Letter 2 America for May 19, 2014

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Dear America,
Thomas Piketty

Thomas Piketty (Photo credit: Parti Socialiste du Loiret)


I've just started reading Thomas Piketty's book, "Capital in the Twenty-First Century," and I must admit that I'm tempted not to go any farther than the free sample provided on my Kindl.  The sample is the prologue to the book, it seems, and it details the method he used in reaching his conclusions about the shape of our economic future...predicting it really, or at least postulating how we can change what seem to many of us to be the inevitable...the perduring financial trends in our lives.  Set aside the fact that he is obviously quite proud of his place in his discipline's professional pantheon of sages alive and dead, and of his Gallic heritage as well, and you still are left with nothing that smacks of innovative thought other than the package that his ideas are presented in.  It's all historiography and deduction from the events of the past, which is what economists always rely on to predict the future and direct us as to how to get there.  But the fact is, if in economics the past is prologue, someone in economics would have figured out the human economic condition centuries ago.  Lord knows many of them have written tomes on the subject and professed to know.  And in Piketty's case, the affliction of the economic prognosticator is his as well, though he claims to be looking at it all with an entirely new perspective.  He thinks that the trends of past periods will tell us how to modify trends in the future, but the problem is that they never have, and for good reason.  Economics has always professed to be a social science, and it has tried to reinforce the idea by creating formulae to reify that conceit.  If the formulae make sense, I suppose the thinking goes, it gives legitimacy to economics as a whole.  But once those formulae go beyond theory, they seem always to come up short when policy and practice are being considered.  Whenever we hit a rough patch, at least two camps appear to say that the extent to which the policies urged on us by the others are at fault, because it seems that there is always something in our economy to blame on someone.  In other words, there is no objective reality in theoretical economics.  So, if it were as easy to figure it all out as Piketty wants us to believe it is--if all we have to do is rationally review history with the proper methodology--I must argue that someone would have done it already.  If all it would have taken, after all this time, to contend with society's tendency toward the rich getting richer and the poor getting poorer (call it what you will, but that ancient saw is what Piketty is writing about) was a plenary understanding of economic history, someone who could read records of the past, would have read them, and then informed us.  After all, there's big money in predicting the future, and even bigger money in changing it.  But with regard to Piketty, let me be a little more specific.

His thesis is essentially that a couple of formulae that he has created tell the whole story of the tendency of wealth to accrete in the hands of a few.  He says that the rate of return of capital is greater than the rate of growth, and that causes capital to accumulate in the accounts of those who already have some.  Money makes money...how revolutionary.  But, he adds, there are justifications for some of that concentration of wealth, and there probably is no debate on that subject either.  You take risks with your money, you deserve a reward; nothing startlingly new there.  And then of course there is the question of how to divide the profits of enterprise between labor and capital, and I suppose that his book might be worth reading if he has come up with a formula for that, but the problem such a formula would have to overcome is the virtually infinite number of variables that have to be considered when deciding such things.  In point of fact, economics as a discipline is really just an assessment of human interaction that presumes to be able to predict mass psychology in a meaningful way...that is before it leads to undesirable consequences...and that is precisely what economics has never succeeded in doing.  So, Piketty is welcome to try, but the reality is that economics isn't science, no matter how much it relies on empiricism and inductive thinking.  The rules it derives always fail to provide any significant insight as to how to alter the human condition any better than the folk wisdom that we all indulge in across the living room ether.  It reminds me of a moment that I experienced when I was sixteen.  I was working construction for a ne'er-do-well relative and I came upon him sitting, and doing something that looked a lot like nothing.  I asked him what he was doing, and he said, "making big ones out of little ones."  That was all he said and he continued manipulating the piece of rope or wire he had in his hand, apparently accomplishing...nothing.  Making big ones out of little ones was a euphemism for trying to give the impression that what one was doing was significant when in reality, it was only a show intended to legitimate idle pursuit.

I saw a brief interview of Piketty on the news a few nights ago, and he seems an engaging enough fellow; he didn't emit an aura of deluded grandiosity or pontifical tendencies.  But his point seemed to be that we can address earnings inequality and the disparity in wealth between those at the top of the modern Darwinistic economic pyramid and those on the bottom with tax policy, and I think he is partially right.  But the real question is, what policy.  He talks about inheritance tax, and I have always thought...and said right here in fact...that family wealth taxation was a good idea, and I'm not alone.  As a policy issue, that one has been on the table, and not just in the living room, for as long as I can remember.  As to the graduated income taxes that have been imposed in virtually all advanced countries for over a century, they are not just de rigueur, they are inescapably just and necessary to prevent reversion to the egregious disparities of weal that afflicted the world through the first fifty to seventy-five years of the industrial revolution, and continue to do so in some of the less socially developed nations.  But how graduated should they be?  That is the question, and that question can be answered only politically.  So, what else is new.

My thesis is much simpler than Piketty's, which doesn't make it correct, but does make it easier...and quicker...to absorb and apply.  I know you have read it here before, but indulge me.  I think there are two kinds of wealth, both earned and accrued.  There is natural wealth and there is artificial wealth.  The former comes from inventive thinking and hard work.  The latter comes from just being in the right place, or the right womb, at the right time.  I have no respect for the latter, and I think it should be vigorously taxed.  As to the former, if you earn it, you should be able to keep a bigger share, but that includes not just the creation of the idea that works, but the labor that goes into reifying it as well.  And there should be a point at which all taxation represents a rejection of mindless acquisition.  The accretion of wealth that is so vast that it can never be spent is despicable in my opinion.  Warren Buffett might be a great guy, but what does anyone need $50 billion for.  And as for Bill Gates, he makes a big show of his foundation and how much money he has given it, but the fact is that, even with what he has given, his fortune is 50% bigger now than it was when he started the Bill and Melinda Gates Fund, and the fact that it is eponymously named is no inadvertency.  It's just a well directed hobby for him, and he shouldn't be getting so much credit for doing the minimum that a guy with his kind of power and wealth owes the rest of us.  He didn't get rich alone, and now he isn't getting richer because of anything he is doing for posterity.  He is getting rich by being rich, and that is in no way admirable.

That's my economic theory, and it's free for the reading...or, you can pay $30 for Piketty's book if you like.

Your friend

Mike

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This page contains a single entry by Michael Wolf published on May 19, 2014 11:12 AM.

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About this Entry

This page contains a single entry by Michael Wolf published on May 19, 2014 11:12 AM.

Letters 2 America for May 16, 2014 was the previous entry in this blog.

Letter 2 America for May 23, 2014 is the next entry in this blog.

Find recent content on the main index or look in the archives to find all content.

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