So, a couple of people have mentioned this on the forum, but there hasn't been much discussion yet (or I've missed it). Given that this morning, the top 2 'most emailed' articles on NYT.com contain the word 'Piketty', I figure it's time to start a thread here.
I myself am only about a quarter through the book. You can find a Krugman review here: http://www.nybooks.com/articles/archive ... ilded-age/
And from the right...
Brooks:
http://www.nytimes.com/2014/04/25/opini ... ef=general
Cowen:
http://www.foreignaffairs.com/articles/ ... punishment
What Piketty has done is collect and analyze historical data back to the 18th century on the levels and composition of both capital and income in what are now the most developed countries.
His conclusion seems to be that the dynamics of capital and income, as they currently stand within the context of his historical analysis, have put us on the path to a highly unequal society. Specifically, he expects the returns on capital to exceed the growth in production (income)--the now famous r > g inequality--and that this will result in the geometric accumulation and concentration of capital to a few. In short, the 21st century will look more like the 19th, with all those gilded age fortunes and landed gentry, than the 20th, with it's prospering middle class.
All of this, by the way, is well written, engaging, and interesting. It's lightly technical, but doesn't read like an economics PhD paper. There are probably issues with his analysis, as Cowen points out his failure to incorporate risk into his analysis of returns on capital, and as Brooks points out, his failure to account for the currently very low risk-adjusted returns on capital.
The final section of the book, which I haven't got to yet, apparently focuses on policy prescriptions, including a tax on wealth and assets.
From an ERE standpoint, I will be interested to hear everyone's thoughts. My own reaction is that the notion of r > g sort of validates the ERE approach, with it's emphasis on accumulating [a modest amount of] capital.
The wealth tax Piketty proposes, though, would seem to be a pretty strong deterrent for ERE. It's often dismissed as not possible to implement in real life, but I don't know...this book is already very influential.
Le capital au XXIe siècle
Re: Le capital au XXIe siècle
I read the reviews by Solow, Brooks, and Krugman. (Solow's review here.) I have not read the book.
I'm having trouble wrapping my head around rate of return being higher or lower than national income growth. Is it directly related to economic structure and policy, as in the share of productivity increases that investors get vs. workers?
I'm not sure the relationship between r & g has any effect on safe withdrawal rates and ERE. The existence of r > 0 makes ERE possible.
I was surprised to see Brooks suggesting solutions rather than saying let the job creators keep their wealth, but maybe that's just because it's unpopular to outright say extreme inequality is not a big problem. I like his call for a robust inheritance tax. I don't think a progressive consumption tax is the answer because it makes the solution to inequality dependent on the spending of the rich, and it's established that their spending is small compared to their capital, or they wouldn't be rich for long.
It seems like every time someone proposes increasing taxes on capital gains, someone else says we shouldn't tax investment, let's tax consumption instead. Until we tax consumption (if that's even desirable and feasible; it seems to me that there's little difference where you take money out of the loop, and a consumption tax is unfamiliar), let's at least be consistent and tax capital gains income the same as labor income, which economists also don't want to discourage.
Brooks's comment on lifting up the bottom by increasing human capital also seems like a bit of misdirection, in addition to his capital gains tax comment. In the end, he appears to give little more than lip-service to the idea that inequality needs fixing.
A direct capital tax sounds appealing because it doesn't discourage investing capital or really even accumulating it. Solow describes Piketty's proposal as a 0% tax on capital below a million Euros, 1% between 1 & 5, etc. That wouldn't impact ERE at all.
However, it is politically impossible. It also seems like the problem could be solved with more progressive structure to the capital gains, income, and inheritance taxes. We're used to those changing every few years, and they affect r & g very directly. It's not like the wealthy are going to stop investing when the choice is between 0% and >0%.
I'm having trouble wrapping my head around rate of return being higher or lower than national income growth. Is it directly related to economic structure and policy, as in the share of productivity increases that investors get vs. workers?
I'm not sure the relationship between r & g has any effect on safe withdrawal rates and ERE. The existence of r > 0 makes ERE possible.
I was surprised to see Brooks suggesting solutions rather than saying let the job creators keep their wealth, but maybe that's just because it's unpopular to outright say extreme inequality is not a big problem. I like his call for a robust inheritance tax. I don't think a progressive consumption tax is the answer because it makes the solution to inequality dependent on the spending of the rich, and it's established that their spending is small compared to their capital, or they wouldn't be rich for long.
It seems like every time someone proposes increasing taxes on capital gains, someone else says we shouldn't tax investment, let's tax consumption instead. Until we tax consumption (if that's even desirable and feasible; it seems to me that there's little difference where you take money out of the loop, and a consumption tax is unfamiliar), let's at least be consistent and tax capital gains income the same as labor income, which economists also don't want to discourage.
Brooks's comment on lifting up the bottom by increasing human capital also seems like a bit of misdirection, in addition to his capital gains tax comment. In the end, he appears to give little more than lip-service to the idea that inequality needs fixing.
A direct capital tax sounds appealing because it doesn't discourage investing capital or really even accumulating it. Solow describes Piketty's proposal as a 0% tax on capital below a million Euros, 1% between 1 & 5, etc. That wouldn't impact ERE at all.
However, it is politically impossible. It also seems like the problem could be solved with more progressive structure to the capital gains, income, and inheritance taxes. We're used to those changing every few years, and they affect r & g very directly. It's not like the wealthy are going to stop investing when the choice is between 0% and >0%.
Re: Le capital au XXIe siècle
I have not read the new book, but I would tend to think the proposed solution is no more magical or unmagical than others. Purely academic solutions usually remain just that. I do applaud the effort, though -- seems to be in the vein of "This Time Is Different" or the historical works of Pareto, which noted that the natural tendencies of stable societies over the last 4-500 years is to have an 80/20 distribution of wealth. Revolutions are more likely to happen when it gets too far out of whack.
It's a big mistake to think that this is a modern problem or that it needs to be cast in terms of economics -- in fact, it predates modern economic theory by a couple thousand years or so. Societies veer towards inequality that becomes intolerable at some point -- its a natural part of the dynamics and stochastics of life. Societies either solve it through some form(s) of peaceful redistribution or end up having a bloody revolution.
The options are described in Durant's "Lessons of History" (which I recommend), excerpted here and noting examples from ancient Greece and Rome: http://windyanabasis.wordpress.com/2011 ... -of-solon/
You don't need economists to solve this problem -- in fact, they are probably the least well-equipped to deal with it. And the odds of there being a wealth-tax, at least in the US, are pretty close to nil. Capital is very much favored over wages or other income in our tax code. Even moving towards that kind of equilibrium (taxing all income at the same rate) would be a huge step. But that's just going back to the future.
There are plenty of other less draconian equalizers, though. For example, I'd be in favor of treating student-loan debt the same as other consumer debt, for one, which would make it dischargeable in bankruptcy like it used to be. That would clean up a lot of balance sheets and depress the price of higher education all in one fell-swoop.
It's a big mistake to think that this is a modern problem or that it needs to be cast in terms of economics -- in fact, it predates modern economic theory by a couple thousand years or so. Societies veer towards inequality that becomes intolerable at some point -- its a natural part of the dynamics and stochastics of life. Societies either solve it through some form(s) of peaceful redistribution or end up having a bloody revolution.
The options are described in Durant's "Lessons of History" (which I recommend), excerpted here and noting examples from ancient Greece and Rome: http://windyanabasis.wordpress.com/2011 ... -of-solon/
You don't need economists to solve this problem -- in fact, they are probably the least well-equipped to deal with it. And the odds of there being a wealth-tax, at least in the US, are pretty close to nil. Capital is very much favored over wages or other income in our tax code. Even moving towards that kind of equilibrium (taxing all income at the same rate) would be a huge step. But that's just going back to the future.
There are plenty of other less draconian equalizers, though. For example, I'd be in favor of treating student-loan debt the same as other consumer debt, for one, which would make it dischargeable in bankruptcy like it used to be. That would clean up a lot of balance sheets and depress the price of higher education all in one fell-swoop.
Re: Le capital au XXIe siècle
I like this critique by Charles Hugh Smith:
http://charleshughsmith.blogspot.de/201 ... on-to.html
http://charleshughsmith.blogspot.de/201 ... on-to.html