The people’s economist Mark Blyth is a perpetual fan favorite for Open Source listeners. The Brown University professor, who never left behind his working-class Scottish roots, brings a vernacular wisdom and wit to his deep ...
The people’s economist Mark Blyth is a perpetual fan favorite for Open Source listeners. The Brown University professor, who never left behind his working-class Scottish roots, brings a vernacular wisdom and wit to his deep analysis of inequality, austerity, and popular unrest. He also often sees what the rest of us tend to miss. In 2016, he predicted both of the year’s major upset victories: the American election of Donald J. Trump as well the British vote for Brexit. You can listen to our own shell-shocked phone call with Blyth just after the Brexit vote here:
For all the gritty and scandalous detail in both scenes, he’ll keep telling you: it’s a malady in the money system, a global tsunami of populist resentment that’s driving events. And furthermore: at the start of 2018, that populism is still popular. Today, we couldn’t imagine a better guest to help us ring in this topsy-turvy new year.
So what’s the matter with the world today, according to Mark Blyth? He sees at least two major issues: class warfare and intergenerational struggle. The former problem is, in some ways, an old story—one which our party leaders have largely ignored for over the last three decades. The rhetoric of resurgent populism and nationalism are really just responses to deepening inequality in a rapidly globalizing world, as Blyth explains:
Has politics fundamentally changed because of Trump? No. Politics fundamentally changed because the people in charge basically ignored millions of Americans and what was happening to their standard of living their communities what was happening to the life chances and opportunities. [The people in charge] basically lived on the coasts and said to each other, “Gee isn’t everything swell?” And they got a really surprise when about 40 million of them said actually no we don’t like what you’re doing. … meanwhile, our “elites”— whether it’s Tony Blair, whether it’s the Clintons, or whoever has the means thinks “everything’s great, the new global economy! We’re all doing fabulous!” But you’re only doing fabulous because you only talk to each other. You only live in half a dozen places and you all have tons of cash so if you travel internationally everybody’s like you. You’re not a nationalist, you don’t have a national or local identity, you’re rich enough to be a global cosmopolitan and you can enjoy all of the fruits of globalization, but not everybody else can. Put that all that together and it’s self-explanatory.
The second major issue Blyth lays out is the hoarding of wealth by those who grew up and entered the work force during the so-called “golden age” of economic prosperity in America. So, if you’re looking for someone to blame, Blyth says, blame the boomers:
They’re not awful in the sense that they are awful people. They’re just following the incentives mean laid out to them in a free market system to accumulate as much assets as possible and leave it to their kids which means they hate inheritance taxes they want to pay a little marginal rates and they continually vote down things like bonds for schools bonds for subways Boston et cetera et cetera. So they’re acting in a completely understandable way which for them is individually rational but it’s just really crap for everybody else who come in behind them who can’t accumulate assets in the same way precisely because they’ve done that.
If you’re still eager to hear more from Mark, you can search the archives here on our site and find more than a dozen conversations with the scotsman stretching back to 2008. As always, make sure to drop us a note in the comments section below.
This election has been about everything but the economy, stupid (according to John Harwood of The New York Times). Americans are split right down the middle—48 to 48—on which candidate will handle money matters better; ...
This election has been about everything but the economy, stupid (according to John Harwood of The New York Times). Americans are split right down the middle—48 to 48—on which candidate will handle money matters better; instead the wedge issues are tolerance, territory, immigration, constitutional rights, political (and factual) correctness. Why is that?
There are a lot of theories bouncing around this week, and we imagine them all overlooked by John Maynard Keynes, the economic wizard behind the Bretton Woods world order and the boom years between 1930 and 1970. He may have been the last genius of economics who also understood human life, in all its excesses and “animal spirits.” What would his keen mind have brought to a moment with so much ambiguity?
1. We’re on the comeback.
Harwood argued last Thursday that the lukewarm economy gives neither side an advantage: the Obama recovery was neither strong enough to gloat over nor weak enough to attack.
But early this week, a Census survey of economic indicators revealed that in fact, 2015 looked like a historic uptick: median household income rose 5.2%, the biggest jump since 1967. 3.5 million Americans climbed out of poverty; unemployment dropped to 4.9%, half its post-crash high. All three stock indexes have hit record highs, and more than half of Americans say the economy seems “good”—there’s genuine relief in the air.
2. But we’re still a long way from “morning in America.”
Yet 60% of Americans still think the country’s headed in the wrong direction. The median wage may be up this year, but it’s still below its balmy 1999 high. The body is recovering, but the collective psychology is still anxious and depressed. When people look in their wallets—or toward their futures—they feel shortchanged and blame Washington.
Our guest, the protest journalist Sarah Jaffe, calls attention to the people who are really still feeling the squeeze—of anti-Keynesian austerity and casino capitalism, for example—in her new book, Necessary Trouble. It’s a chronicle of people on the march against punitive student debt, foreclosures, and slashed public budgets—and for moving the conversation forward.
3. Growth may be ending.
Heavy-hitting economists like Larry Summers have started to worry aloud about “secular stagnation”: a period in which growth itself may slow—or stop—in our Energizer-bunny economy. What would that mean for the American dream, which depends on rising wages buying more and better goods at cheaper prices?
4. But our minds are changing, too.
A radical shift that the new bipartisan consensus emerging in the candidates: that signing onto NAFTA, letting infrastructure languish, and cutting spending was a mistake—in short, that the government still has a stimulating role to play in the American economy.
To make the case, our good friend Mark Blyth—the Brown University political economist whose magisterial book Austerity: The History of a Dangerous Idealowered the hammer on the false promise of cut budgets. Mike Konczal, one of the big-thinking financial reformers and fellows at the Roosevelt Institute, will make the case that this fraught election might be concealing a new and healthy economic consensus.
Finally, Lord Robert Skidelsky paints us a portrait of Keynes himself, as a cosmopolitan elite who nonetheless empathized with those out of work and on the dole. Keynes is the kind of economist we wish we still had around, offering not only timely economic prescriptions (extend global financial regulation, double down on government infrastructure spending, experiment with basic income plans), but also a model—of a holistic, cross-disciplinary, concerned mind:
The master-economist must possess a rare combination of gifts …. He must be mathematician, historian, statesman, philosopher—in some degree. He must understand symbols and speak in words. He must contemplate the particular, in terms of the general, and touch abstract and concrete in the same flight of thought. He must study the present in the light of the past for the purposes of the future. No part of man’s nature or his institutions must be entirely outside his regard. He must be purposeful and disinterested in a simultaneous mood, as aloof and incorruptible as an artist, yet sometimes as near to earth as a politician.
Before Brexit, of course, there was Grexit: the possibility, one year ago, that Greeks defying the will of E.U. bureaucrats bankers would fall right out of Europe. Yanis Varoufakis was the finance minister of Greece’s radical left government ...
Before Brexit, of course, there was Grexit: the possibility, one year ago, that Greeks defying the will of E.U. bureaucrats bankers would fall right out of Europe.
Yanis Varoufakis was the finance minister of Greece’s radical left government during that heady summer of 2015. He got famous first for his flair: open shirt, shaved head, and motorcycle jacket — but then really famous for playing chicken with his nations’ creditors in Brussels and Berlin.
His line was that Greece could not and should not be forced to take on huge new loans to pay off bad old ones as a price of staying in the European Union. “Fiscal waterboarding” he called it: periods of intense austerity that crippled the Greek economy in exchange for bailout money that went to big banks.
See Varoufakis and Tsipras in Paul Mason‘s film about the Greek crisis:
Greek voters loved him, but his prime minister, Alexis Tsipras,rolled over in the crunch. Varoufakis lost his battle and gave up his ministry, but the third phase of his fame had just begun — as the exceptional political figure who could articulate in principled defeat the brutal logic of finance for finance’s sake. He is more visible than ever in politics this summer as the leading figure of the pan-European democracy movement known as “DiEM 25.”
He’s at it in the US in book form, his title drawn from the inhuman code of Athens’ ancient warfare with Sparta: “the strong do what they want,” meaning today the banks and the rich; “and the weak suffer what they must.” On the cover of his book, he adds a question mark. In the book, Varoufakis argues that the fight for the glorious European project — England’s Brexit vote against union is part of it, he says — between the spirit of democracy and the power of wealth.
This year’s American electoral shakeup sends us looking for deeper economic tremors. Unemployment is down to 4.9%, even as discouraged workers are reentering the market and the average hourly wage rose 7 cents. “More good ...
This year’s American electoral shakeup sends us looking for deeper economic tremors. Unemployment is down to 4.9%, even as discouraged workers are reentering the market and the average hourly wage rose 7 cents. “More good news,” says The Atlantic.
But retail spending and consumer confidence remain low — as if the recovery were less solid than it appears.
Our guest, the journalist and reader Paul Mason, has a thought. He looks at the present Western economy — defined by global trade, bygone unions, knowledge work, and high finance, of Davos, TED Talks, and creative disruption — and finds a glitch, a transitional crisis long in arriving.
Can our global system keep going without a reworking for the Internet age? Or is Mason’s “post-capitalism” an idea whose time has come?
The Tom Frank take
In preparation for this week’s show, we spoke with Thomas Frank, author of Listen, Liberal: Or What Happened to the Party of thePeople.He points to the Clinton era as neoliberalism’s crystallizing moment:
Act One of the freaked-out 2016 campaign for president may be drawing to a close, with Clinton and Trump continually atop polls. So what have we learned? Trump may be the big story, with more ...
Act One of the freaked-out 2016 campaign for president may be drawing to a close, with Clinton and Trump continually atop polls. So what have we learned?
Trump may be the big story, with more than 3.5 million Republicans checking his box. But then Bernie Sanders — whose path to the presidency may be murkier now — has received 2.5 million votes himself.
Seen from afar, that’s nearly 6 million primary protest votes for the unlikeliest of outsider candidates.
There’s next to no chance of an left-right merger, for all sorts of reasons. But when Sanders says working folk have had enough of a “rigged game,” and Trump tells them he’ll help them start winning again, can we hear the resonances?
Dan Ariely is the behavioral economist who charts the gap between what we want and the many ways in which we fail to get it.
Ariely has found that almost all Americans — 93.5% of Democrats and 90.2% of Republicans — want good healthcare, redistribution, and economic fairness, as a matter of deep principle and instinct.
But just as we end up buying checkout-line chocolate in addition to broccoli and milk, something happens on the way to the polling-place. Single-issue fixations, character biases, and media distractions come into play, and we end up voting against what we think really matters.
Ariely cheers the appearance of Sanders as a sign that a misdirected electorate has begun to realize where to apply its energy. Our third-party panel of Pat Buchanan and Ralph Nader cheer on convergences of working people’s interest, in spite of the deep partisan divide.
Meanwhile the leftist novelist Benjamin Kunkel begins to look for utopia, or at least a healthy national psyche, after years of panic, crisis, and self-deception.
We put the big question for our guests: what can be made of the many “change” votes for Sanders and Trump, if neither of those candidates finds his way to the White House? If Americans are angry now, what do they want instead – and do they stand any chance of getting it in the near future?
When it comes to the politics of work in America, the times, they are a-changing. Scott Walker overtook Wisconsin, the one-time capital of organized labor, with a divide-and-conquer strategy — now he’s chasing votes on an anti-union platform. Bernie Sanders, once ...
We’ll begin a three-part series, produced in partnership with The Nation, on the state of work in America today with a little history. It’s a contradictory story of a century marked by incredible change, of a great boom and then a slow bust of labor power that brings the story current and into the presidential campaign of 2016.
In 1900, a railway fireman turned organizer and politician named Eugene Debs — the hero of Bernie Sanders’ youth — looked out at his country and declared: “Promising, indeed, is the outlook for Socialism in the United States… No sane man can be satisfied with the present system.”
When Debs was writing, 10 percent of Americans owned 75% of the wealth. (That number is back up to around 76% and rising now.) The average annual wage was $438 (about $12,000 in today’s dollars), the industrial work week ran almost to 60 hours, and child labor was still a fact on factory floors.
So individual workers and craft unions combined to form groups like the Congress of Industrial Organizations and American Federation of Labor which organized sit-down strikes and boycotts and nonstop political pressure. Debs himself would go on to win almost a million votes for president at the top of a socialist ticket — against war and for workers’ rights. In short, throughout the 20th century, organized labor — and worker protest — was a central feature of American life.
The question, then: what happened — between Roosevelt and Reagan, between the UAW and Uber?
Our guide, the historian Steve Fraser, presents an important version of that history in his new book, The Age of Acquiescence. It’s the story of a resistance movement to the market’s hard edge that collapsed under attacks and also under its own success. It was a populist politics that was caught up and co-opted by the institutional Democratic Party, and recast as consumer freedom — the liberty to buy — that replaced collective political action.
Underneath the story of the collapse of the American labor union there’s a pressing story for today about what work means in this country — then and now — and how our politics makes room, or doesn’t, for the people who wait tables, clean, cook, and take care of children and the elderly. It’s a story full of surprises and twists and lessons for the bosses and the laborers who still power our economy, and always will.
This show begins a three-part series about American work: what it is, what it could be, and where we’re all going together. Let us know what you make of your own work, how you look at labor unions in 2015, and what you’d go on strike for.
The Story So Far
Here’s a timeline of the capsule history of the rise and fall of organized labor in America over almost 150 years:
But Steve Fraser’s history goes beyond the highlights to include more than a few surprising turns — here are five of our favorites.
1. FDR bailed out American capitalism.
Steve Fraser reminds us that Franklin Roosevelt, even as he won the hatred of the plutocrats, conceived of the New Deal as a way to civilize — and save — a capitalist system in what appeared to be its “terminal crisis.” The New Deal brought corrective changes long favored by labor unions, including outlawing child labor, imposing mandatory wage and hour laws and safety regulations, establishing affordable tenement housing and promoting public health.
From this time forward , all criticisms of capitalism from the left, no matter how militantly or defensively expressed, accepted the underlying framework of civilized capitalism installed by the New Deal. If that system failed to deliver the goods, so to speak, or violated the newly established elementary rights of working people, then it should be called to account. But not otherwise.
It was in the post-Deal context that Walter Reuther of the UAW, pioneer of the sit-down strike in the 1930s, signed the 1950 “Treaty of Detroit” with General Motors management: trading the right to strike and bargain over some issues for pensions and other employee benefits.
2. The McCarthy era contaminated our vocabulary.
When asked about the first great defeat of organized labor in America, Fraser doesn’t point to a failed strike or a single piece of legislation. He points to the McCarthy years. It wasn’t just public service but public language that was purged: there would be no more talk of “wage-slaves” or “plutocrats,” even of “capitalism.” A 1955 Army pamphlet on spotting communists advises that communists might use phrases like:
“McCarthyism,” violation of civil rights, racial or religious discrimination, immigration laws, anti-subversive legislation, any legislation concerning labor unions, the military budget, “peace.”
When Walt Disney testified before the House Committee on Un-American Activities, he identified suspected communists among his workers and insisted that the Bolsheviks had “really ought to be smoked out and shown up for what they are, so that all of the good, free causes in this country, all the liberalisms that really are American, can go out without the taint of Communism.”
Disney’s instinct — to keep the unions ‘clean’ — involved what Fraser calls broad “linguistic cleansing.” (There’s a reason it took more than 60 years for a presidential candidate to speak of socialism in America!)
3. We forgot pre-capitalism.
Many have asked why America never experienced successful capital-S Socialism. Fraser’s interested in a different question: how do you account for the rich tradition of American anti-capitalism, from communes to self-sufficiency and rural gift economies?
Fraser says the age of resistance had essentially foreign, pre-modern roots — a perspective that saw quantified, appropriated wage-slavery as heartless: “not as civilization, but as anti-civilization”:
People back then, because they knew other ways of life other than industrial capitalism — they had come from a handicraft backgrounds, or were peasants from southern and eastern Europe: they knew there were other ways of living, not that they glorified those ways, but they knew there were alternatives to the dog-eat-dog world of American capitalism, which offended them and was driving them out of social existence.
Those people were still hunting and fishing. They had their own garden plots or their own workshops or small businesses. They could still imagine alternatives to capitalism. And I think by the mid-twentieth century that recedes into an almost unremembered past. We had left that kind of of life. There are no more roots that take us back there.
Ronald Reagan — whom the union had endorsed over Jimmy Carter — was the first and only president to have served in a union: the Screen Actors Guild. But on the day the PATCO strike began, it was Reagan who stood in the Rose Garden and invoked a precedent set by Calvin Coolidge in 1919, forbidding public-sector strikes against the public safety. He issued an ultimatum, demanding that air-traffic controllers return to the job. Two days later, he followed through: firing the stragglers and banning them from work in federal government.
But Fraser tells a more complicated story: he says that this last great anti-union slide began under Carter, whom he considers “the first neoliberal president.”
In this week’s podcast, you can hear Carter trumpeting his widespread deregulation of sectors of the American economy. And the speechwriter and Democratic Party operative Bob Shrum defected from the Carter campaign when he heard Carter, in private, back off public pledges for black-lung relief, saying of victims “they chose to be miners.” (FWIW: Christopher Lydon, host of Open Source, published a 1977 story in The Atlanticdescribing Carter as a “Rockefeller Republican.”)
5. The unions go exclusive, and the culture goes consumer.
No longer the emancipation organizations of the 1930s, late-phase labor unions turn into what Fraser and others call “private welfare states,” determined to serve their members but all the while representing a shrinking portion of the American workforce. Fraser traces a union retreat beginning in the 1950s, with agreements like the Treaty of Detroit:
The decision was, “We’re not to fight for the welfare state generally, but to fight for it in our industry.” And they won that battle, in the electrical industry and so on: great long-term contracts, cost-of-living escalators, wage increases, vacations — all of that.
This was about private welfare states. And what that meant in the long term was they were cutting themselves off to unorganized workers: that is to say, agricultural workers, black workers in the South… domestic workers, retail and service-sector workers… They [gave] up that much more challenging crusade for the entire working class.
Meanwhile, consumption set in as the new cardinal behavior of the American public — hence the advertising drive to ask the audience to “look for the union label” while out shopping. Together, the two trends represent a turn against the “freedom” felt by a successful striker — of collective strength aimed, successfully, at a common goal. Today, Fraser concludes with a sigh, Americans find ourselves in a more atomized political environment — a “source of acquiescence” to inequality today.
Michael Lewis has become the great teller of modern morality tales around money: from the story of how high finance bubbled up, then popped, in Ireland and Iceland to the story of how a handful of eccentric ...
Michael Lewis has become the great teller of modern morality tales around money: from the story of how high finance bubbled up, then popped, in Ireland and Iceland to the story of how a handful of eccentric thinkers saw a mortgage crisis brewing before it took down the world economy in 2007 and 2008.
In his latest book, Flash Boys: A Wall Street Revolt, Lewis sounds worried. After that last great crash, finance has gone digital. The action has moved off the downtown trading floors and into black-box servers stationed in New Jersey. Wall Street’s work has become so automatic, algorithmic and obscure that ordinary buyers and sellers have less understanding than ever of what’s happening with their savings.
In Flash Boys Michael Lewis focused on the practice of ‘high-frequency trading’ — a game of arbitrage conducted in the course of microseconds, well handled on Radiolab. But in a new afterword he says HFT is just a symptom of a larger problem. The market’s big players have once again abdicated their “clear responsibility to protect investors… and to create a fair marketplace,” meaning that the game may be more dangerous than ever.
So we’re asking the $64,000 question: can we build a more crash-proof, less leveraged, more equitable financial system? Our guest Jeremy Allaire would argue that the technology known as Bitcoin can do just that: bring back transparency and a simple standard of honest exchange. But we’re reminded that the American dream runs on credit — and we may just be too dependent on the boom-and-bust market we’ve made.
Life Under The Cheese-Grater
London — ever more a 21st-century financial capital — is undergoing the building boom. Our guest John Lanchester — novelist-journalist who’s become an obsessive wrestler of big-money topics — can see those buildings from his study window, and he’s (ever so slightly) flustered.
Lanchester says the meaning of those enormous buildings — nicknamed the Gherkin, the Spire, the Walkie-Talkie, the Cheese Grater — comes from their being built without a context, comically dwarfing the Tower Bridge and what’s left of that Dickensian skyline.
Hear our whole conversation with John Lanchester below, and — even more — buy his high-spirited book on How to Speak Money:
The Not-So-Mighty Dollar
On Medium you can read a piece asking what Bitcoin technology might actually accomplish by our newest producer, Pat Tomaino:
Here’s what I learned. Whether you see Bitcoin as a solution depends on who you are and how you define the problem. While the debate continues, here’s a rough scorecard on Bitcoin, what it can do, and for whom.
And there’s a longer piece by Max Larkin about Berkshares, a small but resilient local currency used in Berkshire County, Mass.:
One thinks of a few Berkshire towns — like North Adams, out of Berkshare buying range — as monuments to the power of modern capital: how it all but literally floats in and floats out of a place. Like a kind of slow-motion weather event, money has whipped into Detroit, and Haverhill, Mass., and Gary, Ind. — building up their physical plant and infrastructure so long as that promoted profit — then whipped out and away, leaving something skeletal and defunct behind it.
This is, by the terms of the market, a morally neutral phenomenon. Monopoly capitalism of this kind is indeed like weather, in that one accomplishes nothing by complaining about it.
Capital 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 so — our drift into oligarchy — or the cure — a progressive tax on wealth?
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)?
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 Yorkhave 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.
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 Vox, Capital 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.
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!
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.
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.
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.
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.
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.
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.
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.
7. And top marginal tax rates are still low, especially in the United States.
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.
9. So is the world capital/income ratio
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%!
The Great Gatsby is out as a film again. Go see it! Think about it. Basically you have this tiny elite. How many yachts can they buy, right? They have all the goddam cash. And ...
The Great Gatsby is out as a film again. Go see it! Think about it. Basically you have this tiny elite. How many yachts can they buy, right? They have all the goddam cash. And they don’t need to invest in a recession because they can live off the interest on their investments, so they’re fine. Everybody else is screwed if they don’t have investments. They can’t consume enough because of the wage skew. We’re back to where we were in the Twenties and Thirties.
Political economist Mark Blyth, with Chris Lydon. June, 2013.
Mark Blyth, the butcher’s son from Dundee, is sounding off again in the Scottish pub where we all belong — if you want the news of wealth in our time deciphered, and if you can listen as fast as Mark Blyth talks. The authority of his brash gab is reinforced by the reviews hither and yon of his pithy new treatise from Oxford on the false doctrine of the day: Austerity: The History of a Dangerous Idea. That idea he’s been bashing in our conversations for almost three years now is the doctrine (rampant in official Europe, fashionable in the US) that governments can shrink their way out of debt by slashing their public budgets. Professor Blyth’s counter here is that it’s government’s job to grow the economy and the taxes that will service the debt.
Not the least of what’s new in Mark Blyth’s book is the argument that austerity (not inflation) was the proximate cause of Naziism in Germany in the Thirties — also of Japanese expansionism in the same period that led to World War 2. So there may be a grim warning in his evocation of Scott Fitzgerald’s Gatsby and the Jazz Age.
In the class-divided skies of British Airways nowadays he sees another flash of where we’re going:
I fly a lot on British Airways, which now has four classes in its planes when you go trans-Atlantic. It’s the medieval class structure brought back to life. At the very front of the plane where you turn left instead of right as you come in the nose — first class! — that’s the Aristocrats. They’re the ones you never get to see. Literally, the Lords and Ladies. Then, when you turn right, you go through all these flat lie-down beds. These are the trans-Atlantic Knights of the Financial Nobility. Then you get past that to Premium Economy, which is like the Serfs with Money — you notice that’s a very small section of the plane. And then: one third of the air frame has two thirds of the passengers. Cattle. Cargo. Self-loading. Everybody else. It’s a bit like the societies we’ve built for ourselves. And until the people — not at the bottom but the ones in the middle, the ones whose voices matter the most in politics — say: you know what? I just can’t afford $50,000 a year for whatever Ivy League or non-Ivy League university my kids gets into. How am I going to do this? Let’s say you earned $150,000 a year… That’s a lot of money — it’s three times the median income. You’ve got a chunk of change, but you still have to eat. Let’s say you save $40,000 of that. That’s still not enough for one year of college. And you won’t get financial aid because you’re making $150,000. I know professors who can’t send their kids to these schools. And that’s if they have one. What if they have two? So when that constituency starts to say: hang on a minute; there’s something seriously wrong here. That’s when you’ll begin to see change.
Mark Blyth’s argument here is drawn from life — that is, from his own:
Let’s go back to my experience. My mother died when I was very young, and I was raised by my paternal grand-mother. Basically all we had was her state retirement pension and occasional handouts from my manual-worker father, who was a butcher; and that was usually in the form of in-kind: bits of dead things were dropped off at the house on a Friday. And we made our way through. I went to school with holes in my shoes. So then I got to university and all the rest of it. I did this with all these state-funded ladders of achievement. Schools worked. If you were smart enough you got in. There were grants available. You didn’t have to have complete financial records. You did not have to go miles into debt to do this, and that was that. People say to me: good for you, but someone had to pay for that; basically you’re taking from others and enjoying yourself. Well, my answer is: you gotta be kidding me. Do you know the taxes I pay now? Suppose I hadn’t exactly advantaged myself through the education system. Suppose I’d stayed in Dundee. Well, I probably would have been in the military which is a huge tax loss. Or I’d have been in jail, which is very expensive. Or I’d have been a marginal worker, and I’d have paid very little taxes into the public purse. Instead of which I come over here and as somebody who’s done pretty well I pay a lot more taxes over my lifetime than I ever took out of the welfare expense.
This stuff pays for itself. It creates an equal society. It creates the possibility of mobility. It creates the idea, the ideal and also the belief that it’s possible to succeed. And we are dangerously close to creating a world where those ladders of mobility and that belief — that all-important belief that’s critical to the germination of capitalism — is going away. We have a winner-takes-all society where those who can opt out and those who are left behind do what they must. That is what worries me. That is where the scary politics start.
Mark Blyth in conversation with Chris Lydon. June, 2013.