Capital in the Twenty-First Century: Difference between revisions

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Let’s be truthful. Capitalism is driven by fear.  Its origin is the Atlantic triangular trade, where enslaved Africans become the “property” of landowners.  Slaves were not just labor.  They were capital.  Property rights are only the other side of this fear.  As long as we are caught in this box, it is difficult to be too pessimistic. If we can build a new box, based on citizen participation and aimed at making provisions for all, we can have hope."
Let’s be truthful. Capitalism is driven by fear.  Its origin is the Atlantic triangular trade, where enslaved Africans become the “property” of landowners.  Slaves were not just labor.  They were capital.  Property rights are only the other side of this fear.  As long as we are caught in this box, it is difficult to be too pessimistic. If we can build a new box, based on citizen participation and aimed at making provisions for all, we can have hope."
(email, April 2014)
(email, April 2014)
=Discussion=
Will Hutton:
"Like Friedman, Piketty is a man for the times. For 1970s anxieties about inflation substitute today's concerns about the emergence of the plutocratic rich and their impact on economy and society. Piketty is in no doubt, as he indicates in an interview in today's Observer New Review, that the current level of rising wealth inequality, set to grow still further, now imperils the very future of capitalism. He has proved it.
It is a startling thesis and one extraordinarily unwelcome to those who think capitalism and inequality need each other. Capitalism requires inequality of wealth, runs this right-of-centre argument, to stimulate risk-taking and effort; governments trying to stem it with taxes on wealth, capital, inheritance and property kill the goose that lays the golden egg. Thus Messrs Cameron and Osborne faithfully champion lower inheritance taxes, refuse to reshape the council tax and boast about the business-friendly low capital gains and corporation tax regime.
Piketty deploys 200 years of data to prove them wrong. Capital, he argues, is blind. Once its returns – investing in anything from buy-to-let property to a new car factory – exceed the real growth of wages and output, as historically they always have done (excepting a few periods such as 1910 to 1950), then inevitably the stock of capital will rise disproportionately faster within the overall pattern of output. Wealth inequality rises exponentially.
The process is made worse by inheritance and, in the US and UK, by the rise of extravagantly paid "super managers". High executive pay has nothing to do with real merit, writes Piketty – it is much lower, for example, in mainland Europe and Japan. Rather, it has become an Anglo-Saxon social norm permitted by the ideology of "meritocratic extremism", in essence, self-serving greed to keep up with the other rich. This is an important element in Piketty's thinking: rising inequality of wealth is not immutable. Societies can indulge it or they can challenge it.
Inequality of wealth in Europe and US is broadly twice the inequality of income – the top 10% have between 60% and 70% of all wealth but merely 25% to 35% of all income. But this concentration of wealth is already at pre-First World War levels, and heading back to those of the late 19th century, when the luck of who might expect to inherit what was the dominant element in economic and social life. There is an iterative interaction between wealth and income: ultimately, great wealth adds unearned rentier income to earned income, further ratcheting up the inequality process.
The extravagances and incredible social tensions of Edwardian England, belle epoque France and robber baron America seemed for ever left behind, but Piketty shows how the period between 1910 and 1950, when that inequality was reduced, was aberrant. It took war and depression to arrest the inequality dynamic, along with the need to introduce high taxes on high incomes, especially unearned incomes, to sustain social peace. Now the ineluctable process of blind capital multiplying faster in fewer hands is under way again and on a global scale. The consequences, writes Piketty, are "potentially terrifying".
For a start, almost no new entrepreneurs, except one or two spectacular Silicon Valley start-ups, can ever make sufficient new money to challenge the incredibly powerful concentrations of existing wealth. In this sense, the "past devours the future". It is telling that the Duke of Westminster and the Earl of Cadogan are two of the richest men in Britain. This is entirely by virtue of the fields in Mayfair and Chelsea their families owned centuries ago and the unwillingness to clamp down on the loopholes that allow the family estates to grow.
Anyone with the capacity to own in an era when the returns exceed those of wages and output will quickly become disproportionately and progressively richer. The incentive is to be a rentier rather than a risk-taker: witness the explosion of buy-to-let. Our companies and our rich don't need to back frontier innovation or even invest to produce: they just need to harvest their returns and tax breaks, tax shelters and compound interest will do the rest.
Capitalist dynamism is undermined, but other forces join to wreck the system. Piketty notes that the rich are effective at protecting their wealth from taxation and that progressively the proportion of the total tax burden shouldered by those on middle incomes has risen. In Britain, it may be true that the top 1% pays a third of all income tax, but income tax constitutes only 25% of all tax revenue: 45% comes from VAT, excise duties and national insurance paid by the mass of the population.
As a result, the burden of paying for public goods such as education, health and housing is increasingly shouldered by average taxpayers, who don't have the wherewithal to sustain them. Wealth inequality thus becomes a recipe for slowing, innovation-averse, rentier economies, tougher working conditions and degraded public services. Meanwhile, the rich get ever richer and more detached from the societies of which they are part: not by merit or hard work, but simply because they are lucky enough to be in command of capital receiving higher returns than wages over time."
(http://www.theguardian.com/commentisfree/2014/apr/12/capitalism-isnt-working-thomas-piketty)





Revision as of 02:31, 15 April 2014

  • Book: Thomas Piketty. Capital in the Twenty-First Century.


Review

Marvin Brown:

"The key argument in Thomas Piketty’s book, Capital in the Twenty-First Century, has gained much attention of late, as it should. Quite simply, we are headed for continued disparity between the very wealthy and the rest of us, unless we create international governing schemes that can control the growth and movement of capital. And the chances of that happening are not very great.

As he admits, it doesn’t take a rocket scientist, or even an economist, to figure out the current trends. Capital—things like real estate and stocks and bonds—which can be seen as unearned income, will probably get a return of 4 to 5 percent, while return on earned income such as labor, will probably see an increase of around 1 percent. In such a future, the rich get richer and the poor get poorer.

This is not the first appearance of this argument. At the end of the 19th Century Henry George make a similar argument, and actually proposed a similar solution: a tax of capital. (Progress and Poverty). Will Pikett’s work become as well known as George’s once was and then as completely ignored? Hard to know. What is different is that George actually offered a new way of seeing things, a new story. Piketty, on the other hand, remains within the story of an economics of property. As far as we know from this book, he hasn’t taken seriously Karl Polanyi’s 1940 claim that labor, land, and money are not properties. Labor is a human activity, land is a biotic community, money is a social relation.

Even before Polanyi, George argued that land is a commons, something that belongs to all of us. Therefore, increases in the value of land should be shared with all citizens, in the form of a land value tax. Not a bad idea, but it would require either the generosity of landowners, which is unlikely, or the activation of citizens to take their democracy and make it work for the majority instead of the wealthy minority. Something that has not happened yet.

There is really nothing surprising that capitalism only works when political leaders represent the interests of all citizens rather than only the capitalist elites. I don’t think Piketty would disagree with this, but he doesn’t really offer a framework that would energize citizens to direct the economy. To limit economic analysis primarily to changes in income, with now more and now less going to labor or to capital, may motivate a few to try to improve things, but not many to transform them.

We need not to think outside the box, so to speak, but to change the box we think in. Instead of thinking about the distribution of income, we need to think about the distribution of provisions. Instead of thinking about increasing economic growth, we need to think about protecting the commons we all should share—especially the planet. Capital, after all, comes out of the commons. Just as all energy comes from the sun, all capital comes from the commons. Furthermore, money should not be treated as capital. It is a means to get what we deserve. If people are hungry, it is not because of the shortage of food, but the shortage of money to buy food. So, create the money. There should never be a shortage of money to buy food, or the other necessary provisions for a good life.

Let’s be truthful. Capitalism is driven by fear. Its origin is the Atlantic triangular trade, where enslaved Africans become the “property” of landowners. Slaves were not just labor. They were capital. Property rights are only the other side of this fear. As long as we are caught in this box, it is difficult to be too pessimistic. If we can build a new box, based on citizen participation and aimed at making provisions for all, we can have hope." (email, April 2014)

Discussion

Will Hutton:


"Like Friedman, Piketty is a man for the times. For 1970s anxieties about inflation substitute today's concerns about the emergence of the plutocratic rich and their impact on economy and society. Piketty is in no doubt, as he indicates in an interview in today's Observer New Review, that the current level of rising wealth inequality, set to grow still further, now imperils the very future of capitalism. He has proved it.

It is a startling thesis and one extraordinarily unwelcome to those who think capitalism and inequality need each other. Capitalism requires inequality of wealth, runs this right-of-centre argument, to stimulate risk-taking and effort; governments trying to stem it with taxes on wealth, capital, inheritance and property kill the goose that lays the golden egg. Thus Messrs Cameron and Osborne faithfully champion lower inheritance taxes, refuse to reshape the council tax and boast about the business-friendly low capital gains and corporation tax regime.

Piketty deploys 200 years of data to prove them wrong. Capital, he argues, is blind. Once its returns – investing in anything from buy-to-let property to a new car factory – exceed the real growth of wages and output, as historically they always have done (excepting a few periods such as 1910 to 1950), then inevitably the stock of capital will rise disproportionately faster within the overall pattern of output. Wealth inequality rises exponentially.

The process is made worse by inheritance and, in the US and UK, by the rise of extravagantly paid "super managers". High executive pay has nothing to do with real merit, writes Piketty – it is much lower, for example, in mainland Europe and Japan. Rather, it has become an Anglo-Saxon social norm permitted by the ideology of "meritocratic extremism", in essence, self-serving greed to keep up with the other rich. This is an important element in Piketty's thinking: rising inequality of wealth is not immutable. Societies can indulge it or they can challenge it.

Inequality of wealth in Europe and US is broadly twice the inequality of income – the top 10% have between 60% and 70% of all wealth but merely 25% to 35% of all income. But this concentration of wealth is already at pre-First World War levels, and heading back to those of the late 19th century, when the luck of who might expect to inherit what was the dominant element in economic and social life. There is an iterative interaction between wealth and income: ultimately, great wealth adds unearned rentier income to earned income, further ratcheting up the inequality process.

The extravagances and incredible social tensions of Edwardian England, belle epoque France and robber baron America seemed for ever left behind, but Piketty shows how the period between 1910 and 1950, when that inequality was reduced, was aberrant. It took war and depression to arrest the inequality dynamic, along with the need to introduce high taxes on high incomes, especially unearned incomes, to sustain social peace. Now the ineluctable process of blind capital multiplying faster in fewer hands is under way again and on a global scale. The consequences, writes Piketty, are "potentially terrifying".

For a start, almost no new entrepreneurs, except one or two spectacular Silicon Valley start-ups, can ever make sufficient new money to challenge the incredibly powerful concentrations of existing wealth. In this sense, the "past devours the future". It is telling that the Duke of Westminster and the Earl of Cadogan are two of the richest men in Britain. This is entirely by virtue of the fields in Mayfair and Chelsea their families owned centuries ago and the unwillingness to clamp down on the loopholes that allow the family estates to grow.

Anyone with the capacity to own in an era when the returns exceed those of wages and output will quickly become disproportionately and progressively richer. The incentive is to be a rentier rather than a risk-taker: witness the explosion of buy-to-let. Our companies and our rich don't need to back frontier innovation or even invest to produce: they just need to harvest their returns and tax breaks, tax shelters and compound interest will do the rest.

Capitalist dynamism is undermined, but other forces join to wreck the system. Piketty notes that the rich are effective at protecting their wealth from taxation and that progressively the proportion of the total tax burden shouldered by those on middle incomes has risen. In Britain, it may be true that the top 1% pays a third of all income tax, but income tax constitutes only 25% of all tax revenue: 45% comes from VAT, excise duties and national insurance paid by the mass of the population.

As a result, the burden of paying for public goods such as education, health and housing is increasingly shouldered by average taxpayers, who don't have the wherewithal to sustain them. Wealth inequality thus becomes a recipe for slowing, innovation-averse, rentier economies, tougher working conditions and degraded public services. Meanwhile, the rich get ever richer and more detached from the societies of which they are part: not by merit or hard work, but simply because they are lucky enough to be in command of capital receiving higher returns than wages over time." (http://www.theguardian.com/commentisfree/2014/apr/12/capitalism-isnt-working-thomas-piketty)