29 May 2014

Book Review of Piketty

Capital & Interest, Shameless Self-Promotion 26 Comments

So you can mentally prepare yourself, here is a short (about 1,000 words) review of Piketty. Next week I’ll publish a much longer review with quotations from the book. The good thing about this “Rare” review is that if you get bored, you can click on a slideshow of Victoria’s Secret models.

The best part:

The most obvious problem with Piketty’s book is that he wants to make workers poorer, just so long as it will hurt rich capitalists even more. No economist denies that as the stockpile of “capital”—which Piketty broadly defines to include real estate and all forms of non-human wealth—expands, that the absolute wages of the workers will rise. After all, if workers have more tools, machines, and equipment augmenting their labor, they are going to be more physically productive per hour, and hence will be paid more.

Yet the continual increase in the workers’ standard of living is not enough to placate Piketty and his fans. Indeed, Nobel laureate Robert Solow admits that capital accumulation will make the workers better off in absolute terms, but worries that they might be worse off relative to the capitalists.

If Piketty and Solow saw a vision of the future that looked like The Jetsons, they wouldn’t marvel at the unbelievable convenience and luxury that the family enjoys, all provided by George’s two hours of labor per week. No, instead of thanking capitalism for providing flying cars to the average family, instead Piketty and Solow would be complaining about how unfair it was that a short bald guy got to own Spacely Sprockets all by himself.

26 Responses to “Book Review of Piketty”

  1. Bob Roddis says:

    Do Piketty or any of his critics (other than those on the Stockman website) mention how the elite has access to the new funny money first for purposes of playing the asset bubble casino at the expense of the masses?

    Do Piketty or any of his critics mention the idea that IP is employed by the elite to extract excess value from the masses?

    I think it is always important to differentiate gains resulting from voluntary exchange vs gains resulting from violent intervention. It is simply wrong and dishonest to blame gains that actually result from violent intervention upon “capitalism”.

    • Ronald Warrick says:

      The answer to your first two questions is no. These issues are outside the scope of Piketty’s book.

      The third point is also outside of Piketty’s scope.

  2. skylien says:

    “I must admit, I learned a lot from reading Piketty’s book. Specifically, I learned how many self-styled progressives today are willing to sacrifice the standard of living of billions of poor people, in order to prevent a few people from becoming really rich. – See more at: http://rare.us/story/thomas-piketty-wants-to-keep-billions-of-people-poor-to-stop-a-few-from-becoming-rich/#sthash.jiD3bYKo.dpuf

    That really is envy in its purest form. However I highly doubt Piketty would admit that. He obviously doesn’t think that his policies would result in a lowering of living standards of billions of poor people as this quote shows:

    “A rate of 80 percent applied to incomes above $500,000 or $1 million a year would not bring the government much in the way of revenue, because it would quickly fulfill its objective: to drastically reduce remuneration at this level but without reducing the productivity of the US economy, so that pay would rise at lower levels.” (p. 513)

    He thinks that prohibiting people from the possibility of becoming rich would not decrease total wealth produced it would merely shift it autometically (or magically) to the poorer strata of the population. Even if it is a pure assertion and wishful thinking without any theoretical arguments or empirical facts backing this claim, it still means that he is not willing (at least officially) to sacrifice the living standards of poor people, it is rather quite the opposite.

  3. Silas Barta says:

    Actually, he’d complain that the robots aren’t paid enough …

    Seriously though, isn’t this the exact same reasoning you object to in the context of “of course capital will get paid — it’s productive, so it will earn a return!”:

    ‘as the stockpile of “capital” … expands, that the absolute wages of the workers will rise. After all, if workers have more tools, machines, and equipment augmenting their labor, they are going to be more physically productive per hour, and hence will be paid more.’

  4. Lee Waaks says:

    Silas,

    George Reisman objects to this approach too, which is why he employs a “prductivity theory of wages” as opposed to marginal productivity. Essentially, he argues real wages are determined by productivity in the economy at large, not at the level of the individual firm.

  5. Kevin Donoghue says:

    I had to chuckle at this: “…a bombshell report just came out in the FT….”

    It was bit like the shell that the hapless HMS Hood fired at the Bismarck, in the (very short) Battle of the Denmark Strait.

    • Bob Murphy says:

      Right Kevin, if people don’t care that Piketty makes up dates and figures about the minimum wage, and ignores depreciation even though it reverses his whole argument…then I am not surprised they shrug off Giles’ findings too.

      • K.P. says:

        Has he or any of his supporters made any comments on his made up history?

      • Ronald Warrick says:

        Piketty ignores depreciation? That’s news to one who has read the book.

  6. Bob Roddis says:

    No, it was not an artic blast coming down from the polar north that explains the pattern below, but the financial storms emanating from the Eccles Building on the Potomac. To wit, the fundamental impact of ZIRP and QE has been to massively levitate the value of existing financial assets—-nearly 50% of which are owned by the top 1% of households and more than 80% by the upper 10%.

    Since stocks rose by 30% on average last year, and by upwards of 100% in many of the red hot momo categories like social media, cloud stocks, biotech and much of the Russell 2000, it is evident that the Fed’s vaunted “wealth effect” has been busy at work. But hardly in the mechanistic Keynesian sense of goosing the cash registers at Red Lobster Inn or even Coach and Macy’s. The wealth effect, in fact, was an in-house wealth transfer: The 1% are taking winnings from the Wall Street lottery and bidding up the price of mansions in the tony neighborhoods where they live.

    http://davidstockmanscontracorner.com/janet-heading-down-for-everyone-else/

  7. guest says:

    consultingbyrpm blog tag piketty

  8. Transformer says:

    I think that highlighting the dodgy capital theory and even the factual inaccuracies in Piketty’s book is missing the point.

    The main takeway is something like:

    – Capitalism makes people wealthy
    – Wealth makes people powerful
    – People will use this power to protect and extend their wealth
    – This will make them still wealthier and more powerful
    – At some point this becomes bad for society.

    People look around them and think they see this is really what is happening. They will at least consider the wealth-curbing proposals made by Piketty.

    As long as Austrians appear to be supporting the view that all wealth is just accumulated savings , and that a correct understanding of economics “proves” that the wealthy will use their wealth for the common good then they will likely not convince too many potential Piketty supporters to change their minds.

    • Dan says:

      “and that a correct understanding of economics “proves” that the wealthy will use their wealth for the common good”

      What? Where did you get this idea? Have you just not read much of the work done by Austrians? I’m being serious, I can’t fathom how anyone could read even a minimal amount of Austrian literature and make a statement like that.

    • Dan says:

      If you go to Mises.org and search “crony capitalism” you get over 1.3 million results. Even if you narrow the search to just Daily Articles you get 40 thousand plus articles. So, no, Austrians don’t believe that a correct understanding of economics proves that the wealthy will use their wealth for the common good.

      • Transformer says:

        Hi Dan,

        Thanks for those replies. Question: Piketty sees capitalists who have gained their wealth via rent-seeking and proposes a wealth tax. What typically do Austrians propose to do about illegally gained crony capitalist wealth ?

        • Dan says:

          They propose things like eliminating government bailouts, subsidies, barriers to entry, etc.

          • Ron Warrick says:

            What would they do about such things as top tech CEO’s of Apple, Microsoft, HP, etc, agreeing with each other not to hire away each other’s employees, as appears to have happened? Or are such practices included under ‘free’ enterprise?

        • Raja says:

          1. Remove all tariffs, quotas, and restrictions on trade, inside and outside the country.

          2. Reduce the size of the government.

          The only way to make profit now is to provide something that’s better and cheaper than what the competition is providing and be vigilant and creative to survive. Now crony capitalist can’t take a dime out of one’s pocket unless the person voluntarily gives it to them for a product or service as there are no restrictions on getting something similar from abroad.

          • Transformer says:

            But how do you go about implementing these things if the crony capitalists have used their ill-gained wealth to gain control of the government and its courts ?

            Plus those proposals might stop wealth increasing so fast in future – but what do you do about the vast wealth and power that is already in existence ?

            • Dan says:

              “But how do you go about implementing these things if the crony capitalists have used their ill-gained wealth to gain control of the government and its courts ?”

              How do you go about implementing a tax against these crony capitalists if they have used their ill-gained wealth to gain control of the government and its courts?

              • Ron Warrick says:

                You don’t. But at least you have crony capitalism and not crony socialism! So, they will settle for that half a loaf.

            • Dan says:

              “Plus those proposals might stop wealth increasing so fast in future – but what do you do about the vast wealth and power that is already in existence ?”

              Austrians (technically AE is descriptive not prescriptive) have no interest in stopping wealth from increasing so fast in the future. If anything, they liked to see wealth increase as fast as possible. Who wouldn’t besides Piketty? They just want to eliminate the ability of people to use the government to eliminate their competition by force and to steal from people to line their pockets.

              • Transformer says:

                I talking about wealth generated from rent-seeking and crony capitalism. What do you propose to do about those who are already benefiting from accumulation of this kind ?

              • Dan says:

                I’d be satisfied with just eliminating any future abuse. If taxes, regulations, subsidies, etc. were eliminated from now on, then I’d forgive past transgressions, but that’s just me. If some lawyer wants to workout some reparations and return stolen property to its original owner then I think that is just great, but I think it is more important to end the cycle of abuse.

    • Matt M -Dude Where's My Freedom) says:

      Transformer,

      Would you consider ancient Egypt to be a “capitalist” society?

      Do you think that there was more or less “income inequality” in ancient Egypt than there is in modern America?

      It seems to me that capitalism has produced the greatest amount of equality of any system ever BY FAR. It’s just that leftists, in their attempt to constantly demonize and tear down capitalism, tend to start all of their economic analysis in like 1930, and pretend that nothing before that ever existed.

      • Ron Warrick says:

        You should read the book. No, inequality is not unique to capitalism. France under Louis XIV was no less unequal. One could argue the USSR was no less unequal. Piketty credits capitalism with creating a middle class, but he argues that it is fading relative to capital as capital recovers its losses from the capital destruction of two world wars and the government ownership/regulation that followed. As capital accumulation advances, we could return to the levels of inequality that led to the French Revolution. This nearly happened around 1914, but the wars intervened to knock down capital.

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