20 ms·

This Economist article points out some of the many small academic works that quibble over details with Piketty and Saez. But that's not anything new. The major

by 60654 7y ago

This Economist article points out some of the many small academic works that quibble over details with Piketty and Saez. But that's not anything new. The major points of their work, and especially of Piketty's monumental _Capital for the 21st century_ still stand: that capital is a positive feedback loop in a way that labor is not; that mid-20th-century laws that put brakes on this feedback loop have been removed; that a variety of data sources are confirming growing inequality and market capture particularly in the UK and US; and that the only reasonable solution for this is a tax on owned capital (not on income or cap gains) and the political chances of this happening are slim, etc. And in the end this article is another one in their house style: not particularly informative in the details, they're not arguing openly or forcefully against Piketty, but instead bring up enough different nitpicky papers that it starts sowing doubt in the mind of a reader who hasn't actually read the book. But then again The Economist has had it out for Piketty (and Saez) for a long time now, they very clearly hate Piketty's Capital and keep sniping at it, but can't stop themselves from bringing it up all the time. :) At least they are very open about their biases: they promote a view that the solution to all ills is lower taxes and less regulation. However, Piketty's analysis and proposed solution directly contradicts that.

hervature 7y ago
I had a very different takeaway from Piketty's book. Namely, that inflation (primarily hyper inflation) has been the only force to reduce income inequality. For example, Jeff Bezos is much more affected than I am if the government decides to give everyone a $1B. Thus, governments looking to end income inequality shouldn't be afraid of high inflation.
- awrence 7y ago
  Bezos is basically entirely invested in stocks (Amazon). His exposure to monetary inflation is roughly 0. If the government hands out 1bn to everyone that'll happen at the expense of cash / bond holders. Prices from Amazon services will just adjust accordingly to the inflation spike along with their profit margins.
  - galangalalgol 7y ago
    I would guess most salaried employees have little of their wealth directly in anything but stocks and bonds due to 401k. Also house equity possibly.
- joshklein 7y ago
  Inflation IS a tax on wealth. When done intentionally (by printing money), it’s called seigniorage.
  - awrence 7y ago
    Inflation comes in different flavors. If all you do is print and hand out 1bn to each citizen, they'll just be able to outspend other dollar holders in the world. Prices will adjust, but the amount of real goods in the world per capita is unchanged. You're just reallocating who gets what amongst monetary savers. If your wealth is in the actual stuff people end up buying, this is very much a side concern for you. Bezos is in that camp.
  - SamBam 7y ago
    If my wealth is in anything beyond cash -- say I own a huge hotel chain, or the largest retail company in the country -- how is inflation a tax on my wealth? My businesses will still be generating the same proportion of the economy as they were before.
    - logicchains 7y ago
      If inflation causes the nominal value of your hotel chain to increase 2%, you have to pay capital gains tax on this nominal gain (at least in countries where capital gains tax is not adjusted for inflation), leaving you with less real value afterwards.
      - nemo44x 7y ago
        Only if you sell. And if you're invested in a company that is only growing at the rate of inflation then I'd imagine they are paying a decent dividend which is very possibly a qualified dividend that has no tax associated with it. Reinvesting that into the company creates a compound effect far greater than the inflation rate and will be taxed at the LTCG rate one day when divested from.
      - drdec 7y ago
        That only matters if you realize the gains. If you own a business like a hotel, car wash, etc. and intend to keep it, you are not affected by value increases of the business itself. In fact, for many privately held businesses, it is not even known what the value of the business is because there is no reason to calculate it.
- Orou 7y ago
  Is there any aggregate data on how the money printed by the U.S. government has been distributed historically? Inflation only helps the average person if they get a slice of the money printed, and I have a feeling the vast majority of it hasn't been going directly to John and Jane Doe.
- FabHK 7y ago
  > Namely, that inflation (primarily hyper inflation) has been the only force to reduce income inequality. Inflation, and war.
- ramblerman 7y ago
  Sorry but that seems like nonsense, at least the Bezos example. If everyone gets 1B tomorrow an amazon share will just be a lot more expensive. You are assuming Bezos holds all his wealth in cash.
- mensetmanusman 7y ago
  Anyone commoner who lived through hyperinflation will disagree.
WC3w6pXxgGd 7y ago
Taxation is violence. It is not the proper role of government to reduce income differences.
pksdjfikkkkdsff 7y ago
Afaik his finding are disputed. And even if not, why should it even be desirable to encourage labor? If capital is so great, people should seek owning capital, not seek to work more. As they say, savings plans start at 50$/month. It seems rather great that this opportunity exists (assuming it is true). The alternative is that you have to work and work until you die.
- SamBam 7y ago
  "Why doesn't everyone just get rich?"
  - logicchains 7y ago
    Because a good chunk of people suck at delayed gratification so are incapable of saving money. Even on an average income it's not unfeasible to retire a millionaire if saving a significant percent (and indeed there are people who do this, small businesspeople and tradespeople, the "millionaires next door").
    - anoncake 7y ago
      When people are incapable of something, it isn't feasible for them. It doesn't really matter why "everyone getting rich" doesn't work.
  - pksdjfikkkkdsff 7y ago
    Arguably, almost everybody in the Western world has gotten rich. Go visit a medieval castle sometime. The standards that now everybody has required an army of servants in the old days. It is just a hateful lie of the left to claim "being rich" is dependent on exploiting poor people.
    - SketchySeaBeast 7y ago
      That's silly - compared to cavemen, even workers in third world countries are "rich", being able to trade things for goods and services and not being required to hunt and gather. Inequality solved?
brnt 7y ago
Have not read his latest "People, Power, and Profits: Progressive Capitalism for an Age of Discontent", but I think Stiglitz has basically been saying the same as the gist of this article: equality is essential to sustainable capitalism.
taffer 7y ago
> This Economist article points out some of the many small academic works that quibble over details with Piketty and Saez [...] that capital is a positive feedback loop in a way that labor is not Well the article mentions that: > Matthew Rognlie, now of Northwestern University, argued that the rise in America’s capital share was accounted for by growing returns to housing, not by the shares and bonds which are held disproportionately by the top 1% of American households. So it seems that housing is really the positive feedback circuit.
- Marazan 7y ago
  Housing is capital
  - rayiner 7y ago
    But not the kind of capital people usually think about when railing about billionaires and wealth taxes.
    - js2 7y ago
      Housing is already taxed. In the U.S., property taxes are about 17% of government revenue. https://www.economist.com/finance-and-economics/2013/06/29/levying-the-land https://www.economist.com/finance-and-economics/2013/06/29/l...
      - dcolkitt 7y ago
        True. But housing is also tax-privileged in other ways. Most notable is the mortgage interest on federal income tax. More subtle is the fact that the value of the imputed rent from owning your own home is not taxed. I.e. if you rent your home to someone else, you pay income tax on the rent you collect. But if you "rent to yourself" by owning your own home, you don't pay tax on this implicit form of income.
        AnimalMuppet 7y ago
rguzman 7y ago
it seems odd to dismiss papers that challenges Piketty's and Saez's conclusions as nitpicky. in complex systems the devil is most often in the details. and not only that, but the sort of project that Piketty took on has many potential methodological pitfalls. so, small details could actually mean a given premise or conclusion is invalid. how would you suggest someone go about assessing whether a paper is nitpicky vs something that should be taken seriously? note that i'm not taking a position on the conclusions of Piketty and Saez, just pointing out that re-stating their claims does not say anything about the papers that argue against them and calling such papers nitpicky seems like a particularly weak critique in this instance.
- CharlesColeman 7y ago
  > note that i'm not taking a position on the conclusions of Piketty and Saez, just pointing out that re-stating their claims does not say anything about the papers that argue against them and calling such papers nitpicky seems like a particularly weak critique in this instance. There's another angle: in a general-interest publication like the Economist, over-emphasizing nit-picky flaws that fail to effect the core arguments of a work can have the effect of giving general-interest readers the impression the work has more serious flaws than it actually has.
  - Matticus_Rex 7y ago
    I'm fairly well acquainted with the literature on this topic, and I think the opposite; the fact that most people don't understand why these "nitpicks" actually seriously undermine the premise and totally butcher the prescriptive suggestions makes it easy for readers to dismiss the criticism, especially in a general-interest publication. While there's a contrary effect for the skimming reader who just accepts that P&S' work is flawed without understanding it, I think that tends to be a much lower risk with the Economist audience.
    - CharlesColeman 7y ago
      > I'm fairly well acquainted with the literature on this topic How so, exactly? > and I think the opposite; the fact that most people don't understand why these "nitpicks" actually seriously undermine the premise and totally butcher the prescriptive suggestions Personally, I'm inclined to withhold judgement until the dust settles, yay or nay. The topic is technically difficult, and there are a lot of actors with political interests in the outcome of the discussion that muddy the waters.
rayiner 7y ago
> This Economist article points out some of the many small academic works that quibble over details with Piketty and Saez. But that's not anything new These are not nitpicks. What you measure drastically changes the results. Piketty and Saez presented their own revision to their data in 2018 that shows starkly different results than the 2013 data everyone cites: http://gabriel-zucman.eu/files/PSZ2018QJE.pdf http://gabriel-zucman.eu/files/PSZ2018QJE.pdf For example figure 3 shows that when you account for tax transfers, the bottom 50%’s share of income is only a few points lower than in 1960, though significantly lower than the peak of about 25% in 1970. It also shows that, contrary to common assertions, the bottom 50% income has grown consistently since 1960 adjusted for inflation. Figure 1 shows that the labor share of income has been flat since 1940 when you account for benefits. (Put another way, capital’s share of income is flat.) The data about returns to capital are particularly important. Supporters of wealth taxes and capital taxes tend to point to rising inequality as the justification for such approaches. But if the returns to capital aren’t increasing as a fraction of the economy, that argument gets harder. Of course there may be other arguments in favor of such taxes, but those seem less well developed. The point the Economist article makes well is that inequality is hard to measure, and the simple definition used by Piketty and Saez’s initial analysis is inadequate. For example, there is a whole school of libertarian thought that, even if you believe the government should be in the business of redistribution, the best approach is to maximize growth through a free, deregulated economy and then tax individual incomes to provide generous welfare benefits. Most of the developed world has moved in that direction over the last 30 years. Under Piketty and Saez’s 2013 model, which excludes tax transfers, you can’t accurately describe inequality in a country that uses such a model. Moreover, there are additional analyses showing that, when you look at consumption rather than income (which accounts for both tax transfers and falling prices from globalization) inequality is basically unchanged since the 1970s: https://voxeu.org/article/consumption-and-income-inequality-us-1960s https://voxeu.org/article/consumption-and-income-inequality-.... That is to say, the bottom 10% get to consume about the same fraction of total production as they did half a century ago. Of course there are downsides to consumption measures too, insofar as the data is sparser for incomes at the top. (The measure above includes money spent on mortgages for mansions, but not private yachts, for example.) But just because something is easy to measure (pre-tax income) doesn’t mean it’s the right thing to measure!
stvswn 7y ago
You are asserting that there is broad academic agreement that Piketty's major points still stand, but that is far from true -- in fact they never stood under serious scrutiny at all. Outside of simply describing tautalogies, his major point is that inequality is rising because the rate of return on capital is exceeding the economy's growth rate, from which he makes a logical leap that inequality will increase inexorably without intervention. This point fails to consider that people spend some (and sometimes a lot) of their earnings from capital, which dissipates their wealth back into the economy. Historical data show that wealth does not end up growing faster than income because of the effect of spending the wealth (you have to spend basically none of it to maintain a growth rate that is greater than GDP). A good number of serious academics have raised this and other points. His book is best understood as a popular argument for specific political ends, and since it gives a veneer of academic seriousness to those ends it has been popular.
claudiawerner 7y ago
Not to mention that Piketty has a relatively soft list of proposals and research compared to the 'old guard' of critics of capital. The Economist's arguments against Piketty are only there because he's the most radical economist on capital's horizon. By presenting Piketty as radical on the issue of inequality, the arguments from modern, radical economists on every other aspect of capital are shut out. For example, beyond Piketty we have John Roemer, beyond Roemer we have Veneziani & Yoshihara, beyond them we have Fred Moseley, Andrew Kliman, Sekine, Itoh... In other words, Piketty gets so much criticism because he's the least radical of a bunch of radical economists, and because of that, he hasn't left capital's horizon.
- romey 7y ago
  Would you happen to have some suggestions on where to start further reading of radical economics? I'm halfway through "Doughnut Economics" right now, but it's a bit simple -- I was looking for something more challenging.
  - claudiawerner 7y ago
    J.E. Roemer's classic 1982 book[0] on exploitation from a game-theoretic standpoint is generally the beginning of the post-Marxian era of radical economics. However, his is not the only approach, now there are theories which attempt to reformulate the Marxist concept into a theory of unequal exchange of labour. Roberto Veneziani[1] has a great many papers on this theory of exploitation, expressed mathematically, in particular, two principles: profit-exploitation correspondance principle, and the class-exploitation correspondance principle. Andrew Kliman[2] and Fred Moseley[3] are two economists with very contrasting approaches to Marx's labour theory of value and its application today, as well as other "problems" in Marx (such as the transformation problem). Moseley also criticizes some of Piketty's methods[4]. Kliman and Patrick Murray agree that, providing the labour theory of value is true, then we can deduce Marxian exploitation - however their approach is less economic and more philosophical. This is because Murray objects to the use of neoclassical models and methods, with good reason[5]. Vrousalis[6] takes a non-Marxian approach to dominatiton and exploitation under capitalism. For the latest stuff in the field, check out the main journals[7][8] and Brill's Historical Materialism book series, and this one[9] in particular. [0] https://www.hup.harvard.edu/catalog.php?isbn=9780674435865 https://www.hup.harvard.edu/catalog.php?isbn=9780674435865 [1] https://academic.oup.com/cje/article-abstract/41/6/1607/4598293 https://academic.oup.com/cje/article-abstract/41/6/1607/4598... [2] http://digamo.free.fr/kliman2007.pdf http://digamo.free.fr/kliman2007.pdf [3] https://www.mtholyoke.edu/~fmoseley/Working_Papers_PDF/macro-monetary.pdf https://www.mtholyoke.edu/~fmoseley/Working_Papers_PDF/macro... [4] https://www.tandfonline.com/doi/abs/10.1080/08911916.2015.1060828 https://www.tandfonline.com/doi/abs/10.1080/08911916.2015.10... [5] https://www.cpp.edu/~jet/Documents/JET/Jet15/Schuler19-28.pdf https://www.cpp.edu/~jet/Documents/JET/Jet15/Schuler19-28.pd... [6] https://www.tandfonline.com/doi/full/10.1080/00346764.2019.1618483 https://www.tandfonline.com/doi/full/10.1080/00346764.2019.1... [7] https://journals.sagepub.com/home/rrp https://journals.sagepub.com/home/rrp [8] https://www.jstor.org/journal/worlrevipoliecon?refreqid=excelsior%3A99d15f979bdf664a3ab74e2ccf061f6c https://www.jstor.org/journal/worlrevipoliecon?refreqid=exce... [9] https://brill.com/view/title/35142 https://brill.com/view/title/35142
xorfish 7y ago
> not on income or cap gains Why does it matter how it is taxed? If the capital returns 4% and is taxed at a 30% rate, you will have the same effect as if the capital is taxed at a rate of 1.15%. I think the biggest injustice is that return of capital isn't taxed at the same rate as income from labor. Someone who earns $100'000 from labor and $50'000 from return on capital should be taxed at the same rate as someone who earns 150'000 from labor.
- eutropia 7y ago
  Taxing capital incentivizes putting it to work. If you only tax gains then people can endlessly horde wealth. Taxing the wealth itself makes hording unappealing... I think.
  - xorfish 7y ago
    But hoarding wealth isn't a problem for inequality. It is that capital can be used to generate income. Inflation is the process that incentivizes capital to be put to work.
    - maxsilver 7y ago
      > But hoarding wealth isn't a problem for inequality. It absolutely can be, especially for wealth that is finite. (Like land for housing) > Inflation is the process that incentivizes capital to be put to work. Does it though? Inflation mostly just punishes labor alone, labor feels the effects of inflation far more severely than anyone else. With enough capital (the amount anyone 'hoarding wealth' already has), the capital automatically buys itself out of any problem of inflation, because the returns to sit on that cash are routinely higher than inflation itself is. Inflation can't currently incentivize capital to be put to work, because capital just sitting doing nothing already far out-earns any loss from inflation. And for inflation to be strong enough to actually incentivize capital to be used, you'd have to bump it to astronomical heights (like say, 15-25%), at which point you've completely obliterated all wage-earning people's lives. This is why many well-respected people advocate for a wealth tax. In a perfect world, inflation would be exactly 0, and a strong punitive wealth tax would discourage greedy people from hoarding wealth.
davedx 7y ago
> the only reasonable solution for this is a tax on owned capital (not on income or cap gains) and the political chances of this happening are slim Seems to be a cornerstone policy of multiple presidential candidates in the US at the moment. We have it in the Netherlands. I don't think it's that unlikely. Not sure how much it helps with inequality in the Netherlands though. If anything I think it stimulates people and businesses to invest, which either means the wealthy people make more money, or they lose it. At the most it creates jobs. People on low salaries aren't really benefited.
- leto_ii 7y ago
  In the Netherlands (where I currently reside as well) I think this tax can easily be avoided by placing your assets in some sort of shell company. When the startup I used to work for IPO'd I was not surprised to find that most of the important stockholders were using such companies (presumably) to avoid being taxed on their hundreds of millions/billions of euros.
  - consp 7y ago
    As soon as you get it out of there either as income (at least some part is required) or as dividend and you start paying taxes. Not before so this is allowed and legal (and smart). They are about 25-30% in total well below the top tier of about 52% in case of income tax.
  - davedx 7y ago
    I know that the Belastingdienst is going after people pretty hard for tax avoidance/evasion at the moment. Things are changing quite quickly in this area in the EU, and NL is no exception. What worked well for people 5 years ago could well result in a pretty full on audit now leading to nasty bills to pay back owed taxes. The only problem is companies like Amazon, Google etc. are still getting away with paying 0 taxes everywhere... easier for the Belastingdienst to take on SME's first I guess. :/
- rayiner 7y ago
  Note that the Dutch wealth tax replaces their capital gains tax. It’s a tax on the assumed returns on capital assets. (Of course unlike a capital gains tax the wealth tax reaches unrealized gains. But the rate is also lower than a capital gains tax would be. It’s possible to come out ahead compared to a capital gains tax depending on your situation.)
deleted 7y ago
[deleted]
thanatropism 7y ago
> Capital is a feedback loop Come off it, it’s not like this isn’t a staple of political economy since the 1800s or so. A very charitable description of Piketty’s big ted talk of a book is that it suffers from the same flaws of classics like “A monetary history of the United States” by Friedman and Schwartz: it uses empirics as gargoyles, not as structural beams. It seems to be a great argument that’s backed by numbers — but whatever you make of it, the numbers are a distraction. The cringe of it is that Piketty’s numbers are also fraudulent, as extensively documented by dozens upon dozens of important scholars.
- AnimalMuppet 7y ago
  > ... as extensively documented by dozens upon dozens of important scholars. Do tell. In particular, give some references to those who you are talking about rather than leaving us to do our own searches (and then guessing which results are those you are talking about). And also tell who we should believe the criticisms of these "important scholars" and not the criticisms of the criticisms.
BurningFrog 7y ago
> capital is a positive feedback loop in a way that labor is not If that's true, capital sounds awesome! An automatic wealth generator is something everyone should have, not something you want to tax out of existence!
- freen 7y ago
  Congratulations, you've invented taxes. In all seriousness, that is precisely what government is intended to do: take a portion of the private surplus and apply it to the public interest, thus increasing total productivity.
baron816 7y ago
> they promote a view that the solution to all ills is lower taxes and less regulation. I’ve read the Economist for a long time and have never gotten that impression. That’s more the Republican Party platform, who they really don’t support. In the articles, they explicitly argue for more regulation in the form of enhanced anti-trust laws and enforcement.
- FabHK 7y ago
  It's a surprisingly common prejudice against The Economist.
Merrill 7y ago
>that mid-20th-century laws that put brakes on this feedback loop have been removed; I don't believe that the purpose of mid-20th-century laws was to promote equality. Things were more equal then because: a) World Wars I & II destroyed huge amounts of capital, and b) fighting wars requires lots of money which requires raising taxes on people who can pay, since borrowing cannot fully fund general wars. Economics are cyclical in the sense that in normal times people with power and wealth accumulate more power and wealth. Then a general period of war/revolution/epidemic/famine breaks out which disrupts power relationships and consumes wealth. This is the pattern in Europe since the 1300s and it also applies to dynastic changes in other societies, such as China.
- lifeisstillgood 7y ago
  I wish I could upvote this more - it is probably the one cycle that replacing with redistribution via tax will solve more suffering than anything else
- toyg 7y ago
  That’s definitely not the case in Europe. Socialist movements were on the verge of power in many countries before WWII, and actually ruled or heavily conditioned the political life all over the continent until the end of the Cold War. The war effort had been dealt with by the early ‘50s at the latest; the following 40 years were dominated by the fight for social and economic equality. The war “helped” only in the sense that it often acted as a selection for the political classes in the following 20 years or so, in some cases literally (Italy and France).
  - Merrill 7y ago
    Socialism gained only after World War I disrupted incumbent powers and wealth. World Wars I and II really need to be considered as a unit. War continued into the '20s in Eastern Europe and then resumes in 1936 in Spain. See "War of the World" by Niall Ferguson. Socialism was not that strong before WW I destroyed the power structures of the German, Russian, Austro-Hungarian, and Ottoman Empires. The resumption of war in World War II destroyed the Japanese and Chinese Empires and enervated the British and French sufficiently that the British and French Empires dissolved after the war.
undefined3840 7y ago
I don’t really understand why people say a tax on owned capital is so far fetched when we are all okay with property taxes which is literally a wealth tax on a subset of owned capital. The only difference is that property taxes are regressive and not progressive
hueving 7y ago
> that capital is a positive feedback loop This requires a lot of the investment environment that isn't a given. Capital loses its feedback loop if inflation outpaces economic growth or if the quality of investment opportunities declines significantly. There is no given that just having $10 million dollars means it will be easy to outpace inflation and not end up with less.
- sandstrom 7y ago
  I think capital would usually be some real asset (building, factory, stocks, etc) and not cash, and if so shouldn't be affected by inflation. No expert though, I may be wrong :)
- K0SM0S 7y ago
  Having 10 million dollars as of 2019 and being unable to at least keep up with inflation means making terrible choices, many, many times over.
  - jessaustin 7y ago
    With that much money you basically have to make a single phone call to Vanguard. With slightly less you have to spend more time on the phone...
  - hueving 7y ago
    Said everyone during a bull market
tolmasky 7y ago
A key thing about the mid-century is that the actual manufacturing capabilities of most of the world (with the sole exception of the US basically) were completed destroyed by WWII. Britain and Germany were devastated. This means that in the 1950's the US was essentially acting as the sole industrial power at full strength serving the rest of the world. We were playing worldwide economics on easy mode: as if we were the only ones that had modern technology and fully functioning infrastructure, while all other countries wanted our goods. This is why it is bizarre to draw any conclusions about taxes or any other economic principles from this very unique period of time: you could probably put in place just about any law and still have the United States be ridiculously successful. We are now actually competing with other parts of the world.
- tryptophan 7y ago
  >We were playing worldwide economics on easy mode: as if we were the only ones that had modern technology and fully functioning infrastructure, while all other countries wanted our goods. This is why it is bizarre to draw any conclusions about taxes or any other economic principles from this very unique period of time: you could probably put in place just about any law and still have the United States be ridiculously successful. IIRC Pickety made this exact point in his book Capital in the 21st Century. Looking back at that time period as something to emulate or get policy ideas from is misguided for this reason. Instead of thinking of it as "a time of enlightenment when the people fought the billionaires and achieved utopia" it would probably be better to think of it as "a historical aberration which will probably never happen again".
- jlcummings 7y ago
  Agricultural efficiency, and food handling and storage are big cornerstones in this past century too. We were a world of frequent famine and hunger and now one of abject abundance.
EGreg 7y ago
The Economist did not ever strike me as a right wing publication that wants to lower taxes and roll back regulations.
markdown 7y ago
> and that the only reasonable solution for this is a tax on owned capital (not on income or cap gains) and the political chances of this happening are slim, etc. I think another reasonable solution, and one which actually has a chance of happening, is a land value tax
unstrafed 7y ago
> This Economist article points out some of the many small academic works that quibble over details with Piketty and Saez. But that's not anything new. The major points of their work, and especially of Piketty's monumental _Capital for the 21st century_ still stand: that capital is a positive feedback loop in a way that labor is not; that mid-20th-century laws that put brakes on this feedback loop have been removed; that a variety of data sources are confirming growing inequality and market capture particularly in the UK and US; and that the only reasonable solution for this is a tax on owned capital (not on income or cap gains) and the political chances of this happening are slim, etc. [emphasis added] I'm a bit surprised that you included ad hominem accusations of bias and haterism given the adjectives in the first paragraph. :) But, in seriousness, Piketty's work is pretty poor. The empirical data is now discounted [0], the `r > g` claim was debunked shortly after publication [1]. The fate of the latter claim seems fatal to Piketty's attempts to accurately model the world and prescribe solutions. For instance, capital depreciates as it ages, and can do so dramatically due to obsolescence or damage. Redeploying capital toward new uses is generally quite costly, due to the high inelasticities of capital. Labor is much more elastic to different tasks of production. (I should note that the inelasticity of "human capital" in the modern service-based economy, which is indeed a problem. "Learn to code" is a meme deployed by trolls, but it reflects a real economic reality. The increasing prevalence of human capital and its inelasticities also undercuts Picketty.) Further, Piketty himself defines capital in such a way (he uses it essentially synonymously with wealth) that his argument is almost tautological, and also fails to account for wealth stored in e.g. real estate (or the works of Picasso, for that matter). Increases in real estate prices (driven almost entirely by well-understood microeconomic structural issues and not by some abstract macro mathematical inequality) account for the amount r exceeds g. Any usual definition of capital emphasizes that it is a factor of production, not merely wealth. Capital is the fixed "stuff" we use to produce other stuff. It might be a dump truck or an assembly line process or even knowledge of C++. Housing stock almost certainly fails the factor of production test, and thus shouldn't be counted as capital (the status of a Picasso as a factor of production is an exercise left to the reader). (By analogy, labor is also defined as a factor of production, and doesn't include the value of leisure hours or time spent sleeping.) Piketty's book sales might not have been so high had he simply argued that fixed supplies of highly-demanded scarce resources tend to increase over time, and that land in a reurbanizing and NIMBY-ish period is by far the strongest such asset. Henry George said more insightful things about the same subject over a century before Piketty had an economics professorship. (I'm not arguing that George's solutions were great. I'm more enthusiastic about ideas like nuisance-based zoning as opposed to use-based: they seem to achieve the desired effects of stability and low inequality without a ton of extraction. I somehow doubt that Piketty would share this enthusiasm. [2][3]) Ultimately, if these small attacks of death by 1000 cuts on Piketty's work don't convince you (and I would characterize some of the attacks as quite substantial) that it was very flawed and probably just nonsense, then maybe ask yourself if any evidence whatsoever would convince you that Piketty is (broadly speaking) wrong. [0] https://www.cambridge.org/core/journals/social-science-history/article/one-percent-across-two-centuries-a-replication-of-thomas-pikettys-data-on-the-concentration-of-wealth-in-the-united-states/20F44C37D29070B205D5FF33B30131C1# https://www.cambridge.org/core/journals/social-science-histo... [1] http://mattrognlie.com/piketty_diminishing_returns.pdf http://mattrognlie.com/piketty_diminishing_returns.pdf [2] https://marginalrevolution.com/marginalrevolution/2016/08/laissez-faire-in-tokyo.html https://marginalrevolution.com/marginalrevolution/2016/08/la... [3] https://marginalrevolution.com/marginalrevolution/2016/08/the-japanese-zoning-system.html https://marginalrevolution.com/marginalrevolution/2016/08/th...
naveen99 7y ago
Professional labor can have a positive feedback loop, like engineering, law, medicine, even bureaucrats. you can get more efficient with more experience and usually can make more money. Less risky then capital investment. Also small business is a mix of labor and capital.
FabHK 7y ago
> At least they are very open about their biases: they promote a view that the solution to all ills is lower taxes and less regulation. That's a (common) caricature of The Economist's views. Their actual policy proposals are quite a bit more nuanced than that, and often call for taxes and regulation. As one datapoint, note that in the last four US presidential elections, they've endorsed the Democratic candidate (see eg https://en.wikipedia.org/wiki/The_Economist_editorial_stance#United_States_presidential_elections https://en.wikipedia.org/wiki/The_Economist_editorial_stance... ).

by 60654 7y ago

hervature 7y ago

I had a very different takeaway from Piketty's book. Namely, that inflation (primarily hyper inflation) has been the only force to reduce income inequality. For example, Jeff Bezos is much more affected than I am if the government decides to give everyone a $1B. Thus, governments looking to end income inequality shouldn't be afraid of high inflation.

awrence 7y ago
Bezos is basically entirely invested in stocks (Amazon). His exposure to monetary inflation is roughly 0. If the government hands out 1bn to everyone that'll happen at the expense of cash / bond holders. Prices from Amazon services will just adjust accordingly to the inflation spike along with their profit margins.
- galangalalgol 7y ago
  I would guess most salaried employees have little of their wealth directly in anything but stocks and bonds due to 401k. Also house equity possibly.
joshklein 7y ago
Inflation IS a tax on wealth. When done intentionally (by printing money), it’s called seigniorage.
- awrence 7y ago
  Inflation comes in different flavors. If all you do is print and hand out 1bn to each citizen, they'll just be able to outspend other dollar holders in the world. Prices will adjust, but the amount of real goods in the world per capita is unchanged. You're just reallocating who gets what amongst monetary savers. If your wealth is in the actual stuff people end up buying, this is very much a side concern for you. Bezos is in that camp.
- SamBam 7y ago
  If my wealth is in anything beyond cash -- say I own a huge hotel chain, or the largest retail company in the country -- how is inflation a tax on my wealth? My businesses will still be generating the same proportion of the economy as they were before.
  - logicchains 7y ago
    If inflation causes the nominal value of your hotel chain to increase 2%, you have to pay capital gains tax on this nominal gain (at least in countries where capital gains tax is not adjusted for inflation), leaving you with less real value afterwards.
    - nemo44x 7y ago
      Only if you sell. And if you're invested in a company that is only growing at the rate of inflation then I'd imagine they are paying a decent dividend which is very possibly a qualified dividend that has no tax associated with it. Reinvesting that into the company creates a compound effect far greater than the inflation rate and will be taxed at the LTCG rate one day when divested from.
    - drdec 7y ago
      That only matters if you realize the gains. If you own a business like a hotel, car wash, etc. and intend to keep it, you are not affected by value increases of the business itself. In fact, for many privately held businesses, it is not even known what the value of the business is because there is no reason to calculate it.
Orou 7y ago
Is there any aggregate data on how the money printed by the U.S. government has been distributed historically? Inflation only helps the average person if they get a slice of the money printed, and I have a feeling the vast majority of it hasn't been going directly to John and Jane Doe.
FabHK 7y ago
> Namely, that inflation (primarily hyper inflation) has been the only force to reduce income inequality. Inflation, and war.
ramblerman 7y ago
Sorry but that seems like nonsense, at least the Bezos example. If everyone gets 1B tomorrow an amazon share will just be a lot more expensive. You are assuming Bezos holds all his wealth in cash.
mensetmanusman 7y ago
Anyone commoner who lived through hyperinflation will disagree.

WC3w6pXxgGd 7y ago

Taxation is violence. It is not the proper role of government to reduce income differences.

pksdjfikkkkdsff 7y ago

Afaik his finding are disputed. And even if not, why should it even be desirable to encourage labor? If capital is so great, people should seek owning capital, not seek to work more. As they say, savings plans start at 50$/month. It seems rather great that this opportunity exists (assuming it is true). The alternative is that you have to work and work until you die.

SamBam 7y ago
"Why doesn't everyone just get rich?"
- logicchains 7y ago
  Because a good chunk of people suck at delayed gratification so are incapable of saving money. Even on an average income it's not unfeasible to retire a millionaire if saving a significant percent (and indeed there are people who do this, small businesspeople and tradespeople, the "millionaires next door").
  - anoncake 7y ago
    When people are incapable of something, it isn't feasible for them. It doesn't really matter why "everyone getting rich" doesn't work.
- pksdjfikkkkdsff 7y ago
  Arguably, almost everybody in the Western world has gotten rich. Go visit a medieval castle sometime. The standards that now everybody has required an army of servants in the old days. It is just a hateful lie of the left to claim "being rich" is dependent on exploiting poor people.
  - SketchySeaBeast 7y ago
    That's silly - compared to cavemen, even workers in third world countries are "rich", being able to trade things for goods and services and not being required to hunt and gather. Inequality solved?

brnt 7y ago

Have not read his latest "People, Power, and Profits: Progressive Capitalism for an Age of Discontent", but I think Stiglitz has basically been saying the same as the gist of this article: equality is essential to sustainable capitalism.

taffer 7y ago

> This Economist article points out some of the many small academic works that quibble over details with Piketty and Saez [...] that capital is a positive feedback loop in a way that labor is not Well the article mentions that: > Matthew Rognlie, now of Northwestern University, argued that the rise in America’s capital share was accounted for by growing returns to housing, not by the shares and bonds which are held disproportionately by the top 1% of American households. So it seems that housing is really the positive feedback circuit.

Marazan 7y ago
Housing is capital
- rayiner 7y ago
  But not the kind of capital people usually think about when railing about billionaires and wealth taxes.
  - js2 7y ago
    Housing is already taxed. In the U.S., property taxes are about 17% of government revenue. https://www.economist.com/finance-and-economics/2013/06/29/levying-the-land https://www.economist.com/finance-and-economics/2013/06/29/l...
    - dcolkitt 7y ago
      True. But housing is also tax-privileged in other ways. Most notable is the mortgage interest on federal income tax. More subtle is the fact that the value of the imputed rent from owning your own home is not taxed. I.e. if you rent your home to someone else, you pay income tax on the rent you collect. But if you "rent to yourself" by owning your own home, you don't pay tax on this implicit form of income.
      - AnimalMuppet 7y ago

rguzman 7y ago

it seems odd to dismiss papers that challenges Piketty's and Saez's conclusions as nitpicky. in complex systems the devil is most often in the details. and not only that, but the sort of project that Piketty took on has many potential methodological pitfalls. so, small details could actually mean a given premise or conclusion is invalid. how would you suggest someone go about assessing whether a paper is nitpicky vs something that should be taken seriously? note that i'm not taking a position on the conclusions of Piketty and Saez, just pointing out that re-stating their claims does not say anything about the papers that argue against them and calling such papers nitpicky seems like a particularly weak critique in this instance.

CharlesColeman 7y ago
> note that i'm not taking a position on the conclusions of Piketty and Saez, just pointing out that re-stating their claims does not say anything about the papers that argue against them and calling such papers nitpicky seems like a particularly weak critique in this instance. There's another angle: in a general-interest publication like the Economist, over-emphasizing nit-picky flaws that fail to effect the core arguments of a work can have the effect of giving general-interest readers the impression the work has more serious flaws than it actually has.
- Matticus_Rex 7y ago
  I'm fairly well acquainted with the literature on this topic, and I think the opposite; the fact that most people don't understand why these "nitpicks" actually seriously undermine the premise and totally butcher the prescriptive suggestions makes it easy for readers to dismiss the criticism, especially in a general-interest publication. While there's a contrary effect for the skimming reader who just accepts that P&S' work is flawed without understanding it, I think that tends to be a much lower risk with the Economist audience.
  - CharlesColeman 7y ago
    > I'm fairly well acquainted with the literature on this topic How so, exactly? > and I think the opposite; the fact that most people don't understand why these "nitpicks" actually seriously undermine the premise and totally butcher the prescriptive suggestions Personally, I'm inclined to withhold judgement until the dust settles, yay or nay. The topic is technically difficult, and there are a lot of actors with political interests in the outcome of the discussion that muddy the waters.

rayiner 7y ago

> This Economist article points out some of the many small academic works that quibble over details with Piketty and Saez. But that's not anything new These are not nitpicks. What you measure drastically changes the results. Piketty and Saez presented their own revision to their data in 2018 that shows starkly different results than the 2013 data everyone cites: http://gabriel-zucman.eu/files/PSZ2018QJE.pdf http://gabriel-zucman.eu/files/PSZ2018QJE.pdf For example figure 3 shows that when you account for tax transfers, the bottom 50%’s share of income is only a few points lower than in 1960, though significantly lower than the peak of about 25% in 1970. It also shows that, contrary to common assertions, the bottom 50% income has grown consistently since 1960 adjusted for inflation. Figure 1 shows that the labor share of income has been flat since 1940 when you account for benefits. (Put another way, capital’s share of income is flat.) The data about returns to capital are particularly important. Supporters of wealth taxes and capital taxes tend to point to rising inequality as the justification for such approaches. But if the returns to capital aren’t increasing as a fraction of the economy, that argument gets harder. Of course there may be other arguments in favor of such taxes, but those seem less well developed. The point the Economist article makes well is that inequality is hard to measure, and the simple definition used by Piketty and Saez’s initial analysis is inadequate. For example, there is a whole school of libertarian thought that, even if you believe the government should be in the business of redistribution, the best approach is to maximize growth through a free, deregulated economy and then tax individual incomes to provide generous welfare benefits. Most of the developed world has moved in that direction over the last 30 years. Under Piketty and Saez’s 2013 model, which excludes tax transfers, you can’t accurately describe inequality in a country that uses such a model. Moreover, there are additional analyses showing that, when you look at consumption rather than income (which accounts for both tax transfers and falling prices from globalization) inequality is basically unchanged since the 1970s: https://voxeu.org/article/consumption-and-income-inequality-us-1960s https://voxeu.org/article/consumption-and-income-inequality-.... That is to say, the bottom 10% get to consume about the same fraction of total production as they did half a century ago. Of course there are downsides to consumption measures too, insofar as the data is sparser for incomes at the top. (The measure above includes money spent on mortgages for mansions, but not private yachts, for example.) But just because something is easy to measure (pre-tax income) doesn’t mean it’s the right thing to measure!

stvswn 7y ago

You are asserting that there is broad academic agreement that Piketty's major points still stand, but that is far from true -- in fact they never stood under serious scrutiny at all. Outside of simply describing tautalogies, his major point is that inequality is rising because the rate of return on capital is exceeding the economy's growth rate, from which he makes a logical leap that inequality will increase inexorably without intervention. This point fails to consider that people spend some (and sometimes a lot) of their earnings from capital, which dissipates their wealth back into the economy. Historical data show that wealth does not end up growing faster than income because of the effect of spending the wealth (you have to spend basically none of it to maintain a growth rate that is greater than GDP). A good number of serious academics have raised this and other points. His book is best understood as a popular argument for specific political ends, and since it gives a veneer of academic seriousness to those ends it has been popular.

claudiawerner 7y ago

Not to mention that Piketty has a relatively soft list of proposals and research compared to the 'old guard' of critics of capital. The Economist's arguments against Piketty are only there because he's the most radical economist on capital's horizon. By presenting Piketty as radical on the issue of inequality, the arguments from modern, radical economists on every other aspect of capital are shut out. For example, beyond Piketty we have John Roemer, beyond Roemer we have Veneziani & Yoshihara, beyond them we have Fred Moseley, Andrew Kliman, Sekine, Itoh... In other words, Piketty gets so much criticism because he's the least radical of a bunch of radical economists, and because of that, he hasn't left capital's horizon.

romey 7y ago
Would you happen to have some suggestions on where to start further reading of radical economics? I'm halfway through "Doughnut Economics" right now, but it's a bit simple -- I was looking for something more challenging.
- claudiawerner 7y ago
  J.E. Roemer's classic 1982 book[0] on exploitation from a game-theoretic standpoint is generally the beginning of the post-Marxian era of radical economics. However, his is not the only approach, now there are theories which attempt to reformulate the Marxist concept into a theory of unequal exchange of labour. Roberto Veneziani[1] has a great many papers on this theory of exploitation, expressed mathematically, in particular, two principles: profit-exploitation correspondance principle, and the class-exploitation correspondance principle. Andrew Kliman[2] and Fred Moseley[3] are two economists with very contrasting approaches to Marx's labour theory of value and its application today, as well as other "problems" in Marx (such as the transformation problem). Moseley also criticizes some of Piketty's methods[4]. Kliman and Patrick Murray agree that, providing the labour theory of value is true, then we can deduce Marxian exploitation - however their approach is less economic and more philosophical. This is because Murray objects to the use of neoclassical models and methods, with good reason[5]. Vrousalis[6] takes a non-Marxian approach to dominatiton and exploitation under capitalism. For the latest stuff in the field, check out the main journals[7][8] and Brill's Historical Materialism book series, and this one[9] in particular. [0] https://www.hup.harvard.edu/catalog.php?isbn=9780674435865 https://www.hup.harvard.edu/catalog.php?isbn=9780674435865 [1] https://academic.oup.com/cje/article-abstract/41/6/1607/4598293 https://academic.oup.com/cje/article-abstract/41/6/1607/4598... [2] http://digamo.free.fr/kliman2007.pdf http://digamo.free.fr/kliman2007.pdf [3] https://www.mtholyoke.edu/~fmoseley/Working_Papers_PDF/macro-monetary.pdf https://www.mtholyoke.edu/~fmoseley/Working_Papers_PDF/macro... [4] https://www.tandfonline.com/doi/abs/10.1080/08911916.2015.1060828 https://www.tandfonline.com/doi/abs/10.1080/08911916.2015.10... [5] https://www.cpp.edu/~jet/Documents/JET/Jet15/Schuler19-28.pdf https://www.cpp.edu/~jet/Documents/JET/Jet15/Schuler19-28.pd... [6] https://www.tandfonline.com/doi/full/10.1080/00346764.2019.1618483 https://www.tandfonline.com/doi/full/10.1080/00346764.2019.1... [7] https://journals.sagepub.com/home/rrp https://journals.sagepub.com/home/rrp [8] https://www.jstor.org/journal/worlrevipoliecon?refreqid=excelsior%3A99d15f979bdf664a3ab74e2ccf061f6c https://www.jstor.org/journal/worlrevipoliecon?refreqid=exce... [9] https://brill.com/view/title/35142 https://brill.com/view/title/35142

xorfish 7y ago

> not on income or cap gains Why does it matter how it is taxed? If the capital returns 4% and is taxed at a 30% rate, you will have the same effect as if the capital is taxed at a rate of 1.15%. I think the biggest injustice is that return of capital isn't taxed at the same rate as income from labor. Someone who earns $100'000 from labor and $50'000 from return on capital should be taxed at the same rate as someone who earns 150'000 from labor.

eutropia 7y ago
Taxing capital incentivizes putting it to work. If you only tax gains then people can endlessly horde wealth. Taxing the wealth itself makes hording unappealing... I think.
- xorfish 7y ago
  But hoarding wealth isn't a problem for inequality. It is that capital can be used to generate income. Inflation is the process that incentivizes capital to be put to work.
  - maxsilver 7y ago
    > But hoarding wealth isn't a problem for inequality. It absolutely can be, especially for wealth that is finite. (Like land for housing) > Inflation is the process that incentivizes capital to be put to work. Does it though? Inflation mostly just punishes labor alone, labor feels the effects of inflation far more severely than anyone else. With enough capital (the amount anyone 'hoarding wealth' already has), the capital automatically buys itself out of any problem of inflation, because the returns to sit on that cash are routinely higher than inflation itself is. Inflation can't currently incentivize capital to be put to work, because capital just sitting doing nothing already far out-earns any loss from inflation. And for inflation to be strong enough to actually incentivize capital to be used, you'd have to bump it to astronomical heights (like say, 15-25%), at which point you've completely obliterated all wage-earning people's lives. This is why many well-respected people advocate for a wealth tax. In a perfect world, inflation would be exactly 0, and a strong punitive wealth tax would discourage greedy people from hoarding wealth.

davedx 7y ago

> the only reasonable solution for this is a tax on owned capital (not on income or cap gains) and the political chances of this happening are slim Seems to be a cornerstone policy of multiple presidential candidates in the US at the moment. We have it in the Netherlands. I don't think it's that unlikely. Not sure how much it helps with inequality in the Netherlands though. If anything I think it stimulates people and businesses to invest, which either means the wealthy people make more money, or they lose it. At the most it creates jobs. People on low salaries aren't really benefited.

leto_ii 7y ago
In the Netherlands (where I currently reside as well) I think this tax can easily be avoided by placing your assets in some sort of shell company. When the startup I used to work for IPO'd I was not surprised to find that most of the important stockholders were using such companies (presumably) to avoid being taxed on their hundreds of millions/billions of euros.
- consp 7y ago
  As soon as you get it out of there either as income (at least some part is required) or as dividend and you start paying taxes. Not before so this is allowed and legal (and smart). They are about 25-30% in total well below the top tier of about 52% in case of income tax.
- davedx 7y ago
  I know that the Belastingdienst is going after people pretty hard for tax avoidance/evasion at the moment. Things are changing quite quickly in this area in the EU, and NL is no exception. What worked well for people 5 years ago could well result in a pretty full on audit now leading to nasty bills to pay back owed taxes. The only problem is companies like Amazon, Google etc. are still getting away with paying 0 taxes everywhere... easier for the Belastingdienst to take on SME's first I guess. :/
rayiner 7y ago
Note that the Dutch wealth tax replaces their capital gains tax. It’s a tax on the assumed returns on capital assets. (Of course unlike a capital gains tax the wealth tax reaches unrealized gains. But the rate is also lower than a capital gains tax would be. It’s possible to come out ahead compared to a capital gains tax depending on your situation.)

deleted 7y ago

[deleted]

thanatropism 7y ago

> Capital is a feedback loop Come off it, it’s not like this isn’t a staple of political economy since the 1800s or so. A very charitable description of Piketty’s big ted talk of a book is that it suffers from the same flaws of classics like “A monetary history of the United States” by Friedman and Schwartz: it uses empirics as gargoyles, not as structural beams. It seems to be a great argument that’s backed by numbers — but whatever you make of it, the numbers are a distraction. The cringe of it is that Piketty’s numbers are also fraudulent, as extensively documented by dozens upon dozens of important scholars.

AnimalMuppet 7y ago
> ... as extensively documented by dozens upon dozens of important scholars. Do tell. In particular, give some references to those who you are talking about rather than leaving us to do our own searches (and then guessing which results are those you are talking about). And also tell who we should believe the criticisms of these "important scholars" and not the criticisms of the criticisms.

BurningFrog 7y ago

> capital is a positive feedback loop in a way that labor is not If that's true, capital sounds awesome! An automatic wealth generator is something everyone should have, not something you want to tax out of existence!

freen 7y ago
Congratulations, you've invented taxes. In all seriousness, that is precisely what government is intended to do: take a portion of the private surplus and apply it to the public interest, thus increasing total productivity.

baron816 7y ago

> they promote a view that the solution to all ills is lower taxes and less regulation. I’ve read the Economist for a long time and have never gotten that impression. That’s more the Republican Party platform, who they really don’t support. In the articles, they explicitly argue for more regulation in the form of enhanced anti-trust laws and enforcement.

FabHK 7y ago
It's a surprisingly common prejudice against The Economist.

Merrill 7y ago

>that mid-20th-century laws that put brakes on this feedback loop have been removed; I don't believe that the purpose of mid-20th-century laws was to promote equality. Things were more equal then because: a) World Wars I & II destroyed huge amounts of capital, and b) fighting wars requires lots of money which requires raising taxes on people who can pay, since borrowing cannot fully fund general wars. Economics are cyclical in the sense that in normal times people with power and wealth accumulate more power and wealth. Then a general period of war/revolution/epidemic/famine breaks out which disrupts power relationships and consumes wealth. This is the pattern in Europe since the 1300s and it also applies to dynastic changes in other societies, such as China.

lifeisstillgood 7y ago
I wish I could upvote this more - it is probably the one cycle that replacing with redistribution via tax will solve more suffering than anything else
toyg 7y ago
That’s definitely not the case in Europe. Socialist movements were on the verge of power in many countries before WWII, and actually ruled or heavily conditioned the political life all over the continent until the end of the Cold War. The war effort had been dealt with by the early ‘50s at the latest; the following 40 years were dominated by the fight for social and economic equality. The war “helped” only in the sense that it often acted as a selection for the political classes in the following 20 years or so, in some cases literally (Italy and France).
- Merrill 7y ago
  Socialism gained only after World War I disrupted incumbent powers and wealth. World Wars I and II really need to be considered as a unit. War continued into the '20s in Eastern Europe and then resumes in 1936 in Spain. See "War of the World" by Niall Ferguson. Socialism was not that strong before WW I destroyed the power structures of the German, Russian, Austro-Hungarian, and Ottoman Empires. The resumption of war in World War II destroyed the Japanese and Chinese Empires and enervated the British and French sufficiently that the British and French Empires dissolved after the war.

undefined3840 7y ago

I don’t really understand why people say a tax on owned capital is so far fetched when we are all okay with property taxes which is literally a wealth tax on a subset of owned capital. The only difference is that property taxes are regressive and not progressive

hueving 7y ago

> that capital is a positive feedback loop This requires a lot of the investment environment that isn't a given. Capital loses its feedback loop if inflation outpaces economic growth or if the quality of investment opportunities declines significantly. There is no given that just having $10 million dollars means it will be easy to outpace inflation and not end up with less.

sandstrom 7y ago
I think capital would usually be some real asset (building, factory, stocks, etc) and not cash, and if so shouldn't be affected by inflation. No expert though, I may be wrong :)
K0SM0S 7y ago
Having 10 million dollars as of 2019 and being unable to at least keep up with inflation means making terrible choices, many, many times over.
- jessaustin 7y ago
  With that much money you basically have to make a single phone call to Vanguard. With slightly less you have to spend more time on the phone...
- hueving 7y ago
  Said everyone during a bull market

tolmasky 7y ago

A key thing about the mid-century is that the actual manufacturing capabilities of most of the world (with the sole exception of the US basically) were completed destroyed by WWII. Britain and Germany were devastated. This means that in the 1950's the US was essentially acting as the sole industrial power at full strength serving the rest of the world. We were playing worldwide economics on easy mode: as if we were the only ones that had modern technology and fully functioning infrastructure, while all other countries wanted our goods. This is why it is bizarre to draw any conclusions about taxes or any other economic principles from this very unique period of time: you could probably put in place just about any law and still have the United States be ridiculously successful. We are now actually competing with other parts of the world.

tryptophan 7y ago
>We were playing worldwide economics on easy mode: as if we were the only ones that had modern technology and fully functioning infrastructure, while all other countries wanted our goods. This is why it is bizarre to draw any conclusions about taxes or any other economic principles from this very unique period of time: you could probably put in place just about any law and still have the United States be ridiculously successful. IIRC Pickety made this exact point in his book Capital in the 21st Century. Looking back at that time period as something to emulate or get policy ideas from is misguided for this reason. Instead of thinking of it as "a time of enlightenment when the people fought the billionaires and achieved utopia" it would probably be better to think of it as "a historical aberration which will probably never happen again".
jlcummings 7y ago
Agricultural efficiency, and food handling and storage are big cornerstones in this past century too. We were a world of frequent famine and hunger and now one of abject abundance.

EGreg 7y ago

The Economist did not ever strike me as a right wing publication that wants to lower taxes and roll back regulations.

markdown 7y ago

> and that the only reasonable solution for this is a tax on owned capital (not on income or cap gains) and the political chances of this happening are slim, etc. I think another reasonable solution, and one which actually has a chance of happening, is a land value tax

unstrafed 7y ago

> This Economist article points out some of the many small academic works that quibble over details with Piketty and Saez. But that's not anything new. The major points of their work, and especially of Piketty's monumental _Capital for the 21st century_ still stand: that capital is a positive feedback loop in a way that labor is not; that mid-20th-century laws that put brakes on this feedback loop have been removed; that a variety of data sources are confirming growing inequality and market capture particularly in the UK and US; and that the only reasonable solution for this is a tax on owned capital (not on income or cap gains) and the political chances of this happening are slim, etc. [emphasis added] I'm a bit surprised that you included ad hominem accusations of bias and haterism given the adjectives in the first paragraph. :) But, in seriousness, Piketty's work is pretty poor. The empirical data is now discounted [0], the `r > g` claim was debunked shortly after publication [1]. The fate of the latter claim seems fatal to Piketty's attempts to accurately model the world and prescribe solutions. For instance, capital depreciates as it ages, and can do so dramatically due to obsolescence or damage. Redeploying capital toward new uses is generally quite costly, due to the high inelasticities of capital. Labor is much more elastic to different tasks of production. (I should note that the inelasticity of "human capital" in the modern service-based economy, which is indeed a problem. "Learn to code" is a meme deployed by trolls, but it reflects a real economic reality. The increasing prevalence of human capital and its inelasticities also undercuts Picketty.) Further, Piketty himself defines capital in such a way (he uses it essentially synonymously with wealth) that his argument is almost tautological, and also fails to account for wealth stored in e.g. real estate (or the works of Picasso, for that matter). Increases in real estate prices (driven almost entirely by well-understood microeconomic structural issues and not by some abstract macro mathematical inequality) account for the amount r exceeds g. Any usual definition of capital emphasizes that it is a factor of production, not merely wealth. Capital is the fixed "stuff" we use to produce other stuff. It might be a dump truck or an assembly line process or even knowledge of C++. Housing stock almost certainly fails the factor of production test, and thus shouldn't be counted as capital (the status of a Picasso as a factor of production is an exercise left to the reader). (By analogy, labor is also defined as a factor of production, and doesn't include the value of leisure hours or time spent sleeping.) Piketty's book sales might not have been so high had he simply argued that fixed supplies of highly-demanded scarce resources tend to increase over time, and that land in a reurbanizing and NIMBY-ish period is by far the strongest such asset. Henry George said more insightful things about the same subject over a century before Piketty had an economics professorship. (I'm not arguing that George's solutions were great. I'm more enthusiastic about ideas like nuisance-based zoning as opposed to use-based: they seem to achieve the desired effects of stability and low inequality without a ton of extraction. I somehow doubt that Piketty would share this enthusiasm. [2][3]) Ultimately, if these small attacks of death by 1000 cuts on Piketty's work don't convince you (and I would characterize some of the attacks as quite substantial) that it was very flawed and probably just nonsense, then maybe ask yourself if any evidence whatsoever would convince you that Piketty is (broadly speaking) wrong. [0] https://www.cambridge.org/core/journals/social-science-history/article/one-percent-across-two-centuries-a-replication-of-thomas-pikettys-data-on-the-concentration-of-wealth-in-the-united-states/20F44C37D29070B205D5FF33B30131C1# https://www.cambridge.org/core/journals/social-science-histo... [1] http://mattrognlie.com/piketty_diminishing_returns.pdf http://mattrognlie.com/piketty_diminishing_returns.pdf [2] https://marginalrevolution.com/marginalrevolution/2016/08/laissez-faire-in-tokyo.html https://marginalrevolution.com/marginalrevolution/2016/08/la... [3] https://marginalrevolution.com/marginalrevolution/2016/08/the-japanese-zoning-system.html https://marginalrevolution.com/marginalrevolution/2016/08/th...

naveen99 7y ago

Professional labor can have a positive feedback loop, like engineering, law, medicine, even bureaucrats. you can get more efficient with more experience and usually can make more money. Less risky then capital investment. Also small business is a mix of labor and capital.

FabHK 7y ago

> At least they are very open about their biases: they promote a view that the solution to all ills is lower taxes and less regulation. That's a (common) caricature of The Economist's views. Their actual policy proposals are quite a bit more nuanced than that, and often call for taxes and regulation. As one datapoint, note that in the last four US presidential elections, they've endorsed the Democratic candidate (see eg https://en.wikipedia.org/wiki/The_Economist_editorial_stance#United_States_presidential_elections https://en.wikipedia.org/wiki/The_Economist_editorial_stance... ).