Showing posts with label Piketty. Show all posts
Showing posts with label Piketty. Show all posts

Thursday, 19 October 2017

Piketty's rickety evidence...


Thomas Piketty became the go to anti-capitalist economist. Every trendy progressive pundit leapt onto his arguments about the inevitability of ever rising inequality. Whole economic strategies were designed by assorted far left numpties based on Tom's vast tome (which I guess most of them haven't read - I had a quick flick through, turgid doesn't fully capture its dullness).

Thing is though, Piketty's evidence - the thing that made his thesis so powerful - turns out to be a bit dodgy:
Very little of value can be salvaged from Piketty’s treatment of data from the nineteenth century. The user is provided with no reliable information on the antebellum trends in the wealth share and is even left uncertain about the trend for the top 10 percent during the Gilded Age (1870–1916). This is noteworthy because Piketty spends the bulk of his attention devoted to America discussing the nineteenth-century trends (Piketty 2014: 347–50).

The heavily manipulated twentieth-century data for the top 1 percent share, the lack of empirical support for the top 10 percent share, the lack of clarity about the procedures used to harmonize and average the data, the insufficient documentation, and the spreadsheet errors are more than annoying. Together they create a misleading picture of the dynamics of wealth inequality. They obliterate the intradecade movements essential to an understanding of the impact of political and financial-market shocks on inequality. Piketty’s estimates offer no help to those who wish to understand the impact of inequality on “the way economic, social, and political actors view what is just and what is not” (Piketty 2014: 20).
All this comes (via Marginal Revolution) from Professor Richard Sutch, a very highly regarded economic historian and economist. Seems that emperor might need a new tailor.

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Friday, 17 October 2014

We already have a 'progressive consumption tax'...

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Bill Gates has responded to the Thomas Piketty wealth tax proposal by moaning that it's not fair. By which he means not fair on entrepreneurs and the like who invest their money in the betterment of the business or society:

Bill Gates frames his argument like this — if you have three wealthy people, one spending money on new businesses, one spending money on charity, and one spending money on luxury items for him or herself, the last one should be taxed more because the first two are contributing more to society.



Now I may be wrong here but Bill's idea already applies (at least in the UK where we have a value-added tax). And, even though there are fewer consumption taxes in the USA, that country gives generous tax breaks for charitable giving and exemptions for capital investment in new or existing businesses.

So, whatever we think of Piketty's policy solution (and I think it mad, bad and dangerous to know), it does have the merit of being an attempt to resolve what that economist sees as an essential challenge to our society and economy. Bill Gates proposal is one that favours 'charity' over consumption and investment over spending. And, this might be fine for very rich folk like Bill but for the rest of us it's a proposal for a tax on the pleasures of life.

So once more let's remind ourselves that we don't live to hoard resources, to invest in business or to have 'charitable' consumption put on a special pedestal. We live to consume.

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Monday, 12 May 2014

Is this why equality is important?

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I've just re-read Gordon Dickson's 'Necromancer', a novella providing some context for the author's Childe Cycle series of novels. In the book a future world is described where man's material needs are met, where technology has solved the problems of weather, food production and much else besides. Dickson doesn't go into details - the novella's purpose is to make a point not to create a future world - but his world isn't utopia.

At one point the hero read the newspapers and sees that, despite the meeting of needs, mankind is unhappy, thrashing about looking for purpose in a world of material satisfaction:

"The publications were full of the statistics of distress. Testing of grade-school children revealed that seven per cent of those under the age of eight were headed for major mental illnesses. The world crime rate had been climbing steadily for fifty years and this last year had jumped twenty-three per cent again. And this in a world in which nobody needed to lack for the necessities, and even most of the luxuries, of life. The world suicide rate was climbing sharply. Cultism was commonplace. Hysteria such as the marching societies exemplified was growing steadily. The birth rate was down."

Dickson wrote his novella in 1962 and described a world that, for us today, is surprisingly familiar. Even down to the ennui that pervades society, the sense of dissatisfaction and sometimes anger at some percieved injustice. And at the heart of all this is the sense that, in some manner, inequality is unfair. For some this has been turned into a pseudo-science, the picking away at statisitcs to prove that the ennui of modern society is a consequence of inequality - the mental ill-health, the suicide, the overindulgence would all fade were we but equal. Yet, despite our wish for equality, we know this cannot be so.

However, this doesn't mean that we shouldn't give people the chance to be equal. More importantly there is a real need for society to seek lower levels of inequality - not because of some perception of fairness but because high levels of inequality cause society to break down. And once people break from the bounds of law and democracy they are wont to find violent, oppressive resolutions to their envy.

I don't really want to comment on the economics of Thomas Piketty here but rather to say something about the sociological implications of his argument. If Piketty is right and the accumulation of wealth exceeds the rate of economic growth with the consequence that society's stock of wealth becomes concentrated in a small elite, then at some point society ceases to function. We either become an oikos state as Finer defined ancient civilisations - where the entire endeavour of society is to meet the needs of the god-king - or else order breaks down entirely with its associated economic collapse.

In the former case we would need a reason for people to remain in de facto slavery. Bread and circuses won't do over the long term, we would need the 21st century equivalent of that god-king ensuring the Nile floods every year. We must believe we would all die if that wealthy elite failed. I do not feel that such circumstances exist, which makes social breakdown inevitable - envy will triumph before Piketty's wealth gatherers achieve dominance.

We can call the envy of others' wealth different things - injustice maybe, inequality certainly, unfair often - but this doesn't detract from the central fear that the envy will lead to violent revolution. At the end of Necromancer, Dickson leaves us with a collapsing society - he has made his point that courage, faith and creativity are essential traits in man and that technology crushes these traits preferring a drab homogeneity.

But I just see that collapse. And wonder if the obsession of some with inequality reflects a fear that human envy - I want what he has - will create such a collapse?

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Sunday, 11 May 2014

Quote of the day - on M. Piketty's book

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Ouch!

"If one follows Piketty in assuming a normal return on capital of 4 percent for the 21st century, a 10 percent tax on wealth is equivalent to a 250 percent tax on the resulting capital income. Combined with the 80 percent income tax, taxpayers would face effective marginal tax rates of up to 330 percent."

How to screw the world's economy up in one fell swoop! But then we knew that as M. Piketty is an 'advisor' to President Hollande - the man in charge of the train crash that is France's economy.

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