Capital in the Twenty-First Century

[Ideologue]

I am always suspicious that the talk about inequality is politically motivated.

Of course it is.  Why wouldn't it be, given that the only possible solutions to economic problems are fundamentally political in nature?

What I mean is: if income inequality has risen in the last, say, 30 years, while the living standards of the people on the lower (or really, any) end of it decreased, then it is clearly a case of concern.

"Concern" sounds a little too political.

If, however, income inequality has risen while standard of living has also risen for everybody, then frankly the whole inequality part is largely a non issue, and a byproduct only jealous people care about.

Sure, I guess we could ust ignore human nature.  That's worked out great in the past.

Dependent upon your metric (the "ability to achieve economic stability as a householder" approach vs. the "POORS HAVE SMARTPHONES!" approach), standard of living has decreased.  It's also not at all clear that inequality, which may have a role in reducing aggregate demand, doesn't have a serious impact on growth, employment, etc.

[Ideologue]

What I mean is: if income inequality has risen in the last, say, 30 years, while the living standards of the people on the lower (or really, any) end of it decreased, then it is clearly a case of concern. If, however, income inequality has risen while standard of living has also risen for everybody, then frankly the whole inequality part is largely a non issue, and a byproduct only jealous people care about.

I think it is damaging here because of its political and social impacts, not because I am concerned people are starving in the streets.

There's probably an area worth exploring between "everything is fine, maybe even better than ever!" and "people are literally unable to meet the nutritional requirements for continued life."

[Sheilbh]

I am always suspicious that the talk about inequality is politically motivated. What I would be more interested about is the quality of life of the given "classes" or "stratas".

What I mean is: if income inequality has risen in the last, say, 30 years, while the living standards of the people on the lower (or really, any) end of it decreased, then it is clearly a case of concern. If, however, income inequality has risen while standard of living has also risen for everybody, then frankly the whole inequality part is largely a non issue, and a byproduct only jealous people care about.

First of all his point is that inequality in the last thirty years is actually just returning to the historical mean that was disrupted by two world wars which is more problematic than it just rising in general.

Secondly you're right if we think globally. But I'm not convinced that that matters (though it's generally important and great news) because I don't think measures to reduced inequality in, say, the UK will necessarily lead to lower growth in the rest of the world. We should try and avoid a return to patrimonial capitalism which is what Piketty argues has returned in Europe.

Thirdly I think the Economist makes this point on one of the blogs but inequality is rising within emerging markets (I believe Brazil's an exception). In addition Piketty's data goes against the idea that as an economy matures inequality grows and then begins to shrink. So the threat to globalisation and development could actually come from those developing countries - and we've seen examples of rage and populism in Brazil, India and China in recent years.

I didn't know he'd came up with the idea but my view was always Kuznetsian that as an economy matures inequality increases (the 19th century) but then begins to decrease. Which is a cheerful and Whiggish view to have. Piketty's data, from my understanding, undermines that view entirely. Which leaves me somewhere, but I'm not quite sure where yet.

[Sheilbh]

I think it is damaging here because of its political and social impacts, not because I am concerned people are starving in the streets.

Exactly. If he's right and 19th century distribution is the norm to which we're returning then that'll have serious political and social effects all over the world. As the Economist blog put it:

What Mr Piketty conveys most powerfully, in my opinion, is the fact that economics was once centrally concerned with the question of distribution. It was impossible to ignore in the 19th century! Not least because economists of a market-oriented disposition and those more sympathetic to Marx both wondered whether capitalism was capable of generating a sustainable distribution of the gains from growth. We are all used to sneering at communism because of its manifest failure to deliver the sustained rates of growth managed by market economies. But Marx's original critique of capitalism was not that it made for lousy growth rates. It was that a rising concentration of wealth couldn't be sustained politically. Ultimately, those of us who would like to preserve the market system need to grapple with that sort of dynamic, in the context of the worrying numbers on inequality that Mr Piketty presents.

[Tamas]

Sure, I guess we could ust ignore human nature.  That's worked out great in the past.

It is quite rich from a communist to want human nature dictate economics. I mean, I fully agree with you on that one. Laisez faire capitalism does, too.

[Ideologue]

Which leaves me somewhere, but I'm not quite sure where yet.

Digging a new moat?

[Tamas]

I think it is damaging here because of its political and social impacts, not because I am concerned people are starving in the streets.

Exactly. If he's right and 19th century distribution is the norm to which we're returning then that'll have serious political and social effects all over the world. As the Economist blog put it:

What Mr Piketty conveys most powerfully, in my opinion, is the fact that economics was once centrally concerned with the question of distribution. It was impossible to ignore in the 19th century! Not least because economists of a market-oriented disposition and those more sympathetic to Marx both wondered whether capitalism was capable of generating a sustainable distribution of the gains from growth. We are all used to sneering at communism because of its manifest failure to deliver the sustained rates of growth managed by market economies. But Marx's original critique of capitalism was not that it made for lousy growth rates. It was that a rising concentration of wealth couldn't be sustained politically. Ultimately, those of us who would like to preserve the market system need to grapple with that sort of dynamic, in the context of the worrying numbers on inequality that Mr Piketty presents.

On the other hand, isn't a healthy degree of wealth concentration is simply necessary for economic growth and suitably sized private initiative in industry and the like? I really don't know, I am just asking.

[Ideologue]

Sure, I guess we could ust ignore human nature.  That's worked out great in the past.

It is quite rich from a communist to want human nature dictate economics. I mean, I fully agree with you on that one. Laisez faire capitalism does, too.

"Jealousy" is the reason a concept of fairness even exists.  It's a real mistake for any society to abandon a commitment to fairness, which requires prosperity and stability for a majority of the unexceptional people who comprise any society, with a broad equality of outcome for most (as well as a broad equality of that nebulous "opportunity").  The inevitable alternatives to this middle class society are instability or militarization (or both).

Unfortunately, short of a radical reorganization of the economic and political structures of the West, instability, militarization, or both are the most likely results given that, as Piketty seems to say, only about 1% of recorded history suggests anything else is even possible.

[FunkMonk]

Thomas Piketty wrote:

To avoid any misunderstanding, let me say that Kuznets's work in establishing the first US national accounts data and the first historical series of inequality measures was of the utmost importance, and it is clear from reading his books (as opposed to his papers) that he shared the true scientific ethic. In addition, the high growth rates observed in all the developed countries in the post–World War II period were a phenomenon of great significance, as was the still more significant fact that all social groups shared in the fruits of growth. It is quite understandable that the Trente Glorieuses fostered a certain degree of optimism and that the apocalyptic predictions of the nineteenth century concerning the distribution of wealth forfeited some of their popularity.

Nevertheless, the magical Kuznets curve theory was formulated in large part for the wrong reasons, and its empirical underpinnings were extremely fragile. The sharp reduction in income inequality that we observe in almost all the rich countries between 1914 and 1945 was due above all to the world wars and the violent economic and political shocks they entailed (especially for people with large fortunes). It had little to do with the tranquil process of intersectoral mobility described by Kuznets.

If this is true, and it almost certainly is, what does that imply for our future? Will inequality continue to increase, potentially to 19th century levels or worse, until massive external shocks like a huge economic crisis (like the one that just happened ) or world war (like the one that will happen soon ) reduce levels of inequality much like they did a hundred years ago?


Also, what level of inequality is "too much?" How do we know we have too much inequality? People starving in the streets and storming the Bastille is obvious, but realistically how do rich countries recognize how much is too much?

[Tamas]

Thomas Piketty wrote:

To avoid any misunderstanding, let me say that Kuznets's work in establishing the first US national accounts data and the first historical series of inequality measures was of the utmost importance, and it is clear from reading his books (as opposed to his papers) that he shared the true scientific ethic. In addition, the high growth rates observed in all the developed countries in the post–World War II period were a phenomenon of great significance, as was the still more significant fact that all social groups shared in the fruits of growth. It is quite understandable that the Trente Glorieuses fostered a certain degree of optimism and that the apocalyptic predictions of the nineteenth century concerning the distribution of wealth forfeited some of their popularity.

Nevertheless, the magical Kuznets curve theory was formulated in large part for the wrong reasons, and its empirical underpinnings were extremely fragile. The sharp reduction in income inequality that we observe in almost all the rich countries between 1914 and 1945 was due above all to the world wars and the violent economic and political shocks they entailed (especially for people with large fortunes). It had little to do with the tranquil process of intersectoral mobility described by Kuznets.

If this is true, and it almost certainly is, what does that imply for our future? Will inequality continue to increase, potentially to 19th century levels or worse, until massive external shocks like a huge economic crisis (like the one that just happened ) or world war (like the one that will happen soon ) reduce levels of inequality much like they did a hundred years ago?


Also, what level of inequality is "too much?" How do we know we have too much inequality? People starving in the streets and storming the Bastille is obvious, but realistically how do rich countries recognize how much is too much?

Well according to Ide, if one bloke is envious of an other bloke's wealth, that is too much inequality.

[Tamas]

Sure, I guess we could ust ignore human nature.  That's worked out great in the past.

It is quite rich from a communist to want human nature dictate economics. I mean, I fully agree with you on that one. Laisez faire capitalism does, too.

"Jealousy" is the reason a concept of fairness even exists.  It's a real mistake for any society to abandon a commitment to fairness, which requires prosperity and stability for a majority of the unexceptional people who comprise any society, with a broad equality of outcome for most (as well as a broad equality of that nebulous "opportunity").  The inevitable alternatives to this middle class society are instability or militarization (or both).

Unfortunately, short of a radical reorganization of the economic and political structures of the West, instability, militarization, or both are the most likely results given that, as Piketty seems to say, only about 1% of recorded history suggests anything else is even possible.

Well fairness is easily abandoned also when the middle class is being squeezed dry so that the unrealistic perks to the poor and the rich can be maintained.
And I am not sure how much prosperity a society is mandated to guarantee to it's citizens. Stability? Sure. A middle class lifestyle guaranteed through welfare? No.

[Jacob]

I am always suspicious that the talk about inequality is politically motivated.

The review specifically states that the author is explicitly staking out a political position, so I'm not sure why you'd be suspicious about it. The review further goes on to say that the author takes increasing inequality to be undesirable as axiomatic.

If, as I suspect, you disagree with that axiom it, it would seem that you have the choice of rejecting the guy's argument and research outright, or engaging with it though you know you have that point of disagreement. What the reviewer says the author is conveying is evidence that the lower levels of inequality in the period 1945-1990 (or so) is a historical aberration, that it's a result of both deliberate policy choices and of historical events (the outcome of the two world wars), and that we are headed for a distribution of wealth more similar to that in the so-called 'gilded age' of the 1920s and 30s.

Now, you may think that those facts are wrong, but then your counterargument can't stand on "it's ideologically motivated", you'd have to engage on his actual facts and analysis to be credible. Alternately, I suppose you can accept the fact and argue that it's not a big deal.

Of course, the second option leads to Norgy's posting of the Princeton study that shows that political decision-making is increasingly controlled by the wealthiest elites and non-responsive to the opinions and needs of the less-wealthy majority.

This, of course, is ultimately (and initially, actually) a very political discussion. Personally, I'd prefer to try to keep it less about tone and slogan, and more about substance.

What this book and the Princeton study (and other things beside) does is that it makes Marx's arguments more credible than it's been fashionable for a while to think (including for me); and I don't mean about how redistributive Communism is better than Capitalism (and much of that is down to Lenin anyhow), but about how the tendency of Capital to accumulate a greater and greater portion of the wealth and decision-making power and how that will lead to increasing social conflict. In other words, Marx's conclusion of the inevitability of class conflict seems more apt now than it has for a while based on the facts presented.

How we as societies respond to that is of course very much up for discussion, and that discussion is clearly very political too.

Though

[Jacob]

Thirdly I think the Economist makes this point on one of the blogs but inequality is rising within emerging markets (I believe Brazil's an exception). In addition Piketty's data goes against the idea that as an economy matures inequality grows and then begins to shrink. So the threat to globalisation and development could actually come from those developing countries - and we've seen examples of rage and populism in Brazil, India and China in recent years.

This certainly matches my anecdotal observations in China.

I didn't know he'd came up with the idea but my view was always Kuznetsian that as an economy matures inequality increases (the 19th century) but then begins to decrease. Which is a cheerful and Whiggish view to have. Piketty's data, from my understanding, undermines that view entirely. Which leaves me somewhere, but I'm not quite sure where yet.

Yeah, that's what makes this both new and interesting to me. I - and I think this was close to a broad Western consensus - had settled into a comfortable view that things was broadly getting better for everyone and we were experiencing a slow steady movement towards less economically derived social tension.

There are some convincing arguments being made and data being shown that suggests that this was wrong; and that leads to a very interesting "what now?"

[Jacob]

It is quite rich from a communist to want human nature dictate economics. I mean, I fully agree with you on that one. Laisez faire capitalism does, too.

The thing is, the Communist systems - fundamentally flawed as they are - and the revolutions that put them into place, are very much a result of basic human nature as well.

The resentment that comes from large groups of people feeling they are not well off, especially if it looks like things are getting worse for them not better, is very real and leads to conflict in a number of ways, no matter how nice it would be to dismiss such resentment as "unworthy".

It is human nature to struggle to improve your lot in life. The success of Western Capitalism is in my view predicated on making acting within the lawful economy the best venue for material improvement for the broad masses of the population. If acting within the lawful economy (through working or investment even with limited means) does not lead to improvement for the majority of the population then it will increasingly seek out other strategies to reach that goal including crime and/or embracing class struggle.

[Razgovory]

No, I want to read the 700 page book to see the point this objectionable sentence is making

Which is, presumably, the exact same thing that would happen if he had written "earned" instead of "appropriated."

I can tell you already without having read the book what point he is aiming for: he wants to create the implication that those gains in income were ill-gotten, without having to defend an actual case for law breaking.

I'm also pretty sure that if he gets around to it, that that 60% of increase in income is a function of assets held ("hoarded?") and the bull market we just experienced.

So presumably you wish give the implication that these gains were fairly won?