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Post Americans Have No Excuse for Populism; Piketty's "Capital"
Created by John Eipper on 09/15/19 4:40 AM

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Americans Have No Excuse for Populism; Piketty's "Capital" (Tor Guimaraes, USA, 09/15/19 4:40 am)

I read with interest Francisco Ramírez's post about elites (September 13th), and I thank him for the effort to make sense of a very confusing topic with many meaningless labels flying around: elites, right and left wing, liberal and conservative, etc. What does it all mean? How do we get our nation and the world off this mess where right and wrong are the same, were real facts are treated the same as fake news?

As I said earlier, populism is about bad charismatic leadership, and people choose such leaders because in their ignorance and stupidity (or perhaps with malice in some cases) they mix church and state, have faith in fantasies and superstition, and ignore scientific evidence to indulge in racism and xenophobia. All this is destructive behavior, instead of trying to bring the whole nation together as a good leader should do.

Nations who never experienced the righteousness of true democracy, free markets, separations of church and state, freedom of speech and religion have a better excuse for choosing populism of whatever kind. However, Americans should not allow themselves such excuse; we must refresh these constitutional values in our hearts and minds, or we will destroy ourselves.

As I have preached numerous times in this Forum, a few days ago I saw a Bill Moyers show where none other than Nobel Prize economist Paul Krugman recommended a book Capital in the 21st Century by Thomas Piketty explaining extremely well with overwhelming evidence how the so-called elite has accumulated fortunes over decades, whereby they have become the de facto leaders of the US and the world, moving continuously toward a well-entrenched oligarchy. This book is not about liberal or conservative, right wing or left wing, etc.; it is about the truth, it is about facts, and it should be about the values that our nation should stand for.

JE comments: WAISer Henry Levin reviewed Piketty's Capital five years ago.  (Technically, Hank's post is a meta-review:  the review of a review by Larry Summers.)


Piketty's thesis is that capital yields higher returns than an economy can grow.  Since the richest control the capital, inequality only gets worse.  Might it be time to re-visit Piketty?  Does his book still hold up, in light of everything that has happened since its publication in 2013?

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  • Re-Thinking Larry Summers, Thomas Piketty (Tor Guimaraes, USA 09/16/19 3:30 AM)
    First a confession: My personal and professional impression of the great Larry Summers is quite negative. I see him as one of the prestigious hired hands for the wealthy capitalist class during the creation and burst of bubbles in the last financial crisis. However, as his review of the Piketty's book indicates, he is quite adept at creating plausible questions and confusion even when the issues under discussion benefit from strong evidence.

    Five years ago, WAISer Henry Levin was obviously not fooled by Summers's criticisms of Piketty's book either. Henry summed up Piketty's thesis as follows:  "Since capital is concentrated in the hands of a relatively small portion of the population, the wealthy get wealthier relative to the rest of society while the remaining ... 90 percent of society is limited to [low or no income growth]." The evidence is even more obvious today.

    Henry also noted that "Summers seems to have two criticisms (and added that neither is original). The first is that at some point the law of diminishing marginal returns to capital will set in. The flaw in this argument is that investments in capital in the US are not limited to the US. They extend to other industrialized economies [and] particularly to emerging economies... [where] pricing of the investments is not based on competitive market transactions, but ... dominated by gross corruption rather than market dynamics. ... This means that the return to capital can even rise over a long period of time ... while growth in national income is guided by more stringent dynamics [including] the rising power of capital to squeeze and displace labor. Further, the access to these lucrative activities is limited to those who already have large capital accumulations. The second criticism is that Piketty's main policy ... to raise the tax on capital and high incomes to redistribute income ... is a "me-too" critique reflected in all the right-wing name-calling Piketty a Marxist [while] the left-wing [calls his policy] politically a non-starter [since] Piketty provides no political strategy by which this would happen. Summers' critique is pedestrian and obvious, with no alternatives of his own."

    I think Henry Levin's critique of Summers' piece five years ago is even more obvious today. Unfortunately things have continued to move in the wrong direction: the wealthy got richer and more influential in corrupting democracy, and tilting the political and economic scales further in their favor. Meanwhile most workers sink deeper into poverty or at best, wealth stagnation. Below I comment on some of Summers' (S) review of Piketty's book.

    (S): "Every pundit has expressed a view on his argument, almost always wildly favorable if the pundit is progressive and harshly critical if the pundit is conservative."

    TG:  Right, let's obfuscate Piketty's economic argument with political innuendos.

    (S): "Piketty makes a major contribution by putting forth a theory of natural economic evolution under capitalism. His argument is that capital or wealth grows at the rate of return to capital, a rate that normally exceeds the economic growth rate. Thus, economies will tend to have ever-increasing ratios of wealth to income, barring huge disturbances like wars and depressions. Since wealth is highly concentrated, it follows that inequality will tend to increase without bound until a policy change is introduced or some kind of catastrophe interferes with wealth accumulation."

    TG:  Yes, he got the message but he does not accept it despite the clear evidence supporting it.

    (S): "But recall that Kennedy seemed to hit the zeitgeist perfectly but turned out later to have missed his mark as the Berlin Wall fell and the United States enjoyed an economic renaissance in the decade after he wrote; similarly, I have serious reservations about Piketty's theorizing as a guide to understanding the evolution of American inequality."

    TG:  Again more obfuscation: what does Kennedy and the Berlin Wall got to do with anything?

    (S): "Does not the rising share of profits in national income in most industrial countries over the last several decades prove out Piketty's argument? Only if one assumes that the only factors at work are the ones he emphasizes. Rather than attributing the rising share of profits to the inexorable process of wealth accumulation, most economists would attribute both it and rising inequality to the working out of various forces associated with globalization and technological change. For example, mechanization of what was previously manual work quite obviously will raise the share of income that comes in the form of profits. So does the greater ability to draw on low-cost foreign labor."

    TG:  Ah, that explains the capitalist emphasis on automation and wild immigration. Just more obfuscation. The bottom line is the basic belief of whether or not human beings all deserve a fair shake at a decent life. Yes, I am a capitalist and believe in rewards for performance when individuals contribute to society more than others. But must the differential in income and wealth be allowed to rise to indecent levels where a few billionaires can corrupt the law, justice, free markets, and democracy, and create a de facto oligarchy?

    (S): "After Piketty and his colleagues' work, there can never again be a question about the phenomenon or its pervasiveness. The share of the top 1 percent of American income recipients has risen from below 10 percent to above 20 percent in some recent years. More than half of the income gains enjoyed by Americans in the twenty-first century have gone to the top 1 percent. The only groups that have outpaced the top 1 percent have been the top .1 and .01 percent."

    TG:  Yes, he got the message but prefers to obfuscate, stall, and propose no solution.

    (S): "So why has the labor income of the top 1 percent risen so sharply relative to the income of everyone else? No one really knows. Certainly there have been changes in prevailing mores regarding executive compensation, particularly in the English-speaking world."

    TG:  Perhaps executives (competent or otherwise) making incomes at 300 to one compared to the average worker's income has something to do with it. Or perhaps the severely reduced income tax rate on capital gains also has something to do with it. Summers must have forgotten such things.

    (S): "Hanging over this subject is a last issue. Why is inequality so great a concern? Is it because of the adverse consequences of great fortunes or because of the hope that middle-class incomes could grow again? If, as I believe, envy is a much less important reason for concern than lost opportunity, great emphasis should shift to policies that promote bottom-up growth. At a moment when secular stagnation is a real risk, such policies may include substantially increased public investment and better training for young people and retraining for displaced workers, as well as measures to reduce barriers to private investment in spheres like energy production, where substantial job creation is possible."

    TG:  The greatest obfuscation: it must be envy. I see, don't have a progressive income tax system or wealth-based taxes, that un-American and against God's will. Summers has now become a leftist, proposing big government programs and that the "great emphasis should shift to policies that promote bottom-up growth."

    The man is a political economic chameleon.

    JE comments: Let's tackle Summers's last question.  Why is inequality such a problem?  If you're the one getting the short stick, the answer is a tautology:  because it's inequality.  For the 1 or .01%, the answer is more complex.  Your initial response is "no problem at all," natural order of things, etc.  But there must also be a fear of the masses rising up to take your stuff (or your life). Or more likely, concern that too many have-nots will eventually drag down the entire economy, sinking your boat in the process.

    So far we've made no mention of Piketty as a French economist.  Relevant or not?  I think it is, especially with regards to taxation and the State's "ideal" role in an economy.  Moreover, his parents were Trotskyists during the struggles of 1968.  (They later repudiated their views.)  Once again, this is perhaps irrelevant, but growing up in a household of ex-Trotskyists will inevitably leave its mark.

    Maybe Luciano Dondero (WAISdom's own former Trotskyist) will weigh in?

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    • Trotskyist Economics (Luciano Dondero, Italy 09/17/19 4:43 AM)
      Our esteemed editor asked whether I can shed some light on Piketty's views.

      I'm afraid I'm unable to do so.

      In the first instance, I don't like to touch upon things that are outside of my interests, and prefer to limit myself to topics where I presume I may have something to say.

      Now, as far as I understand it, the field of economics (both classical and Marxist) is not too far removed from astrology in its relevance to an understanding of the reality around us. Of course, I am aware that there are people who make money through it--and many more that lose whatever money they may have to squander--but that simply means that there are empirical ways to deal with those facts of life that are called "economics," and is not evidence that economic theory itself is meaningful.

      As for the Trotskyist approach to this beast, like most things Trotskyist, there are many differing takes. Basically, everything revolves around the adaptation of Marx, Lenin and Trotsky's views to a representation of reality vaguely floating somewhere in between the glorious revolution of 1917 (even though it had been "betrayed") and Lenin's 1916 opus on "Imperialism." Trotsky himself tended to keep at some distance from economic theory, and his 1938 Transitional programme, the mantra of most "good" Trotskyists, essentially says that every "trade-unionist" demand by the working class regarding salary or working hours should be linked to the perspective of the overthrow of capitalism worldwide. The Socialist revolution can start in one specific country, but no victory can be rooted in a single country. Only world revolution will open the road to a Socialist (and then a Communist) future, i. e. Paradise on earth.

      While this may sound funny, what's actually tragic about it is that so many people, relatively speaking, could be found to waste their lives pursuing such a fantastic scheme.

      Looking back, I find myself at a loss to explain my own inability to see through it for so long.  My only consolation is that at least I never tried to invent a religion.

      JE comments:  Luciano, thank you for this crystal-clear distillation of Trotsky and economics.  Didn't Trotsky actually create a religion of sorts?  Although I would add that it's easier to invent a religion than a correct economic theory.  The latter has to yield results in this world, while the former can wait until the next.

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