"Diss" Da New Capital - A Picketty Defence of Capital in the 21st Century...


Selene

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Well at least the border is red...

It’s hard to fathom, but somehow Thomas Piketty’s 696-page book Capital in the Twenty-First Century is No. 1 on the Amazon bestseller list. It’s a serious economics book that takes a long, hard look at the dynamics affecting the distribution of capital, the concentration of wealth, and the long-term evolution of inequality in advanced economies. Not exactly light reading. And yet it’s outselling Michael Lewis’ Flash Boys: A Wall Street Revolt (a lighter, more colorful study of the inequalities in the financial system); Donna Tartt’s The Goldfinch (the newly-named winner of the Pulitzer Prize in Fiction); and even The Little Golden Book version of Disney’s Frozen.

So what’s the book all about? One way to answer that question is to read the introduction to Capital, which you can find on the Harvard University Press website. There Piketty, a professor at the Paris School of Economics, gets right into the heart of the questions he’s trying to answer in Capital:

The distribution of wealth is one of today’s most widely discussed and controversial issues. But what do we really know about its evolution over the long term? Do the dynamics of private capital accumulation inevitably lead to the concentration of wealth in ever fewer hands, as Karl Marx believed in the nineteenth century? Or do the balancing forces of growth, competition, and technological progress lead in later stages of development to reduced inequality and greater harmony among the classes, as Simon Kuznets thought in the twentieth century? What do we really know about how wealth and income have evolved since the eighteenth century, and what lessons can we derive from that knowledge for the century now under way?

As for the answers, those are pretty well explained in a digest by the Harvard Business Review. Summarizing the book’s argument, HBR writes:

Capital (which by Piketty’s definition is pretty much the same thing as wealth) has tended over time to grow faster than the overall economy. Income from capital is invariably much less evenly distributed than labor income. Together these amount to a powerful force for increasing inequality. Piketty doesn’t take things as far as Marx, who saw capital’s growth eventually strangling the economy and bringing on its own collapse, and he’s witheringly disdainful of Marx’s data-collection techniques. But his real beef is with the mainstream economic teachings that more capital and lower taxes on capital bring faster growth and higher wages, and that economic dynamism will automatically keep inequality at bay. Over the two-plus centuries for which good records exist, the only major decline in capital’s economic share and in economic inequality was the result of World Wars I and II, which destroyed lots of capital and brought much higher taxes in the U.S. and Europe. This period of capital destruction was followed by a spectacular run of economic growth. Now, after decades of peace, slowing growth, and declining tax rates, capital and inequality are on the rise all over the developed world, and it’s not clear what if anything will alter that trajectory in the decades to come.

As for how this impacts life in the U.S., HBR summarizes Piketty’s argument as follows:

On this side of the Atlantic, wealth and income were less concentrated in the 19th century than in Europe. After a spike in top incomes that topped out in the late 1920s, the income distribution flattened out here again, albeit in less dramatic fashion than in Europe. Since the 1970s, though, the U.S. has seen a sharp and unparalleled increase in the percentage of income going to the top 1% and especially 0.1%. This has not been driven by the capital and inheritance dynamics at the heart of Piketty’s story. He attributes it instead to the rise of what he calls “supermanagers.” Piketty cites recent research that shows managers and financial professionals making up 60% of the top 0.1% of the income distribution in the U.S., and proposes that their skyrocketing pay is mainly the product of sharp declines in top marginal tax rates that made it worth managers’ while to bargain harder for raises. This isn’t the only explanation available, and Piketty’s discussion of U.S. inequality doesn’t carry the same historical authority as other parts of the book. But it surely is interesting that, as he and several co-authors report in a new article in the American Economic Journal: Economic Policy, the rise in the top-percentile income share in 13 countries was almost perfectly correlated with declines in top marginal tax rates in those countries. It’s also interesting that this huge rise in relative income inequality has brought no discernible economic benefit. Yes, the U.S. economy has grown a bit faster than those of other developed economies, but that’s purely because of population growth. Per-capita economic growth has been almost identical in the U.S. and Western Europe since 1980, and because of the skew towards the top here, U.S. median income has actually lost ground relative to other nations.

But why let HBR give you insight into Piketty’s thinking when Piketty can do it himself. Below we have a talk he gave at the Economic Policy Institute earlier this month. He starts speaking at the 5:30 mark.

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And finally Paul Krugman’s review in the New York Review of Books — “We’re in a New Gilded Age” — is worth a read.

piketty-cover.jpg

I thought the above quote gave an ecletic ser of points that would work as a beginning point for discussion.

A...

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Here is the Salon article from the OL Horror File...

How did libertarians get it all so backwards? Well, as Piketty points out, people like Milton Friedman were writing at a time when inequality was indeed less pronounced in the U.S. than it had been in previous eras. But they mistook this happy state of affairs as the magic of capitalism. Actually, it wasn’t the magic of capitalism that reduced inequality during a brief, halcyon period after the New Deal and WWII. It was the forces of various economic shocks plus policies our government put in place to respond to them that changed America from a top-heavy society in the Gilded Age to something more egalitarian in the post-war years.

http://www.salon.com/2014/04/30/thomas_piketty_shrugged_how_the_french_economist_dashed_libertarians_ayn_randian_fantasies_partner/

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Adam quotes:

"...distribution of capital, the concentration of wealth, and the long-term evolution of inequality in advanced economies..."

None of these terms are negative in terms of a proper response.

"Distribution of capital" means you're free to distribute your own capital.

"Concentration of wealth" means you're free to accumulate your own capital.

"Inequality" means that productivity earns capital while sloth does not.

The beginning point is to quit defining yourself as a victim.

As long as you do, that's all you'll ever be.

Greg

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I've heard this book is rather popular currently. But I haven't looked into yet, if at all. On face this seems to be more a treatise on bookledger income and currency demoninated holdings. Does it mention wealth in any broader sense?, ie the number of cabins for rent to a Disney owned island on a Disney owned oceanliner available to the median income earner in 1925 vs 1970 or 1975 vs 2012? wait perhaps I could look it up on my smartphone, damn I'm poor, I wish a had a servant to complete this arduous task

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I've heard this book is rather popular currently. But I haven't looked into yet, if at all. On face this seems to be more a treatise on bookledger income and currency demoninated holdings. Does it mention wealth in any broader sense?, ie the number of cabins for rent to a Disney owned island on a Disney owned oceanliner available to the median income earner in 1925 vs 1970 or 1975 vs 2012? wait perhaps I could look it up on my smartphone, damn I'm poor, I wish a had a servant to complete this arduous task

Convert to radical Islam, more to the Mahgreb and you can have four (4) wives and slaves to do the chores.

It's just a cultural thing...right? See the Cultural Marketplace thread.

And hey, if the regular food gets scarce, you can just cook one of the slaves...right? It's just a cultural impostition.

And if you have a female child, you will have her genitally mutilated...right? Hey, it's cultural dude!

When in the Mahgreb, do as the Mahgrebians do...

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Good point, Adam. A relevant question to ask ourselves:

"If I lived in a cannibal society, would I be a GOOD cannibal?"

In my view, there is a higher standard than mere popular collective societal consensus.

Greg

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Good point, Adam. A relevant question to ask ourselves:

"If I lived in a cannibal society, would I be a GOOD cannibal?"

In my view, there is a higher standard than mere popular collective societal consensus.

Greg

Precisely.

In Common Law, there are two(2) broad concepts to a "civil society:"

1) malum prohibitum; and

2) malum in se.

As free market capitalists/anarcho-capitalists/libertarians/some "conservatives," the second statement is the only statement that applies to a freedom status for the individual.

Malum In Se(mal-uhm in say) Latin for something "wrong in itself," even in the absence of a law making it illegal.In criminal law, it describes acts that have traditionally been considered crimes, whether or not a specific written law made them crimes, because they violate the principles of civilized society. Examples are murder, rape, and theft. By contrast, making a left turn at an intersection where a traffic law prohibits it would not be malum in se, because it is based only on statutory law. Compare: malum prohibitum
Malum Prohibitum (mal-uhm prohibit-uhm) Latin for "wrong due to being prohibited," referring to acts made illegal by statute to benefit public welfare, not because they are inherently evil and obvious violations of society's standards. Generally, they do not involve immediate injury or damage to others. Examples include violations of regulatory acts, insider trading, and tax avoidance. Compare: malum in se

These are the basic decisions of a free common law society,,,

A,,,

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  • 2 weeks later...

MORE FLAWS EXPOSED IN LEFTIST BEST-SELLER

In a recent Journal op-ed, Harvard economist Martin Feldstein ticked off a series of errors in Thomas Piketty's "Capital in the Twenty-First Century." Now the UK's Financial Times also sees "data problems and errors" in the popular screed that has been lauded by economists including Paul Krugman.

After reviewing Mr. Piketty's work, the Financial Times finds "unexplained entries in his spreadsheets, cherry picking data sources and transcription errors. Taken together, these problems seem to undermine his conclusion that wealth inequality is rising in the US and in Europe."

Two weeks ago, Mr. Feldstein noted a series of fundamental errors, including those related to Mr. Piketty's practice of comparing the incomes of top earners with total national income. "National income excludes the value of government transfer payments including Social Security, health benefits and food stamps that are a large and growing part of the personal incomes of low- and middle-income households."

Mr. Feldstein wrote that "Mr. Piketty's theoretical analysis starts with the correct fact that the rate of return on capital...exceeds the rate of growth of the economy. He then jumps to the false conclusion that this difference between the rate of return and the rate of growth leads through time to an ever-increasing inequality of wealth and of income unless the process is interrupted by depression, war or confiscatory taxation."

"[Mr. Piketty's] conclusion about ever-increasing inequality could be correct if people lived forever. But they don't," observed the Harvard professor. "The result is that total wealth grows over time roughly in proportion to total income. Since 1960, the Federal Reserve flow-of-funds data report that real total household wealth in the U.S. has grown at 3.2% a year while the real total personal income calculated by the Department of Commerce grew at 3.3%."

http://online.wsj.com/news/articles/SB10001424052702304587704579587700281380712?mod=djemMER_h&mg=reno64-wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10001424052702304587704579587700281380712.html%3Fmod%3DdjemMER_h

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Economics as political science is, political argument taking on the veneer of spreadsheets and data and analysis and labcoats and statistics and formulas and models and ... putting on a voodoo witchdoctor show to huckster what somebody wants from someone else, period.

I can't even pretend any more when I see these things.

Does credibility never fade, after decades of failure? Do 'economists' get the endless benefit of the doubt, and every time an 'economist' shows up to push his political opinion, we are supposed to regard him as some kind of scientist pushing 'science' at us?

Or is it time to just finally laugh these clowns out of the Assembly, as would have occurred in Athenian Democracy?

Decades of failure: state of the art economic science can't even tell us what already long ago happened, much less, what is happening now or God help us, what will happen in the future if some Penguin armed constructivist get's too close to the Tribe's Magic Conch and blows it, which they often do.

State of the art economic science is political argument, period. It is political science; politics: the art and science but mostly scamming of getting what we want from others using every scheme short of just smashing them over the head with a rock. There is liberal economics. There is conservative economics. The closest thing to agenda neutral 'economics' is called 'accounting'...

Oh no, the voodoo practitioners assure us, their science is real science. Trust them. It just doesn't work worth a damn, but that's OK because we are so DC fatigued that we barely notice.

Well, bullshit. Time to flush it all to the fiction section, where it belongs. Beyond the trivial banalities of Samuelson that not even Krugman can keep straight with his self serving 'Topsey Turvey' Economics, not buying it as anything other than never calibrated political opinions. aka, hogwash.

And now, back to pretending otherwise when we don't just laugh at 'economists' and their 'economic' arguments.

The Kerfuffle over Picketty seems just like Soviet Era street theater; it looks and smells like the same aparatchiks on both side of the Kerfuffle. They set it up and they knocked it down, and this nothingburger is supposed to mean what to any of us?

Sell it to those who are buying.

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I wonder if we've seen the last of the sort of thing Selene quotes in #8. Piketty's book may turn out to be the Club of Rome or Arming America of its day.

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  • 3 months later...

Somebody send this clown a copy of Atlas Shrugged since the contention of this writer is that he draws "economic facts" that are being questioned and from fiction to illustrate the social consequences

of inequality...

now that is really scary ...

As the most talked about book this summer, Thomas Piketty’s Capital in the Twenty-First Century has been praised for opening up a conversation about the importance of inequality and its consequences. At the same time, the book has been roundly criticized for using unsound economic theory and inaccurate

economic data. But two recent articles by Michael Clune in the Chronicle of Higher Education and

Stephen Marche in the Los Angeles Review of Books call our attention to another form of evidence that

is important to Piketty’s argument.

“Capital in the Twenty-First Century,” Clune observes, “convinces because Piketty supports his arguments about inequality with two innovative forms of evidence largely neglected by his predecessors on both the left and the right. The first is an unprecedented trove of historical economic data…. The second is a series of literary works, which Piketty uses to reveal the social and psychological consequences of this inequality in its erosion of human dignity.”

http://www.fee.org/the_freeman/detail/thomas-pikettys-literary-offenses

A...

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  • 6 months later...

Here comes Piketty's charge...

Thomas Piketty: So, the amount of household debt and even more recently of student debt in the U.S. is something that is really troublesome and it reflects the very large rise in tuition in the U.S. a very large inequality in access to education. And I think if we really want to promote more equal opportunity and redistribute chances in access to education we should do something about student debt. And it's not possible to have such a large group of the population entering the labor force with such a big debt behind them. This exemplifies a particular problem with inequality in the United States, which is very high inequality and access to higher education. So in other countries in the developed world you don't have such massive student debt because you have more public support to higher education. And I think the plan that was proposed earlier this year in 2015 by President Obama to increase public funding to public universities and community college is exactly justified.

Pay to know?

http://bigthink.com/videos/thomas-piketty-on-the-rise-of-us-student-debt

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  • 2 weeks later...

According to this article in FEE,:

Thomas Piketty, the “rock star” French economist who dominated the news in late 2014, is trying to backpedal on the claims that made him famous. While he sticks with his core arguments about the nature of inequality, his new article in the American Economic Review has been widely interpreted as a tempering of the bolder claims in his bestselling Capital in the Twenty-First Century about the causes and consequences of economic inequality.

This is an interesting tack for Piketty. It appears to concede a level of nuance that is often missing from his book, which frequently slips into sweeping narratives of history, oversimplified theoretical assumptions, and aggressive political prescriptions premised on their acceptance.

The article analyzes his "U" shape model and his conclusions, however,:

...a closer look at the underlying inequality data reveals a serious problem in Piketty’s narrative. While his own graphs and charts display the U-shape he predicts, these depictions are the product of substantial data massage.

How Piketty creates an inequality divergence in the United States

Piketty’s most widely discussed “demonstration” of his inequality narrative occurs in his book’s figure 10.5, a historical depiction of wealth inequality in the United States. The U-shape may be readily seen in this graph, where inequality bottoms out in the 1970s before it resumes an upward trend into the present.

The clear trend in this particular graph has made it one of the most widely cited empirical examples from the book, leading Paul Krugman to denounce Piketty’s critics as “inequality deniers.” It is also notable because it purports to show a clear turn in the 1970s, fitting closely with Piketty’s historical narrative of pinning a claimed rise in inequality on the Reagan-era tax cuts.

20150326_Piketty1.png

Now compare Piketty’s figure 10.5 to the following graph from a 2004 study by economist Wojciech Kopczuk and Piketty’s frequent collaborator Emmanuel Saez. This widely cited study estimates US wealth inequality from estate-tax data since 1916. Contrary to the rebounding U-shape of Piketty’s graph from the 1980s to the present, this graph portrays wealth inequality as virtually flat from the 1980s until its last return in the early 2000s. Indeed, an extension of this series by Saez shows that 2004 — the last year with available data — was the most equally distributed point in American history to date, with the top 1 percent holding an all-time low of 18 percent of the wealth.

20150326_Piketty2.png

The two different trends are particularly telling, as Piketty’s figure 10.5 is actually based in part on the Kopczuk and Saez series. The divergence occurs because Piketty’s graph is a Frankenstein-esque assemblage of bits and pieces of different studies, cherry-picked to tell the story Piketty expects to find.

When the Kopczuk and Saez trend line flattened out in the 1980s, Piketty simply swapped in a number of other studies based on the Federal Reserve’s Survey of Consumer Finances (SCF). The resulting chart is thus a complete contrivance.

Piketty essentially manufactured the upswing of the U-shape by hand selecting his numbers from disparate sources to create the illusion of a 1970s trough (using Kopczuk and Saez) followed by a rebound from the 1980s to the present (using selectively chosen SCF figures). A simple breakdown of his sources reveals no fewer than five such swaps between different data sources to produce the desired result, as the following graph shows.

Is it required today to use fraudulent data, graphs and analysis to "prove" the unprovable?

http://fee.org/freeman/detail/picking-piketty-apart?utm_source=Foundation+for+Economic+Education+Current+Contacts&utm_campaign=52441fc50f-In_Brief_3_31_2015&utm_medium=email&utm_term=0_77ef1bd48e-52441fc50f-13801008

A...

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(emphasis mine...)Thomas Piketty: So, the amount of household debt and even more recently of student debt in the U.S. is something that is really troublesome and it reflects the very large rise in tuition in the U.S. a very large INEQUALITY in access to education. And I think if we really want to promote more equal opportunity and REDISTRIBUTE chances in access to education we should do something about student debt. And it's not possible to have such a large group of the population entering the labor force with such a big debt behind them. This exemplifies a particular problem with INEQUALITY in the United States, which is very high inequality and access to higher education.

"Inequality" and "redistribute" as he uses them are for leftist fukwits who need to leech off of the government because they don't produce anything useful.

Greg

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(emphasis mine...)Thomas Piketty: So, the amount of household debt and even more recently of student debt in the U.S. is something that is really troublesome and it reflects the very large rise in tuition in the U.S. a very large INEQUALITY in access to education. And I think if we really want to promote more equal opportunity and REDISTRIBUTE chances in access to education we should do something about student debt. And it's not possible to have such a large group of the population entering the labor force with such a big debt behind them. This exemplifies a particular problem with INEQUALITY in the United States, which is very high inequality and access to higher education.

"Inequality" and "redistribute" as he uses them are for leftist fukwits who need to leech off of the government because they don't produce anything useful.

Greg

We need the gentleman to keep reminding us not to mind him, especially from those who keep celebrating the imposition of crappy European ideas on America, a big problem now centuries old. The worst of that is the German educational model. Kids hate school; it's for a reason.

--Brant

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