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The Thomas Piketty Reader

From Stephen Moore at Investor’s Business Daily, The Left’s Advice Would Bring A Second Great Depression:

One oddity of the current economic debate is that the more Barack Obama’s incompetent income-redistribution policies have failed, the more the left calls for more government-intervention policies to correct for the deficiencies of the earlier rounds. American middle-income families have lost nearly $3,000 in purchasing power since 2007, and the left’s only solution to get us out of the rut is more debt, more social-welfare spending, more income redistribution and higher taxes on the rich and big business.

That’s the conclusion of French economist Thomas Piketty, whose new book called “Capitalism in the 21st Century” is suddenly the new rallying cry of the redistributionists. One reason the book is garnering so much attention is that the slow economy of late has meant that everyone is fighting over a smaller share of a smaller pie. The New York Times piled on this week, moaning that the middle class in the U.S. has fallen behind the middle class in Canada. The Times never mentions that Canada has cut tax rates, balanced its budget, and tamed government spending.

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From Legal Insurrection, Piketty on income inequality:

As all this was going on, expectations and demands have risen, and so income inequality has been the new buzzword. Stamp it out, because it somehow “offends democracy.” The fact that the remedy Piketty and many others propose offends liberty, and the strong possibility that it could end up killing the goose that laid the golden egg, are both ignored and/or minimized in the rush to social and economic “justice”—that is, equality of outcome rather than opportunity.

From National review Online Michael Tanner writes Piketty Gets It Wrong:

Capital in the Twenty-First Century is well researched and contains much useful information and some important insights. But it is not unflawed. Some of the problems are technical — Piketty tends to underestimate the elasticity of returns on capital — but more are deeply philosophical. Piketty takes the evilness of inequality as a given, ignoring the broader question of whether the same conditions that lead to growing wealth at the top of the pyramid also improve material well-being for those at the bottom. In other words, does it matter if some people become super-rich as long as we reduce poverty along the way? Which matters more, equality or prosperity?

To cite just one example, Piketty devotes considerable effort to criticizing the rise of inequality in China over the past three decades as it has adopted market-oriented policies. But he largely glosses over the way those policies have lifted millions and millions of people out of poverty.

Still, Piketty makes some important points. In particular, he notes correctly that returns on capital nearly always exceed the return on labor. With capital held by a relatively narrow group, therefore, rising inequality is inevitable. Moreover, with the wealthy able to pass capital on to their heirs, that inequality will be perpetuated and even extended over generations.

One wonders why, then, Piketty’s fans ignore the obvious answer to this problem. Instead of attacking capital and capitalism, why not expand the number of people who participate in the benefits of having capital? In other words, let’s make more capitalists.

Yet, the Left is unremittingly hostile to exactly those policies that would give workers more access to capital.

Take, for example, 401(k) plans, which allow some 52 million American workers to own stocks and bonds as part of their retirement portfolios. Teresa Ghilarducci, director of the Schwartz Center for Economic Policy Analysis at the New School in New York, has argued before Congress that 401(k) plans should be abolished, and replaced by an expanded social-insurance system.

Megan McArdle writes in Bloomberg Piketty’s Tax Hikes Won’t Help the Middle Class:

The government can spend a lot more money on social programs, and that might or might not make people somewhat happier. But when you look at places where a large percentage of the people arecompletely dependent on government benefits, you don’t really see a great explosion of human flourishing. Nor do I think we would see it if only the checks were larger. Checks do not fix the psychological pain of unemployment or the emotional deprivation of single parenthood. They do not increase social cohesion. They don’t even necessarily cut down on crime; while you’d think there would be an obvious connection between economic conditions and crime, apparently there isn’t.

Writing checks certainly won’t offer a more hopeful future to the middle class. Middle-class parents aren’t worried that their kids will starve or freeze to death. They’re terrified that their children will not enjoy the security that their parents had. I’m not making light here: That’s a real terror. You used to be able to feel that when you had gotten your kid through high school or college without a major substance-abuse problem, you’d done much of what was needed to launch a successful adult. Now that seems like barely a start.

But how much better would parents feel if a technocrat came along and said, “Your child will never have a real job that conveys status and belonging and some feeling of contributing to society. He will, however, have an annual check for $20,000 a year and government-sponsored health insurance”? Your kid would have to be a very deep screwup indeed for that to be much consolation. A check fixes deep deprivation that middle-class parents aren’t really worried about. It doesn’t do a thing to make sure that your kid has a respectable job and a solid community to raise her kids in.

HKO

Another problem with the high taxes on wealth of the very rich is defining that wealth?  Does real estate, jewelry,  artwork, expensive cars, leisure time count as wealth.  If it doesn’t guess where assets will be transferred to. Like estate taxes such pending confiscation ENCOURAGES conspicuous consumption.  Why save just to have it taken away. Blow it on private jets, expensive cars, gluttonous meals, first class entertainment, etc.  Does anybody think this is preferable to investments in mortgage loans and job creating capital equipment?

Like Krugman,  Piketty’s problem is not just economic analysis but a philosophical construct that is destruction to the creation of wealth that will harm just about everybody.

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Measuring Reality

kevin williamson

Kevin Williamson writes Welcome to the Paradise of the Real in The National Review Online.  It is a bit long but quite worthy of the time to read it in its entirety.

Excerpts:

With economic models, we are a little like Neo in The Matrix, before he takes the red pill: We are not in the real world, but in a simulacrum of it, one that has rules, but rules that can be manipulated by those who understand the code. Economic models and analysis are very useful, but it’s worth taking the occasional red-pill tour, leaving behind the world of pure symbolism and taking a look at the physical economy.

Welcome to the paradise of the real.

The physical economy — the world of actual goods and services — looks radically different from the symbolic economy. Measured by practically any physical metric, from the quality of the food we eat to the health care we receive to the cars we drive and the houses we live in, Americans are not only wildly rich, but radically richer than we were 30 years ago, to say nothing of 50 or 75 years ago. And so is much of the rest of the world. That such progress is largely invisible to us is part of the genius of capitalism — and it is intricately bound up with why, under the system based on selfishness, avarice, and greed, we do such a remarkably good job taking care of one another, while systems based on sharing and common property turn into miserable, hungry prison camps.

HKO

Measurements of wealth are limited. Not everything that is worth measuring can be measured.  Just because we have measuremets does not mean those measurements accurately describe reality.

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Modern Monopolies

from The Sultan Knish, Daniel Greenfield: Government Power is an Economic Inequality

HMO’s were created by the government. Banks fed off Fannie Mae and Freddie Mac’s subsidized mortgages like vultures. Do we really need to go into insurance companies, defense contractors or Sallie Mae. AT&T is considered one of the worst companies in America, and it’s also one of the biggest political donors. Is there a connection there? Only that companies close to the government don’t need to worry as much about what the public thinks of them.

Hate the airlines? They’ve both been overregulated and subsidized into incompetence. Airlines have been bailed out and protected from competition too many ways to count, because of the unions riding on their coattails.

And those unions are destroying airline after airline, while the non-union airlines prosper.

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we have much more in common with one another than we dare to realize.

nytimes

Economist Mark Perry writes in his blog Carpe Diem, Evidence shows significant mobility in income and affluence – 73% of Americans will be in ‘top 20%’ for at least a year:

Excerpts:

quoted from Mark Rank from the New York Times, From Rags to Riches:

It is clear that the image of a static 1 and 99 percent is largely incorrect. The majority of Americans will experience at least one year of affluence at some point during their working careers. (This is just as true at the bottom of the income distribution scale, where 54% of Americans will experience poverty or near poverty at least once between the ages of 25 and 60).

Ultimately, this information suggests that the United States is indeed a land of opportunity, that the American dream is still possible — but that it is also a land of widespread poverty. And rather than being a place of static, income-based social tiers, America is a place where a large majority of people will experience either wealth or poverty — or both — during their lifetimes.

Rather than talking about the 1 percent and the 99 percent as if they were forever fixed, it would make much more sense to talk about the fact that Americans are likely to be exposed to both prosperity and poverty during their lives, and to shape our policies accordingly. As such, we have much more in common with one another than we dare to realize.

HKO

Much of the data and information on social inequality is misleading and hard to measure.  Thomas Sowell has spoke of the need to recognize that individual journeys are also very different than a description of mere statistical categories.  This piece adds another dimension that even individuals rise and fall among categories during the course of a single life.

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Reading 2014 04 23

Chicago’s Vanishing Middle Class
Piketty’s Tax Hikes Won’t Help the Middle Class