Paul Krugman Discusses Piketty’s Capital and the Rise of Inherited Wealth on Bill Moyers

Paul Krugman discusses Thomas Piketty’s new book, Capital in the Twenty-First Century, on Bill Moyers’ show. Those who follow the economic press will know that Piketty and Emanuel Saez have been following and writing about the growing disparity in wealth and income since the early 2000s. This interview focuses on a major finding of Piketty’s book, that the very richest aren’t, as most people like to believe, self-made, say, Bill Gates, Warren Buffett, Steve Jobs, Larry Ellison, or a hedge fund or private equity manager like George Soros, Leon Black, or James Simons. Ironically, CEOs are typically included in the “self made” which is more accurately “first generation uber-wealthy” camp, when they become stewards of established enterprises.

Piketty tells us we’ve got the wrong model. The super rich increasingly inherited their wealth. Think, for instance, of the Walton heirs. They occupy positions 6, 7, 8, and 9 on the latest Forbes 400 list, with each of their fortunes estimated at $33.3 billion to $35.4 billion. The famed Koch brothers, tied for fourth position at $36 billion, similarly inherited a family business.

There’s one argument from Piketty that Krugman didn’t dwell on:

BILL MOYERS: Here’s Piketty’s main point: capital tends to produce real returns of 4 to 5 percent, and economic growth is much slower. What’s the practical result of that?

If you think about this, that statement makes no sense. Even businesses that outperform the economy as a whole for a while eventually converge to GDP-ish rates of growth (or lower). And the reason is purely arithmetical: trees don’t grow to the sky. Nothing can keep growing at meaningfully higher rates of GDP forever. It would eat the economy (admittedly, the medical-industrial complex in the US is nevertheless trying really hard to do precisely that).

I knew a very successful money manager for wealthy families, and he told them that if they beat inflation by 1% on a sustained basis, they were doing very well and should be happy. His position was that loss avoidance was the top investment priority, that it was very difficult to recover from that, and the effort to do so generally made matters worse.

Now if Piketty is talking about financial claims on real assets, it becomes even clearer that this arrangement is not sustainable. (Piketty apparently conflates ownership of assets with financial claims, which is a bit disconcerting, since he includes stocks, bonds, land, housing, businesses. But if you include financial claims like stock and bonds, then you need to include derivatives, which are actually senior since they are secured… This admittedly is not a trivial problem to parse). We are in the territory that Michael Hudson and David Graeber have covered well, that of financiers demanding interest rates that real economy borrowers cannot support, which leads to periodic debt restructurings and jubilees. But the current model is being pushed to its limits through the pauperization of the former middle class.

Piketty argues that extreme income disparity has been typical, and the post-war period in the US is an anomaly. Yet even if oligarchy may be the typical economic structure of society, who has been in that oligarchy has not been stable in the modern era. The landed aristocracy was replaced by successive waves of robber barons. If we see a rise of a more ossified elite, that would represent an even more fundamental change in our social order.

Print Friendly
Tweet about this on TwitterDigg thisShare on Reddit0Share on StumbleUpon0Share on Facebook0Share on LinkedIn0Share on Google+0Buffer this pageEmail this to someone

170 comments

  1. backwardsevolution

    I may not be understanding this correctly, so please correct me if I’m wrong.

    “We are in the territory that Michael Hudson and David Graeber have covered well, that of financiers demanding interest rates that real economy borrowers cannot support, which leads to periodic debt restructurings and jubilees.”

    The lowest interest rates in history and borrowers cannot support them? That’s because PRICES ARE TOO HIGH! We had a credit binge and any borrower who could fog a mirror got a loan, which caused excessive demand, which caused prices to rise way too fast and way too high.

    When it all fell apart, prices fell, and they should have fallen further except the banks were bailed out. QE led to lower interest rates, and banks and hedge funds borrowed at next to nothing, plowing money back into assets, causing them to rise again.

    These are effects. The cause is cheap credit and the INFLATION that follows – inflating prices to the moon. People don’t need more money. They need prices to come down so they are affordable, but they won’t let them come down because the banks would have to be nationalized – they’re insolvent.

    Nationalize the banks, break them up, and start again.

    1. Yves Smith Post author

      We aren’t talking just borrowers. We are talking financial claims. Financial claims can either be debt like or equity-like. Debt-like claims can exceed the ability of the underlying economic entity to support them. You can get there even in a low interest rate environment via larger principal amounts of borrowing. You can also get there by having supposedly low interest rates ratchet up to higher rates in the event of delinquency.

      And you can also have parties who have equity-like financial interests do a lot of damage by trying to seek returns that a business may not be able to generate. The classic example is private equity firms who (to maximize the value of their takings, which are fees first and then an equity participation) who both borrow heavily and cut costs. Note that the PE firms still make money when a firm fails, although their limited partners don’t.

      1. Nathanael

        Here’s the thing:

        “We are in the territory that Michael Hudson and David Graeber have covered well, that of financiers demanding interest rates that real economy borrowers cannot support, which leads to periodic debt restructurings and jubilees.”

        It doesn’t need to lead to debt restructurings and jubilees. It can instead lead to debt slavery and eventually serfdom.

        This pattern is the pattern of continued excess returns on capital, in excess of GDP, and continued accumulation by the 0.1%. *And this is the pattern we’re seeing*. Look at what’s being done to people with student loans.

        1. backwardsevolution

          Nathanael – who took out the loan? The problem is that the government stepped in and backed the student loans. All of a sudden the bankers didn’t need to worry about who they were lending to. This caused everybody and his brother to get a student loan, which created increased demand, which caused prices to rise. Students are paying way too much for an education.

          Stop doing it!!! Most of these people are not getting jobs in their chosen fields, so stop doing it.

          Again, if the government didn’t meddle, a lot of these people would not have gotten loans. If they were truly sincere about chasing their dream, they would have worked hard to save up the money to go instead of taking out a loan.

          It is the government AGAIN! And, no, they didn’t do this for the students. They did it for the banks: lots of loans and no risk on the bank’s part. Banker heaven; student hell.

  2. Hugh

    The rich can beat outcomes in the real economy by blowing bubbles in the financial sector or by looting the real economy. I would contend they do both. While bubbles implode, the rich can make good their losses through the government and central bank which they control. So crashes and burst bubbles actually lead to them increasing their wealth relative to everyone else. You can argue that this isn’t sustainable but kleptocracy, the political economic system we have, has no interest in sustainability. This is why the rich are willing to go to the wall with their looting, and why the only way to resist them is by overthrowing them.

    The wealth of the rich is in no sense self-made. It comes from looting the labor of workers and the resources of society. This can come directly from looting like Gates, Jobs, Soros, Buffett, etc. or inherited wealth and rent collection like the Waltons. It doesn’t really matter because in the end it’s all looted.

    1. Banger

      I think the spirit of our oligarchy is moving towards kleptocracy but I don’t think Gates, Jobs and the others you mention have had a career of looting when they started. When those guys started they added value, they innovated, they produced products that people wanted–I include retailers here like old-man Walton and Bezos. These guys created great systems taking what was there to take and did not have to game the system to do that. Did they play hardball with competitors? Yes, but they had to and, under, capitalism that’s the way things are done.

      Today, after a at least a quarter century of increased corruption particularly in the federal government everything has changed. Now big players game the system and everyone is for sale from the President to the SEC and the rot has spread to NGOs, universities, the health-care system and so on. Capitalists have wildly succeeded in the U.S. but as a result they have created a Byzantine mess in Washington of court intrigue and corruption and alienation among the citizens. While the Wall Street barons are being baronial it is the system that has caused them to be all-powerful–a system that most Americans support because it delivers mass quantities of products to the majority–this is why there was no substantial support of the Occupy movement a few years ago.

      The Cold War kept the worst of America’s hustler mentality (see the work of Morris Berman) at bay and the end of that War was a disaster for those of us who are on the real left.

      1. Nathanael

        The worst problems can be dated very precisely to 1980. This is Reagan was elected. He openly pursued a policy of cutting taxes for the richest people and the most idle people. One of his first moves was to slash the top estate tax rate, so that heirs could inherit billions rather than millions. He also used the politics of fraud, lying constantly, and supported liars and frauds on a routine basis.

        Since then, inherited wealth has become a major factor in our politics, as has wealth gained by fraud.

  3. Optimader

    “The wealth of the rich is in no sense self-made. ”
    What constitutes rich?

    “It comes from looting the labor of workers and the resources of society”
    When does employing people constitute looting?

    It comes from looting the labor of workers and the resources of society. This can come directly from looting like Gates, Jobs, Soros, Buffett, etc. or inherited wealth and rent collection like the Waltons. It doesn’t really matter because in the end it’s all looted.

    1. Yves Smith Post author

      You are painting with far too broad a brush.

      Software is a ridiculously profitable product when you have a hit and it has very little in the way of a labor component relative to its sales price. I’m not a fan of Gates because Microsoft products suck. Perversely, that is actually pro-labor because companies with Microsoft products require help desks 10X as large as ones that use Apple (although Apple is getting suckier, so that differential has probably narrowed). I’ve even had IT professionals claim that the reason Microsoft became entrenched at big corps was because it was a full employment act for the techies.

      Our side loses cred when we take Manichean positions.

      1. Ignacio

        Although the point that Hugh makes is brougth to the extreme, it has much truth on it. Gates has benefited from a monopoly position to a degree that is well beyond his personal capabilities. Part of his wealth could be considered self-made, but the biggest part consists really on rents collected from “intelectual property” rigths that are well beyond Gate’s personal input. It has to be admitted that the externalities of a universal operating system, or a common electric grid for another example, should not belong to a single individual or a bunch of them. These intellectual rents look quite very much as the rents that landowners collected to allow commerce through the Rhine river.

        1. Yves Smith Post author

          I have several problems with that argument.

          First, in the days when Microsoft rose to ascendancy, US intellectual property laws weren’t as egregious as they are now. Second, Gates’ big break wasn’t due to IP laws, it was because his mother sat on the same board as an IBM exec, which gave him the entre to pitch Microsoft as the OS for IBM’s PCs. And in those days, the overwhelming majority of corporations would only buy IBM; buying a Compaq clone was considered racy or dodgy, depending on your degree of conservatism about technology. That gave him a tremendous advantage early on. And operating systems are a type of standard; no one want to have a ton of them. The market was inevitably going to coalesce around a comparatively small number of platforms.

          Even then, operating systems weren’t seen as sexy. Investors were much more excited about applications like VisiCalc and Lotus 1-2-3. I’m not even sure Microsoft understood well when it went public in 1984 how much it could leverage its position in the ho-hum operating system plumbing into apps.

          1. Ignacio

            My point is that if Gates wouldn’t have succeeded, another one, say IBM or Apple would have. Once computers reached comsumption markets the OS that would imperate in these would be the grand milch-cow to extract rents from the externality that a common OS brings. You migth not even need to file patents. All you need is to maintain your dominant position as an OS provider and maintain your OS closed for other companies. Imagine that the designer of the QWERTY keyboard was the only one with the rigth to commercialize QWERTY keyboards receiving a rent on every keyboard sold forever. That would be a rent, and not a self-made one.

            1. Yves Smith Post author

              I don’t believe that argument will be very persuasive to third parties. As I said before, I’m no Bill Gates fan. Nevertheless. early accounts of the company (and I’ve heard this from independent sources) say he was tireless in promoting Microsoft. Gates (with Ballmer) like Jobs, was a ruthless competitor. There were lots of celebrated software companies of the early 1980s like Lotus that fell by the wayside. And as I indicated, it was much later that the industry came to recognize that providing the OS gave you a huge advantage in the apps market. Your “he just wound up with the right real estate” argument is too pat.

              1. J Sterling

                You contrast “he was tireless in promoting Microsoft” with “he just wound up with the right real estate” as if the former refutes the latter. But that would only be the case if all the others that fell by the wayside had not been tireless, or if Gates was tireless-er. Everybody’s tireless in promoting their business; not everybody ends up with all the chips, and I see no evidence that Gates’s final position was due to anything other than the fall of the dice.

                On the subject of whether established software properties represent rent extracted by the 0.001% at the expense of everyone, or rent extracted by the 10% (“employment act for the techies”) at the expense of the 90%, well, I’ve often said the 10% are part of the problem, but they think of themselves as just ordinary folk (almost everybody does, no matter how rich).

                The (“upper”) middle class, via their jobs, are rent-collectors too, for all that the deal involves some labor on their part. The existence of a hybrid laboring/employing, rent-paying/rent-collecting class in the middle is what the term “middle class” was invented to describe, and they’re only potentially the allies of the rest of us, if they choose to be.

                1. fresno dan

                  I have read that Microsoft’s success was due to a deal that only Microsoft software could be loaded on computers, and that if other operating systems were used or made available, Microsoft was to be paid a fee. Computer companies saw no point in raising the price of the computer by loading alternative operating systems or offering other systems, and therefore Microsoft became a monopoly.
                  http://www.ritholtz.com/blog/2013/09/whats-behind-microsofts-fall-from-dominance/
                  “Microsoft’s greatest strength has always been its monopoly position in the PC chain. Its exclusionary licensing agreement with PC manufacturers mandated a payment for an MS-DOS license whether or not a Microsoft operating system was used. Because it made no sense to pay for two operating systems, it created a huge barrier to entry for any other software firm. No other operating-system maker could get a toehold in the PC market. By the time the company settled with the Justice Department in 1994 over this illegal arrangement, Microsoft had garnered a dominant market share of all operating systems sold. It held a lock grip on the market until 2008, when it fell below 90 percent desktop OS share for the first time.”

                  Does anybody know if the above contention is true?
                  I would say Bill Gates is rich because of restraint of trade, and because “free enterprise” did not work, i.e., Gates got rich because people were NOT “free to choose”

                2. Nathanael

                  Frankly, I don’t have a problem with small-scale rentiers. And I think a lot of people don’t mind the basic rentier.

                  I have a problem when they decide to start manipulating the rules to gain more rent — when they become *rent-seekers* rather than merely rentiers. This is the psychology described by Veblen in _Theory of the Leisure Class_ — insatiable desire for more, more, more stealing.

            2. mansoor h. khan

              Ignacio,

              You can’t blame Microsoft for being successful. Humanity’s IP is constantly being exploited by all individuals and businesses and even entire civilizations all the time. The Greeks took knowledge from the Egyptians and others and advanced it.

              The Romans took knowledge from the Greeks and others and advanced it.

              The Muslims (in the middle) ages took knowledge from the Romans, the Persians, the Hindus and others and advanced it.

              The west (during the Enlightenment) took knowledge from the Muslims and others and advanced it.

              MS must not be charging too much for its products since there are plenty of alternatives out there (various Linuxes and Open versions of Office, open versions of almost anything MS sells).

              Yes, we need to reign in obvious monopolies which don’t compete (like our banking system) and remove all gov support for them (lender of last resort, deposit insurance and bailouts) and let them starve to death and replace them with “public” institutions.

              There is too much emphasis on who owns property in this post and in our thinking in general.

              The main issue with our economic system is not “ownership of the means of production” but distribution of its fruits which usury has distorted so much.

              Property is used produce income when combined with labor (i.e., goods and services). Why worry about “property” if most “return” from property is fairly (evenly) distributed via “social credit” (gift) schemes anyway as proposed by Clifford H. Douglas in 1924 and many other economists in the first half of the last century and even earlier in history.

              The owner of the property wants “cash” (currency) which the government can give him/her in return for real output for the people. Capitalism does work superbly. Usury does not work and causes the economic imbalance we see all around.

              we need a different model for distribution of goods and services produced by an automated economy.

              Clifford H. Douglas and others have come up with essentially a “gift” economy idea. Sometimes known as social credit in relationship to our current banking system which would simply deposit money in a citizen’s bank account on a regular basis.

              Just like god has gifted the natural world to humanity the super productive humans would have to be convinced that the right way to distribute the fruits of an automated economy they disproportionately help to create using automation as leverage should be “gifted/shared” with the rest of humanity.

              Any other economic setup is disaster anyway as we can see all around us.

              Also, automation and business process/business management knowledge is based on accumulated human knowledge and experience.

              We cannot have both a hyper-automated economy and current debt-based credit & salary based economic distribution model. This became clear to many thinkers like Clifford H. Douglas way back in the twenties.

              Keynesian government spending model to “fix” a slowing economy is trying to do same thing (social credit) a different way.

              The current spending on Social Security, Welfare and food stamps is really “social credit” by another name. We simply have to formalize this idea and have a “dignified basic guaranteed income” for all citizens. This is very possible in industrialized countries of the world.

              More at:

              http://aquinums-razor.blogspot.com/2013/02/the-banking-system-and-economic-growth.html

              Mansoor H. Khan

              1. Ignacio

                Hi, Mansoor, Thanks a lot for you educated reply. Since I don’t want to sequester this interesting post with my comments (thoughtful or not) I will not re-reply your comment although it deserves commentary.

              2. susan the other

                Thanks Mansoor. We argue the details of a system that cannot work. I’m wondering if there is even any such thing as a new patentable application of all our recycled ideas at this point. We do need a different distribution model. “We cannot have both a hyper automated economy and debt-based credit & salary based economic distribution model.” This sounds like the “productivity” paradox.

                1. mansoor h. khan

                  susan the other,

                  Our job (people like us who think about this stuff deeply) is to educate and evangelize to all of humanity. At least for me, this is part of my ticket to heaven as explained in the Quran.

                  I hope we don’t have total chaos. That is too big of a test for me. I don’t think I can (mentally) keep it together if the banking system completely collapses overnight and checks stop clearing and I have to eat “grass” to survive.

                  At least I hope the global elites will keep adjusting the system si at least we will have time to educate each other. It may take several generations to get these ideas across globally.

                  Allah says in the Quran just do your best (try to do what I have asked) leave the rest to Allah.

                  It also says whatever Allah has done, is doing and will do is part of infinite mercy and there is infinite wisdom behind it. Here, we just need to do our best so we can enter heaven on the day of judgement.

                  http://mansoorkhan114.blogspot.com/2013/03/why-islam-last-update-31-2013-this.html

                  Mansoor H. Khan

              3. Dwight

                OpenOffice does everything I want it to do, including reading and writing in the .docx format. However, I can’t say it allows 100% certain exchange of documents (including track changes) with users of the recent versions of MS Office. I think most people upgrade MS Office, rather than keep the old version or switch to OpenOffice, because of this compatibility problem, not because of added functionality. In fact, the upgrades seem purposefully designed to inhibit compatibility, and also impose needless costs on the economy by making people learn a new program. So I think MS Office should be a utility but has instead become a disutility.

              4. AltoBerto

                “The main issue with our economic system is not “ownership of the means of production” but distribution of its fruits which usury has distorted so much.”

                And how exactly are those two not incestuously related?

                1. mansoor h. khan

                  Related but the same thing.

                  We can let a small percentage of people manage/own (as it is now) if that is the most efficient method.

                  And yes we can recognize them by giving them government issued money. That is good accounting and a good motivational tool.

                  And yes we have to make sure they don’t spend too much of it so it can be “gifted” to the rest of us.

                  And yes, we have to monitor resource use / environmental damage so they (and we) are discouraged from over-consumption via consumption taxes (not income taxes).

                  Justification for this is:

                  — While the wealth comes through the leadership skills/managerial skills/entrepreneurial skills of a small percentage of super producer humans they use;

                  A) they use common natural resources do it, humanity’s natural resources

                  B) they use humanity’s accumulated knowledge capital to do it

                  C) they use the common people do it, therefore somehow the well being of the common people (education, healthcare, police services, pensions, etc) must be taken care of

                  D) All of this is mainly consistent with the current economic paradigm of free market/entrepreneurship/risk taking, the part that is not working is that distribution of the output is based on debt based lending/credit. Also, monopolies need to dealt with so these guys (the managerial class) contribute/give more than they take.

                  E) debt based system usury is forbidden by the creator of universe (Allah, the god of Abraham)

                  F) Other systems have failed (communism) and the current system is becoming un-workable fast

                  Mansoor H. Khan

      2. Banger

        Indeed, I agree with you. The problem is not that there are “bad guys” and “good guys” as most Americans like to believe but that evil and good exists in all of us. The issue here is that the system we live under at this time tends to reward evil more than good (I define evil as a force that tends towards separation and good as tending towards connection). When we set up a system where evil thrives (Stanford Prison Experiment) even good people who tend towards the good can perform evil things. We need to understand the nature of this system–I think that’s our main task here and elsewhere we interact.

        1. mansoor h. khan

          Banger,

          I believe we (humanity) is being “punished/incentivized” by Allah (the creator of the universe) to question our systems. And most especially our economic system which poison’s every other system and all human relations and even our relationship to our environment and even our relationship to god.

          The root of the mis-use of our great economic gains over the last 300 years can be traced to debt based currency (money issuance) and otherwise known historically and biblically/quranically known as usury.

          Also, one thing we absolutely must give-up is the no-holes barred racism that is rampant on the planet. Nationalism is evil that turns humanity into a dog-fight and cock-fight (as in the two world wars and other modern wars).

          Liberalism has not solved the problem of rampant racism on earth. Islam will not completely solve this problem either (I suspect) but it will greatly diminish it. This is because Islam teaches equality of souls before the creator. Only good character and good deeds will distinguish souls in heaven.

          more at:

          http://mansoorkhan114.blogspot.com/2013/03/why-islam-last-update-31-2013-this.html

          Mansoor H. Khan

          1. Banger

            In order to give up racism, nationalism and other forms of tribalism we have to change how we view identity. Most people identify with their family, communities, tribe, country and so on–to transcend those boundaries requires moral development outlined in Kohlberg’s stages of moral development. This cannot happen by fiat–people must buy into it. This requires, for example, outreach by organized religions to lift up the higher level of morality above the tribal.

            1. mansoor h. khan

              Banger Said:

              “This cannot happen by fiat–people must buy into it.”

              I disagree it does kind of happen by fiat. The universe has been built this way by the creator. Throughout history people have been punished by god to re-examine their thinking and systems. Bad thinking and bad systems lead ultimately to a bad result and conversely good thinking and good systems lead to a better result (although not heaven, not before death anyway). For example, the corrupted late Roman empire or the corrupted medieval Church either collapsed or were re-formed.

              I believe much more punishment is in store for us all (humanity) due to the our extremely bad behavior lately (usury / greed / atheism / hedonism, etc.).

              Fasten your seat belt and pray!

              Mansoor H. Khan

        2. TheCatSaid

          Yes, yes, yes.

          And explore the things we can do that are most unambiguously feeding a “good” system.

          BTW one of the most important aspects of “money”, broadly defined, which I don’t see discussed much if at all–it provides a means of energizing our values and activities.

          1. mansoor h. khan

            TheCatSaid,

            Our current economic system is very good at instilling discipline in people and putting their energies (greed and desire to shine) to work for the masses. Money can be printed by the government debt free and given to “producers” in exchange for their output. The problem is that the bankers and usurer’s (the creditor class) of the world have high-jacked the “output/fruits” of the system.

            We simply need to re-direct the output away from monopolizers and bankers and usurers and to people.

            We should not tax income but tax consumption by the rich and upper classes. Income (money) accumulation is a “score” which puts peoples energies to work and motivates them (rightly so) just as “score” keeping does in sports!

            It is good to get the accounting right! Super producers get the score/recognition (money) but people get the “real stuff” the goods and services.

            Mansoor H. Khan

            1. mansoor h. khan

              susan,

              Huge damage and a huge crime has been committed by global bankers and usurers (the creditor classes) against the rest of humanity.

              Money should be printed by the government debt free and given to “producers” in exchange for their output. The problem is that the bankers and usurer’s (the creditor class) of the world have high-jacked the “output/fruits” of the system by “stealing” the money issuance system of the globe.

              Not only we need to stop usury NOW but we also need to apply remedy and restitution to the harmed. We need massive global debt forgiveness worldwide and much re-distribution of wealth to restore balance to our economic lives.

              More at:

              http://aquinums-razor.blogspot.com/2013/02/the-banking-system-and-economic-growth.html

              Mansoor H. Khan

      3. Optimader

        I am just paraphrasing Hugh’s claims w/ a couple questions to clarify the “brush size”.

  4. Ignacio

    I would like to comment on this:

    “Even businesses that outperform the economy as a whole for a while eventually converge to GDP-ish rates of growth (or lower).”

    I think that this not invalidate Piketty’s argument as Mr. Moyers formulates it. This eventual convergence that Krugman mentions migth be true for one particular business but the wealthy, or the oligarchs, have the ability to change from one business to another once the former business oportunity has been exhausted. In this way they can keep their ability to obtain returns above GDP growth for a very long time. If so, a consequence would be that wealth would, with time, concentrate in a smaller percentage of the populations. If the “status quo” follows its roadmap as Piketty believes, we will end talking, not about the 1% or the 0,1%, but the 0,01% or the 0,001%. Piketty´s argument comes from his (and his colleages) examinations of tax bills registered for more than a hundred years and it seems to me that this examination has shown him, empirically and clearly, how wealth tends to concentrate in fewer hands.

    In my opinion, it is of critical importance that the short period in which unequality was much lower was brougth by the most devastating wars. In fact, Piketty’s data show that lower inequality was mainly brougth by wars destruction and subsequent need to reconstruct. Once the reconstruction ended, the secular tendency resumed. Thus, humanity has not yet found a non disruptive way to break this “natural” tendency of wealth to concentrate in fewer hands.

    1. Yves Smith Post author

      The top strata now controls 40% of the wealth in the US. It’s actually higher since 6% of advanced economy wealth is squirreled away in tax secrecy jurisdictions. If you assume the US gets a pro-rata share, that makes the concentration among the top wealthy even greater.

      You can’t have 40+% of the economy extracting growth rates markedly in excess of the GDP for very long PARTICULARLY since many of the assets they hold are not unique (except for stuff like Picassos and mega yachts and super high end homes, which account for only a small % of total wealth). They hold public stocks and bonds, and you do too if you have a 401 (K). They hold PE and hedge fund investments, as do endowments, universities, and public pension funds. Only to a degree do they hold “unique rich people financial assets” and that is in the form of ownership of private companies (hedge fund and PE fund managers fit into this boat, as do Cargill and the Kochs).

      You will see convergence, either via falling rates of returns, or of losses on the wealth (which will have the same effect, of lowering returns) due to restructuring of some of the debt component.

      1. Ignacio

        From your reasoning it seems to me that you consider that the top strata has reached a share of total assets that is so high that cannot be surpassed by much. Let’s forget that the US is not a closed economy and the wealthy can earn more assets from incomes originated in faster growing economies. My opinion is that the top can still concentrate a higher share of total assets and in this way they can outperform GDP growth. Of course, in the long run, one can imagine that there is a limit to this trend and in a given moment, oligarchs could only outperform the economy at the expense of other oligarch’s assets.

        1. Nathanael

          Correct, ignacio. In the long run, after they’ve squeezed nearly all the wealth out of the 99%, and abolished the rule of law entirely, the oligarchs end up fighting each other for assets. It’s called “feudalism”.

      2. Ignacio

        Sorry I forgot to add something. I think that Krugman precisely noted that if one looks at the top 1%, their gains in the late years do not look as impressive as if you look at the 0,1%. Just consider what se miss if we do not focus our view in the very few plutocrats on the top rank.

      3. Robert Ricketts

        It seems to me that the issue is not necessarily that returns cannot long exceed the rate of growth in GDP. It is sufficient if capital can use the political system to capture a greater share of total returns relative to labor. For example, by abolishing minimum wage laws, attacking labor unions, shifting the tax burden down (e.g., carried interest rules), etc., the return on capital can exceed GDP growth for a very long time.

      4. VietnamVet

        The 0.01% also own the government. No Western oligarch has had to write off any of their bad debt from the 2008 crash. Quantitative Easing, sale of foreclosed homes and rents provide wealth to 0.01% no matter how stagnant the economy. The 0.01% are not paying for lost jobs or suicide cleanup. They are not paying for infrastructure improvement.

        The 0.01% push conflict to sell weapons and to ignite shock capitalism. In the last three years the USA has been involved in wars in Columbia, Libya, Mali, Congo, Kenya, Sudan, Yemen, Syria, Iraq, Pakistan, and Afghanistan. Topping the list is the incipient civil war in Ukraine where a conflict between Russia and NATO can easily escalate to a nuclear catastrophe. Finally the 0.01% are not paying for the costs of climate change.

      5. Nathanael

        Yves, I explained this below. You will NOT see convergence until AFTER the abolition of democracy. It is quite possible for the 0.1% to keep controlling more and more wealth until they’ve literally enslaved the 99%. At that point, yes, we will see convergence. But we want to stop this process BEFORE that happens.

        We’re already well into this process. Debt slavery has been reinstated in the US. Debt slavery was the means by which the great manorial estates of feudalism were created from the declining Roman Empire.

        Eventually debt slavery was replaced with serfdom: we’re well on our way to that too, with deals like “instead of paying off your student loans, just give X% of your income to your lender every year for life”.

        We’ve got a long way to go before the returns on capital fall back to match the general level of economic growth. Which they did sometime in the Middle Ages in Europe. The level of economic growth and the returns on capital were both very, very low during that period.

  5. backwardsevolution

    Ignacio – “…humanity has not yet found a non disruptive way to break this “natural” tendency of wealth to concentrate in fewer hands.”

    Those fewer hands get a whole lot of help from the government. In fact, without the government mollycoddling and aiding and abetting these fewer hands (and they are doing it with gusto), there’d be a lot more wealth spread around. The wealthy smear money all over the politicians, and the politicians reciprocate.

    Every single time the government gets involved in something, you know one of these hands is being greased. Very little is done for the common man. Education, medicine, pharmaceuticals, military, housing, you name it, the government enables the looting.

    It’s up to the people to change it, but they seem happy with a few dollars increase in the minimum wage, food stamps, and seemingly can’t wait to run headlong into the next bubble that gets set up to trap them – again. Over and over it repeats.

    They must just laugh at how easy it is.

    1. Banger

      But here it is time to note that not all governments are corrupt and on the take. At this time the U.S. federal government is, in my view, hopelessly corrupt because the disease is systemic. It involves all parts of the political sphere particularly the mass media. It is an integrated unit. There is no real tension anymore between regulators, business, media, bureaucrats, politicians and so on–they are all working for the same purpose–to protect and maintain a stable oligarchy and they have succeeded. There is now no way to dislodge this system in the U.S. barring major catastrophe.

      This situation in new. I had the opportunity to live in the Washington area for most of my life and observe power usually from a distance but sometimes up close and government, while corrupt in certain areas particularly in the national security state, was to some degree actually interested in doing positive things for the country with corruption at the edges but corruption as we see today was not systemic. Profound change came when the Democratic Party sold out to big-money in the eighties and re-invented/downsized government through imposing a destructive contarcting system that is now a key element of major corruption that has undermined the whole idea of civil service.

      1. ReaderOfTeaLeaves

        In addition, the Dems and GOP bought into the idea that government had to be run like a business, and that special interests were ‘customers’ and ‘experts’ to be deferred to – the cultural shift has been a slo-motion disaster.

    2. Vatch

      Hi B.E., I don’t understand:

      Those fewer hands get a whole lot of help from the government. In fact, without the government mollycoddling and aiding and abetting these fewer hands (and they are doing it with gusto), there’d be a lot more wealth spread around.

      There have been times in history when the government was far less involved in the economy, and the disparity between the wealth of the richest and the rest was shockingly high. For an example, consider the U.S. in the late 19th and early 20th centuries. Sure, there was some government activity, but far less than in the period following 1933. Prior to 1913, most government activity consisted of getting out of the way of Rockefeller, Carnegie, Morgan, and Vanderbilt. Breaking up Standard Oil didn’t do anything, since the Rockefellers, Harkness, Archbold, Flagler, and other super rich people still owned the fragments. How was the wealth being spread around during the Gilded Age?

      1. backwardsevolution

        Vatch – “There have been times in history when the government was far less involved in the economy…” I don’t know enough about this time, but I’m quite confident that if the topic were well researched, we’d find the government’s hand in there as well, i.e. the land the railroads used.

        1. Vatch

          I didn’t say that the government was uninvolved in the economy. Governments have always been intertwined with financial elites. But there were no health, environmental, workplace safety, or equal employment laws and regulations during the Gilded Age, and the disparity between rich and poor was enormous.

          1. backwardsevolution

            Vatch – “Governments have always been intertwined with financial elites.” Then perhaps that is all that matters? If you’ve got that, you’ve got the disparity you speak of?

            Health, environmental, workplace safety, equal employment, Social Security (got us all spending because we were lulled into thinking it would still be around when we got there, which hugely benefited corporate interests), unemployment insurance, blah, blah, blah – all of these things came in because the “government and the elites” were worried about communism spreading. Plus for a few short years there labour had the upper hand because of a shortage of workers. Now they just offshore the jobs, bring in outside labour because “they’re needed”, or illegal immigrants.

            Snap cards benefit the 7-11’s, Walmart, for instance. Do you think, if they didn’t, that they’d be around?

            Absolutely everything that’s brought in benefits the elite somehow, who plow dollars back into politician’s pockets. It really does very little for the common man. As Charles Hugh Smith said, the 50’s and 60’s period was an anomaly.

            Who benefits? The government has never been there to help ordinary citizens, not really. It’s a mill to crank out laws that are beneficial to the elite.

            1. backwardsevolution

              Now the people could change the above, but they don’t even know it exists. They actually think the government gives a shit about them. Bread and circuses, create a common enemy (Russia at the moment, Syria, Iran, on and on), divide and conquer…..the elite, government, with media in their back pocket, are experts at propaganda. The herd is oblivious.

              The government is the problem. But since the people are supposedly the government, they need to vote every single one of these sleazy politicians out.

              1. Nathanael

                The government is not the problem. That’s simplistic, silly thinking.

                The problem is powerful sociopaths. They can rule via business monopolies (buy the government, or establish “private law” where you follow WalMart’s rules), they can take over the government by propaganda, or they can do it the old-fashioned way by becoming warlords.

                At the moment they’re mainly using business monopolies and buying the government. They have used other techniques in the past. The key point is that we have to break their power whenever they start accumulating it.

                As Veblen explains to us, they will *always* be working *constantly* to accumulate power. And money, which they convert immediately into power.

                So we have to keep breaking their power. Over and over. I’m not sure how.

                1. backwardsevolution

                  Yes, governments over and over who get bought out by sociopaths, who golf and have dinner with these sociopaths.

                  But, no, it couldn’t be governments. Let’s blame the sociopaths. When was the last time a sociopath with a wad of money was thrown out of a politician’s office? Never?

                  The government and politicians must be severely limited in what they can and can’t do. If they were, this wouldn’t be happening.

            2. Vatch

              I still haven’t seen an explanation of how more wealth will be spread around without government. You said:

              without the government mollycoddling and aiding and abetting these fewer hands (and they are doing it with gusto), there’d be a lot more wealth spread around.

              It looks like the problem isn’t government, but instead, the problem is government behaving badly (mollycoddling and aiding and abetting). Are you suggesting that we get rid of government or just force the government to behave better? If it’s the former, how can we stand up to the billionaires of the new Gilded Age? If it’s the latter, how do we force the government to do anything good when so many powerful billionaires want the government to mollycoddle, aid, and abet?

              This reminds me a recent NC thread:

              http://www.nakedcapitalism.com/2014/04/general-mills-retreats-inch-mandatory-arbitration-overreach.html

              1. backwardsevolution

                Vatch – “Are you suggesting that we get rid of government or just force the government to behave better?”

                No, not get rid of government. As I said, “The government and politicians must be severely limited in what they can and can’t do.”

                I’m saying the government was there for the elite in the Gilded Age too. They have always been there, Severely limit their powers.

                1. Vatch

                  During the Gilded Age, the U.S. government’s powers were severely limited. The robber barons had private police forces (the Pinkertons, for example) and company towns. Sure, what flimsy government there was, was in the pay of the robber baron oligarchs. The government helped the rich because the rich were more powerful than the government. I still don’t see how reducing such a weak government would have helped to spread the wealth around.

                  1. backwardsevolution

                    Vatch – I’m not advocating no government, or having a “weak” government. I’m advocating having a very strong, but severely limited government, i.e. taking money from corporations.

                    Whenever money is allowed to enter your political system, it will concentrate into fewer and fewer hands (as someone smarter than I said).

                    I think we’re on the same page really.

  6. Tim Mason

    Yves – you talk of long-term instability of the oligarchs. I don’t know enough about US history to make any comment on how this panned out over your side of the Atlantic, buy in the UK the ruling class has remained astonishingly stable over a very long period of time: the Norman Yoke is still weighing on the shoulders of the rest of us. See, for illustration, this article from the Telegraph.

    Of course, the English aristocracy has survived by incorporating new elements – including the daughters of rich Americans – but its consistent maintenance of power despite changing social and economic circumstances suggests that long-term oligarchy is not as improbable as one might assume. (And even the French aristocracy managed to keep some grasp upon power, surfing the revolutions of the 18th and 19thCs to good effect).

      1. Banger

        I agree that America traditionally has had a lot of turnover in fortunes which is what made the United States the most dynamic and creative society in the world in the late 19th and much of the 20th century. But this country is not the country it was.

        The U.S. is no longer a constitutional republic with democratic institutions. It is a highly controlled Empire that has evolved into a semi-police state governed by an increasingly tighter alliance of oligarchs who have managed to seriously slow down social mobility and gamed elections through a variety of methods. We no longer have even the appearance of rule-of-law. We have a clear class system–the aristocrats are, largely, not subject to the same law the rest of us are subject to. The rich can easily buy influence public policy–yes, there were periods when influence could be bought but power was more evenly spread out in the days of the Republic so corruption, while a problem, never completely dominated the political/economic system. Critical to this set up is a mass-media utterly dominated by a few players who have created a system of propaganda that, outside of the internet, is seamless. Each outlet caters to a particular demographic. NPR caters to the upper-middle educated elite, Fox, we know, caters to a diverse lot of illiterates and scoundrels and MSNBC caters to fake leftists and so on. But the basic narrative is the same whether you listen to Bill O’Reilly or Rachel Maddow–the basic narrative is the same and the conflicts center on culture not real politics. Comedy Central makes fun of cultural conservatives and Fox mocks liberals. None of them attack the system, none of them critique or present a clear analysis of what is going on in the world–all preach the doctrine of American Exceptionalism–all of them are politicians and courtiers.

        This is for real–barring major collapse these oligarchs will endure.

        1. Dan Kervick

          The issue isn’t just whether fortunes turn over, but about the role of private economic power in our democracy.

          Who cares if the people sitting in the chairs at the Great Oligopolistic Board Meeting that runs our society are different from generation to generation? Whether they inherited their chairs or earned them by devouring business competitors and building empires of capital, they are still plutocrats.

          I don’t want to be ruled by either old money scions or self-made Silicon Valley hustlers who have bought the political system. By the same token, if we lived under a military dictatorship, I wouldn’t care if the dictators had achieved power by inherited right or by engaging in single combat death matches.

          1. Banger

            Turn over allows change in between the cracks. The current stasis and inability of contemporary American political culture to deal effectively with any vital national/international issue is a result of stagnation at the top.

            1. Nathanael

              Turnover didn’t allow much of any change from the fall of the Roman Empire until the Age of Exploration. *Roughly 1000 years.* The names in charge of the kingdoms kept changing, but the social system didn’t change.

              Dan Kervick is right. The outcome is likely to be a rotating sequence of power-hungry hustlers (or warlords); not the same ones every generation; but this outcome SUCKS. The individuals are in unstable positions, but the system of fedualism remains stable.

        2. TheCatSaid

          Great comment that tells it like it is.

          Despite the lack of clear ways to create systemic change, those of us who can take even small steps in the direction of where we’d like to be going may end up helping a transition.

          After all, we never know when even the most intractable systems might collapse. It could be climate events, social unrest, workers in some key industry putting their foot down, or a pandemic more deadly than the most recent one. We are on the cusp of pre-antibiotic days due to microbial resistance, and not many treatments to help restore balance in relation to acute viral illnesses.

      2. Vatch

        The Forbes 400 may have few or no families from among the aristocrats of the Gilded Age, but I strongly suspect that there are many descendants of the late 19th century super rich among the 0.01% in the United States. The U.S. population is about 317 million, so there are 31,700 people in the U.S. top 0.01%. Does anyone really doubt that there is a disproportionately high number of descendants of 19th century railroad barons and the principal Standard Oil owners in today’s 0.01%?

        1. Yves Smith Post author

          Actually, I doubt that because the value of the elites then were different than now. Recall the old saying of how wealthy families had only three generations? The first made it big, the second generation did really well (or maybe even built on the wealth of the first) and the third generation became artists or went into politics or did the charity circuit. Basically, the hunger to succeed was blunted by growing up so comfortably, and the wealthy back then took noblesse oblige way more seriously than the current crowd does. If you are a wealthy scion, being a great philanthropist or novelist would confer more social stature than being yet another successful rich businessperson, particularly when you’d already gotten such a huge head start. Look at all the Kennedy kids as an example.

          And when I think of the old WASP money I encountered at Harvard, those kids had impeccable manners and were well spoken (those were their class markers) and they generally were modest spenders (it seems most of them had drummed into them the story of some distaff relative who’d gone through his money and either died in a distressed state or was rescued by relatives). Most of them were more interested in arty/intellectual career paths. I can think of only one who went into fiance and did well, and his family was old and monied but hadn’t been at the very top of the old money cohort.

          So shorter: I’ve no doubt coming from a family that was wealthy historically confers great advantage. Even if you don’t literally have have a silver spoon in your mouth, you grow up into a family that understands how the elites work and has great networks. Look at Churchill, who was skirting creditors most of his life, but nevertheless lived the lifestyle of an aristocrat entirely from what he earned as a journalist. Why? One of the big reasons is his mother, Jenny Jerome, woke up when Churchill was in his early 20s, realized this son she’d neglected and considered stupid was actually talented and interesting, and promoted him aggressively.

          So are probably very likely to wind up at least upper middle class a few generations later unless you are very self destructive or undisciplined. It’s the persistence in the 0.1%, or even the 1% of the older American elites that I’m questioning.

          1. Nathanael

            It doesn’t really matter, though, does it? If you look at the Middle Ages, you see that the power elite is a rotating cast of people knocking each other off. They all start out in the top 1% — they all know each other’s names, and are frequently relatives. They aggressively fight wars with each other to steal each others’ stuff.

            For the little people, the 99%, this system sucks. It doesn’t really matter that the “guy at the top” changes every so often — in fact, that makes it worse. They’re still from a tiny, incestuous power elite. The *system* of feudalism was highly stable, although the position of any individual near the top of a feudal system was quite unstable and involved constant warfare just to maintain the same position.

      1. jagger

        If it can be demonstrated certain states of being, such as poverty, stress, hunger, etc, produce multi-generation genetic harm, would not society have an obligation to erase those conditions today? If you remove the poverty or hunger from today’s generation, will we see genetic improvements in the lifes of their children, grandchildren and great grandchildren? Of course, society has an moral obligation to the poor independent of long term consequences but if it can be demonstrated that ignoring them today will result in consequences for multi-generations, does not the argument become stronger?

    1. Nathanael

      The English aristocracy survived due to its willingness to give up power when push came to shove. See the Glorious Revolution, Earl Grey, the Reform Acts, the Parliament Act, Clement Atlee.

      The oligarchs’ position is unstable in the long-term unless they are willing to *compromise*. If they’re willing to compromise, they and their descendants can stay rich and powerful forever.

      The uncompromosing oligarchs include the French aristocracy who mostly got beheaded and the Russian aristocracy who mostly got shot, as well as various other dead dynasties of the past.

      What disturbs me is the current oligarchy’s greed and unwillingness to compromise. A smart set of oligarchs would have said “Single-payer health care? Yes, ASAP. Banks stealing houses from people? Can’t have that, undermines the system dontcha know, let’s throw those rascally bankers in prison.”

      For “smart American oligarch”, think Henry Ford — paying his workers enough to buy his products. Who benefited from Fordism? Henry Ford, mostly. But it kept everyone happy enough that he could just keep benefiting.

      Now, we have LOTS of corporate executives who aren’t paying their workers enough to shop in their stores. It’s madness.

  7. Skeptic

    Paul Krugman, Nobel Prize Winner Economic “Sciences” finally sees some of the Train Wreck all around him. This Train Wreck has been apparent to many non-economists for a decade or more.

    Next week: Paul Krugman hears about a new concept: 1% Metastasizing Crime Wave. And writes a column about it. Hooray!

    1. diptherio

      Notice that at 17 minutes he suggests that we not give up hope in reforming our system. Hey, we might get a global wealth tax by 2024! Keep tilting at windmills, the Krugster assures us that it might work!

    2. ftm

      I’m not a Krugman basher but like a lot of people I”m still waiting for him to do a full climb down from his 90’s advocacy of trade liberalization. He started the climb down with his inconclusive 2008 paper . The guy took a personal role in the destruction of US industry and millions of middle class jobs. It was a position that served his career well but one that he has yet to come to terms with.

  8. StevenT

    This is a very informative post on financial claims. Thank Yves for your consistent responses to the comments.

    Would more QE be a solution to reducing inequality, or has the Fed exhausted the strengths of this particular tool? What about further fiscal policy either on “shovel-ready” projects or infrastructure investments – Would either of these resolve or exacerbates this “hidden tax” to the nation and society?

    Finally how could the government at this stage realistically rectify the situation? What small steps taken could produce sufficient long term results?

    1. Ignacio

      I think it is a big mistake to make it personal. Even if one just mentions the top 10 in the Forbes list. On the contrary, any attempt to modify wealth distribution MUST be public and impersonal.

      1. diptherio

        I get what your saying, and agree. However, I feel like letting Kruggy on Moyers is just giving him credibility that he doesn’t deserve. He admits that he didn’t know any of this was a problem until he read Picketty. Really? Most of us here at NC had it figured out long ago.

        Kruggy is a trojan horse. Let me know when he issues an apology for all his past B.S.

  9. Donald Weightman

    Isn’t the Piketty response to r must converge on GDP ‘the data say otherwise’? I mean – if I remember right – he says he’s got the data to back it up for France et al over the last two centuries.

    Anecdotally, his reading of the expected return on (mostly landed) wealth in Jane Austen is dead on, and I haven’t seen anyone say that he’s making up his other historic data.

    So we’re left with:
    1. He’s misinterpreted the data – the trends weren’t like that – and/or
    2. His projections won’t stand up – given ‘what we know, axiomatically’ about r in a market model.

    But if the top 1%, or the top .01%, or whatever, are still doing very well, thank you, the isn’t the point: he’s got it right up til now and, as the man said, what is to be done?

    1. Yves Smith Post author

      I sincerely doubt he had any decent return data on assets prior to the recent period. How could he have possibly put this together, particularly given the dispersed nature and almost without exception private nature of ownership until the development of highly liquid securities markets? So I haven’t read the book, but I suspect his “excess returns” work is based on data from the neoliberal period, a time slice from the 1980s onward. And that period would feature super-normal returns because we went from a model where productivity gains were shared with labor to ones where it isn’t much, if at all. So basically this is a long period when the terms of the deal are being redone to favor capital. Once that shift is largely complete, I’d expect you’s see a slippage in the premium.

      Prior you had frequent events that wiped out the holdings (or at least some of them) of the wealthy and induced resets. In France, for instance, you had government regime changes every 20 years or so from the Industrial Revolution to the Third Republic. Wars were frequent in Europe prior to the 1870 to the pre-WWI period. You also had frequent bank failures and financial crises. And you also had busts in the underlying assets, such as railroads in the US.

      1. Dan Kervick

        So I haven’t read the book, but I suspect his “excess returns” work is based on data from the neoliberal period, a time slice from the 1980s onward.

        No, most of the data that informs the book comes from a combination of income tax data and estate tax data extending back into the 19th century. In the case of France, the data goes back to the time of the French Revolution.

        1. Yves Smith Post author

          Then the only way the excess returns could persist for so long would be if the top wealthy held a much smaller % of total wealth than the current crop has amassed. And how good was the system at reporting and capture of income? And as important, where did he get his measures of GDP growth? You can’t have reliable stats for that before the Great Depression:

          It took more than 250 years, the Wall Street Crash of 1929, and a worldwide depression for economists to fully appreciate Petty’s quantitative approach to national income. The first to investigate the concept comprehensively was John Maynard Keynes, in “The General Theory of Employment, Interest and Money,” in 1936. Meanwhile, Presidents Herbert Hoover and Franklin D. Roosevelt had commissioned the economist Simon Kuznets to develop estimates of U.S. income to guide their policy responses to the Great Depression.

          Kuznets’s “National Income, 1929-1932,” was the first comprehensive measure of national income and output. His accounts, a set of industry-by-industry estimates, allowed Roosevelt to describe the performance of the U.S. economy in his budget request to Congress.

          http://www.bloombergview.com/articles/2013-03-28/earliest-calculations-of-gdp-had-some-unexpected-results

          Just pull out a calculator. A couple % of returns to capital in excess of GDP has the super wealthy going from owning ~45% of the wealth to over 67% in 20 years. They go to 83% in 30. By year 40, they’ve pretty much eaten the economy, they control over 99% of all wealth. By definition, they can’t be outperforming the economy because they are the economy.

          1. Dan Kervick

            Just pull out a calculator. A couple % of returns to capital in excess of GDP has the super wealthy going from owning ~45% of the wealth to over 67% in 20 years.

            I don’t follow this, Yves. It doesn’t follow from the fact that the return to capital in each year is 2% greater than the growth of GDP that capital is acquiring an additional 2% share of total wealth each year, because there are other sources of income and wealth accumulation other than the return to capital.

            For example, Picketty uses an example in which the ratio of national capital to annual income is 6/1 or 600%, the annual return on capital is 5% and the initial capital share of national income (the ratio of the total return to capital to total national income) is 30%. So, for example, annual income might be $1 trillion, national wealth $6 trillion, the annual return to capital $300 billion and the remaining part of national income that does not consist in the return to capital $700 billion.

            Now imagine all of these ratios remain constant, but that the growth rate of national income is 3%.

            1. Dan Kervick

              And remember that not all income, whether its is returned to capital or labor, makes a contribution to the growth of capital, since some of it is consumed in the same year it is produced. In the US, for example, the consumption share of GDP is about 70%.

              Picketty’s book is quite lone, and the arguments regarding inequality are more complex and involved than many of the initial, rapidly produced reviews make clear. For one thing, a given capital owner might make an addition to his capital stock as a result of income earned from labor, while a laborer can also accumulate capital. Also, Pickety includes the wealth owned by the public – i.e. the government – as part of the nation’s capital.

            2. Nathanael

              Yeah, the math is a lot more complicated than just subtracting percentages. The return to capital can be 2% greater than the growth of GDP. You *do* get persistent increases in the share of the wealth of the elite, but it’s a lot slower than Yves thinks it is.

      2. myshkin

        I think this is a relevant excerpt from Krugman’s review of Piketty in the NYRB regarding Piketty’s method. Evaluating its accuracy is above and beyond my pay grade.
        “…Piketty and his colleagues, who have turned to an entirely different source of information: tax records. This isn’t a new idea. Indeed, early analyses of income distribution relied on tax data because they had little else to go on. Piketty et al. have, however, found ways to merge tax data with other sources to produce information that crucially complements survey evidence. In particular, tax data tell us a great deal about the elite. And tax-based estimates can reach much further into the past: the United States has had an income tax since 1913, Britain since 1909. France, thanks to elaborate estate tax collection and record-keeping, has wealth data reaching back to the late eighteenth century.

        Exploiting these data isn’t simple. But by using all the tricks of the trade, plus some educated guesswork, Piketty is able to produce a summary of the fall and rise of extreme inequality over the course of the past century.”

          1. Nathanael

            You can have that kind of premium persist for a very, VERY long time.

            Obviously not forever, but for hundreds of years. Until well after you’ve completely dismantled democracy.

            Studying the way the Roman Republic turned into the Roman Empire and then fell apart into manorialism is instructive. It followed the same inexorable mathematics which Piketty describes. The return on capital reverts to match GDP sometime after the population has been reduced to serfdom.

            1. Nathanael

              OK, Dan Kervick explained your error above. You’re compounding erroneously. A 2% excess of return on capital over increase in GDP is *not* equivalent to a 2% increase in the share of national wealth each year; it’s equivalent to a much smaller increase in the share each year.

  10. Dino Reno

    So (a tip of the hat to Harry Shearer) the real explanation for the growth of the middle class over the last one hundred years is the two world wars that destroyed capital and the resulting rapid expansion of GDP that flowed to labor in the rebuilding. This was the aberration that resulted in the ahistorical and fleeting equality that we bemoan the loss of today. Absent major wars or progressive tax policy, this golden time will not return again. We now resume our regular programming where those in power tighten their grip on the underclasses by beefing up security and restricting access to opportunity. Theirs not ours.

    1. J Sterling

      I think that ignores the success of the labor movement from the nineteenth century all the way to the 1940s. That started long before the first world war.

      1. Dino Reno

        Ah, but remember the depression at the turn of the twentieth century was only lifted by WWI followed by the roaring Twenties, followed by the Great Depression that was only ended by WWII, followed by the greatest period of property this country has ever seen. World-wide destruction on an epic scale seems to be the sine quo non for broad based prosperity in spite of the labor moment and not because of it. When your toilet explodes and you have to call the plumber, you pay the going rate. Capital nowadays is hunkered and bunkered down with TBTF backstops courtesy of Central Banks. Loses flow through to the masses. And yes, sadly, the labor movement has been systematically destroyed so any work to be done now goes to the lowest bidder. The implementation of Artificial Intelligence and robot technology over the next 5-10 years will seal the New Raw Deal.

        1. Nathanael

          There are several other ways to break the cycle.

          Don’t forget the sudden, major prosperity of Russia after the Bolshevik Revolution.

          No, I’m not kidding. Really happened, it’s clear from the economic data.

          Why? Because the extremely rich had their wealth redistributed in 1918.

          Of course, a lot of the wealth ended up accumulating back in the hands of the Party elite, but it took a long time.

  11. Dan Kervick

    If you think about this, that statement makes no sense.

    Why? One portion of the economy can earn a return consistently higher than the rate of growth if the remaining portion of the economy earns a return consistently lower than the rate of growth. Of course, Piketty does think this is a destructive “contradiction” in capital and says it is a way by which “the past eats the future.”

    It’s not just about businesses. Piketty’s notion of a nation’s capital is synonymous with “national wealth”, and includes everything that is owned and can be traded on a market. That includes all real estate, residential or commercial, and all financial claims on the wealth or income of others – even public wealth, not just private wealth. Piketty is trying to analyze historic trends and regularities in the share of national income that is obtained by virtue of ownership as opposed to the share obtained by virtue of other factors.

    But the r > g business is not itself the explanation of why wealth tends to become more unequally distributed and concentrated. After all, if everyone owned an equal share of the nation’s wealth, then a high return to capital would just manifest itself as an equally distributed high return to personal incomes. Piketty’s analysis of how inequality grows over time is mainly contained in Chapter 7. The main idea is that, while there are forces in capitalism tending toward the dispersal of wealth and others toward the concentration of wealth, the latter forces predominate and the possession of wealth previously accumulated gives an advantage in the race to increase one’s share of the nation’s wealth.

    1. susan the other

      So as Yves said above, Picketty didn’t contend with derivatives (which I take to mean all sorts of interest on interest). But in this system what is a poor rich person to do? All that profit and nowhere to put it. What destabilization will occur when the accrued interest on interest or all the gains from turbo productivity is redistributed back into the economy via social policies – we will have to resort to the same weird balancing mechanisms, like destroying the planet, rampaging through resources, war not for the resources themselves but for control over the sale of them… so simple redistribution is not as enlightened as it could be. Maybe we should redistribute poverty among the absurdly wealthy, and include concepts like conservation in the broader definition of “capital.”

      1. allcoppedout

        We had a phrase here like ‘I got the smell of a bag as ud ad cakes in’. A derivative is the promise to put together a collection of such bags to hand round to prevent hyper-ventilation when money borrowed to pay interest on previous loans otherwise in default can’t be raised owing to a shortage of paper bags and cakes to make more derivatives with to use as collateral to make the loan to pay the interest on the loan that now defaults, The derivatives, as you can see, were meant to give the sweet smell of success in such credit events to maintain confidence for the next loan to roll over. Without this scent in their nostrils, banksters collapse as surely as a Glaswegian drunk hitting crisp fresh air, and start leaping from windows. Peasants’ insurance pays out at this point and with tax credit on the previous losses forms the new bank capital. The whole, virtuous circle process starts again. Politicians promise the public smell of a bag that had cakes in futures, issuing banks with electronic paper bags on their promise to build an actual bakery in 2024 …

    2. Yves Smith Post author

      Please see this comment. Piketty argues for persistence, and it is mathematically impossible for him to be showing the kinds of premium returns he is claiming for the protracted periods he does:

      http://www.nakedcapitalism.com/2014/04/paul-krugman-discusses-pikettys-capital-rise-inherited-wealth-bill-moyers.html#comment-2015328

      And this one:

      http://www.nakedcapitalism.com/2014/04/paul-krugman-discusses-pikettys-capital-rise-inherited-wealth-bill-moyers.html#comment-2015399

      1. Nathanael

        You’re simply wrong, Yves. I’m not sure whether it’s your mathematical skills which are insufficient or your historical skills, but Piketty is right and you’re wrong.

        This situation can persist for a very, very long time.

        If there’s sufficient growth, the elite can capture an ever-larger share of the economy while the poor still have enough to eat.

        Eventually, the inequality actually suppresses growth. At this point, the elite can STILL capture an ever-larger share of the economy — perhaps by reducing the poor to slavery.

        Eventually, there’s nobody left to enslave and there’s no economic growth. Only *then* do the returns on capital fall back to equal GDP, as the Dark Ages start.

        1. Nathanael

          It’s worth noting that the immediate pre-industrial period featured massive increases in slavery and massive land thefts, in the form of colonialism. Then the industrial period featured further land thefts (from the Enclosure Acts onward), and the theft of what used to be a birthright — clean air and water.

          You iterate enough of these thefts from the 99%, it’s very easy for the returns on capital to be WAY higher than the actual increase in production or standard of living.

  12. Steven Greenberg

    The wealthy 1% have only received 60% of the increased income over the last 30 years. So they can grow faster than the economy until they get the other 40% that they don’t already get. Then the growth will have to slow down until they suck up all the wealth as well as all the income. (I may have some of those numbers wrong, but the point is still valid.)

  13. Rob Urie

    Yves, The Federal government supported IBM with fat contracts for a half century before Bill Gates made his contribution. The defense department created the Internet that so benefited software and hardware makers. Larry Ellison started his business with a fat contract from the CIA and made his fortune from using low cost labor, the detritus of imperial history, to manufacture his products. And Warren Buffett has attributed his success to being born in the right place at the right time, not to some time invariant skill. Saez’s and Piketty’s very own research claims low economic mobility in the U.S. Conversely, I’ve met a number of working poor who work two or three jobs. This argument may not be broadly rhetorically effective, but it is representative of a coherent perspective on history. Best, Rob Urie

  14. Andrea

    Piketty is a descendant of the French Revolution. In the sense that he sees property, assets, financial values, etc. in those kinds of older French terms. I haven’t read his book so have to shut up on that.

    In Switzerland for some time we have been conscious of the growing weight, importance, of inherited wealth.

    Which has lead to many proposals to change taxation 1 (and we are voting and will vote on many of them), notably a ‘predictable’ Socialist initiative to set up an inheritance tax, which is unknown in CH. Overall, some cantons may take some admin. charges or at most 1, 2% – that is because (specially) property (and biz assets) are taxed throughout one’s life time, and not in one chunk at death as is the case in France for ex.

    Endless discussions…

    Part of the spur is that in CH we also note since a few years (very worrisome) not just the inheritance of wealth / advantage but of poverty. The first examples of generational transmitted poverty (parents on social aid, with adult children ditto) have been detected in Neuchatel, which is a rich canton, with a GDP per capita to dream of. Which has never been a very strong consideration in the US, despite affirmative action, Medicaid, etc.

    The discussions around all this obviously can’t be, and aren’t, limited to taxation and redistribution, as Krugman seems to do in the interview.

    They have to include the principles of social aid (beyond the safety net to keep families alive), minimum wage or whatever like it, labor orgs., education, commercial monopolies, transport, energy, ‘social capital’, systems of financial governance, and on and on. To the point, of course, of questioning private property and the banking system.
    ———–
    Krugman said many things in this interview that are really questionable. Others were ‘summaries‘ that were glib, silly. Democrat-type idiot-speak.

    1. But not only, see the Minder initiative to curb high salaries / bonuses (Bankers, CEOS, etc.), the initiative to strongly restrict building secondary residences, etc.

    1. Banger

      Such questions are hard to bring up in America. A significant number of people believe that poverty is a constant and, moreover, any attempt to change that is futile. Society exists to enable some to win and others to lose–the idea that human beings should be sustained and taken care of because we share a common humanity is not a popular idea here perhaps because we are a society split along cultural, tribal and racial divisions.

      1. Nathanael

        The “prosperity gospel” version of Calvinst religious thinking has a dangerous grip on the US. This is the idea that rich people are blessed by God and deserve their riches, while poor people are cursed by God and deserve their poverty.

        It’s actually a perversion of Calvinism, but it’s had a large effect. This insane religious ideology causes people to spit on the poor and give money to the rich — because, you know, the rich are the favored of God and the poor aren’t.

        1. Nathanael

          Warning: you’ve got some Calvinists of this sort in Switzerland too.

          Even though they started out in France and were really big in the Netherlands for a while, they seem to have been wiped out in their countries of origin.

    2. susan the other

      It is interesting what CH is doing. I wish you had passed a guaranteed income initiative because, when you consider the implications of a guaranteed income, the benefits could be huge. Mansoor, above advocates a gift economy. The implications to me are that if everyone had a livable wage the drive to produce all the stuff that makes up an “economy” would subside into a more sane and natural way of life. We would no longer be pushed forward by the relentless imperatives of capitalism and competition. And we might yet save the planet.

      1. allcoppedout

        The intergalactic council don’t hold out much hope for human sanity. When I last attended (the bed to bed travel service is truly excellent making one feel refreshed as though one has been nowhere at all) to give them a paper on an economics based on rational man, the laughter did not subside for several hours. My follow-up paper on human politics is cancelled, following a health warning. Apparently, most aliens can laugh themselves to death.

  15. Lafayette

    ROBBER BARON REDUX

    The landed aristocracy was replaced by successive waves of robber barons. If we see a rise of a more ossified elite, that would represent an even more fundamental change in our social order.

    The above makes reference to a transition from the Agricultural to the Industrial Age in the US, when the Robber Barons made their millions building America’s train network. We are now transiting from the Industrial to the Information Age, and our overnight Internet Zillionaires are indulging themselves likewise – though they are clearly not robbers. (The term “robber barons” applied to businessmen who used what were considered to be exploitative practices to amass their wealth.)

    We cannot overlook the fact that the worsening Income Disparity in the US was due to the manner in which Upper Incomes were taxed. Let’s not forget the wholesale reduction of tax-rates that took place in the 1980s under the Reagan Administration. (See that historical reference here.)

    Another factor at work in the post-war American economy was the tendency towards aggregating markets as large companies chased one another down the learning-curve towards lower costs per unit of production. The reduction in costs and the “cartelization” of markets that ensued reduced competition that boosted significantly corporate revenues. Which in-turn enhanced both TopManagement salaries and equity values (that produced asset-revenues as well).

    Is it any wonder that we have created a Plutocrat Class?

    We instigated a Trickle-up Economy that largely created what we have today – a plutocrats who try to manipulate elections towards maintaining the status-quo of favorable taxation. That is, Robber Baron redux. As typified in this 19th century political cartoon here.)

    Let’s not have that lesson be lost upon us. The purpose of Social Justice in a nation is to assure that it shares equitably the wealth that its members work so diligently to create. Not equally, mind you, but equitably.

    I am sure Piketty, a Frenchman, is a believer in Social Justice – the kind manifested in France by factual evidence:
    *It has a top 10% class that garners about a third of all National Income, whilst ours takes nearly half of the Income Pie.
    *The taxation in France is significantly higher than in the US – 45% for France, 27% for the US. (See comparative tax rate values here.) Which provides the wherewithal for societal services.
    *TFor instance, state subventions of both a National HealthCare Service public-option and Tertiary Education that is almost free, gratis and for nothing. Only American children graduate from a post-secondary education with a debt-albatross of around $28K strapped around their necks.

    Social Justice is decidedly not cheap. But, it does make sure that key aspects of a decent life-style are provided by state funding, since they are not considered “markets” but rather “public services”.

    The US would do well to rid itself of its Social Injustice, thus leveling the playing field for all Americans …

    1. Yves Smith Post author

      No, we had FAR more successive waves of robber barons. You need to bone up on US history..

      The fur traders preceded the railroads wealthy. Astor was a fur trader.

      The railroads were a complete speculative bust. Most of that money was given up.

      The steel makers (Carnegie) and oil drillers (Rockefellers) were part of the next wave.

      Then you had the high tech of the 20s: car makers, electrical product companies. Go read Once in Golconda. You won’t recognize any of the hot stocks of the day and even the industries will seem quaint.

      1. allcoppedout

        http://www.watchmenfaithministries.com/images/The_Robber_Barons_-_The_Great_American_Capitalists_1861-1901__1934_.pdf
        On the US robber barons (book from 1934)
        Yves is spot on here. We could look back too, to the actual robber barons. My history is pretty dismal, having wasted my time doing science, but I remember that the “deregulation” of the Holy Roman Empire lead to more toll booths on the Rhine and large scale piracy was routine – the word opprobrium comes from this. We might even cut straight through this paralysis-by-economics to a modern ‘Rhine League’ and ride out to sequester and hang.

      2. Nathanael

        It’s important to note that the big money in railroads was made by the people who *didn’t actually build railroads* — “paper railroads” and stock manipulation. Often outright frauds. Jay Gould is the most famous example: he didn’t really believe in *operating* railroads, but they were a convenient vehicle for financial looting.

        This is why the railroad-era Robber Barons are so relevant today. Most of the other waves of barons… did something. Many were simply extracting natural resources (theft by any other name), such as the fur barons and the oil drillers. Some were actually manufacturing (Carnegie), or building cars or electrical products.

        But the big money in the railroad era was made largely by defrauding people with high finance. That’s why it’s so incredibly relevant to today, more so than most of the other waves of barons. That’s also why they were called ROBBER barons.

        1. Lafayette

          That’s also why they were called ROBBER barons.

          Quite right.

          The term “Robber Barons” became well-known in the US in 1934 (see here), and applied back in time to what you so aptly describe was happening.

      3. Lafayette

        Yes, Yves, quite right. Which is why I titled the piece “Robber Baron Redux, isn’t it.

        Voila pourquoi “plus ça change, plus ça reste la même chose …”

  16. allcoppedout

    The old man used to tell me soap kitchens were to discourage the rest of us from idleness. It’s interesting that debate in this thread is very similar to Mansoor’s only not as direct. I can’t believe the ‘god created this’ stuff. We were dinosaurs once. And unless we take a hand, whatever leaves this planet won’t be human or something better, but a throw-back to pre-dinosaur evolution like bacteria spores.

    The planet burns, we poison agricultural land. I know. Let’s talk some economics! At least we won’t have to consider anything real in that. 30 million as slaves, 1 billion living on less than $1.5 a day. What sort of crass creatures are we?

  17. craazyman

    600 pages. Holy Dictionary.

    If somebody reads it all, could they post a book report?

    There are lots of us who probably won’t read it due to laziness. But it would be nice to know what it says.

    That would be as much of a public service as HuffPo posting the nude scenes from Game of Thrones in one 15 minute clip.

    I bet the 4-5% growth rate works until the social shinola hits the fan blades. You could probably do the math: C= Capital ; L = Labor

    1.45^n X C > 1.2^n X L for lots of n, say about 100 or 200, but then you reach the Capital/Labor disequilibrium threshold and both C and L go to zero in about 5 years. the little ^n means “raised to the power of n” to create a geometric return.

    It’s like the way flowers grow and bloom. Then pooof. They’re beautiful until they’re not.

    1. craazyman

      well, looks like the profeser made a math error.

      should be 1.045^n etc.

      you get to the same place but not as fast.

      Professor Picketty should feel free to plagiarize the capital-cooperation constant published elsewhere in these journals. I bet it’s empirically verifiable if somebody tries. Nothing like a geometrical progression to get the intellect excited. It goes slow at first but then wham! hoho. Just like Game of thrones

      1. allcoppedout

        I probably meant soup kitchens. But as Craazy says, what’s a symbol or two amongst friends’? ‘Unhealthy Societies’ (1996) by Richard Wilkinson says more. So we’ve had 20 years twiddling thumbs, waiting for a French Marxist. Piketty’s data is freely available on the web. The real data is easier to find if you get out more.

        1. craazyman

          what if we were all ruled by 100 philosopher kings who possessed all wealth and power and made us slaves?

          All the laws were just and all the wages were fair. How can you complain? Then they started philosophizing and decided things could be even better if they took 100 people up to the top of a stone pyramid and slit their throats. sorry for the disturbing images. I’m sensitive so I understand.

          How would we know they were actually lunatics? Most people would probably give them the benefit of the doubt. it took the Aztecs a while to figure out Cortez was a lunatic. But so were the Aztecs. it’s not easy for the common man when the lunatics are dueling it out mano a mano.

            1. allcoppedout

              By chance we are watching ‘The Man in the White Suit’ here Lambert. The mob celebrates as the everlasting material starts to decay. The economy is safe. They didn’t know about global warming then. Or that their jobs were being off-shored.

          1. allcoppedout

            It’s all a bit like watching people discuss 1990 social epidemiology as 2014 economics really Craazy, What are we ordinary village idiots supposed to do?

            1. Alejandro

              May I humbly suggest creating a repository to collect metaphors to help us understand the true meaning of “Groaf”. I would nominate craazy’s(“It’s like the way flowers grow and bloom. Then pooof. They’re beautiful until they’re not.”) as the first entry and build from there…. Then, every time we hear or read an economist, politician or msm talking head barking “groaf, groaf, groaf”, we pick the appropriate metaphor and toss it at them as a “buiscuit”.

              1. allcoppedout

                Oaf was an English class definition, though we were all drunk somewhere when the French did Magna Carta. Contrary to our popular depiction, we and our cousins the lout, boor, barbarian, Neanderthal, churl, clown, gawk, hulk, bumpkin and yokel, are just not stupid enough to believe the upper-class ever mean to honour anything they put down on bits of paper. We know groaf-jawbs should be stuffed where solar energy don’t thrive.

                I’ve been working on your plan and think we should action it with this twist. We’ll turn up at their photo-opportunities and groaf, groaf, groaf about as though we believe in neo-liberal promises. With our reputation that might bring the whole shebang down.

    2. allcoppedout

      Craazy’s math barely conceals that he is a naked puffadder for Huffpo having any relevance for the average male oaf.

    3. Dan Kervick

      That’s very good advice. And I would caution against falling into the usual blogospheric pattern of expecting the immediate digestion and summary of every new idea that comes along. I am still working through the book and have yet to read a really thorough account of the argument anywhere. It’s going to take a while for really informed analyses to emerge. Next fall, a lot of economics grad students will go back to school and Picketty’s book will probably be the topic of a seminar in most of those programs.

      1. allcoppedout

        We’ve being doing his stuff in inequality modules a long time Dan. I’ve went through the French edition twice, but can’t find a quantitative case I want to use. I don’t see this as particularly relevant.

        1. Dan Kervick

          Why don’t you find it useful? Wilkinsons’s data is mainly about how inequality makes our lives worse, and how more equal societies are happier that less equal ones. Piketty’s data is about what the long terms trends in wealth inequality have actually been and what seems to be driving them. The two approaches seem complementary to me. Wilkinson’s arguments will have no policy impact for people who believe capitalism is making our societies more equal. Piketty’s will have no impact on those who think he’s right about the trends, but that inequality isn’t harmful. You need both lines of argument to nail down the full policy case.

      2. Nathanael

        The function of the book was largely to prove false, and nail to the wall, every single claim ever made by economics professors that inequality was “OK” or could work out OK.

        This requires 600 pages. Most times, when you have to debunk every single counterargument and completely destroy the credibility of the opposition, it takes a lot of pages.

        1. Nathanael

          Dan Kervick is more accurate above, and corrects me:

          Piketty is largely proving that inequality is a natural consequence of capitalism and cannot be fixed without actually addressing it directly.

          The number of claims which have been made that this is not true are too many for me to count. In order to beat those claims, you need wads of data and a solid theory, or in other words, 600 pages.

          If Piketty were writing to people who were sympathetic, he could probably do it with fewer pages. The less sympathetic the academic audience, the more pages you need to prove your case.

  18. Tehanu

    I’ve been wondering why Piketty and his book have been showered with so much attention from the elite, since at a glance he seems to work against their interests.

    But perhaps Piketty is as much a Trojan horse as Krugman.

    Yves states that “Piketty argues that extreme income disparity has been typical, and the post-war period in the US is an anomaly”. From The Nation, “In order to avoid Marx’s apocalyptic conclusion, he skips around a central implication of his own analysis: that the upward redistribution of wealth also generates an upward distribution of political power that perpetuates inequality.”

    Are we seeing the groundwork being laid for a “We care about inequality, really, but see, its just inevitable, and you 99% just have to accept your lot,” type of argument?

    While at the same time conveniently sidestepping any discussion of the environmental destruction and social alienation inherent in modern capitalism?

    Hopefully I’m just too cynical!

    1. Lambert Strether

      I agree, and my trouble is that I’m never cynical enough, try as I may. (There’s also the general issue of looking at capital/wealth as an object rather than a relation.)

      1. allcoppedout

        Piketty concludes: ‘The ideal solution: progressive wealth tax at the global scale,
        based upon automatic exchange of bank information, Other solutions involve authoritarian political & capital controls (China, Russia..), or perpetual population growth (US), or inflation, or some mixture of all’
        A summary and data can be found here: http://piketty.pse.ens.fr/fr/capital21c

        In other words, he plays straight into the establishment’s hands as his solution requires we seize political control globally or use the already dud Sino-Soviet models.They like nothing better than non-starters like this.

        1. Vikas Saini

          Yes,

          But what does Piketty (or for that matter, Marx) have to say about historical agency in the 21st century?

          Globalized production by atomized workers in the din of a digital Tower of Babel, while the commanding heights are operated through a handful of servers stitched together with fibreoptic cables…..

          Neofeudalism perhaps, but whence comes the solidarity and struggle? The key question for us all (and I don’t pretend to have the answer).

          I’m guessing the agency part is where Piketty and so many of us go into hand-waving mode. But (sigh) I guess this is another big book I’m gonna have to read…..

        2. Calgacus

          Exactly, allcoppedout. His solution, far from being ideal is dubious and ineffective, could even be highly destructive if it were the sole addition to current practices. While it sounds good and pious to some, it will never be implemented, which recommends it to elites.

          Functional finance – MMT – a JG on an individual country level works just fine. That’s the ideal solution. As Lerner understood, no concerted action necessary. Concerted action almost always being a scheme to enrich banksters and compradors. Why do elites, the USA systematically subvert and attack every attempt for a country to just run its own economy? Why is it so important to hook every damn country in the world with foreign debt? As Chomsky says – nothing but fear of the threat of a good example. The bad guys understand how MMT, the JG, full employment, functional finance work for ordinary people very well, understand much better than most MMT enthusiasts. But that’s just the opposite of what they want.

          1. Nathanael

            Nope. You still have to break up big piles of money before the people with big piles of money use it to buy power. Money tends to accumulate into big piles, “winner take all” casino style.

            MMT provides no solution for this problem. Only progressive taxation (whether income taxes, wealth taxes, or estate taxes), outright confiscation (the Chinese and Russian model), debt cancellation (very similar to confiscation), or inflation (which transfers wealth from creditors to debtors) will deal with the problem. And inflation is not very effective.

            As Piketty says, population growth can postpone the problem, but of course perpetual population growth is both impossible and undesirable.

            1. Nathanael

              In short, you MUST keep moving the money from the rich back to the poor.

              Piketty’s book consists of a very long series of detailed explanations, with math and history and *tons* of data, as to why this is NECESSARY — why if you don’t move the money from the rich back to the poor, everything gets wrecked: growth, production, employment, health, democracy, liberty, everything.

              It seems obvious to some of us that you have to move the money from the rich back to the poor. But it wasn’t obvious to economists, and Piketty had to lay it out in great detail with masses of data to explain why you absolutely have to do it.

            2. Calgacus

              Nathanael: Which is more important, soak the rich, or spend on the poor – especially for employment? They are 2 independent things. I phrased what I said carefully – Piketty’s idea is just take from the rich and all will be dandy. This is nonsense.

              I’m all for soaking the rich, but of the two things, common sense and common decency dictates that “helping” the poor ( meaning not trapping them in Kafkaesque, logically impossible to resolve dilemmas) is FAR more important. Is it really necessary to explain at NC that the money spent on the poor – preferably for universally beneficial employment – is not the same money that is taxed from the rich?

              Spending for the 99% is far more stable than “soak the rich” in isolation. A recent example was the Clinton tax hikes leading to destabilizing surpluses, leading to the GFC, only put off for a while by Bush’s welfare for the rich policies. This avoided the true solution – “welfare” for the poor/middle/working class. On the other hand, the even bastard-Keynesian era of small but steady deficits took a long time before the smaller problem of inflation showed up.

              From skimming it, much of Piketty’s economics is pretty bad – founded on neoclassical/monetarist/commodity theory without question, as if Keynes and many others had never lived. Bad history: The usual inaccurate belittling of the New Deal, characterization of the post war era as the exception (rather than a return to the norm of human history.) “Mathematics” built on incoherent, rarely correct or applicable assumptions (a la Friedman) is not what mathematicians call “mathematics”.

              We’re all no doubt wrong in part – but the team pulls through. There is truth in everything and everywhere. But you & me are righter than Nathanael & Piketty here.

    2. Dan Kervick

      Are we seeing the groundwork being laid for a “We care about inequality, really, but see, its just inevitable, and you 99% just have to accept your lot,” type of argument?

      No. That is not even close to Picketty’s argument.

      1. Nathanael

        Piketty says specifically that high inequality destroys democracy, and that inequality destroys economic growth. And he proves it.

        He’s saying that high inequality wrecks everything we care about.

        The rest of his argument is “How can we prevent high inequality”, and his answer is, you MUST take the money away from the rich people (progressive taxation).

        Which I’ve been saying for years, but Piketty assembles enough data to convince the academic economists. So that’s useful.

        1. allcoppedout

          I agree that, though “proof” is too strong. Yet tell me what proof is after 3 volumes of Russell and Whitehead on whether one and one logically make two, especially when our generation would know before reading they got it wrong!

    3. Dan Kervick

      I’ve been wondering why Piketty and his book have been showered with so much attention from the elite, since at a glance he seems to work against their interests.

      The economics opinion elite consists mainly of middle class academics. Plutocratic control and monopolization of the economy are not necessarily in their interests either. Indeed, academics are beginning to notice that the plutocracy is killing the golden academic goose, and they are starting to look down the road at a frightening future of trading in their ivy walls and arcadian quads and cushy work conditions for a new life working for the Man in a tenure-free cubicle at CollegeCorp.

      Most academic economists, in my estimation, are not committed ideological defenders of the ruling class; nor are they champions of the poor. They are tweedy and cowardly followers seeking to maintain a stable career by sticking with the herd. Every so often, a big new book comes along that is sufficient to stampede the herd in a new direction, and off they go.

      1. Nathanael

        Correct.

        “The economics opinion elite consists mainly of middle class academics. Plutocratic control and monopolization of the economy are not necessarily in their interests either. Indeed, academics are beginning to notice that the plutocracy is killing the golden academic goose, and they are starting to look down the road at a frightening future of trading in their ivy walls and arcadian quads and cushy work conditions for a new life working for the Man in a tenure-free cubicle at CollegeCorp.”

        It’s less personal for Professor Krugman — he’s both independently wealthy and has something incalculably valuable, namely the support of millions of fans. But he doesn’t want to live in a world where most people are enslaved serfs working for feudal overlords either. That type of world sucks even if you are one of the few free professionals; the endless wars of the overlords makes one’s life *very unstable*.

        “They are tweedy and cowardly followers seeking to maintain a stable career by sticking with the herd. Every so often, a big new book comes along that is sufficient to stampede the herd in a new direction, and off they go.”
        Piketty finally managed to destroy the old economics department claim that “growth is more important than inequality”. It was always false, but it was something they were taught to repeat by rote. Finally, Piketty assembled enough data to smash this idea. The academic economists were relieved to be able to abandon it; they hadn’t been comfortable doing so until there was a really solid work smashing it.

      2. Tehanu

        Hi Dan,

        Agreed on both counts.

        However, my question was not regarding Piketty’s argument, but rather how Piketty’s work will be twisted to serve the interests of the elite. Since Piketty’s policy prescriptions are largely non-starters, as allcoppedout pointed out, I think this is a fair question.

        Further, the attention currently being given to Piketty is coming from more than some middle class economists. From the NYT, “Since touching down in Washington this week to promote his new book, “Capital in the 21st Century,” Mr. Piketty has met with Treasury Secretary Jacob Lew, given a talk to President Obama’s Council of Economic Advisers and lectured at the International Monetary Fund, before flying to New York for an appearance at the United Nations, a sold-out public discussion with the Nobel laureates Joseph Stiglitz and Paul Krugman, and meetings with media outlets ranging from The Harvard Business Review to New York Magazine to The Nation.”

        1. Nathanael

          There’s really no way to twist it. Piketty’s conclusion is that you MUST tax the rich at high rates.

          I hope that this wakes up some of the apparatchiks in the top 5% — upper middle class professionals. These are the people who have been working to assist the 0.1%. The 0.1% can’t do it without them.

          Piketty’s book may cause them to realize that the 0.1%’s interests (in endlessly low taxes and capital accumulation) are fundamentally opposed to the interests of the 5% (in a stable society with comfortable sinecures).

          1. allcoppedout

            Academics have little choice other than to be Tweedies now. I entered their lists in the late 80s after disability made a proper job almost impossible. I’ve had to give up no for moral reasons, but still have to eat. Most don’t like the screaming monkey society any more than me, but they can’t see their part in it all. When push came to shove you couldn’t find many prepared to be active, even on the genuine problems of disabled students. The bosses were crude, bullying turds, with few exceptions. Over the years it got less important that they hide this.

            I only pick up a few part-time gigs now. Most module syllabuses have been simplified to ten chapters of a textbook. You wont get the next gig if your students fail in any number, Most of them should fail against the assessment criteria, but we let them cheat and have more or less abandoned the exams that would find them out. They search out or buy essays from the internet – but why not as we’re already only asking them to do regurgitations from the ten chapters with a thesaurus job and a few quotes. I have learned to teach finance to classes that can’t count.
            Unless I teach at a place that can get the best students (or mature students) the big lie is that the degree on offer is worth spit. The Tweedies keep up the lie, but some know and are depressed. 20% of faculty were on anti-depressants and as union chair I spent a fair bit of summer doing pastoral work at the funny farm. When I needed something similar myself, my union rep turned out further up the screaming monkey than me.

            I’m doing an inequality module next semester. The syllabus is actually of high standard – so much so it should guarantee a 70% failure rate. Piketty’s work is about 20% (pre-Capital) and the syllabus written 5 years ago. I won’t teach the books much. Most people have this stuff in their lives and we’ll work with that.

    4. Jeremy Grimm

      I share your misgivings. I’ve come to mistrust every ‘great’ book or idea that gets as much coverage as Pickety’s book has. I don’t recall too many 700-page economics books getting anyone excited [except das Kapital — but that wasn’t really about economics]. The news that the wealthy are eating our lunch, breakfast, dinner and between meal snacks isn’t exactly news and I’m hesitant to read a tome to learn such wisdom. If there’s more to it than that I might reconsider — but so far, based on what I’ve read here that seems to be the thrust of the book. This smells like a Trojan Horse as you suggest, though what army lurks inside I cannot guess.

  19. david lamy

    One aspect of Moyer’s interview of Dr Krugman that I found striking was the discussion of income redistribution. In particular, Dr Krugman giving the taxes dedicated to the Affordable Care Act as an example of a benefit of redistribution. Really? Really! Oh, Really …

    How can one of his training and intelligence equate heath insurance with care? What is the possible benefit of a narrow network of available providers coupled with high deductables and a still stiff monthly premium (even with subsidy) for anyone?

    I can only think of one beneficiary: the insurers who sell these products and their investors.
    Those investors are probably Dr Krugman’s contributors to this alleged redistribution of income.

    1. lambert strether

      “How can one of his training and intelligence equate heath insurance with care?” Let me try to answer that…

      He’s a Democratic Party hack, albeit with effective branding. Next question, please.

  20. Jackrabbit

    The struggle of man against power is the struggle of memory against forgetting.
    – Milan Kundera

    Some people argue that capitalism’s natural state is oligarchy and extreme inequality. Or, that ordinary people somehow “got the government they deserve”. But it seems to me that while Americans, and the West in general, grew slack, thinking that we now lived in a time of liberal consensus. But most were largely unaware of the powerful forces acting to pull that apart behind the scenes. Not in an overt and forthright way, but in a sly and covert way. Media was concentrated. Think tanks formed and grew (experts!). Neoliberal thinking was pushed relentlessly. The end of the Cold War was held up as demonstrating the righteousness of ‘free market capitalism’ but the excesses of extreme capitalism were just beginning to show as a series of market failure began: the 1987 crash, Japan’s crash in 1991 (and stagnation since), LTCM failure and EM market crisis of 1997, the dot-com crash in 2001, the 2008 GFC, Eurocrisis, and the revelation of manipulated markets (LIBOR, HFT, etc.)

    Now we are in one hell of a fix as our financialized and militarized economy appears to be headed for a brick wall. Inequality, cronyism, fixed markets, police states, and other problems are the result.

    1. Nathanael

      “Some people argue that capitalism’s natural state is oligarchy and extreme inequality. ”

      And Piketty actually proved this with history and data. That’s the point of his book.

      The way out of the trap is the “mixed economy”, where rich people have their money taken away by income tax and poor people have money given to them by government programs.

      You’re quite right that people in the West grew slack and forgot about the dangers of capitalism.

  21. scraping_by

    “…financiers demanding interest rates that real economy borrowers cannot support, which leads to periodic debt restructurings and jubilees.”

    Day to day, it leads to productive enterprises paying interest with capital. Seen as that, it’s obvious in the fullness of time the financiers will claim ownership on all productive assets, the way they’re currently claiming ownership the assets and productive capacity of consumers/workers.

    So the cry “they want it all” isn’t paranoid conspiracy theory, it’s elementary school math.

  22. Nathanael

    Bzzt.

    Yves, you have to think more seriously about what Piketty is describing.

    Real financial returns on capital (yes, that’s what he’s describing) are growing faster than the economy.

    This means that the capital-holders (the 1%) are getting richer *by taking wealth away from the 99%*. When the 99% are fully impoverished, the process moves on, and the 0.1% take wealth away from the rest of the 1%. Repeat until…

    “Now if Piketty is talking about financial claims on real assets, it becomes even clearer that this arrangement is not sustainable. ”
    Of course it’s not sustainable — Piketty knows this. He *even explained how it ends*. It ends, roughly speaking, when one guy owns everything.

    Actually, it ends a bit before that. By the time a few dozen guys own almost everything, they start using their money to become feudal lords. Then they reduce the 99% to slavery or serfdom — no “equality before the law”, only the private decisions of the feudal lord, your overlord and master. The feudal lords also start fighting with each other over the wealth and power — usually actual wars, but also propaganda and theft.

    Around this time, the financial returns on capital drop to be equal to the growth rate of the economy as a whole. The growth rate of this new feudal economy is, of course, much much lower than it was before.

    But that’s not the important point: the important point Piketty is making is that *democracy gets destroyed*, and that *feudalism and slavery get established* well before the return on capital reverts to match the real economic growth rate.

  23. Jeremy Grimm

    It’s late, so I doubt that this entry will have much impact. I’ll give it reprise and expansion in the future.

    For the sake of argument, assume that all increases in the wealth in America resulted as a consequence of the effort of “self-made” persons male and female (women get no bye here). How much of that wealth should accrue to their account? I strongly disagree with the often implicit assumption that if they created this greater bounty then all that bounty should be theirs.
    The argument is often made that without a premium of some sort no one will make the extra effort and take the risks inherent in entrepreneurism. I accept that. But I don’t believe that this premium is their sole or even most important motivation. I’ve talked to more than a few entrepreneurs and the motivation I sensed seemed to arise most from a desire to build an enterprise, a desire to make and create. True, acquiring great wealth was also enticing for them, but their notions of great wealth were closer to my own notions of wealth. Great wealth to me and to them was enough wealth to live comfortably without worries related to money, whether they continued to work or not … freedom. All of these entrepreneurs that I met came from what I regard as my own class, ‘middle’ class. To a person, these entrepreneurs greatly appreciated their wealth and I saw none of them aspiring to become figures in ‘high society’. They often very plainly credited their success to as much luck as pluck and continued to run their enterprises long after they might have left them for others to continue. Their entrepreneurship was an abstract act of love. The wealth that followed was expected and a bonus for them but it was love that drove them. This same love was reflected in their desire to possess their enterprise, as one might possess their loved one.

    So, how much of the wealth which an entrepreneur creates should belong to the entrepreneur? I think the answer is that amount which is most expedient to the needs of our society. Neither society nor the entrepreneur deserves the wealth. It’s easy enough to construct an argument that the entrepreneur might never have built the great enterprise without the support of the laws and people of the society where that enterprise was grown. Does the farmer have greater claim on the corn produced than the soil or sun, or the Indians of ancient America, or the deed on the land, or the banks’ interests in the seed, soil or farm machinery? All these rights and deserving are products of culture and society. There is no divine or other right to the produce we make even by our own hand. The right is a right based on our species sense of justice, of what is fair and fitting.

    I admire and strongly support a love for birthing enterprise. However, I believe it is possible to tax the income from an entrepreneur’s creation leaving adequate remuneration for their further efforts while avoiding the detrimental impacts of great wealth on our body politic. As much as I believe that entrepreneurs deserve to be “more equal than other animals”, once a certain level of material comfort is attained there simply is no more which any one person can consume. The remainder of their wealth might go toward pecuniary displays of conspicuous consumption which ought to be discouraged but more dangerously that wealth might be devoted to acquiring political power. Much as I might admire entrepreneurs for their enterprise, it offers them no special gift for politics that deserves reward. Society must take measures to avoid great accumulations of wealth to avoid great accumulations of political power. It’s not that people can never have enough ‘stuff’ … some people can never possess enough power and control over others. I see no reason to coddle the desires of psychopaths.

  24. Jeremy Grimm

    It’s late, so I doubt that this entry will have much impact. I’ll give it reprise and expansion in the future. [Please forgive me if this should become a double posting — I saw indications that my previous posting was eaten at the witching hour.]

    For the sake of argument, assume that all increases in the wealth in America resulted as a consequence of the effort of “self-made” persons male and female (women get no bye here). How much of that wealth should accrue to their account? I strongly disagree with the often implicit assumption that if they created this greater bounty then all that bounty should be theirs.

    The argument is often made that without a premium of some sort no one will make the extra effort and take the risks inherent in entrepreneurism. I accept that. But I don’t believe that this premium is their sole or even most important motivation. I’ve talked to more than a few entrepreneurs and the motivation I sensed seemed to arise most from a desire to build an enterprise, a desire to make and create. True, acquiring great wealth was also enticing for them, but their notions of great wealth were closer to my own notions of wealth. Great wealth to me and to them was enough wealth to live comfortably without worries related to money, whether they continued to work or not … freedom. All of these entrepreneurs that I met came from what I regard as my own class, ‘middle’ class. To a person, these entrepreneurs greatly appreciated their wealth and I saw none of them aspiring to become figures in ‘high society’. They often very plainly credited their success to as much luck as pluck and continued to run their enterprises long after they might have left them for others to continue. Their entrepreneurship was an abstract act of love. The wealth that followed was expected and a bonus for them but it was love that drove them. This same love was reflected in their desire to possess their enterprise, as one might possess their loved one.

    So, how much of the wealth which an entrepreneur creates should belong to the entrepreneur? I think the answer is that amount which is most expedient to the needs of our society. Neither society nor the entrepreneur deserves the wealth. It’s easy enough to construct an argument that the entrepreneur might never have built the great enterprise without the support of the laws and people of the society where that enterprise was grown. Does the farmer have greater claim on the corn produced than the soil or sun, or the Indians of ancient America, or the deed on the land, or the banks’ interests in the seed, soil or farm machinery? All these rights and deserving are products of culture and society. There is no divine or other right to the produce we make even by our own hand. The right is a right based on our species sense of justice, of what is fair and fitting.

    I admire and strongly support a love for birthing enterprise. However, I believe it is possible to tax the income from an entrepreneur’s creation leaving adequate remuneration for their further efforts while avoiding the detrimental impacts of great wealth on our body politic. As much as I believe that entrepreneurs deserve to be “more equal than other animals”, once a certain level of material comfort is attained there simply is no more which any one person can consume. The remainder of their wealth might go toward pecuniary displays of conspicuous consumption which ought to be discouraged but more dangerously that wealth might be devoted to acquiring political power. Much as I might admire entrepreneurs for their enterprise, it offers them no special gift for politics that deserves reward. Society must take measures to avoid great accumulations of wealth to avoid great accumulations of political power. It’s not that people can never have enough ‘stuff’ … some people can never possess enough power and control over others. I see no reason to coddle the desires of psychopaths.

    1. Nathanael

      I agree with everything here. I believe that the key is to “chop off the top”.

      Pick some amount of wealth or income, and declare that that is *enough* — more than that gets taxed at 100%.

      For instance, we could decide that people are permitted to be a millionaire, but must stop there. Or that people are permitted to accumulate 10 million, but must stop there. (That’s enough to support a family on for life, at a high standard of living, without working, if invested very conservatively.)

      It’s obvious to me that a million dollars a year — which is less than the typical corporate CEO salary — is waaaaay too much and should be simply expropriated.

      I think we should give the elite psychopaths an choice, though. They can have their wealth “chopped off the top”, or they can have their heads chopped off.

      1. Lafayette

        It is all very simply a matter of changing the Tax Code, meaning putting rates up to above where they were before LBJ (of all people) started their downward fall in the early 1960s.

        We need also revamp the Tax Code that looks like Swiss Cheese it has so many holes in it.

        It’s dead simple, but this Congress wont touch the Tax Code with a ten-foot pole. Most of them up for reelection will get their donations cut off. Meaning, they are “bought”.

        Aint no other word for it …

  25. Hugh

    The measure we need to apply to social, political, and economic issues is whether or not and to what extent they further the goals of our society by producing a society we want to live our lives in.

    Drawing distinctions between first and subsequent generation looting of us, our labor, and resources is without merit. Letting Gates accumulate a fortune of $76 billion or whatever he has massively detracts from any kind of decent, equitable society I and many others would like to live in. The question is how much is enough and how much is too much. Gates had some good ideas and for that let him be rewarded. You tell me what your maximum limit on individual wealth should be. The number I throw around is $20 million. It is actually high if you consider a society where the basics of food, shelter, healthcare, education, and retirement are a societal right. It is certainly enough to have a very good life. And we must ask how many have made contributions worth more than this? As I said, Gates had some good ideas but his vast personal wealth was made possible by our labor, government (public, that is our) investment, our infrastructure, our laws, and our markets. It was also made possible once Microsoft achieved a certain size by its anti-competitive, anti-innovative, predatory, monopolistic practices. So is Gates worth to society 3800 times the high maximum net worth I have thrown out there for discussion? No. So to whom should that wealth have gone? The answer is to us to help us build the society we want to live in. Why didn’t it? because we live in a kleptocracy and have had since before the birth of the country a history of great fortunes and great inequality. Andrew Carnegie never forged or could have forged a pound of steel in his life. The same with John D. Rockefeller and oil. The difference between then and now is that great as their power was they did not control all of our public institutions, the class they represented was smaller, they did not own all the elites. Kleptocracy is the totalitarian union of these disparate and incomplete oligarchical impulses into a complete and pervasive system.

    It isn’t just Gates. It’s his class. It’s the elites who serve them. It doesn’t matter how these great fortunes came into being. In terms of our society, they are all grotesquely excessive and destructive of our society. Gates did not earn his fortune. Like any good kleptocrat, he stole it from us. And that wealth is not really any different from that of the Walton heirs. It all gets converted into rent collecting schemes. It is pointless to say to the Walton heirs are even less entitled to their obscene wealth than Gates is to his, because none of them are or should be entitled to such socially destructive and unproductive control of our society and our resources.

    1. Ignacio

      The first one to know that he has earned too much is Bill Gates. What do we think it is the Melinda & Bill Gates Foundation as well as many other foundations? For the very wealthy those are mainly instruments to calm their nerves, and the nerves of the public, as they well know they are far richer than they deserve to be. Meritocracy and Oligarchy are synonims. Not exact synonims, but when referred to wealth distribution, their meanings mainly overlap. [This means that I generally agree with Hugh’s view]

  26. allcoppedout

    Piketty and others have considered inherited versus self-made capital (just search Piketty on google scholar and browse). Gates is hardly Einstein – but then Einstein is not as responsible for relativity as we think. The lies of meritocracy are in deep. I hope my module next semester is as good as this thread. I will steal everyone’s ideas without compunction. And indeed, this should give us some idea on how we should treat knowledge. It should be free.

  27. theinhibitor

    This looting will continue with barely any sort of remediation until, all of a sudden, we will realize that the world’s supply of fresh water is gone AND contaminated (even though the future Yves’ of the world will signal the event with repeated cries of alarm). Then, I imagine, some circle jerk of wealthy oligarchs will try to privatize the remaining supplies of fresh water for egregious prices, which will cause a massive world wide rebellion when family members start dying from thirst because they cant afford the $/gallon set by some asshole in his high rise office. Then the cleaning will begin, with all these kleptocrats shot in the head in the streets (and their children – history illustrates that mobs are not kind or discriminatory), mob rule overriding rule of law. When the bloodshed settles, history will try to repeat itself, whereas this time we will be building on top of the remains of our previous civilizations. Life will be MUCH harder, as extracting materials from waste is much harder than extracting materials from the earth. Laws will be much stricter. Trying to amass any sort of wealth without the required labor will result in execution, plain and simple. We will finally be forced to live in our means, aka we wont have even 10% material wealth we own today. Maybe at this time, since we will have the knowledge AND the experience to put us in our place, we will finally realize that to extract freely without regard is suicide. Maybe then we will also realize, that in the grand scheme of all things, we are but a terraforming fungus growing on a rock that emits a weak light, that in the timeline of the universe, is but a blip in the reel. Maybe. If the signs from this era point true, we will probably gutter out and die in a cold inhospitable planet, and if intelligent life is ever to live on earth again, the period will be known as The Extremely Fast Great Dying (the Permian Triassic Extinction took 5 million years. We havent even been on this planet for more than 200,000 years)

  28. Lafayette

    YS: Piketty apparently conflates ownership of assets with financial claims, which is a bit disconcerting, since he includes stocks, bonds, land, housing, businesses.

    I kinda sorta doubt that.

    Piketty’s base of reference is the Paris School of Economic’s World Top Income database. That means the numbers account for rent from assets (as Income) and not the value of assets (i.e., wealth) alone.

    Which GW Dumhoff gets a handle-on at his web-site here.

    Unless something has been “missed in translation” … ?

Comments are closed.