Thursday, May 22, 2014

Piketty Reaffirms What We Knew

Thomas Piketty has created controversy among economists and confusion for those who pay attention to pronouncements by scholars who practice the "dismal science."

Disarray and doubt in the complex world of economics is nothing new. George Bernard Shaw once summed it up: "If all economists were laid end to end, they'd never reach a conclusion."

Piketty is a French economist who analyzed tons of data to reach a disturbing conclusion--the gap between the rich and poor is growing larger throughout the world and there is no obvious reason to
believe the trend will stop.  In his book, "Capital in the Twenty-First Century," Piketty presents a simple little formula indicating that the rate of return on capital always is greater than the rate of growth in an economy. Ultimately, he shows, if nothing changes world power will rest in the hands of a few individuals whose immense wealth continues to produce ever-growing income for them, and depresses the income of everyone else.

The economist assembled, I am told, all sorts of dull data sets to produce charts and graphs sprinkled throughout his 696-page book.  The tome quickly sold out in most bookstores and on Amazon, which should produce bonanzas for Piketty in the form of publishing royalties and academic recognition. Based on my experience editing the writings of economists, I doubt if many of the book buyers who are not economists will actually get beyond the first twenty or so pages. At least they won't without a nap.

Nevertheless, such prominent economists as lefty Paul Krugman said Piketty's book will "change both the way we think about society and the way we do economics."

Give Krugman an A for the economics study part of the statement. Piketty used modern technology to locate and study huge volumes of data dating back centuries. He has shown the way forward for fellow economists in how they can conduct important studies.

But Krugman flunks the "way we think about society" part of the course. Many have long said what Piketty's major point states. American society said it years ago in song: "the rich get richer, and the poor get poorer." American society said it in slogans dating at least back into the sixties: "the big fish always eat the little fish."  People around the world have said the same thing in various ways. Is there anyone out there who doesn't believe it?

Several righty economists are more consistent than Krugman. They are completely wrong. Their charge is that Picketty's views equate to those of Karl Marx. Nonsense. Picketty disciples say he clearly states his anti-Marx stance and also takes issue with other far-left philosophers. Communism has failed dismally as an economic system, and very few current experts continue to support the ideas that formed its basis.

So what's new?

One new thing is Piketty proposes an unusual solution--a global tax on wealth. Unfortunately, that is wildly impractical. We'll have to find an economist to point in a different direction, which shouldn't be difficult.


Kay said...

Sorry Dick. Finances and economics go right over my head and make me cross eyed.

Marc Leavitt said...

There's really nothing new here, Dick. Piketty deserves kudos for a re-synthesis of what we already know: Society is made up of two classes: The investors, and the workers.

There's an old English music hall ditty that sums it up:

"It's the same the whole world over,
And it is a bloody shame.
It's the rich what gets the pleasures,
And the poor what gets the blame."

Dick Klade said...

Thanks, Marc. I had forgotten that bit of poetry. Fits right in here.

Anonymous said...

Too bad, but it's true, as one trip to Switzerland New York or Paris..even London will convince you. Meanwhile, many of our own politicians have dropped the ball. Both the extremes are wrong as you point out. And we thought our War of Independence changed things. Ha, we just acquired a new set of aristos..

Alan G said...

I watched an interview of Piketty on PBS a couple of weeks ago regarding his new book. A bit of an eye-opener and very interesting conclusions. Taking it all in from a layman's perspective, his summation and associated data seems pretty convincing to me.

And of course as you pointed out, if you by chance don't like either his approach or conclusions, it will be easy enough to find an economist who is in line with your thoughts on the subject.

PiedType said...

I tend to glaze over when anyone mentions economics, but it sounds like Piketty has just confirmed yet again what most of us already knew from observation: "The rich get rich and the poor get poorer." (I remember my parents singing "Ain't We Got Fun.")

What worries me more than pure economics are the political implications of the rich buying our political system. I fear what it means for democracy, and right now I don't see how we're going to stop it.

Tom Sightings said...

Well, it's "Dazed and Confused" that told us to remember what the American revolution was all about: "A bunch of slave-owning, aristocratic white males didn't want to pay their taxes."

Seriously, though, while I agree with the sentiment, the NY Times today has an article on Piketty called "Economist's Inequality Study Faces Questions." Apparently he got some numbers wrong ... but not so wrong as to invalidate his essential message.

Dick Klade said...

It would be pretty hard for anyone to invalidate Piketty's major conclusion, since it is so firmly rooted in common sense. However, his proposed solution to the problem is pie way up in the sky.