Capital in the Twenty-First Century

[crazy canuck]

If that's the case I repeat my objection to the term appropriate.  Discovery of metals or oil under your property isn't an act of appropriation.  Those rights are assigned when the property is purchased.

Your example can only be correct in a jurisidiction where the law recognized the ownership of subsurface rights and surface rights as equivalent.  That is not the case in every jurisdiction.  And even if it were the case that every jurisdiction had the same understanding of subsurface rights those rights could be accessed in a number of ways that do not require a purchase. I suspect the concept JR is describing is more broad than your concept of a "purchase".

[Admiral Yi]

I don't know where the next new large scale source of previously unaccounted value is going to come from. Natural resources are mostly accounted for, and are an example and from the past. A more recent and, I think, still evolving creation of hitherto unassigned wealth is the monetization of information - things like selling mailing on a small scale, and the rise of the concept of intellectual property on a larger scale including attempts to patent the genetic structure of naturally occurring organisms - is a recent example of value being appropriated/claimed from something that was previously not an explicit source of it.

And Piketty's point (or more likely one of his points) is, I believe, that Capital tends to gain (appropriate/ claim) a larger share of new value as it's "brought on-line". It was the various East Asia Companies and their ilk who gained the most from the age of exploration; it's the various corporations with their patents and copyrights and lawyers who gain the most value from information and knowledge becoming ownable and explicitly part of the economy.

What's the next big source of value? I don't know; if I did we - as a society - would already be in the process of appropriating it (with the largest share going to Capital, if Piketty is right).

So we're not talking about oil and minerals any more.  I feel like I'm trying to hit a moving target.

[Jacob]

So we're not talking about oil and minerals any more.  I feel like I'm trying to hit a moving target.

It feels to me that you're getting too focused on the "oil and minerals" bit; they are simply an example of something previously outside of the economy because it was unknown and unowned, or because it was thought worthless and unowned. The question is: once it becomes valuable, who benefits? Determining that is the process Piketty calls "appropriation."

I this day and age the oil and minerals have already been appropriated; and where oil is undiscovered, there's an established procedure for allocating the resources (various schemes for exploration and exploitation rights).

Where you to raise the capital and connections to pay the right government and private interests to the right to search for oil somewhere in Siberia and exploit what you find, that act is - as you suggest - more properly described as "buying" (or equivalent). Piketty is not substituting the word "appropriation" here.

The appropriation process happened as we as a culture/ society/ species discovered discovered how useful (and valuable) all this oil lying around was, how to exploit it, and where we might find more of it. How is ownership of this thing no one previously cared about assigned? Who gets to profit from this hitherto ignored substance now that it turns out it is of great value? How do we value the potential of as of yet undiscovered oil deposits, now that we know they're worth something; and to whom does that value accrue? That process is what's described as "appropriation", and that process is the one which - according to Piketty, if I understood Minsky's summary of what he's read so far - tends to increase inequality in a capitalist system as Capital captures/ gets/ appropriates the largest proportion of the newly discovered value (whatever it is).

[Admiral Yi]

That sounds fine to me.

However that doesn't sound exactly like what Joan was describing.  I.e. discovery of gold on your property.

[Jacob]

That sounds fine to me.

However that doesn't sound exactly like what Joan was describing.  I.e. discovery of gold on your property.

That's what it sounded like to me. Either there was a break-down in communication between the two of you, or I misunderstood Joan's summary.

Alternately, of course, both of those are true 

[crazy canuck]

CdM gave me some incite into Yi's view of the world in the Prostitution thread.  Everything meaningful for Yi involves a purchase of some sort.

[Razgovory]

The act of purchase is a profoundly sacred ritual in Yi's faith.  As it is his part of his religion, I can accept and tolerate is peculiar practices.  I am after all, a believer in multiculturalism .

[grumbler]

That sounds fine to me.

However that doesn't sound exactly like what Joan was describing.  I.e. discovery of gold on your property.

It is taking possession of something, as opposed to taking ownership per se.  If I collect all the rainfall on my land into a big pond, I have taken rain (which no one owns) into my possession (my neighbor can't take water out of my pond, even if he could do so without trespassing).  Once I have used that water, and it drains off my property, it isn't possessed by me any more.  But, it had value while I possessed it.  I had appropriated it for my use, but I had never really 'owned' any of it.  I hadn't bought it or received it or gained it or earned it.  I've just appropriated it.

[The Minsky Moment]

The word appropriate or appropriation appears in this context only 9 or 10 times in the entire book.  I think this discussion is at risk of suggesting a far greater relevance to the argument than it actually is. 

As I understand it, the substantive issue being addressed is that the unimproved value of land and natural resources is included in Piketty's definition of capital, even though the process by which such values are appropriated (it really does seem to be best single word to use) is quite different from the process by which other forms of capital are accumulated.  The main reason he includes these values is simply because it is too hard to separate them out.  That choice does have a significant but not critical ramification for his argument, because Piketty contends that there is a tendency for the capital/income ratio to equalize to the ratio between net national savings and real growth rates.  One factor that can break that equation is the presence of large amounts of natural resources, because then very high levels of national wealth can coexist with relatively low rates of saving.  So that is an exception to Piketty's "rule", albeit a limited one.   

Allocation of natural resource endowments across countries are also relevant to his analysis of the dynamics of capital positions cross-country because of the practice of oil exporters creating sovereign wealth foundations funded from oil rents - thus allowing the accumulation of potentially substantial net foreign asset positions -- Piketty is of the view that while moderate net asset positions can be sustainable, historical experience suggests that very large positions become politically unsustainable absent some kind of colonial domination over the target country.  The anti-Japan hysteria in the US during the latter half of the 1980s would be an example.

[Queequeg]

http://www.thenation.com/article/179337/thomas-piketty-and-millennial-marxists-scourge-inequality

About halfway through this, pretty interesting. 

[Jacob]

http://www.thenation.com/article/179337/thomas-piketty-and-millennial-marxists-scourge-inequality

About halfway through this, pretty interesting.

Ideologue should definitely read it.

[Norgy]

Watched an interview with Piketty on HuffPo. His English is rather poor, but he's eloquent enough.

[Queequeg]

http://bloggingheads.tv/videos/28998
Discussion with the translator. 

Joan, you liking it?

[KRonn]

Only with this appropriate and justified rage can we hope for the type of reform that will one day break our system free from the corrupting grasp of the megabanks.
What's he talking about?
Well, the Fed threw money at "several billionaires and tens of multi-millionaires" [68], including billionaire businessman H. Wayne Huizenga, billionaire Michael Dell of Dell computer, billionaire hedge fund manager John Paulson, billionaire private equity honcho J. Christopher Flowers, and the wife of Morgan Stanley CEO John Mack
And the bank bailouts weren't a one-time thing in 2008.  The government has been – continuously and massively – been bailout out the big banks for the last 6 years.

Indeed, virtually all of the banks profits comes from government bailouts [69].  A top banking analyst estimates that subsidies to the giant banks exceeds $780 billion dollars each year [70].

A study of 124 banking crises by the International Monetary Fund found that bailing out banks which are only pretending to be solvent  – like most of the big American banks [71] – harms the economy [72].  So growth is slowed, while the richest fatcat bankers rake in the dough. 

If accurate about the big banks being so insolvent without lots of government help then it's pretty scary for the financial future. It'll be as if the country hasn't made any progress in fixing the things that helped trash the economy and financial sector before, setting us up for more of the same and maybe sooner than later.

[The Minsky Moment]

I'm close to the end of Part 3, which is the last part before he starts making proposals.

My initial reaction is that it is kind of a throwback to an older approach to doing economic work.  He doesn't create a model or employ any standard theoretical construct.  Rather, he sets forth some basic accounting identities and deploys a large mass of historical data on wealth and income.  Most of the book consists of a review and analysis of the data, using very basic accounting concepts and simple equations to explicate the implications.  To the extent economic theories are raised, it is usually to point out that they are either inconsistent with the data or insufficient to explain it.

One could say that is just using a fundamental scientific approach - i.e. collect empirical data, use it to test hypotheses, and try to come up with a consistent explanation.  But that as sound as it seems to be, it has been an approach out of fashion since the 70s/80s, ever since Robet Lucas pointed out that empirical data from the past can't be a reliable guide for the future because any policy change can alter the behavior that gave rise to those relationships (the famous "Lucas Critique").  Since the Lucas Critque got traction in the 70s, the trend in macro work has been to create elaborate models and theoretical constructs that seem reasonable and build results off of that.  However for lots of reasons that would take too long to get into that is an approach that raises a whole set of other problems and limitations.  So Piketty's approach while old-fashioned is IMO refreshing.

The way that Piketty deals with Lucas is to be quite candid that the tendencies and relationships that he finds in the data are not ironclad rules at all but highly contingent, based on techology and socio-cultural arrangements and beliefs.  For example, a bit part of the argument involves explaining the ramifications of the fact that the return on capital tends  to exceed real growth over time.  However, Piketty notes there is nothing inevitable about this outcome and indeed part of his argument is pointing out that there was a specific point in history where that did not happen.  What is not clear to me given this presentation is how Piketty is going to be able to make policy suggestions given the complexities and contigencies he identifies.

Another issue is that it appears he does not attempt to elaborate any theory of profit.  He notes that profit (return on capital) has been relatively stable over time as a mean, but he doesn't break down dispersion across time and he doesn't advance any theory that would explain the phenomenon.  His response might well be that is beyond the scope of his study, but it doesn seem to me that if one is going to make policy proposals to address inequalities it is relevant and perhaps important to have an understanding of what is driving profit in the aggregate.

Another perhaps related lacunae is that at least so far Piketty hasn't addressed the impact of globalization and trade.  One of the limitations of his data is the the lack of income deciles prior to 1900 (he does have and uses measures of wealth in the 19th century).  Piketty suggests that inequality remained relatively stable over the 19th century, and actually grew over the latter part into 1913.  However, Jeffrey Williamson has used wage/rent data that suggests that during the second half of the 19th century inequality actually moderated in western Europe (and increased in the US) due to trade and globalization, which caused real wages to increase relatively in labor intense countries and decrease relatively in land rich ones.  Piketty doesn't cite this work in his otherwise voluminous notes (and may not have considered it).  This arguably is a historical point but given the significance of globalized trade today it may be quite relevant for present concerns.