.. vim: ft=rst: Thomas Piketty: Capital in the twenty-first century ===================================================== Take-away points: - Inequality is extremely high right now. This increase started around 1970. - Much of the inequality of wealth is being produced by extraordinarily high incomes of upper management and other specific worker types. - Those high incomes might be caused because those specific workers are highly valuable and very productive, but, this compensation, which seems to be in an entirely different scale from that of most workers, is likely because of unnatural conditions, for example, individuals (especially executives) who control their own salaries, entertainers where distribution mechanisms enable a few super stars rather than many performers in front of many smaller audiences, etc. - During times when the percentage earnings from capital (savings ?) is higher that the percentage growth rate, income from capital will out-pace income from wages, and inequality will increase. - It is not likely that we will effectively address this problem, because doing so would require global coordinated effort, which is hard to imagine. Actually, we can't even do it locally, i.e. in the U.S. - These trends are driven in part by policy decisions and politics. And, since those who are benefiting from these political policies and the wealthy and since they have control of our government and its policies, they will resist chance, and likely be successful at doing so. So, we can consider two rival and alternative views: (1) Increasing inequality of wealth is an inherent feature and result of the capitalist system; vs. (2) increasing inequality of wealth is the result of decisions and policies that we and our governments choose. A pragmatic resolution between these two views would be that the progression of an advanced economy shows the effect of both of these, and that what we see in our economy is the result of a dynamic interaction between them. A possible analog would be to say that an automobile is or can be a dangerous machine, and that whether its effects are harmful or beneficial depend on the decisions we make. (Whew. You can really tell that I'm a believer in a mixed economy, i.e. one where both the private sector and the government influence and direct the economy. See: https://en.wikipedia.org/wiki/Mixed_economy) Piketty gives policy prescriptions that might attempt to change these long-term trends, but he admits that those policies are very difficult to enact and he doubts that they will be enacted and effective. One response to the conclusions reached by this book is the Libertarian one: government should not interfere; it is not the job of government to correct inequality. However, that approach (or lack of one) inevitably leads to oligarchy. How the rich preserve their wealth: - They have access to more political influence. They pay for political favors, and they get them. They pay for favorable tax and business policies, and they get them. - They have and can afford better financial managers, better business consultants, etc. Their savings and investments can be protected, hedged, and leveraged in ways that are not available to small investors. Why this will not change: - Policies must be enacted and applied globally and consistently. If not, capital will simply shift to a friendlier (for the rich) location. - Even locally, for example in the U.S., we are unable to enact anything like the tax legislation that would counteract this trend toward concentrated wealth. If anything, political trends in this country are toward policies that are more favorable to business and the wealthy, and less supportive of labor. - Labor's power in the U.S. has been greatly diminished. Labor unions have much reduced membership, and there is no come-back in sight. - And recent U.S. Supreme Court decisions give even _more_ influence to money in policy decisions and politics in the U.S . - Addressing this problem requires governmental policies. In a democracy, that means that we need mass action by many agents, especially voters. But, the payoff for each voter is small and the effort required to mobilize it is large, inhibiting the possibility of effective action. For more on this, see "Power And Prosperity" and other books by Mancur Olson. An additional difficulty is that voters are concerned with other issues besides economic ones. They vote for candidates based on social issues, which prevents them from addressing economic ones. This might be called the "What's the matter with Kansas?" effect, after the book by Thomas Frank. Societies do seem to oscillate between periods of greater economic equality and greater inequality. In the U.S., it has been a long time since we've had one of those swings toward greater economic equality and broader sharing of wealth, even though workers in the U.S. seem more productive than ever. It is ominous that the one significant reset toward equality coincided in time with a severe depression and World War II. We have to hope that such catastrophic events are not a necessary condition for such a correction. Perhaps Piketty believes that they are, since he seems to be saying that capitalist economies have an inherent tendency, in the absence of significant exogenous shocks, to change in the direction of increased concentration of wealth. Questions: - Do we as a society actually want to solve this problem? The outcomes of our elections seems to show that we are less than enthusiastic about doing so. - If we are in the midst of a long-term trend toward increasing income and wealth inequality, how long before it bites us? If, as some project, unbalanced compensation means that there will not be enough consumer ability to purchase the goods as a successful and growing economy requires, how long before that becomes destructive? And, will that (inevitable) pain begin quickly, or will it advance incrementally, which means that we may not feel enough of a shock to kick us into action. Hopefully, because of the success of Piketty's book, we will see more of a particular style of economics books: _more_ awareness of facts, reality, numbers, and graphs; _less_ theory and ideology and opinion, though certainly we need explanation along with the numbers.