of isolation from global trade and today reconfigured our understanding of Capital. Piketty’s book somehow fails to explore this Global political change and its economic effects. Piketty’s central argument has a gigantic weakness since it is tied to nation-states and cannot be compared or understood in reference to Global Capital flows in today’s multinational economy. Very few references are made to the role played by Multinational Companies and foreign national investments and savings by State Companies in the world. And less is mentioned of global inequalities and the North-South divide that has been increased by the investments done by Developed and Developing Economies in the rest of the world.”

    My own analysis encompasses this global system perspective:

    http://cambridgeforecast.wordpress.com/2013/07/03/cambridge-forecast-group-update-additional-perspective-july-2013/

    II. Keynes’s Phrase “The Euthanasia of the Rentier”

    Keynes says in the last chapter of his 1936 magnum opus, “The General Theory…”: “The outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes.” (see “Concluding Notes”, Chapter 24)

    “I see, therefore, the rentier aspect of capitalism as a transitional phase which will disappear when it has done its work…It will be, moreover, a great advantage of the order of events which I am advocating, that the euthanasia of the rentier, of the functionless investor, will be nothing sudden….” Keynes’s phrase “the euthanasia of the rentier” expresses a Piketty-esque vision: the unblocking of the dynastic wealth impasse.

    III. Hypercapitalism and Zeev Sternhell

    In his masterful book, “Neither Right Nor Left,” Professor Sternhell expresses the exasperation and protest of the Left and Right radicals in the France of the 1930s which are echoic: “To the financier, the oil-tycoon, the pig-breeder who consider themselves the lords of the earth and wish to organize it according to the laws of money, and to submit the people to the politics of the dividend….we proclaim the law of the combatant….
    (Sternhell, “Neither Right Nor Left”, Princeton paperback, 1996, page 96)

    They wanted to erect “an effective barrier against the great international companies, — Standard Oil, Shell –”those enormous industrial and commercial organizations that ceaselessly sought “world hegemony” and for whom all means were valid: financial pressure, political maneuvers, the manipulation of public opinion. (Sternhell book, page 94) Sternhell introduces a word from that pre-WW II era’s crisis: “hypercapitalism” by which was meant runaway gigantism and financialization and “bank-ocracy”.

    It’s potentially instructive to compare that era and our own in the context of the Piketty book.

    Richard Melson

  • sidewalker

    The book people should be talking about is David Harvey’s Seventeen Contradictions and the End of Capitalism. Piketty points out one major flaw in the logic of Capital, while Harvey has been writing about the many crises of capital for decades and in his latest book he succinctly (in only 338 very readable pages) identifies the Foundational, Moving and Dangerous contradictions (in a dialectical, not Aristotelian sense) that constantly threaten capitalism and, ever more today, life on the planet. Unlike Piketty, who seems reluctant to go where his equation points, Harvey is willing to consider possible alternatives now that the foundational and moving contradictions are far less manageable, especially in a political economy dominated by corporate power and the super rich, and that the dangerous contradictions–endless compound growth, capital’s relations to nature on a finite planet, and universal alienation–are tearing the social and ecological fabric of existence. The inside-the-box economists and their fans may want to keep on tinkering with their models while the winds shake apart their foundation. Harvey, on the other hand, has looked straight into face of the storm, and offers, if not a clear way through it, at least a much better assessment of it’s intensity and how we might try and weather it.

    (http://davidharvey.org/2014/03/new-book-seventeen-contradictions-end-capitalism/)

  • Cambridge Forecast

    Final comment on Piketty book: These additional “perspectival flashlights” may be illuminating to ROS listeners and comment readers:

    On Polarization and De-Polarization: Samir Amin (Egyptian) and Johan Galtung (Norwegian) in their writings ponder the rise and evolution of various polarizations over the centuries:

    1. Wealth gap within nations, a la Piketty. See the 1845 novel “Sybil” by Disraeli, subtitled, “on the Two nations.”

    2. Center versus Periphery. West versus Third World. Arthur Lewis, the Nobel economist, tries to explain this process analytically in his books. Kenneth Pomeranz’s “Great Divergence” looks at the peripheralization of China.

    3. Male / female.

    4. Racial and religious and ethnic cleavages. (White/Black as worked out by Gunnar Myrdal’s “American Dilemma” book, Sunni/Shia, Arab versus Kurd, etc). Amy Chua’s “World On Fire” discusses these phenomena in a global framework.

    5. Appalachia-type phenomena. Immiserizng processes.

    6. Secular versus religious

    7. Generational tensions. (Shmuel Eisenstadt and Neil Howe focus on this in their “generations” books)

    One could sum up the current situation globally by saying that Piketty details Point 1 above in tremendous detail but doesn’t see how to fuse this polarization or re-polarization process with the de-polarization represented by Point 2. The reason these processes are so confusing is that if you think of the world as an accordion, part of it is moving outwards (Piketty re-polarization of wealth) and at the same time, the accordion is moving inwards (rise of global middle class partially reversing the so-called “great divergence” between the West and “the Rest.” Piketty fails to see this dual polarize/de-polarize combo process.

    Raghuran Rajan, the Chicago University economist who recently was named head of the central bank of India, wrote a book “Fault Lines” circa 2011. The book argues that the interaction between the Housing Bubble and global imbalances which gave us the Great Recession had at its root the political desire to”fudge over” growing income inequality by sucking in trillions of dollars to boost housing and “reward” or palliate the public on the issue of wealth gaps and income inequality through the back door. Raghuram Rajan’s book adds another dimension to Piketty even beyond the Jacob Hacker “winner takes all” political analysis.

    In other words, Piketty is very enriched when we add 1. the polarization/de-polarization overview (above) and 2. Raghuram Rajan’s perspective in his book “Fault Lines” i.e. political “fudges” are important, fudges that wanted to paper over income and wealth super divergences.

    It would also be instructive to cast back for a second to the Dos Passos classic “USA” trilogy and remember the description of J. P. Morgan as ‘the new boss croupier of Wall Street” (“1919″ volume of novel) as well as the later discussion of Veblen’s “leasure class” in “The Big Money” volume of the Dos Passos trilogy.

    In our time, we oscillate between “two nations” (Disraeli, 1845) and two regions. (West/Third World dynamics) and have the interplay of these two pendular processes.

    Richard Melson