After Piketty the new question: Can we, should we, afford the rich?

from Jamie Morgan’s “Piketty’s Calibration Economics: Inequality and the Dissolution of Solutions?” – an open access paper in current issue of Globalizations

In the neoliberal age, we have naturalised the rich. However, the success of Thomas Piketty’s Capital in the Twenty-First Century has done a great deal to legitimate a rather differently inflected concern. It is now permissible to ask: can we, should we, afford the rich? Growing income and wealth inequality have gradually become areas of public concern, but this concern has become more acute, and more politically febrile, in the wake of the global financial crisis. The election victory by Syriza in Greece, and the Occupy Movement speak directly to this. Austerity responses to the crisis have distributed the fallout costs to the many from the few who benefitted most from the preceding decades. Meanwhile, central bank policy responses have created new opportunities for the global rich to become even richer.1 To a large degree, the idea that the rest of us are dragged along in the wake of the wealthy has been exposed as a myth.

Piketty and the non-applicability of neoclassical economics

from Lars Syll

In yours truly’s On the use and misuse of theories and models in economics the author of Capital in the Twenty-First Century is criticized for not being prepared to fully take the consequences of marginal productivity theory — and the alleged close connection between productivity and remuneration postulated in mainstream income distribution theory — over and over again being disconfirmed both by history and, as shown already by Sraffa in the 1920s and in the Cambridge capital controversy in the 1960s, also from a theoretical point of view:

Piketty wars: episode III—revenge of the Right

from David Ruccio

In episode I of Piketty wars, Harvard University Press published Capital in the Twenty-First Century. In episode II, the reviews of Piketty’s book, by liberal mainstream economists, were generally positive. Now, in episode III, the Right can be found on their Invisible Hand ship, launching a series of attacks against Piketty.*

Piketty’s blindside: any accounting format reflects the economic theory that defines its categories

from Michael Hudson

Piketty sought to explain the ebb and flow of polarization by suggesting a basic mathematical law: when wealth is unequally distributed and returns to capital (interest, dividends and capital gains) exceed the rise in overall income (as measured by GDP), economies polarize in favor of capital owners. Unlike the classical economists, he does not focus on rentier gains by real estate owners, their bankers, corporate raiders and financiers, privatizers and other rent seekers.

Piketty is limited by the available statistical sources, because any accounting format reflects the economic theory that defines its categories. Neither the National Income and Product Accounts (NIPA) nor the Internal Revenue Service’s Statistics on Income in the United States define the specific form that the wealth buildup takes. Most textbook models focus on tangible investment in means of production (plant and equipment, research and development). But industrial profits on such investment have fallen relative to more passive gains from asset-price inflation (rising debt-fueled prices for real estate, stocks and bonds), financial speculation (arbitrage, derivatives trading and credit default insurance), and land rent, natural resource rent (oil and gas, minerals), monopoly rent (including patent rights), and legal privileges topped by the ability of banks to create interest-bearing credit.

Large-scale wars, tax reforms and “inverted totalitarianism”

from Heikki Patomäki 

The world wars of the 20^th century constituted major economic and political shocks. Piketty goes so far as to argue that “we can now see those shocks as the only forces since the Industrial Revolution powerful enough to reduce inequality” (p. 8; italics HP). This is a point he repeats several times in the book; he also gives ample statistical evidence on the impact of the world wars on the level of taxation and inequalities (for instance pp. 18-20, p. 41, p. 141, p. 287, p. 471, pp. 498-500).

Piketty, however, is not fully consistent in formulating this point. Counterfactual developments are uncertain. Without the shock of World War I, “the move toward a more progressive tax system would at the very least have been much slower, and top rates might have never risen as high as they did” (p. 500). The war facilitated and speeded up change, but it was not a necessary condition for it. The weakest formulation is this: “[P]rogressive taxation was as much a product of two world wars as it was of democracy” (p. 498). Thus democratization too seems to have played a facilitating role. A problem is, however, that democracy cannot explain the decline of progressive taxation and the re-rise of widening inequalities since the 1970s.