Thomas Piketty’s Capital in The Twenty First Century, has spawned a cottage industry of dissent.  Piketty uses masses of data to illuminate a growth in inequality, that he surmises is an inevitable result of capitalism and can only be resolved by painfully high taxes on the rich. For the left it is a pivotal work that brings data and credentialism to their ideology that capitalism is so flawed that it requires constant and strong control from the state.

Anti-Piketty is a collection of noted economists and political thinkers that find significant flaws with Piketty’s work.  These critiques include serious flaws with the data itself and how it is used, the difficulty of measuring the forms of income and inequality itself, conclusions that are not supported by the data, and a philosophically flawed concept of wealth, growth and capitalism.

From Anti- Piketty Chapter    17. Get Real: A Review of Thomas Piketty’s Capital in the 21st Century by Donald Boudreaux

Here’s an even deeper mystery that escapes Piketty’s notice: if current patterns of executive compensation serve no purpose except to further enrich unproductive corporate oligarchs, what explains the rising market value of the capital that Piketty believes to be the central driver of increasing wealth inequality? Piketty doesn’t ask this question because, for him, wealth perpetuates itself. It grows automatically. So any amount of wealth that is “claimed” by Dick could otherwise have been “distributed” to Jane without reducing the total amount of wealth available to all.

Of course, wealth doesn’t grow automatically. It must be created. And to grow— indeed, even to be sustained— wealth must be skillfully managed. If Piketty’s theory of executive compensation were correct, corporate boards’ inattention to the productivity of their management teams would cause the market value of corporations to plummet. Piketty’s ‘r’ would fall to zero. So, too, would ‘g’. Fortunately, neither the rich nor the rest of us are suffering any such lamentable impoverishment.

Had Piketty examined more carefully the empirical literature on executive compensation he would have discovered that compensation is indeed tied closely to managerial productivity. As University of Chicago professor Steven Kaplan reported not long ago in Foreign Affairs, having analyzed 1,700 firms, he “found that compensation was highly related to performance: the companies that paid their CEOs the most saw their stocks do the best, and those that paid the least saw their stocks do the worst” (Kaplan 2013).

Yet, an observer perched too high above reality can easily miss what really matters. And that’s the ultimate problem with Piketty’s narrative. Like Marx, Piketty writes passionately about big, all-encompassing social forces that allegedly spell doom for humanity unless wise and good government intervenes. 1 But also like Marx, Piketty’s disregard for basic economic reasoning blinds him to the all-important market forces at work on the ground— market forces that, if left unencumbered by government, produce growing prosperity for all.

HKO

If wealth earns a return automatically then the people who manage it deserve no credit for their success. It is the ultimate ‘you did not build that’ finger to the entrepreneur.  Another critic in this illuminating volume notes that he assumes wealth automatically delivers a specific return, when in fact he gets it backward; the return determines the value of the capital. Thus the federal control of interest rates has more impact on the distribution of wealth than Piketty attributes.

Thomas Piketty’s Capital in The Twenty First Century, has spawned a cottage industry of dissent.  Piketty uses masses of data to illuminate a growth in inequality, that he surmises is an inevitable result of capitalism and can only be resolved by painfully high taxes on the rich. For the left it is a pivotal work that brings data and credentialism to their ideology that capitalism is so flawed that it requires constant and strong control from the state.

Anti-Piketty is a collection of noted economists and political thinkers that find significant flaws with Piketty’s work.  These critiques include serious flaws with the data itself and how it is used, the difficulty of measuring the forms of income and inequality itself, conclusions that are not supported by the data, and a philosophically flawed concept of wealth, growth and capitalism.

From   Chapter 13 of Anti-Piketty. The Financial Times vs. Piketty,   by Chris Giles

The point is true, but it’s also misleading. Piketty and Saez answer the technical question of how taxable income earned by tax units (i.e., a single filer or a married couple filing jointly, unadjusted for the number of dependents) has changed over time. But that answer has vastly different real-world implications from the answer to this question: How has the access of American households to after-tax resources changed over time?

Consider these points: government-provided Social Security benefits and the Earned Income Tax Credit flow in much greater proportion to lower-income Americans than those in upper-income quintiles; and our income tax system takes progressively more from higher-income households. Fringe benefits and non-wage compensation (employer-provided health insurance, for example) have also become a much larger portion of workers’ compensation, as have the value of Medicare and Medicaid health insurance for the aging and the poor.

Because Piketty and Saez’s numbers focus on only taxable market income, they miss those additional sources of income and the progressive effects of our tax system on after-tax resources. And, by focusing their analysis on individual tax filing units, unadjusted for the number of persons residing within them, they miss changes in the composition of American households (i.e., an increasing number of households are made up of unmarried single tax filers who share their income).

from Kevin Williamson at National Review,  Apartment Fires and Health Insurance

The problem for health insurance is the same as the problem for condominium sprinklers: The benefits are desirable, but they are not free, and many people, given a choice, would spend their money in a different fashion. In the matter of health insurance, Senator Ted Cruz has offered an amendment that would allow insurers to sell relatively low-cost plans that do not cover everything that must be covered under current ACA regulations. Critics, including Senator Susan Collins, have protested that these policies are too “skimpy,” that they do not include all of the coverage and benefits that we might like to see people have. But all the Cruz amendment does is give buyers a choice. The danger isn’t that insurance companies will fail to offer more expensive and comprehensive policies — of course they will offer them; those are more profitable — but that many Americans will prefer less expensive and less comprehensive health-insurance plans.

Thomas Piketty’s Capital in The Twenty First Century, has spawned a cottage industry of dissent.  Piketty uses masses of data to illuminate a growth in inequality, that he surmises is an inevitable result of capitalism and can only be resolved by painfully high taxes on the rich. For the left it is a pivotal work that brings data and credentialism to their ideology that capitalism is so flawed that it requires constant and strong control from the state.

Anti-Piketty is a collection of noted economists and political thinkers that find significant flaws with Piketty’s work.  These critiques include serious flaws with the data itself and how it is used, the difficulty of measuring the forms of income and inequality itself, conclusions that are not supported by the data, and a philosophically flawed concept of wealth, growth and capitalism.

From Anti- Piketty Chapter    9. Piketty’s Numbers Don’t Add Up by Martin Feldstein

The second problem with Piketty’s conclusions about increasing inequality is his use of income-tax returns without recognizing the importance of the changes that have occurred in tax rules. Internal Revenue Service data, he notes, show that the income reported on tax returns by the top 10 percent of taxpayers was relatively constant as a share of national income from the end of World War II to 1980, but the ratio has risen significantly since then. Yet the income reported on tax returns is not the same as individuals’ real total income. The changes in tax rules since 1980 create a false impression of rising inequality.

In 1981 the top tax rate on interest, dividends, and other investment income was reduced to 50 percent from 70 percent, nearly doubling the after-tax share that owners of taxable capital income could keep. That rate reduction thus provided a strong incentive to shift assets from low-yielding, tax-exempt investments like municipal bonds to higher yielding taxable investments. The tax data therefore signaled an increase in measured income inequality even though there was no change in real inequality.

The Tax Reform Act of 1986 lowered the top rate on all income to 28 percent from 50 percent. That change reinforced the incentive to raise the taxable yield on portfolio investments. It also increased other forms of taxable income by encouraging more work, by causing more income to be paid as taxable salaries rather than as fringe benefits and deferred compensation, and by reducing the use of deductions and exclusions.

The 1986 tax reform also repealed the General Utilities doctrine, a provision that had encouraged high-income individuals to run their business and professional activities as Subchapter C corporations, which were taxed at a lower rate than their personal income. The corporate income of professionals and small businesses did not appear in the income-tax data that Piketty studied.

The repeal of the General Utilities doctrine and the decline in the top personal tax rate to less than the corporate rate caused high-income taxpayers to shift their business income out of taxable corporations and onto their personal tax returns. Some of that transformation was achieved by paying themselves interest, rent, or salaries from their corporations. Alternatively, their entire corporation could be converted to a Subchapter S corporation whose profits are included with other personal taxable income.

These changes in taxpayer behavior substantially increased the amount of income included on the returns of high-income individuals. This creates the false impression of a sharp rise in the incomes of high-income taxpayers even though there was only a change in the legal form of that income. This transformation occurred gradually over many years as taxpayers changed their behavior and their accounting practices to reflect the new rules. The business income of Subchapter S corporations alone rose from $ 500 billion in 1986 to $ 1.8 trillion by 1992.

from Thomas Donlan at Barron’s, What Went Wrong in Kansas

Americans want government like they want services generally: “faster, better, and cheaper.” But economists know there’s a problem: The optimistic ones say, “Pick any two”; the pessimists say, “Choose one.”

Too many Democrats, however, pick all three and say they will squeeze more taxes out of the rich to pay for it. Sorry, even in this new gilded age, there aren’t enough rich people to pay for national health care, let alone the rest of the party’s wish list—bridges, roads, rail lines, broad band internet, and most recently, a national drive to cure opioid drug addiction.

Meanwhile, too many Republicans pick all three and say they will pay for it with economic growth. Sorry, Americans have enjoyed more economic growth in the past 228 years than any other big nation on Earth; there’s little that any government can do to push it along against the power of the law of diminishing returns. The results of even the best imaginable policies will come too slowly to satisfy most Americans.

Tax cuts can work to stimulate growth, but not everywhere, not every time. Kansas had and has a lot more problems than its tax cuts.

Letters to the editor on that article the following week:

Growing up in the 1980s, I felt that President Ronald Reagan’s policies were the great impetus for the ensuing growth. I still feel that freedom and low taxes are the root of growth, especially when that growth has been fettered by regulation and discouraged by high taxes for a long period. But I now think that the great growth we saw was as much a result of the baby boomers working through the system as the policies and tax cuts.

The baby boomers were starting to come into their own in the ’80s and making their mark on the economy, creating that tremendous growth. And I think that easily carried into the 1990s. Now, as time marches on and we’re nearing eight years of slower growth, I partially attribute that to slower population growth, as much as to the stifling effects of higher taxes and greater regulation.

So can we count on growth to save us? I don’t think so, and that means we have to do the hard work of cutting government expenses, because the money simply won’t be there to pay for larger and larger government in the future. The rich don’t have enough money to pay the bill, even if you taxed them at 100%, so either you start taxing the poor more or cut expenses.

HKO

The left is in a quandary.  Without generating growth the welfare state must shrink.  This growth may come from a business friendly environment or population growth, both of which are contrary to the policies of the left.  They have demonized the main source of support for the welfare state and now they are addicted to the devil.