Tag Archives: Piketty

The rich stay richer and the poor stay poorer (now with data to back this up)

I was impressed by this study of economic mobility over many generations in Florence: What’s your (sur)name? Intergenerational mobility over six centuries | VOX, CEPR’s Policy Portal. They make a good case that the richer families stay richer and the poorer families stay poorer regardless of the many other changes that occur in an area.To add to this, VOX reviews it and also references a study done in Sweden that finds something similar (Today’s rich families in Florence, Italy, were rich 700 years ago – Vox).

It’s depressing, but not surprising to me. I suspect that while individuals may rise and fall in terms of economic mobility, specific families work to insure that the wealth acquired is maintained through marriage and inheritance. Worse, conditions for poorer families are such that they can never acquire enough wealth to move them from the lower percentile to a higher one.

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An astounding interview of Yanis Varoufakis

This New Statesman interview of Yanis Varoufakis is astounding. The way he describes negotiations between Greece and other members of the Troika should not surprise me, and yet it does.

You might think: that can’t be right….he’s exaggerating for his own benefit. But many of the things Varoufakis states I have read referenced elsewhere, but in snippets.

Well worth the time spent reading it.

P.S. He has some interesting things to say about Piketty, as well. The link to his critique of Piketty is here.

Bill Gates on inequality and Piketty’s Capital

Bill Gates has a strong post on Piketty and inequality and I think it is one of the better ones I’ve seen. That doesn’t mean I agree with everything Gates argues for. For example, to counter Piketty at one point in the piece, he refers to data from the Fortune 400 records. I think the data that Piketty has gathered is much more significant than that and it is not something Gates accounts for.  Still, it’s clear that Gates has thought hard about the book and his comments seem to reflect that.

Gates is on stronger ground when he points out areas concerning inequality that Piketty has left out or not touched upon. His assumption there, though, is that Piketty’s book is the end of the discussion on capitalism in the 21st century, when the better assumption is that the book is the start of a new and better discussion. I expect Piketty or followers and supporters of Piketty will be expanding into those areas based on the material in this book.

I am not surprised that Gates has wrote about this – Piketty uses him as an example at one point! Plus Gates is no stranger to wealth and capital and what to do with them. He’s a natural to write about inequality and the French economist.

All in all, a good read.

 

Piketty Explained (by someone other than me. Also more prodding from me to get you to read it

 

I wrote about Piketty’s Capital in the Twenty-First Century here and here. As I said, I strongly encourage you to read it and take notes.

If you want a great summary of the book, I highly recommend this post: Piketty Explained: Summary of Capital in the Twenty-First Century by Thomas Piketty.

It’s superb. Peter Shirley, the author, has written  a 30 second summary and a 15 minute summary, and when you finish both, you will have a very fast but very thorough introduction to the book.  I am going to come back to this from time to time as a refresher to what I read in the book (as well as flip through the book again). Did you read Piketty but skip sections? Then review Peter’s post to see what you missed.

More good reasons to pick up Piketty before 2014 ends.

(The chart on world growth rates is from a link to Peter Shirley’s blog post.)

My marginalia from my copy of Piketty’s capital

My previous post was a guide to reading Piketty’s Capital. As I was going through it, I also jotted down some rough notes on the book and things I thought as I was going along. My marginalia, so to speak. Here it is, for what it’s worth to you:

  • Piketty’s book irked people for a number of reasons, including me initially. One reason, I think has to do with the grandness of his book. First, there’s the title. It implies this is a follow on to the great text by Marx. Second he does things like state fundamental laws of capitalism, as if economics were physics and Piketty is the 21st century Einstein. While Piketty can seem grand at time, he’s also humble in other parts. Throughout the book he often confesses to the limits of his approach based on the data (or lack of data) he has. He still has a lot of data and he has done a lot of analysis, but he is aware of the limits of it. This humility helped me get over the parts that irked me.
  • For non-economists like me, I think the book is most enjoyable when Piketty relates economic theory with example in literature and history. His references to Austen and Balzac make his ideas less abstract and make them richer. Fortunately, he does this often.
  • Some American critics would have you believe that Piketty is anti-capitalist / pro-socialist. I didn’t see that. I’d say Piketty is for open markets, strong on education, and democratic.  From an American point of view, he may seem left wing, but to most of the developed world I would place him closer to the center, slightly left.
  • One thing Piketty’s analysis can’t or doesn’t take into account is the exponential change in everything starting at the end of the 19th century. He touches on it a bit (pop growth rates on page 80), but this is factor. I believe that there is a correlation between growth rates and birth rates, with growth rates lagging birth rates. But this is a belief I have: I don’t have the ability to show this.
  • I was surprised by how limited economic growth is. (Chart on page 94). As Piketty mentions, people think it should be in the 3-4% range, but is much more likely to hover around the 1% range. Yet even such growth rates have a huge impact over decades and centuries.
  • Indirectly, Piketty makes the case for Naomi Klein’s thesis on disaster capitalism.  The biggest opportunities for growth in the 20th century occur as a result of the World Wars. Take a look at the charts on page 97 to see what I mean. Wars are terrible for people and cities but good for economic growth.
  • As I was reading the book in the summer, there were a slew of critics writing Think Pieces (or tweets!) against him and his book. The most ridiculous arguments against Piketty are the shallow ones, of course: the ones based on the book title, or that he is French, or that the book is all about new taxes. These arguments, mainly from American writers, reflect a lack of thought and the biases of Americans more than anything else. Critics of Piketty who write small articles on his book, criticizing this point or that, are missing the much bigger picture. Piketty, in presenting all of this data and analysis, is providing a broad stage to discuss capitalism. I think anyone wanting to take him on really has to do the same level of work. That’s the thing. Cherry picking is useless. Yes, it would be good to have more data. But this is the data available. If you want to criticize Piketty, you need more data, or you need to critique his data. If you want to show how technology is making inequality less not more, bring that data. Saying “Piketty is a red” or “this is not 19th century range” and thinking you are done just makes you look foolish and your arguments weak. (Of course you can believe what you like, but belief is not argument.)
  • Another thing he doesn’t touch on is the destructive nature of IT on capital. Being an IT professional, I was wondering if he would examine capital in the 21st century from that perspective, since IT is having a greater and greater effect on our economies, and as more things become digital, the depreciation of capital related to those things accelerates. If you’d like to read more on that topic, you won’t find it here.
  • It is interesting to note the stability of capitalism in the 19th century, at least in Europe. It was a conservative time politically, with limited warfare. Currency and other things economic were also stable then. No point here, just something that struck me as interesting.
  • I believe that an accumulation of capital leads to anti-democratic measures by capitalists that result in revolutions or wars, which lead to the destruction of private capital. Piketty doesn’t go into this, but it would be interesting to read an analysis that shows a relationship between the accumulation of capital and the advent of wars and revolutions.
  • I found this fact fascinating: after the Napoleonic wars and World War 2, Britain’s public debt was 200% of the GDP. 200%! I found this fascinating, first because there is a lot of worry now about the wealthiest nations having their public debt going over 100% of their GDP. Yet Britain’s was much much higher in those two cases. How did they reduced that debt and bring the percentage down from 200% to a much smaller number (as seen in the book)? Inflation. It was done over a very long period of time, but it is proof that high debt can be brought down and that it isn’t irreversible.
  • Reading the section on slaves and capital made me think many things, including the idea that capital based on anti-democratic or inhumane means is precarious — think of capital that pollutes or depends on the deprivation of otherwise rights….it is unstable capital — and that capitalists and not just socialists should argue for an economic society based on democracy and human rights.
  • One thing Piketty does well is whenever possible he links data from the US and Sweden because they are both relative outliers to the UK, France and Germany. It also highlighted to me how much the US lags (or leads, depending on your viewpoint) much of the developed world.
  • Piketty is big on education. If anything, I think he gives it too much weight. People from better schools stay wealthy not just because of what they learn but who they connect with in such schools. (Maybe it is different in France, but I doubt it.) Establishment schools are smart enough to let new blood in but they are far from meritocracies. To me, Piketty seems to have a blind spot when it comes to academia that he doesn’t show elsewhere when talking about inheritance or super-managers.
  • Piketty makes the case that taxes are better than debt. I made this note: “The concern for progressives is that capitalists will drive down both taxes and debt by abusing social programs.” But I don’t know why! 🙂 Ah well…it was likely a good thought at the time of reading it.
  • Piketty talks at the end about the contradiction of capitalism is r > g. My belief is that this formula should be more complicated and that when you add a time factor in there and some other dependencies, you see have a better model and formula (or formulae) on how capitalism corrects itself, either through war, or revolution, or other drastic social change. But this is just another belief I have.

As you are reading it, you will likely have your own notes and marginalia. Let me know what you think.

My modest guide to Piketty’s Capitalism and how to read it (all the way to the end)

 

You are looking at buying Piketty’s Capitalism, or maybe you already bought it, but you are daunted by it. Having read it, I can say it is daunting in parts, but it is also great. I highly recommend you get it and read it from front to back. Some of you will have no problem with that. For the rest, I put together this modest guide on how best to read it and finish it and not get bogged down and put it aside.

Here goes.

The introduction is an easy read. If anything, it is highly approachable. Piketty is a good writer, and he does a number of things to make it easy to read. (For example, he brings in a lot of literary references. He also does not assume you are an economist.) For the first 100 pages I thought: why is everyone having difficulty with this book….it’s fun! (Mind you, I am interested in economics, but still….) What I’d say is that this introduction is a good introduction not only to the book but the field of economics in general. Don’t be fooled though: the rest of the book is not as easy to read.

Of the book’s four sections, the first and last are the most approachable for non-economists. Emergency tip: if you are getting bogged down in the middle of the book, feel free to skip to the last section. Reading the first and last section is still rewarding, and you can read the last section without reading the middle. (Not ideal, of course, but better than skipping the last section all together).

That said, there are great passages in the middle, and there are some slow sections in the front and back. (Don’t entirely skip the middle, and likewise, don’t be thrown off by some harder parts in the front or back.) Here’s some examples of what I mean:

While non-economists might want to skip over it, I found his history of data collection — around page 55 — interesting. He is following in the footsteps of some of these other figures in the field of economics while also showing the limits of what analysis can be done, given the lack of data. I think this is an important thing to read if you read his critics. Piketty is aware of the limits of his analysis: something you would not think by reading his critics like I have. It’s good to know this. Also, this supports the case that Piketty makes later in section 4 on why a global capital tax would not just be good for states and a check on capitalism, but also as a way of improving the field of economics. Try to read this part.

Generally, the sections of the book on growth, income and capital are interesting infor the long term perspective they give. I found those worthwhile.

The second section is a good take on how capital has changed over the centuries. If you are going to think about capital and capitalism, it’s worth reading the second section on this history. There were radical changes in capital from the 18th century to the 20th, as capital went from being largely agricultural land or largely housing. In the United States another big capital shift occurred as human capital in the form of slaves rightly disappeared after the American civil war. So, I liked this section: it got me thinking about capital in ways I hadn’t before.

I highly recommend you don’t skim the part on the relationship between slavery and capitalism in around page 158. The value of slaves as part of the overall wealth of the US south is incredible, and the effect the Civil War would have on rightly destroying such capital was significant. You can rightly argue that slaves are human beings and not capital, but from the point of view of the slave owner, they were as much capital as machinery or barns or land. A thought provoking section, I found.

Of the middle section, make sure you read page 166 where Piketty introduces his law of capitalism. Piketty’s laws are a key part of the book. Also at the beginning of page 237 the book moves away from the data to talk about inequality and there is more approachable analysis. For example, around this point of the book, Piketty provides a good analysis of labor vs capital, class, and an insightful review of inequality. In particular his analysis around super managers and super salaries is really good and highly relevant in our times. (I think it also got up the nose of some Silicon Valley types, which I found fascinating.)

Make sure you read the section of the book on inequality: I found it to be one of the better parts of the book.

Overall, beware of section two. In this section, Piketty looks at capital in various parts of the world. If you are an economist, then  you really want to focus on this section, because he is making a case for his central idea. However, for a general reader, you might become fatigued in the middle of this part as it tends to feel repetitive. By the way, I think this repetitiveness is really supportive of Piketty’s point. He can argue: hey! look there is a consistency here we can make some conclusions about. If you already support his point, skim away.

If you are skimming madly in the middle, slow down as you get to page 400.
I took a lot more notes towards the end of the book (in the 400s) and I thought this section readable and interesting. For example, in the 400s, Piketty deals with merit. I believe a lot of critics don’t like the book because of how Piketty places limits on virtues of merit and hard work. Piketty argues you can work hard to get rich but someone with a lot of capital can get as rich or much richer with little if any effort. He goes on to show that capitalism is structured such that the rich will…well, get richer. Which means that proportionally the poor get poor. You may believe the rich get richer: here’s the argument as why in a capitalism society that happens.

The other thing I like about the 400s is that Piketty bring in literary examples again. He does that in the first section, and he does it again here, and I found whenever he does this, the book becomes livelier and more interesting.

Still reading? At the last section? Good! In the last section, Piketty focuses on the importance of regulating capital. Now, I am skeptical of what he recommends, even though it is hardly revolutionary (literally or figuratively). Maybe it will happen in the 22nd century. I am willing to believe it will happen, thought. After all, progressive income tax is a fairly new thing, and taxes themselves will continue to evolve, just like they have for centuries. Likewise, freer trade has increased dramatically in the 20th century, and other taxes like VAT taxes have made a big impact. Perhaps a global tax would not be impossible. That said, you should read the last section, because to not do so would be to miss out on a key point of the book.

Ok, that’s my modest guide to reading Piketty’s Capital. Did I convince you to give it a try? Great! Give it a go! If you can avoid the pitfalls in the middle, you’ll find yourself cruising towards the end and find you are done sooner than you think. Book completion aside, when you finish Piketty’s Capital you’ll have a much better understanding of capital in the 21st and capitalism in general. I think this important, because even if you don’t want to think about capitalism, capitalism affects us all. Knowing more about it, knowing how to think about it, and having ideas on how to change it are valuable.

Good luck!

Economic inequality is rising, plain and simple.

As this piece at Vox shows , economic inequality really is rising, no matter how you fuss with the data. Possibly because of the skepticism from some, Vox explores this using differing analysis. The conclusion is always the same: economically, things are getting worse.

Data aside, this anecdotal argument at the end of the piece nails it for me:

Outside the sphere of political debate, you also see the real world impact of inequality. Merrill Lynch recommends an investment strategy to its clients based on the growing economic clout of plutocrats, Singapore Airlines is now selling $18,400 first class cabin tickets, and observers think Apple is going to start selling a $10,000 watch. Conversely, Walmart is now primarily worried about competition from dollar stores. The executives at these companies are not hysterical liberals trying to drum up paranoia about inequality, they are trying to respond to real economic conditions — conditions that have entailed very poor wage growth paired with decent returns for those proserous enough to own lots of shares of stock.

Worthwhile and recommended.