French economist Thomas Piketty is raising a ruckus

[jeninflorida]

That's why Vette has many posts?

if your broken mental ass would only, get a job

 

[4est_4est_Gump]

Inequality and the Fate of Capitalism
Scott Winship, NRO
MAY 13, 2014

Thomas Piketty topped the Amazon.com charts in America just shy of 150 years from the publication of volume 1 of Das Kapital.

Karl Marx would have scoffed at the possibility that by the turn of the 21st-century capitalism would produce a society in which books and products of every variety would be available to people of any income almost instantaneously. He predicted that wealth would accumulate and accrue to a shrinking number of people over time, to the point where inequality would destroy capitalism. Now comes Piketty, in a weighty tome titled to evoke Kapital, to warn that the “Marxist principle of infinite accumulation” may not have been completely wrong after all. Levels of wealth concentration today and in the future will not lead to socialism. But they could nevertheless become “socially destabilizing,” he argues, as capitalism in the context of slow growth could lead the wealthy to “ultimately devour all of national income.”

The reception that Piketty’s book, Capital in the Twenty-First Century, has received in the U.S. speaks to the irrational obsession with inequality that has gripped the American Left. A recent New York Times analysis showed that the buzz around the book has come mostly from rich liberal states along the Boston-to-Washington corridor. By contrast, Americans as a whole, in recent polling by the Pew Research Center, ranked inequality third in importance out of four fundamental economic issues, way behind unemployment but also significantly behind the national debt (and ahead only of inflation, which has been at fairly typical levels).

To read the fawning reviews by liberal researchers and journalists, one could be forgiven for thinking Piketty had written a book irrefutably demonstrating that inequality really is, in President Obama’s words, “the defining challenge of our time.” But he has done no such thing.

Capital in the Twenty-First Century describes a past and present that concern the Left, and sketches out a beyond-iffy worst-case scenario for the future that makes progressives tremble with some combination of fear and thrill. It is an important book, but missing from its 700 pages is a serious argument about when and why inequality should be worrisome. Piketty’s wealth- and income-concentration trends are problematic as indicators of rising inequality. And the apocalyptic future Piketty paints as “possible” is an almost laughably rough guess that is the social-science equivalent of the direst scenarios envisioned by climate-change doomsayers.

The bulk of Capital in the Twenty-First Century is devoted to describing and explaining very long-run trends in wealth and income. These estimates were mostly developed by Piketty and his colleagues during the past 15 years and represent an invaluable contribution to the economics profession. Piketty’s discussion of these trends is invariably informative and thought-provoking, even if he often worries about them without much in the way of justification. Scattered throughout are wonky-but-accessible diversions into measurement issues and economic controversies related to labor, taxation, and inequality. You will learn a lot from this book.

But you will also be prodded to believe that capitalism may very well be doomed unless we rein in inequality. This is the thesis in service of which Piketty marshals his impressive data. And, of course, it is why the book has been so heartily embraced by the Left.

Before getting to the details of Capital’s argument, let’s address the Marxism issue. Is Piketty some flavor of Marxist? Paul Krugman and others have mocked conservatives for suggesting it. Piketty is pretty far to the left by American standards: In the book, he advocates a tax rate of 80 percent for income above $500,000. He also advised French presidential candidate Ségolène Royale in 2007, when Royale was the nominee of the French Socialist party. One cannot help but sense some nostalgia in his writing for the severe interventions in the economy, including the nationalization of assets, undertaken by a number of countries during and after World War II. In one passage he describes a debate between socialist and “bourgeois” economists. And Piketty really does believe that Marx may prove prescient in predicting that, unchecked, wealth accumulation will be radically disruptive to capitalism. “Where there is no structural growth,” he writes, and “productivity and population growth . . . is zero,”

capitalists do indeed dig their own grave: either they tear each other apart in a desperate attempt to combat the falling rate of profit . . . or they force labor to accept a smaller and smaller share of national income, which ultimately leads to a proletarian revolution and general expropriation. In any event, capital is undermined by its internal contradictions.

Piketty does not share Marxists’ desire to heighten the contradictions of capitalism so that we can arrive at socialism, but he shares Marx’s hubristic suspicion that capitalism is a threat to itself rather than an engine for broadly shared prosperity through mutual exchange. In this, he is firmly of a piece with the American Left.

So, are they right? Piketty argues that in capitalist countries, the return to wealth (r*) tends to exceed the rate of growth (g*) of the economy. In the most basic sense, this improbably famous “r > g” tendency means that the share of national income workers receive as compensation (“labor income”) falls and the share of income going to owners of wealth (“capital income”) rises. Because capital income is less equally distributed than labor income, these dynamics will increase the share of income received by the top 1 percent. Finally, if the wealthy reinvest most of their returns, wealth inequality will also rise. It’s a triple-whammy.

How does Piketty reach these conclusions? He has a simplified model of how the economy works that, if we accept all of the assumptions entailed in it, produces the result mathematically. If the economic growth rate g falls relative to the savings rate, then wealth will become a bigger multiple of national income (savings rates are assumed not to adjust as people accumulate more and more wealth). Unless the return to wealth r falls more than the wealth-to-income ratio rises, then by definition the share of national income going to asset holders rather than workers will rise. And unless inequality in capital income falls enough, income concentration will increase. Lastly, if consumption using the additional income produced by wealth is sufficiently low, then asset holders will reinvest enough of their returns to increase wealth concentration further.

The basic problem in Piketty’s argument lies in those ifs and unlesses and in the infirmity of his assumptions. Piketty thinks economic-growth rates will be low because population growth has declined and because productivity growth will remain sluggish. Of course, others, such as Erik Brynjolfsson and Andrew McAfee, believe we are on the cusp of a productivity breakthrough, which would push the economic-growth rate up and reduce wealth as a multiple of national income (barring a corresponding increase in savings).

Piketty believes that if the wealth-to-income ratio rises, as he suspects it will, then the return to wealth, r, won’t fall enough to offset it, leaving capital’s share of income to grow with wealth. But he thinks this only because trends in the capital share of income in France and the U.K. have historically moved in the same direction as the wealth-to-income trends (albeit not as dramatically). He presents no evidence on returns to wealth in the U.S., and while he nods toward the possibility that r can be affected by political and institutional factors, he seems not to think that they will be enough to lower the return to wealth in the future (unless we heed his policy prescriptions, which involve a global wealth tax).

At the same time as he minimizes growth in g, he seems confident that r will rise. Piketty concedes that the return to wealth may have declined slightly over the long run — and by more after taxes are taken into account. But he nevertheless says we “cannot rule out the possibility” that it will rise.

Agnosticism about an increase in the return to wealth is one thing; slipping such a rise into one’s projections is another. One of Piketty’s charts projects that after capital taxation, r will rise and exceed g, as it has for most of modern history, inspiring Piketty’s fear of exploding wealth concentration. However, a less-celebrated figure projects that the pre-tax r will be lower in the future than today. Piketty’s post-tax projection leads to exploding wealth concentration only because he has assumed that taxes on capital will disappear in the 21st century. Take away that assumption, and economic growth rates will still exceed the after-tax return to wealth through mid-century. (And that does not even take into account the fact, left unmentioned by Piketty in his discussion of these charts, that taxes and transfers will also work to make the disposable incomes of the middle class and poor grow faster than labor income alone. Inequality looks worse when you fail to take into account the ways in which democratic capitalism ameliorates it.)

What about the assumption that inequality of capital income will grow? We lack very good data on trends in capital-income inequality, partly because of difficulties measuring capital gains (the appreciation in the value of tradable assets) and losses. The tax-return data used by Piketty for the ubiquitously cited income-inequality estimates he has developed with Emmanuel Saez count capital gains only if they are reported on tax returns, which generally means only when they are taxable and realized. Excluding non-taxable capital gains means that most wealth accruing to the middle and working class, which comes in the form of home sales or 401(k) and IRA investments, is invisible in Piketty’s data. Moreover, because tax returns count all gains when they are realized and members of the top 1 percent strategically time the sale of their assets after holding them for years, all of the gains accruing over time are counted on a single tax return in years close to asset-market peaks. This increases the share of capital income accrued by the top of the income strata, since it’s concentrated in one year.

The issue of measuring capital gains affects the broader income-concentration estimates used by Piketty. There are other problems with his measurements: Tax filing by dependents with after-school, summer, or college jobs makes the bottom ranks of the income ladder look much poorer than they are. Employer-provided health insurance — a rapidly rising share of worker compensation — is missing from the data. And as with the capital-share-of-income estimates, Piketty’s income-inequality figures do not account for the primary ways in which we address income inequality: through progressive taxation and transfers. Research by Richard Burkhauser and his colleagues suggests that once we account for many of these issues, income concentration may have actually fallen somewhat between the business peaks of 1989 and 2007. To be sure, this result stands in contrast to most research on income concentration, but it is one of only a few papers to grapple seriously with capital gains.

Piketty also presents evidence on wealth-inequality trends. In the U.S., according to estimates from Saez, wealth concentration peaked in 1930 and fell up through the early 1980s. From about 1980 onward, new estimates from a “preliminary” PowerPoint by Saez and Gabriel Zucman, another Piketty colleague, contradict the trend shown by Piketty, with Piketty’s estimates suggesting little change but Zucman and Saez showing a steady rise in wealth inequality. At this point, in other words, we don’t really know whether wealth concentration has grown in the U.S. or not.

Piketty’s fans have ignored criticisms of his data and mocked critiques of his model by saying that in fact the model predictions align with what countries have experienced, so the model has proven its worth. But the model is consistent with the facts only in a very broad sense. Wealth has risen as a multiple of income in some places and times (but it was pretty flat in the U.S. over the 20th century). Capital’s share of income has increased since the 1960s, and capital-income concentration and income concentration generally have probably grown since the 1970s (though by less than Piketty believes).

These quantities often follow each other in the ways predicted by Piketty’s model, but not always, and there are other explanations for the rise in these inequalities. In his research with Zucman, Piketty finds that asset prices have increased faster than consumer prices (a possibility ruled out by his model), and that can account for anywhere from none of the rise in wealth relative to income between 1970 and 2010 to 58 percent of it, depending on the country. My favorite alternative puts cultural factors front and center. The ubiquity of the male-breadwinner ideal in developed nations in the 20th century may have directed overpayments to male workers and away from top earners and capital. As married women began working more after World War II, the rationale for these “economic rents” disappeared, and through a societal recalibration, income may have been redirected upward to the top (as well as sideways to women).

Why should we care about the inequalities Piketty highlights? It is a question that to a remarkable extent goes unanswered by Piketty and by the American Left. Piketty ultimately falls back on folk theories of how economic inequality affects democracy, which are not spelled out with the rigor that characterizes his economic research. Wealth inequality, he fears, will “radically undermine the meritocratic values on which democratic societies are based.” He goes so far as to evoke Haymarket Square and wonders: Will “this kind of violent clash between labor and capital belong to the past, or will it be an integral part of twenty-first-century history?” Piketty even worries about increasing total wealth in a world with stable wealth inequality, because then “the owners of capital . . . potentially control a larger share of total economic resources.” “In any event,” he says of higher wealth levels per se, “the economic, social, and political repercussions of such a change are considerable.”

Inequality mongers are so hung up on income and wealth gaps that they lose sight of how much better off the middle class — and even the poor — are today than in 19th-century Chicago. Piketty describes the dramatic long-term improvement in living standards experienced around the developed world in Chapter Two of Capital, but by Chapter Six’s discussion of the capital–labor split, it has long been forgotten.

Perhaps because Americans live in a world where deprivation is rare by historical standards, research on policy preferences across income groups tends to find similar positions and priorities among rich, middle class, and poor. Workers are not so desperate that they will take bullets to advance their class interests — which increasingly resemble the interests of those at the top.

Inequality also doesn’t appear to have hurt the incomes of the poor or middle class in the way Piketty claims. Income growth in the U.S. began to slow in the 1970s, even for the richest taxpayers, years before the top 1 percent’s share started rising. Piketty’s tax-return data may in fact have misled him into thinking that incomes have actually been in decline over the long run — they indicate a drop of $3,500 for the bottom 90 percent of taxpayers in the U.S. between 1979 and 2012.

That drop stems from the inclusion of retirees in the tax data but the exclusion of their Social Security benefits, from the omission of other government transfers and the failure of the data to account for falling taxes, from the conflation of tax returns with households, from overstatement of inflation, and from a neglect of declining household size. My own estimates from household-survey data indicate that middle-class incomes for a family of four rose by more than $10,000 after taxes and transfers (without even considering the value of health insurance). Among families with a non-elderly head, middle-class incomes rose by nearly $10,000 before taking into account taxes or transfers.

Research is split as to whether rising inequality corresponds to slower economic growth. The only study of which I am aware that looks at whether increases in income concentration hurt middle-class incomes, by sociologist Lane Kenworthy, finds that there is no apparent relationship. Inequality can promote middle-class income growth by enlarging the size of the economy.

As noted by several economists commenting on Capital, because the returns to wealth will remain robust only if productivity growth does, Piketty’s own model suggests that rising inequality will be accompanied by improved living standards for workers. It follows that his proposals to mitigate the increase in inequality would narrow economic gaps but leave real worker compensation lower than it would have become otherwise. This is a tradeoff Piketty and the Left do not recognize, do not acknowledge, or somehow prefer.

What is striking about the preeminence that the American Left and Piketty have given economic inequality is not that they must necessarily be wrong about its social and economic costs. Rather, it is that they are so adamant that they are right despite the absence of strong evidence. There is a parallel here with the climate-change debate, another liberal obsession. As Jim Manzi has written in these pages, it is a fairly well-established fact that human activity is causing global temperatures to rise. But there is little reason to believe that the consequences of global warming will be as dire as Al Gore wants you to think, and using the worst-case scenario as a guide to policy will have great, potentially unnecessary, costs. Buying into the doomsday scenario about inequality presents similar risks.

Thomas Piketty knows that big thinkers before him — Marx, but also Thomas Malthus and David Ricardo — have been proved badly wrong by their predictions of capitalism’s ultimate demise. “In retrospect,” he writes, “it is always easy to make fun of these prophecies of doom.” Piketty has written a landmark work describing the past, but in proving unable to resist predictions about the future, he has exposed himself and his new friends on the American left to just that sort of future ridicule.

 

[RobDownSouth]

How's the job search going, Chief?

Inequality and the Fate of Capitalism
Scott Winship, NRO
MAY 13, 2014

Previously refudiated in post 188. See point 1 (but...but...Marxism!) and point 3 (but...but...Inequality!)

 

[KingOrfeo]

Robert Reich explains why extreme wealth inequality matters and what you can do about it.

Tuesday, May 13, 2014 08:00 AM EDT

Robert Reich: 10 ways to close the inequality gap

The former secretary of labor on American society's single greatest obstacle -- and what we can do about it

Robert Reich, ROBERTREICH.ORG

Some inequality of income and wealth is inevitable, if not necessary. If an economy is to function well, people need incentives to work hard and innovate.

The pertinent question is not whether income and wealth inequality is good or bad. It is at what point do these inequalities become so great as to pose a serious threat to our economy, our ideal of equal opportunity and our democracy.

We are near or have already reached that tipping point. As French economist Thomas Piketty shows beyond doubt in his “Capital in the Twenty-First Century,” we are heading back to levels of inequality not seen since the Gilded Age of the late 19th century. The dysfunctions of our economy and politics are not self-correcting when it comes to inequality.

But a return to the Gilded Age is not inevitable. It is incumbent on us to dedicate ourselves to reversing this diabolical trend. But in order to reform the system, we need a political movement for shared prosperity.

Herewith a short summary of what has happened, how it threatens the foundations of our society, why it has happened, and what we must do to reverse it.

What has Happened

The data on widening inequality are remarkably and disturbingly clear. The Congressional Budget Office has found that between 1979 and 2007, the onset of the Great Recession, the gap in income—after federal taxes and transfer payments—more than tripled between the top 1 percent of the population and everyone else. The after-tax, after-transfer income of the top 1 percent increased by 275 percent, while it increased less than 40 percent for the middle three quintiles of the population and only 18 percent for the bottom quintile.

The gap has continued to widen in the recovery. According to the Census Bureau, median family and median household incomes have been falling, adjusted for inflation; while according to the data gathered by my colleague Emmanuel Saez, the income of the wealthiest 1 percent has soared by 31 percent. In fact, Saez has calculated that 95 percent of all economic gains since the recovery began have gone to the top 1 percent.

Wealth has become even more concentrated than income. An April 2013 Pew Research Center report found that from 2009 to 2011, “the mean net worth of households in the upper 7 percent of wealth distribution rose by an estimated 28 percent, while the mean net worth of households in the lower 93 percent dropped by 4 percent.”

Why It Threatens Our Society

This trend is now threatening the three foundation stones of our society: our economy, our ideal of equal opportunity and our democracy.

The economy. In the United States, consumer spending accounts for approximately 70 percent of economic activity. If consumers don’t have adequate purchasing power, businesses have no incentive to expand or hire additional workers. Because the rich spend a smaller proportion of their incomes than the middle class and the poor, it stands to reason that as a larger and larger share of the nation’s total income goes to the top, consumer demand is dampened. If the middle class is forced to borrow in order to maintain its standard of living, that dampening may come suddenly—when debt bubbles burst.

Consider that the two peak years of inequality over the past century—when the top 1 percent garnered more than 23 percent of total income—were 1928 and 2007. Each of these periods was preceded by substantial increases in borrowing, which ended notoriously in the Great Crash of 1929 and the near-meltdown of 2008.

The anemic recovery we are now experiencing is directly related to the decline in median household incomes after 2009, coupled with the inability or unwillingness of consumers to take on additional debt and of banks to finance that debt—wisely, given the damage wrought by the bursting debt bubble. We cannot have a growing economy without a growing and buoyant middle class. We cannot have a growing middle class if almost all of the economic gains go to the top 1 percent.

Equal opportunity. Widening inequality also challenges the nation’s core ideal of equal opportunity, because it hampers upward mobility. High inequality correlates with low upward mobility. Studies are not conclusive because the speed of upward mobility is difficult to measure.

But even under the unrealistic assumption that its velocity is no different today than it was thirty years ago—that someone born into a poor or lower-middle-class family today can move upward at the same rate as three decades ago—widening inequality still hampers upward mobility. That’s simply because the ladder is far longer now. The distance between its bottom and top rungs, and between every rung along the way, is far greater. Anyone ascending it at the same speed as before will necessarily make less progress upward.

In addition, when the middle class is in decline and median household incomes are dropping, there are fewer possibilities for upward mobility. A stressed middle class is also less willing to share the ladder of opportunity with those below it. For this reason, the issue of widening inequality cannot be separated from the problems of poverty and diminishing opportunities for those near the bottom. They are one and the same.

Democracy. The connection between widening inequality and the undermining of democracy has long been understood. As former Supreme Court Justice Louis Brandeis is famously alleged to have said in the early years of the last century, an era when robber barons dumped sacks of money on legislators’ desks, “We may have a democracy, or we may have great wealth concentrated in the hands of a few, but we cannot have both.”

As income and wealth flow upward, political power follows. Money flowing to political campaigns, lobbyists, think tanks, “expert” witnesses and media campaigns buys disproportionate influence. With all that money, no legislative bulwark can be high enough or strong enough to protect the democratic process.

The threat to our democracy also comes from the polarization that accompanies high levels of inequality. Partisanship—measured by some political scientists as the distance between median Republican and Democratic roll-call votes on key economic issues—almost directly tracks with the level of inequality. It reached high levels in the first decades of the twentieth century when inequality soared, and has reached similar levels in recent years.

When large numbers of Americans are working harder than ever but getting nowhere, and see most of the economic gains going to a small group at the top, they suspect the game is rigged. Some of these people can be persuaded that the culprit is big government; others, that the blame falls on the wealthy and big corporations. The result is fierce partisanship, fueled by anti-establishment populism on both the right and the left of the political spectrum.

Why It Has Happened

Between the end of World War II and the early 1970s, the median wage grew in tandem with productivity. Both roughly doubled in those years, adjusted for inflation. But after the 1970s, productivity continued to rise at roughly the same pace as before, while wages began to flatten. In part, this was due to the twin forces of globalization and labor-replacing technologies that began to hit the American workforce like strong winds—accelerating into massive storms in the 1980s and ’90s, and hurricanes since then.

Containers, satellite communication technologies, and cargo ships and planes radically reduced the cost of producing goods anywhere around the globe, thereby eliminating many manufacturing jobs or putting downward pressure on other wages. Automation, followed by computers, software, robotics, computer-controlled machine tools and widespread digitization, further eroded jobs and wages. These forces simultaneously undermined organized labor. Unionized companies faced increasing competitive pressures to outsource, automate or move to nonunion states.

These forces didn’t erode all incomes, however. In fact, they added to the value of complex work done by those who were well educated, well connected and fortunate enough to have chosen the right professions. Those lucky few who were perceived to be the most valuable saw their pay skyrocket.

But that’s only part of the story. Instead of responding to these gale-force winds with policies designed to upgrade the skills of Americans, modernize our infrastructure, strengthen our safety net and adapt the workforce—and pay for much of this with higher taxes on the wealthy—we did the reverse. We began disinvesting in education, job training and infrastructure. We began shredding our safety net. We made it harder for many Americans to join unions. (The decline in unionization directly correlates with the decline of the portion of income going to the middle class.) And we reduced taxes on the wealthy.

We also deregulated. Financial deregulation in particular made finance the most lucrative industry in America, as it had been in the 1920s. Here again, the parallels between the 1920s and recent years are striking, reflecting the same pattern of inequality.

Other advanced economies have faced the same gale-force winds but have not suffered the same inequalities as we have because they have helped their workforces adapt to the new economic realities—leaving the United States the most unequal of all advanced nations by far.

What We Must Do

There is no single solution for reversing widening inequality. Thomas Piketty’s monumental book “Capital in the Twenty-First Century” paints a troubling picture of societies dominated by a comparative few, whose cumulative wealth and unearned income overshadow the majority who rely on jobs and earned income. But our future is not set in stone, and Piketty’s description of past and current trends need not determine our path in the future. Here are ten initiatives that could reverse the trends described above:

1) Make work pay. The fastest-growing categories of work are retail, restaurant (including fast food), hospital (especially orderlies and staff), hotel, childcare and eldercare. But these jobs tend to pay very little. A first step toward making work pay is to raise the federal minimum wage to $15 an hour, pegging it to inflation; abolish the tipped minimum wage; and expand the Earned Income Tax Credit. No American who works full time should be in poverty.

2) Unionize low-wage workers. The rise and fall of the American middle class correlates almost exactly with the rise and fall of private-sector unions, because unions gave the middle class the bargaining power it needed to secure a fair share of the gains from economic growth. We need to reinvigorate unions, beginning with low-wage service occupations that are sheltered from global competition and from labor-replacing technologies. Lower-wage Americans deserve more bargaining power.

3) Invest in education. This investment should extend from early childhood through world-class primary and secondary schools, affordable public higher education, good technical education and lifelong learning. Education should not be thought of as a private investment; it is a public good that helps both individuals and the economy. Yet for too many Americans, high-quality education is unaffordable and unattainable. Every American should have an equal opportunity to make the most of herself or himself. High-quality education should be freely available to all, starting at the age of 3 and extending through four years of university or technical education.

4) Invest in infrastructure. Many working Americans—especially those on the lower rungs of the income ladder—are hobbled by an obsolete infrastructure that generates long commutes to work, excessively high home and rental prices, inadequate Internet access, insufficient power and water sources, and unnecessary environmental degradation. Every American should have access to an infrastructure suitable to the richest nation in the world.

5) Pay for these investments with higher taxes on the wealthy. Between the end of World War II and 1981 (when the wealthiest were getting paid a far lower share of total national income), the highest marginal federal income tax rate never fell below 70 percent, and the effective rate (including tax deductions and credits) hovered around 50 percent. But with Ronald Reagan’s tax cut of 1981, followed by George W. Bush’s tax cuts of 2001 and 2003, the taxes on top incomes were slashed, and tax loopholes favoring the wealthy were widened. The implicit promise—sometimes made explicit—was that the benefits from such cuts would trickle down to the broad middle class and even to the poor. As I’ve shown, however, nothing trickled down. At a time in American history when the after-tax incomes of the wealthy continue to soar, while median household incomes are falling, and when we must invest far more in education and infrastructure, it seems appropriate to raise the top marginal tax rate and close tax loopholes that disproportionately favor the wealthy.

6) Make the payroll tax progressive. Payroll taxes account for 40 percent of government revenues, yet they are not nearly as progressive as income taxes. One way to make the payroll tax more progressive would be to exempt the first $15,000 of wages and make up the difference by removing the cap on the portion of income subject to Social Security payroll taxes.

7) Raise the estate tax and eliminate the “stepped-up basis” for determining capital gains at death. As Piketty warns, the United States, like other rich nations, could be moving toward an oligarchy of inherited wealth and away from a meritocracy based on labor income. The most direct way to reduce the dominance of inherited wealth is to raise the estate tax by triggering it at $1 million of wealth per person rather than its current $5.34 million (and thereafter peg those levels to inflation). We should also eliminate the “stepped-up basis” rule that lets heirs avoid capital gains taxes on the appreciation of assets that occurred before the death of their benefactors.

8) Constrain Wall Street. The financial sector has added to the burdens of the middle class and the poor through excesses that were the proximate cause of an economic crisis in 2008, similar to the crisis of 1929. Even though capital requirements have been tightened and oversight strengthened, the biggest banks are still too big to fail, jail or curtail—and therefore capable of generating another crisis. The Glass-Steagall Act, which separated commercial- and investment-banking functions, should be resurrected in full, and the size of the nation’s biggest banks should be capped.

9) Give all Americans a share in future economic gains. The richest 10 percent of Americans own roughly 80 percent of the value of the nation’s capital stock; the richest 1 percent own about 35 percent. As the returns to capital continue to outpace the returns to labor, this allocation of ownership further aggravates inequality. Ownership should be broadened through a plan that would give every newborn American an “opportunity share” worth, say, $5,000 in a diversified index of stocks and bonds—which, compounded over time, would be worth considerably more. The share could be cashed in gradually starting at the age of 18.

10) Get big money out of politics. Last, but certainly not least, we must limit the political influence of the great accumulations of wealth that are threatening our democracy and drowning out the voices of average Americans. The Supreme Court’s 2010 Citizens United decision must be reversed—either by the Court itself, or by constitutional amendment. In the meantime, we must move toward the public financing of elections—for example, with the federal government giving presidential candidates, as well as House and Senate candidates in general elections, $2 for every $1 raised from small donors.

Building a Movement

It’s doubtful that these and other measures designed to reverse widening inequality will be enacted anytime soon. Having served in Washington, I know how difficult it is to get anything done unless the broad public understands what’s at stake and actively pushes for reform.

That’s why we need a movement for shared prosperity—a movement on a scale similar to the Progressive movement at the turn of the last century, which fueled the first progressive income tax and antitrust laws; the suffrage movement, which won women the vote; the labor movement, which helped animate the New Deal and fueled the great prosperity of the first three decades after World War II; the civil rights movement, which achieved the landmark Civil Rights and Voting Rights acts; and the environmental movement, which spawned the National Environmental Policy Act and other critical legislation.

Time and again, when the situation demands it, America has saved capitalism from its own excesses. We put ideology aside and do what’s necessary. No other nation is as fundamentally pragmatic. We will reverse the trend toward widening inequality eventually. We have no choice. But we must organize and mobilize in order that it be done.

 

[4est_4est_Gump]

Yes. Let's let the smart people of government fix all of our problems.

"The more communal enterprise extends, the more attention is drawn to the bad business results of nationalized and municipalized undertakings. It is impossible to miss the cause of the difficulty: a child could see where something was lacking. So that it cannot be said that this problem has not been tackled. But the way in which it has been tackled has been deplorably inadequate. Its organic connection with the essential nature of socialist enterprise has been regarded as merely a question of better selection of persons. It has not been realized that even exceptionally gifted men of high character cannot solve the problems created by socialist control of industry."
Ludwig Heinrich Elder von Mises

 

[4est_4est_Gump]

History is repeating itself as farce. Fresh off the roaring success of Thomas Piketty’s Capital in the Twenty-First Century comes David Harvey’s Seventeen Contradictions and the End of Capitalism, which Chronicle of Higher Education senior writer Scott Carlson describes as a “distillation of Harvey’s 40-year study of Karl Marx” and “a bid to change the conversation about what’s not working and what’s possible—especially when many have consigned Marx to history’s dustbin.”

Marx, however, was never actually consigned to history’s dustbin. That was the fate of the unanimously murderous regimes that put his ideas into practice — and even that job is only partly completed. Venezuelans are still getting starved and beaten to a pulp in the name of 21st-century socialism, a movement that the late Hugo Chávez managed to export to Bolivia and Ecuador. Erstwhile Sandinista Daniel Ortega has been back fighting inequality in Nicaragua since 2007, mainly by keeping incomes flat over a period when incomes in comparable Latin American countries have grown by about half. For nearly 70 years, the Kim family’s juche spirit has been transforming North Korea into a bronze-age dynasty that has nuclear weapons but no consumer electricity.

When Western intellectuals herald the return of Marx, they’re not talking about these real-world examples of human suffering but about what really matters: cocktail-party discussions among Western intellectuals. There, Marx lite and Marx hardcore are doing great.

http://www.nationalreview.com/node/378069/print

 

[4est_4est_Gump]

This may seem like a trend, but Marx has never vanished from the academy. The stubborn refusal of applied Marxism to produce anything but mass murder merely led to efforts to reframe the philosophy. Through much of the 20th century, Marx was clearly the greatest economist of all time, but his ideas had never been properly put into practice. Then he might have dwindled as an economist but was indisputably an important historian. When that didn’​t pan out, Gramscian “cultural Marxism” allowed overwhelmed graduate students to avoid economics and history altogether in order to focus on Batman. When all else failed (and with Marxism, it always fails), Marx lived on through the claim that while his ideas may have faded, he was still an important figure of literature — a particular howler to anybody familiar with his clotted, vituperative, headache-inducing prose.

What has changed is not in the sphere of ideas — where Marx truly has nothing new to say — but in the sphere of government. The Democrats have decided that “inequality” is going to be their big campaign idea in November, and they may be on to something. Nearly five years after the putative end of the recession, 83 percent of Americans rate the country’​s economic conditions as “only fair” or “poor,” according to the most recent Pew Center for People & the Press survey; and 73 percent say conditions will be “the same” or “worse” in a year. The difference between respondents who think Republican policies would do more to strengthen the economy (43 percent) and those who prefer President Obama’s policies (39 percent) is not great. Despite wall-to-wall media claims of an economic recovery, two-thirds do not believe the economy is recovering fast enough and more than a fourth say it’s not recovering at all. The Obama jobs recovery is the worst since World War II, and probably the worst in the history of the United States. (Following the two severe recessions that made up the Great Depression, unemployment reduction was far more rapid than it has been since 2009; and while the economic history of the 19th century is largely ignored or fictionalized by modern macroeconomists, the recessions or “panics” of that era were typically sharp, deep, and followed by robust employment growth.) If ever there was a time to reintroduce Marx’s crabbed vocabulary about late capitalism and the inevitability of history, it’s now.

Tim Cavanaugh

 

[4est_4est_Gump]

This is the point in the discussion where the Marxists object that the master’s ideas were never correctly implemented but hijacked by people they admit (usually under great duress) were knaves. But you can tell a lot about a system by the people it attracts, and it’s not a coincidence that Marxism’s most ambitious exponents were monsters like Stalin, Mao, and Nicolae Ceaușescu. You could just as easily say Carl Schmitt was just unlucky that the Nazis took a shine to his ideas. When the flower is this horrible, what’s the likelihood that there was nothing wrong with the seed?

Defining the Soviet and Maoist states as failed experiments in social justice misses the point. They were attempts to put the essential violence of Marxism in motion, and they succeeded on a spectacular scale. Violence is not incidental to Marx. It’s there throughout his work, between attacks on “vampire capital” and “Jewish hucksterism.” Some samples:

“The only antidote to mental suffering is physical pain.”

“The Communists disdain to conceal their views and aims. They openly declare that their ends can be attained only by the forcible overthrow of all existing social conditions.”

“The meaning of peace is the absence of opposition to socialism.”

“There is only one way in which the murderous death agonies of the old society and the bloody birth throes of the new society can be shortened, simplified and concentrated, and that way is revolutionary terror.”

“No great movement has ever been inaugurated without bloodshed.”

The new Marxists may object that they are not advocating violence, merely calling for a necessary counterbalance to the tyranny of mass murderers like Jeff Bezos and Mark Zuckerberg. But — on the very slim chance that they’re actually reading the original texts of the Grundrisse and On the Jewish Question for themselves — they’re like the teenagers who play around with an old book of incantations during an all-night party at a spooky house. The text is an indecipherable mass of meaningless hocus pocus, but it can still unleash dark forces beyond their control.

In his book The Anti-Capitalist Mentality (an un-Marxist work not only for its ideas but for coming in at a breezy and readable 70 pages), Ludwig von Mises ably describes the campus “anti-anticommunists” who aim for a “communism without those inherent and necessary features that are still unpalatable to Americans” and make an “illusory distinction” between communism and socialism.

“They think that they have proved their case by employing such aliases as planning or the welfare state,” Mises writes. “They pretend to reject the revolutionary and dictatorial aspirations of the ‘Reds’ and at the same time they praise in books and magazines, in schools and universities, Karl Marx, the champion of the communist revolution and the dictatorship of the proletariat, as one of the greatest economists, philosophers and sociologists and as the eminent benefactor and liberator of mankind. They want us to believe that untotalitarian totalitarianism, a kind of triangular square, is the patent medicine for all ills.”

This is worth keeping in mind when Piketty distances himself from anti-capitalists and advises his followers to “read the history books.” In one sense it’s refreshing to have Harvey and the new Marxists put aside the euphemisms and say what they’re really about. But moderately bad ideas eventually end up in the same place as overtly bad ideas, and it’s alarming to see how popular these bad ideas remain a generation after the lesson of Marxism seemed to have been learned for good. Even the mixed, diluted, politically polluted version of a free market we have in America is so much better than all the alternatives that it’s easy to forget something: The “reforms” the equalitists have in mind have been tried in the past, and the result was always general immiseration. Capitalism, not Marxism, is the idea that has never been put into practice.

Tim Cavanaugh

 

[RobDownSouth]

Thomas Piketty certainly seems to have put the Chief's bowels in a near-constant state of uproar.

 

[4est_4est_Gump]

My biggest problem is that Piketty completely whiffs on “time preference,” the basic concept that explains economic action. Let us see what God says in Human Action. Writes Ludwig von Mises,

Acting man distinguishes the time before the satisfaction of a want is attained... Satisfaction of a want in the nearer future is, other things being equal, preferred to that in the farther distant future. Present goods are more valuable than future goods.

And so on, for pages.

But Piketty tells us (p.359) that time preference is merely a “theory”, “somewhat tautological”, “simplistic and systematic”. Oh really? Then how come that there has been actual empirical confirmation of time preference, starting with the “Stanford Marshmallow Experiment?” (There's even a YouTube video). In Nicholas Wade's controversial (as in liberals don't like it) A Troublesome Inheritance we naturally get into time preference because the notable characteristic of modern capitalism is a widespread ability to defer gratification. “Children have a very high time preference which falls as they grow older and develop more self-control.” And so on. Interest rates are the way in which time preference enters into the working world.

That's not all. Piketty also wants us to believe, given the high rate of return on capital achieved by billionaires and university endowments, that wealth inequality, or “divergence,” will grow without limit. No it won't! To think that is to misunderstand the whole nature of capitalism!

Under capitalism you can only increase your wealth if you are in the middle of delivering a must-have new innovation to the consumers. Then, after a while, you are so over. Bill Gates makes a fortune from Microsoft Windows, and then the world moves on to Amazon and Apple and Google. Carlos Slim is now the world's richest man, as Mexico's one and only cell-phone guy. But pretty soon the Mexicans will finally get around to relieving Carlos of his monopoly and we won't hear about Carlos Slim any more.

Then there's the Berkshire Hathaway problem. Back when Warren Buffett was just an anonymous stock-picker in Obama, Nebraska, he could easily beat the market and grow Berkshire Hathaway into a behemoth. But when BRK is capitalized at $300 billion? Warren's up 170% since the market bottom in 2009, the same as the S&P 500. The NASDAQ is up 260%.

What's to be done? Get the workers into the wealth game? Shake up the dysfunctional behemoths of the welfare state? Oh no, nothing like that because the “social state” is such a wonderful thing with its intergenerational solidarity. It needs modernizing, of course, for “it would be good to improve the organization and operation of the public sector.” We could certainly tinker with education to make sure that more poor kids get to university. So what about pensions? Why not convert pay-as-you-go pensions into a real investment programs and build wealth for the workers. But Piketty rejects this idea on the lame and false excuse that the generation in the middle wouldn't get any pensions.

Back in 1895 socialists Sidney and Beatrice Webb founded the London School of Economics to generate socialist ideas, influence politicians, and build a socialist society. More than a century later the politicians created the Paris School of Economics in 2006 out of the other grandes ecoles. They put bright young thing Thomas Piketty in charge and he now obligingly comes up with the brilliant idea that the government needs more money so politicians can control those crazed capitalists. Who could have seen that coming?

Here's a guy telling us how to fix capitalism and he doesn't know the first thing about it.

Christopher Chantrill
http://americanthinker.com/assets/3.../05/piketty_doesnt_understand_capitalism.html

 

[trysail]

Robert B. Reich is a self-promoting demagogue who likes the sound of his own voice.

He has never done anything useful in his life. The clown is a classic social parasite. He produces noise. That's it. That's all he does. That's all he's ever done.


​

 

[RobDownSouth]

Thomas Piketty has certainly gored a number of Wingnut oxen and slaughtered their sacred cows.
:nods:


"Ludwig Von Mises was an incompetent hack economist" - Abraham Lincoln

 

[4est_4est_Gump]

It is not too early to ask how the present US business cycle expansion, already more than five years old, will end. The history of the last great US monetary experiment in “quantitative easing” (QE) from 1934-7 suggests that the end could be violent. Autumn 1937 featured one of the largest New York stock market crashes ever accompanied by the descent of the US economy into the notorious Roosevelt Recession. Should we take comfort from the fact that Friedman and Schwartz, in their epic monetary history, claim to have discovered the policy error by the Federal Reserve which was responsible for the 1937 denouement. And that today’s Fed officials are adamant about having learned their lesson? The short answer is no.

Brendan Brown
http://mises.org/daily/6756/Echoes-of-1937-in-the-Current-Economic-Cycle

What are the parallels with the present? We have had some similarly ambiguous Federal Reserve policy actions. This time long-maturity T-bond yields have climbed more sharply from their low point (early 2013) but the announced curtailment of QE has so far been less striking. A more important parallel is the amount of irrational exuberance now evident in a range of asset classes (high-yield bonds, European periphery sovereign debts, real estate in various global hotspots, German equities, US financial and technology sector equities, private equity). A failure of the US economy to take off into a higher flight path beyond the winter stall and spring re-bound, disappointment regarding a German economic mini-miracle, a Chinese “hard landing,” geo-political storms, and a host of idiosyncratic factors which could setoff waves of profit-taking, are all possible triggers to asset price deflation and an early end to this cycle.

 

[RobDownSouth]

Hey, chief? Are ya gonna go all "Karen" on us and go on record predictin' Dow 5999 on us?

Just kidding, we all know you lack the guts to make a prediction, you'll just hide behind the words of others so you'll have "plausible deniability".

"4est Gump is both nutless and gutless" - Abraham Lincoln

 

[KingOrfeo]

Piketty paranoia: Why conservatives are suddenly terrified of revolution.

Friday, May 23, 2014 07:30 AM EDT

Piketty paranoia: Why conservatives are suddenly terrified of revolution

The signs are there. As wealth becomes more concentrated, American society is growing increasingly antagonistic

Lynn Stuart Parramore, AlterNet

On the June cover of the conservative magazine American Spectator, a vision arises from the collective unconscious of the rich. Angry citizens look on as a monocled fatcat is led to a blood-soaked guillotine, calling up the memory of the Reign of Terror during the French Revolution, when tens of thousands were executed, many by what came to be known as the “National Razor.” The caption reads, “The New Class Warfare: Thomas Piketty’s intellectual cover for confiscation.” One member of the mob can be seen holding up a bloody copy of the French economist’s recent book, Capital in the 21st Century.

Confiscation, of course, can only mean one thing. Off with their heads! In reality, the most “revolutionary” thing Professor Piketty calls for in his best-sellling tome is a wealth tax, but our rich are very sensitive.

In his article, however, James Pierson warns that a revolution is afoot, and that the 99 percent is going to try to punish the rich. The ungrateful horde is angry, he says, when they really should be celebrating their marvelous good fortune and thanking their betters:

“From one point of view, the contemporary era has been a ‘gilded age’ of regression and reaction due to rising inequality and increasing concentrations of wealth. But from another it can be seen as a ‘golden age’ of capitalism marked by fabulous innovations, globalizing markets, the absence of major wars, rising living standards, low inflation and interest rates, and a thirty-year bull market in stocks, bonds, and real estate.”

Yes, things do indeed look very different to the haves and the have-nots. But some of the haves are willing to say what’s actually going down — and it’s a war of their own making. Warren Buffett made this very clear in his declaration: “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.”

Warren is quite correct: It is the rich who have made war against the 99 percent, not the other way around. They have dumped the tax burden onto the rest of us. They have shredded our social safety net and attacked our retirements. In their insatiable greed, they refuse even to consider raising the minimum wage for people who toil all day and can’t earn enough to feed their children. And they do everything in their power to block as many people from the polls as possible who might protest these conditions, while crushing the unions and any other countervailing forces that could fight to improve them.

The goal of this vicious war is to control all of the wealth and the government not just in the U.S., but the rest of the world, too, and to make sure the people are kept in a state of fear.

But the greedy rich are experts in cloaking their aggression. Like steel tycoon Andrew Carnegie, who successfully transitioned from robber baron to philanthropist, David H. Koch and his conservative colleagues put on the mask of philanthropy to hide their war dance. Or they project their aggression onto ordinary people who are simply trying to feed their families, pay the bills, and keep the roof over their heads. Many of the wealthy liberals play a less crass version of the game: they talk about inequality only to alleviate their conscience while secretly — or not so secretly — protecting their turf (witness: NY Governor Andrew Cuomo and his mission to reduce taxes on his wealthy benefactors).

It is rich Americans, in particular, financial capitalists, who have made the war-like values of self interest and ruthlessness their code of ethics through their championing of an unregulated market. When we hear the term, “It’s just business,” we know what it means. Somebody has legally gouged us.

People in America are under attack daily. The greedy rich know it, because they are the ones doing the attacking. They know that they have made collateral damage out of hungry children, hard-working parents, grandmother and grandfathers. And somewhere behind the gates of their private communities and the roped-off areas — their private schools, private hospitals, private modes of transport—they fear that the aggression may one day be turned back. They wonder how far they can erode our quality of life before something might just snap.

The growing concentration of wealth is creating an increasingly antagonistic society, which is why we have seen the buildup of the police state and the rise of unregulated markets appear in tandem. This is why the prisons are bursting at the seams with the poor.

The oligarchs hope that Americans will be so tired, so pumped full of Xanax, so terrified, that they will remain in their places. They hope that we will watch the rich cavorting on reality shows and set ourselves to climbing the economic ladder instead of seeing that the rungs have been kicked away.

Of course, there is a very easy way for the rich to remain rich and alleviate their nightmares of the guillotine. That is simply to allow their unearned wealth to be taxed at a reasonable rate. Voila!No more fear of angry mobs.

Or they can wait for some less pleasant alternative, like a revolution. This theme, which once timidly hid behind the scenes, has lately burst onto cultural center stage. The cover of the current issue of Lapham’s Quarterly, dedicated to the topic, “Revolutions,” features five crossed swords. Its contents outline various periods in history when ordinary folks had had enough, such as “The People’s Patience is Not Endless,” a pamphlet issued by the Command of Umkhonto we Sizwe, the armed wing of the African National Congress, in December 1961.

 

[RobDownSouth]

Small wonder AJ and the gang have been frothin' at the mouth even more than normal over Picketty.

 

[KingOrfeo]

Small wonder AJ and the gang have been frothin' at the mouth even more than normal over Picketty.

Somehow I don't think they're rich enough that they need fear the hypothetical guillotine or firing-wall.

Of course, we could always treat them as Enemies of the People, just on general principles . . .

 

[4est_4est_Gump]

...

But, according to a Financial Times investigation, the rock-star French economist appears to have got his sums wrong.

The data underpinning Professor Piketty’s 577-page tome, which has dominated best-seller lists in recent weeks, contain a series of errors that skew his findings. The FT found mistakes and unexplained entries in his spreadsheets, similar to those which last year undermined the work on public debt and growth of Carmen Reinhart and Kenneth Rogoff.

The central theme of Prof Piketty’s work is that wealth inequalities are heading back up to levels last seen before the first world war. The investigation undercuts this claim, indicating there is little evidence in Prof Piketty’s original sources to bear out the thesis that an increasing share of total wealth is held by the richest few.

Prof Piketty, 43, provides detailed sourcing for his estimates of wealth inequality in Europe and the US over the past 200 years. In his spreadsheets, however, there are transcription errors from the original sources and incorrect formulas. It also appears that some of the data are cherry-picked or constructed without an original source.

http://www.ft.com/intl/cms/s/2/e1f343ca-e281-11e3-89fd-00144feabdc0.html#axzz32Z3Wrscn

 

[4est_4est_Gump]

Scott Winship, a social scientist and NR contributor who has spent a great deal of time dealing with Piketty’s data on U.S. wealth and income inequality, says he hasn’t seen evidence of monkey business there, so Piketty may have good answers for why he did what he did in his European data, too.

But as Scott points out, there are more fundamental problems with Capital: E.g., Piketty lays his historical analysis and his analysis of recent trends for income inequality in Europe on . . . Britain, France, and Sweden. This is not “Europe” and it’s not clear it’s a representative sample. Extraordinary claims like Piketty’s require extraordinary proof, and as Scott explained in his NR essay on the topic, Piketty doesn’t really meet that standard. On the other hand, Piketty could be understating the trend: One of his frequent co-authors, Emmanuel Saez, and Gabriel Zucman recently argued that wealth inequality is actually rising much faster than Piketty’s book shows. The growth has just been concentrated in the top .01 percent, they calculate (not using actual wealth data, but working back from capital gains and interest tax returns). Piketty also says that data released since the release of his book reinforces his case, so his calculations were actually conservative.

But wait — a number of French economists who’ve been looking at Piketty’s masterwork for a while wrote a paper arguing that the accumulation of wealth he found can be entirely explained by rises in housing prices, which complicates the explanations Piketty gives for rising wealth inequality.

Where does all of this leave us? Piketty set out to do something much more audacious than prove that income inequality is rising in the United States and in most wealthy countries — that’s relatively easy to prove, even if the increase has been substantially overstated. Rather, he wanted to show that this plays into a loop with increasing wealth that needs to be arrested by huge global interventions. One common objection to Giles’s skepticism tonight has been that increasing wealth inequality is simply an obvious fact of this world — why do we need the data to back it up? Well, Piketty needs the data to back up the arguments he made with it — he needs wealth inequality not just to appear high or to be rising, but to be returning to 19th-century levels as a matter of economic inevitability. The errors he made may not be devastating to the work he’s done to prove this so far, but even without taking them into account, he hasn’t yet justified his dramatic conclusions.

http://www.nationalreview.com/node/378742/print

 

[RobDownSouth]

Picketty must be duh-stroyed!