The Daily Piketty: June 2, 2014
Start with Ryan Grim:
Ryan Grim: Thomas Piketty On The Financial Times: ‘This Particular Debate Is Over’: “Thomas Piketty has no plans to respond further to Financial Times editor Chris Giles…
…despite the paper’s insistence that it is engaged with the French economist and author in a “fascinating and important debate.” Quite the opposite, Piketty, the author of Capital in the Twenty-First Century, told The Huffington Post…. “This particular debate is over”…. The British paper had accused Piketty of getting his “sums” wrong, and “cherry-picking” data sources to fit a preconceived notion about wealth inequality… Observers of the debate were nearly unanimous in declaring it conclusively over, with the FT’s various critiques fully satisfied. But Giles insisted in a follow-up post that questions about Piketty’s ethics and reliability remained. “Further debate on many of these items is difficult because Prof Piketty accepts he makes still undocumented adjustments to his data from his original sources, but says they are appropriate because any alternative would not be plausible. The sources he has appear to be secondary to Prof Piketty’s prior expectations of what the data needs to show,” Giles wrote…
I score this for Piketty, 6-0, 6-0, 6-0. I have my own doubts about and disagreements with Piketty, but as far as I can see Giles is completely off base.
Grim continues:
The problem, [Piketty] said, is not his book–it’s reality:
People should be afraid more of the realities than with my book. My book is not the problem. The problem is rising inequality, the fact that top wealth holders have been rising three times faster than the size of the economy. If the FT has a different ranking, they should publish it, but apparently they don’t have it so, you know, they should stop….
Elizabeth Warren…. Asked how she would suggest Piketty respond to the critique, she had just two words of advice: “Hit back.”…”
Continue with <a name="kumar"Ajay Kumar:
Myles Udland: BofA Merrill Lynch Backs Piketty: “Bank of America Merrill Lynch is siding with Thomas Piketty…. We are aware of the controversy over Piketty’s math (see the FT Money Supply blog), but are generally comfortable with the thrust of his analysis…. Kapur and his team said this in a lengthy report titled, “Piketty and Plutonomy: The revenge of inequality,” outlining the impacts of plutonomists, or the super rich, on investors….
When wealth and income are as concentrated as they are, and expected (a la Piketty) to get even more so, examining the ‘average’ consumer or ‘average’ investor makes little sense. Examining the fat tail–the behavior of the plutonomists, rather than that of the multitudinous many–is more advantageous to investors. Plutonomists determine and dominate spending and investment decisions and their magnitudes. Any analysis that does not tease out the skewed global income and wealth distribution, but focuses on the average is flawed from the start and is incomplete, as we step into its deeper extremes…
And finish with pointers from Doug Henwood to more from Ajay Kumar:
And:
Doug Henwood: The Top of the World : “The core message…
… Left to its own devices, wealth inevitably tends to concentrate in capitalist economies. There is no “natural” mechanism inherent in the structure of such economies for inhibiting, much less reversing, that tendency. Only crises like war and depression, or political interventions like taxation (which, to the upper classes, would be a crisis), can do the trick. And Thomas Piketty has two centuries of data to prove his point….
There’s another trend that intensifies the upward concentration of wealth: Fortunes themselves are ratcheting upward; within the proverbial 1 percent, the 0.1 percent are doing better than the remaining 0.9 percent, and the 0.01 percent are doing better than the remaining 0.09 percent, and so on. The bigger the fortune, the higher the return…. In short: Money breeds money, and the more money there is, the more prolific the breeding.
It was once believed, during the decades immediately following the Great Depression and World War II, that vast disparities in wealth were features of youthful capitalism that had been left behind now that the thing was reaching maturity. This theory was first enunciated formally in a 1955 paper by the economist Simon Kuznets…. Kuznets’s curve fit nicely with the actual experiences of the rich economies in what the French call the Trente Glorieuses, the “thirty glorious years” between 1945 and 1975…. But in the United States, the thirty glorious years were actually twenty-odd… the equalization process ended sometime between 1968 and 1974, again according to the census figures….
For Britain and France, the total value of the capital stock–owned, as is almost always the case, largely by the 1 percent (whether aristocrats or members of the bourgeoisie, whether it’s France in 1780 or the United States in 2014)–was about seven times national income from 1700 until around 1910…. With two world wars and a depression, the capital stock fell to about three times national income…. It began to recover around 1950, but was inhibited by extremely high tax rates in the first postwar decades. As of 2010, the capital stock had recovered to between five and six times national income in Britain and France…. For Germany… the pattern isn’t dissimilar… seven… hammered down to just over two… and a recovery to four…. The United States is much less dramatic… three… to five… to about four… rising back steadily toward five times in 2010…. Many interesting details emerge…. The liberation of the slaves after the Civil War was probably the greatest expropriation of capital in history…. After that, though, America largely lost its expropriating nerve. Not entirely so, however: Piketty reports that it was politically easier for America to institute the income tax in 1913 than it would be in European economies….
Economics as a discipline loves stories about equilibrium and convergence. Vast inequities should, in theory, be “competed away,” as neoclassical economics likes to say. But mostly they’re not…. I’ve long suspected that a major force for the repeal of the estate tax in the United States has been that the billionaires of the neoliberal age—the tech and finance moguls, some famous, some barely known—have been thinking about their legacy. The scions of the second Gilded Age want to see their grandchildren on the Forbes 400, just like David Rockefeller is a ghost of the first Gilded Age. I’m less sure whether they want to see their names on traditional foundations—maybe more the entrepreneurial kind. But it’s clear that the political salience of the “death tax” is a reflection of a cadre of fortunes of a sort that was long out of fashion….
The major frustration of the book is political. Piketty clearly shows that short of depression and war, the only possible way to tame the beast of endless concentration is concerted political action. The high upper-bracket tax rates of the immediate postwar decades couldn’t have happened without serious fears among elites—fresh memories of the Depression, threats from strong domestic unions, competition on a global scale with the USSR, which, for all its problems, was living proof that an alternative economic system was possible. As those things waned, upper-bracket taxes were lowered, wages and benefits were cut, and capital’s increased mobility led to increased competition among jurisdictions to offer a “favorable investment climate”—meaning weak regulations, low wages, and minimal taxes. All these trends have contributed to the concentration of capital over the last thirty years, as wealth and power have shifted upward on an enormous scale. None of these features will be reversed spontaneously. Nor will they be altered through “democratic deliberation”—several times Piketty notes the hefty political power of the owning class—or improved educational access….
For Piketty, the main problem with Marx is his unequivocal call for political confrontation. Having described a process of inexorable material polarization—and with it, increasing plutocratic power over the state—Piketty remains distressingly moderate as he sounds out some of the political implications of his analysis….Anticapitalist rhetoric need not be lazy—and for all the empirical sophistication of Piketty’s work, his political thinking is hardly a model of complexity or effort. He mostly aspires to contribute to rational democratic deliberation about “the best way to organize society.” Still, while such deliberation is clearly necessary, political action cannot be factored out of that process just because we happen to have lived through the Cold War’s unmourned collapse…. Serious trouble—demonstrations, strikes, insurgent political movements—is what it will take to derail capitalism’s inevitable tendency toward concentration. Short of that, it looks like we’ll be continuing our journey along the road to a new serfdom.