Afternoon Must-Read: Suresh Naidu: Eight Theses on Thomas Piketty from His Jacobin Review, “Capital Eats the World”

(1) Suresh Naidu: Capital Eats the World: “Piketty oscillates between paying homage to fundamental forces…

of technology, tastes, and supply and demand, and then backtracking to say that politics and institutions are important…

(2) Suresh Naidu: Capital Eats the World: “For Piketty… one-off redistributions of assets won’t stay equal for long…

…so some kind of permanent capital tax is needed…. The question about how to tax capital becomes less about the trade-off between savings and consumption, and more about how to implement global taxes to keep capitalists from taking their money offshore.

(3) Suresh Naidu: Capital Eats the World: “[In] Piketty… the taste for savings at the top…

looks little like the frugal ant saving in order to consume for the future… the forces that drive the wealthy to accumulate might not just be the realization of future consumption, but instead an insatiable drive for security, sociological pressures, psychological fantasies of future empires, or other structural imperatives. When you start thinking of savings this way, the case for taxing capital becomes much clearer. If the supply of capital is more like immobile real estate and less like footloose cash, basic economics suggests that we can tax it, because it won’t disappear, and you might even be doing some social good….

(4) Suresh Naidu: Capital Eats the World: “Piketty makes the argument that [the rate of profit] r is likely to stay higher than [the rate of growth] g…

…because capital and labor are becoming more substitutable… robot capitalism… trade with labor-intensive countries…. The rate of profit will not fall much because we can keep substituting out workers with it…. But we have heard this before…. Somehow new desires and demands sprung up for new kinds of manufactured goods, many of pure entertainment value, and people stayed employed and real wages kept rising. I do not think there is anything inevitable about how capital-labor substitution could evolve in the future. It is quite possible that future technological and organizational changes are labor-augmenting rather than labor-saving…

(5) Suresh Naidu: Capital Eats the World: “In [Piketty’s] model, capital increases as a [multiple] of [annual] income…

the rate of profit doesn’t fall very much (because capital and labor are very easily substituted for each other), and the distribution of capital is very unequal (because persistently high r allows capital shocks to be amplified over time)…. [In this] conventional liberal economist’s interpretation… whether capital will eat the world boils down to the degree of substitutability between labor and a single aggregate capital… [and] labor market reforms are taken off the table, as firms would just replace workers with machines… minimum wages would kill… jobs… unions… induce firms to close. But… the increasing elasticity of substitution… may be as much determined by institutions and property rights as by technology…. Capital is a set of property rights entitling bearers to politically protected rights of control, exclusion, transfer, and derived cash flow… the ability to call on the government to evict trespassers, be they burglars, sit-down strikers, or delinquent tenants…. Capital… [is] a right to exclude and appropriate… blurs the line between supermanagers and rentiers. Supermanagers happen to have labor market contracts… [but own] a form of capital that requires you to run meetings and wear a power suit…

(6) Suresh Naidu: Capital Eats the World: “Inequality of income and wealth means that some people…

…live off unjustly earned income, but it also means a lot more people are on the short-end of an asymmetric exchange, toiling away as personal assistants and Mechanical Turks. This is where Piketty’s Walrasian conventions dampen his contribution: he discusses the first, but not the second. It’s like saying slavery is an inequality of assets between slaves and slaveholders without describing the plantation….

(7) Suresh Naidu: Capital Eats the World: “In a thoroughly marketized world…

…the wealthy can purchase educational reform, the charity of their choice, think-tanks, legislative language, and faceless TaskRabbiters willing to work for a pittance…. There is an important and nasty complementarity between massive inequality in income and wealth and a commodified, “fully-incentivized” world. When every action can have pecuniary rewards attached to it, and every source of well-being can be priced at exactly a person’s willingness to pay, the social power commanded by the rich is magnified in a way that is difficult to see when comparing a dollar in 1920 with a dollar today…. [Piketty’s] focus on taxes is again a straightjacket imposed by the equality-versus-efficiency lens…. The preferred policy instruments are always taxes and transfers, when it is not at all clear that these alone are the best tools… the same technocratic spirit that makes American liberals love the Earned Income Tax Credit as the only redistributive arrow in the state’s quiver…. >The collapse in the capital and top income shares… came along with radical transformations… institutions… millions of dead, sui generis geopolitics… newly mobilized popular forces. The obligations enshrined in balance sheets were destroyed by financial collapse and war, and kept in check by social democracy and postwar growth. Little in the way of clever policy advice mattered for any of this…

(8) Suresh Naidu: Capital Eats the World: “A first step [toward a deeper analysis] could be a multisector model…

…with both a productive sector and an extractive, rent-seeking outlet for investment, so that the rate of return on capital has the potential to be unanchored from the growth of the economy. This model could potentially do a better job of explaining r > g in a world where capital has highly profitable opportunities in rent-seeking rather than production, and it would generally disassociate the growth of the productive economy from the growth of abstract wealth. When people say neoliberalism was good for growth, they tend to be looking at the stock market, not GDP or wages. More fundamentally, a model that started with the financial and firm-level institutions… rather than blackboxing them in production and utility functions… illuminate complementarities among the host of other political demands that would claw back the share taken by capital… putting meat on what Brad Delong calls the “wedge” between the actual and warranted rate of profit…. We need even more and even better economics to figure out which of these may get undone via market responses and which won’t, and to think about them jointly with the politics that make each feasible or not…