Piketty, Chapter 4

In Chapter Four, Piketty discusses the transformation of capital in the US, and at the same time starts using popular culture references. David Cameron’s Titanic, Quentin Tarantino’s Django Unchained, and Matt Weiner’s Mad Men television series – neoclassic epics written by iconoclastic white men – are all offered up as examples of how the US economy has changed over the last 250 years. He also shows the difference in US national wealth if you include slaves – turns out slave labor was a major component of national wealth, a grim reminder of the value of “human capital.”

There’s also a section on Germany, preceding discussions of the US and Canada, that points out that German stocks are undervalued because, from an international point of view, the “stakeholder” model of German firms require a greater degree of coordination than the Anglo “shareholder” model of industrial organization. Piketty remarks that if one uses “book” value in place of the usual “stock” value, German firms are worth as much as those of Great Britain and France. The dynamics of capital in Europe, therefore, are more similar between nations than they are various.

But the observation that really set me off in this chapter came right at the beginning, as Piketty introduced the subject by summarizing the previous chapter (affecting me with the reassuring feeling that the book hangs together), he notes that one aspect of the transformation of capital over the past 300 years is the transference of value from agricultural land to urban real estate. And I thought about how Marx writes of the bourgeoisie as the revolutionary class that brings about capitalism – industrialisation transfers wealth from the country to the city, and in doing so, transforms society. From the Manifesto of the Communist Party:

The bourgeoisie has subjected the country to the rule of the towns. It has created enormous cities, has greatly increased the urban population as compared with the rural, and has thus rescued a considerable part of the population from the idiocy of rural life.

Piketty talks about wealth in terms of its value relative to income, giving the discussion a particular consistency. It’s not so much about size as shape. Furthermore, it’s not a story about how the transformation occurred; the story is simply that there was a transformation of capital over time. It’s a very tidy argument.

The chapter seems t0 point forward to the discussion of inequality. I’m really looking forward to Part III.

HRC after the clinch

I went to bed last night thinking about how Hillary Clinton is now the Democratic Party nominee for President. A year ago everyone thought she had it sewn up. Then Bernie Sanders happened. As of yesterday, my Facebook feed had a steady stream of “Bernie Bernie Rah Rah Rah” and today…it’s all quiet on the western front. California voted, and Hillary won by 12 points. 400,000 votes. She won, the end.

A lot of folks that I know are going to talk about how the system is rigged, how the US is a corrupt oligarchy, and so on. I read a piece on the Sanders campaign from Politico last night that really cast Bernie in a negative light – the folks over at Vox basically said the fact that people within the campaign were willing to go on record about this stuff demonstrates an organization in disarray – and it reinforced for me the sense that Sanders is basically a soapbox superstar. He stirred the pot, raised the issues. He gave voice to the discontent, the resentment and frustration, of the American left. And there’s a great deal of it after eight years of Obama.

The long battle between the left and the center over the Democratic party has left me feeling ambivalent over left politics. From my perspective, what the left ought to be focused on is economic expansion and wealth redistribution though tax reform and monetary inflation. But that’s not at all what the left, as led by Bernie Sanders, has focused on. To give a precise example: I wish Bernie Sanders would have said that he wanted to expand Medicare to everyone, and would do so through deficit spending. Or that he would say that we could build infrastructure, through debt financed Federal government spending. I wish he would have said that to bring excess savings back into the economy, it would be necessary for the Federal government to lift the debt ceiling, and to increase deficit spending. But that’s not what he talked about. Mostly he talked about populist resentments. And what that told me was that his supporters aren’t interested so much in the future as resolving past grievances.

And that’s not to say that there aren’t plenty of legitimate grievances that deserve attention – the legacy of institutionalized racism and sexism, for example, absolutely should be a focus of reform efforts.But politics should always orient itself towards the future, not the past.

At any rate, in the present I’m expecting a lot of bitterness this summer over politics. Which is too bad. In the meantime, I’m interested in how the rest of the race will shape up. Although I think Clinton will make an appeal to the Sanders camp, I think in a lot of ways her campaign will now take it’s place in the political center. The Left will cry foul, but I don’t really think that matters to the Clinton campaign. Especially because I think the Democrats, this year, will have a huge opportunity to bring in a sizable contingent of the business community. Trump paints himself as a businessman, but he comes across like a snake oil salesman. Which makes him perfect for the ring-wing-radio constituency, but not so much the actual business community. It seems entirely plausible to me that Wall Street will go Democrat this year, after decades of funding the right wing think tanks. Bankers don’t really care about social policy. They care about economic stability, and that’s something Clinton can offer them.

 

Episode 3 of Gilmore Girls

So, my partner and I started watching Gilmore Girls on Netflix – we have made a habit, after dinner, of watching a episodes of whatever television show we happen to then be following. And we decided that we ought to start following Gilmore Girls after finishing the latest season of Grace and Frankie – a wonderful program – great writing, Jane Fonda and Lily Tomlin are phenomenal – and so far I’m really enjoying it. Last year we watched all eleven seasons of Cheers, so I feel like my standards for television are pretty high right now. Cheers is a ridiculously good show, especially given it’s long run. And also a show with a lot of cultural caché. Gilmore Girls is, it turns out, similar.

I went into the show thinking it was set in the 1990s, but it turns out (according to Wikipedia) it premiered in 2000. Television shows can often feel a bit behind the times, I suppose. Anyways – we just finished watching the third episode, and I wanted to bang out a quick blog post to record some thoughts I had about the show.

The basic tension of the show is set up by Lorelei, the 32 year old single working mother of 16 year old smarty-pants Rory, sending her daughter to a fancy prep school, with the hope of getting her into Harvard. The prep school is characterized as competitive, not so much fancy, although it is made clear that it is very expensive. In order for Rory to go to private school, Lorelei has to ask her fancy-pants wealthy parents, and her parents use the loan to force Lorelei to let them hang out with their grandaughter. The grandmother character is crucial – she on the one hand is clearly the representative of tradition and traditional gender roles, i.e. women are not supposed to work or support themselves, they’re supposed to get married and be housewives and so on. Lorelei, a Generation Xer hellbent on asserting her independence, is characterized as the rejection, the admonition, even, of her parents morals and sentimentality and so on – and in episode 3, an interesting exchange about gender came up: in a conversation where Lorelei is being outraged by her mother not knowing the names of the house servents (Americans, to my knowledge, only have house servants if they are old money wealthy – which implies that the family is not merely affluent, but quasi-aristocratic, which is to say, these are capitalists, patricians, the ruling class, modern nobility), and her mother confuses a male servant with a female servant, and questions the distinction between men and women among workers.And Lorelei insists that the difference between a man and a woman merits recognition. Lorelei is a worker herself, so she does recognize the difference between men and women. But from the capitalist perspective, workers are abstracted from their gender identity.

In episode 3, Rory plays golf with her Grandfather. Lorelei feels threatened when her mother suggests it, but it turns out to be a good time. Here’s what I think is really interesting about Rory playing golf: when she goes, she’s hanging out with the men, except in the steam room. And the basic idea of her going to private school is so that she can get into an Ivy League school. Effectively, Rory is going to join the elite world of her grandparents, except in a way that is not necessarily traditional. The three generations of women are the heart of the show, and also gives it what feels like a feminist slant. Rory, although she is certainly feminine, is competitive and independent in a way her grandmother could not be.

It’s also a show about white people. Set in Small Town New England, almost all the characters exemplify what Americans mean when they say “white people.” I mean, yeah, there are white people in all 50 states, and lots of them have funny accents and outrageous religious practices, and sometimes when they say “white people” they mean it in a whole different context, but in general, in the United States, when people say “white people” they mean the people who live in small towns in upstate New York, Connecticut, Rhode Island, Massachussetts, Vermont, and parts of Maine and New Hampshire. The culture goes back to the Puritans, America’s original shit talkers. Nothing is ever good enough with white people, hence they are always miserable, bickering with each other, gossiping, conspiring, and so on.

Why make a show about obnoxious white people? Why them? Because this particular sub group of white people basically run the country. Not completely, not always effectively, but they run it and they’ve been running it since the end of the Civil War. The main reason for this is the influence of the educational system in New England, which is the oldest and best established in the United States. The Puritans, you see, were very concerned that everybody learn to read and to interpret texts, as reading and interpreting the Bible was an important part of religion for them, so they always had good schools. They also have Harvard, originally a college for Puritan ministers, now the leading university of the US, and perhaps the world.

The main point of interest for me with Gilmore Girls, is not that it’s all about white people, but the way it treats issues of class and wealth. Lorelei obviously resents her mother’s condecensing patrician airs, but her job involves a lot of dealing with people just like her mother. There’s almost an upstairs/downstairs feeling to the relationship. The fact that Lorelei’s job is managing a hotel makes the whole show so much the better. It’s like an aristocrat’s worst nightmare: a daughter who ends up as the help – except in the US, Lorelei is actually closer to an idealized everyman character, earning a living through hard work and raw talent. In the real world, she would be considered a success at her supposed age of 32, especially as a mother. Within the context of the show, it’s clear that not relying on her parents was a choice she made – and in the real world, it’s not a choice all women can make. Sometimes there aren’t parents there. Sometimes jobs don’t pan out, and hard work isn’t enough. But this is television. What’s important are the choices made by the writers and producers, not the characters.

Piketty: Chapter 3

This relatively short chapter, entitled “The Metamorphoses of Capital,” begins Part Two of the book. Great Britain and France are the only countries discussed in any detail – and it felt a little weird not having the US come up. I know enough about England that it feels familiar to me (not that I’ve ever been there) but not nearly as much about France, which still feels decisively foreign to me. What Piketty wants to talk about in this chapter is how capital went from being mostly farm land to being mostly stuff other than farm land.  Along the way, he’s got a couple of really choice quotes, but first, he writes some more about Balzac and Austen.

It occurs to me that I’m going to need to read Pere Goriot at some point soon, and also, probably, Mansfield Park, which Piketty references in his brief literary digression. Here, he is specifically concerned with how, in the novels of the early 19th century, the purpose of owning land was assumed to be to collect rents. “Capital is never quiet,” he writes, “it is always risk oriented and entrepreneurial…yet it always tends to transform itself into rents as it accumulates in large enough amounts–that is its vocation, its logical destination.” (p 115-6) This is, of course, not an especially widely appreciated part of modern American capitalism. We care very much property rights, but seldom do we think of ourselves as rentiers in the classic sense. We often call rentiers investors, or sometimes “job creators” – we emphasize the working aspect of it, rather than the entitled income aspect. In a Jane Austen novel, the characters all know very well that the point of owning property is to collect income. Working for a living is for peasents. “The advantage of owning things is that one can continue to consume and accumulate without having to work…” (p 121) We Americans tend to be uncomfortable with this view – it tells us something we’d rather not know.

Piketty points out two basic changes in capital over the last 300 years – one, that the capital/income ratio was close to 5 or 6 (i.e. the value of national wealth in Great Britain and France was roughly 5 or 6 times the value of national income) up until World War I, at which point it dropped precipitously to something like 2 or 3. Then, in the 1980s it climbed back, and is now close to where it was in the 19th century. Two, that wealth used to be largely comprised of land, but today is mostly buildings and other capital goods. “The nature of capital has changed: it once was mainly land but has become primarily housing plus industrial and financial assets.” (p 120)

There’s some really interesting history in here that I was previously unaware of – France, for example, basically declared bankrupcy back in 1797, during the Revolution, that happened to deal with the old regimes public debt. The British ran up enormous debts fighting Napoleon – but managed to remain solvent. They paid the debt off over the course of the 19th century, as the economy slowly grew. And it made the rich richer. (I imagine there’s a similar dynamic to American wealth today: the public debt of this country is essentially a way for banks to steadily accrue rents out of the system.) Then the Depression came, and a lot of wealth got wiped out. In particular, foreign incomes, which had grown considerably at the end of the 19th century, but disappeared by 1950. Agricultural land was huge part of wealth before 1900, but today is scarcely valued at all. Ricardian equivalence should be more familiar to me than it is, but I do like Piketty’s way of characterizing it: that public debt does not affect national capital accumulation (i.e. public investment doesn’t necessarily push out private investment). Keynes finally makes an appearance to explain why the “euthanasia of the rentiers” following World War I led him to recommend inflation as a way to reduce the burden of the public debt and thus constrain the influence of wealth in society. Modern American neoclassical economics, which arosesomewhat in response to Keynesianism, “…by totally avoiding the issue of inequality in the distribution of wealth and income, [representative agent] models often lead to extrene and unrealistic conclusions and are therefore a source of confusion rather than clarity.” (p 135) In the 1930s people had lost faith in the private economy – but this changed after the 1970s, and in the 1980s and 90s, France and Great Britain both saw large expansions of private wealth.

If inflation only works for awhile, then what? How is the government supposed to get anything done if it can’t borrow? Or maybe that’s the whole point? Certainly that feels like the point of capitalism sometimes: make democracy impossible, or at least pointless. Because if voting won’t get you a decent job with benefits and a reliable retirement package, then what good is it?

The book has a strange feeling for me here – it’s all very straightforward, and yet unusual in emphasis. That capitalism is about producing stocks of income-bearing assets is almost too obvious. The changes in the composition and size of those stocks over the last 300 years is really interesting, for sure,  but the tone is not so familiar. And I like it.

“…i’m an anarchist…”

I used to write “I” as “i” before deciding that capitalizing the first person singular was a matter of proper spelling, because clarity is more useful than subversion in the day to day. In a discussion on the ‘book just now – a post about some jerk in the news, and the connection between nationalism and racism with respect to federal governments in North America – and a guy who is a friend of a friend, commenting – trolling, really – on the post in a series of replies to some comment he had made on the original post wrote, in his final reply of many, “…i’m an anarchist, I don’t believe in borders or government or law enforcement anyway.” 

I don’t know the person who wrote this, which is why I’m going to use it to demonstrate the way I think about ideology, political and social thought.

First of all, when someone says they’re an anarchist in the context of writing a post on Facebook in 2016, as opposed to, say, a declared anarchist in 1937 in Spain, defenestrates any and all seriousness. At least for me. And what do I know? Maybe the person really is willing to sacrafice his life for his anti-government principles and is part of a dedicated cell plotting the overthrow of the capitalist state, but I sorely doubt it.

When he writes that he doesn’t believe in “borders or governments or law enforcement” what I hear is cynicism, which I understand as a kind of negative belief, in which the terminology used symbolically represents other people as unreliable sources, or, more literally, unbelievable. He characterizes the government as being operated by unintelligent, antisocial people, because he imagines that government is somehow a transgression against the world as it ought to be, and cannot imagine why anyone would make such an obvious (from his point of view) departure from the natural order. The problem with this characterization is that it removes the possibility of individuals within the government  having free will, since everything they do, they do for the wrong reasons. Any recognition of someone from the government doing the right thing for the right reason is strictly held as exceptional (thus proving the rule of corruption) – but to contradict this view is to violate his essential worldview.

The problem with our diminuitive anarchist’s position is, precisely, that it eliminates the possibility of meaningful political action by deligitimizing all meaningful political action. Take the law against murder. Nobody would argue against the law against murder in the sense of taking the life of a fellow human being – politics is what we call the process of deciding on a shared, workable definition of who is a “human being” and who is not. One of the reasons people today can see that the practice of slavery in the United States was a terrible thing is that it was dehumanizing in the sense that a master could murder his slave and not be held accountable by the law, as the slave did not fully count as a human being. On the other hand, if one considers a human embryo a human being, then abortion really is wrong, and must be stopped at all costs. The cynical position puts the kibosh on the whole discussion – because enforcing the law is wrong in any case. For my own part, I believe that the Civil War was worth it’s terrible cause, because slavery was abolished. And I believe that Margaret Sanger was right in helping women obtain access to birth control, that the Supreme Court was right to rule in Roe v Wade that women have the right to choose an abortion, for whatever reason, and that the government has the right to force medical providers to include birth control services. Our anarchist, of course, cannot say the same.

By inverting belief in such a way,  you get perversity. The cynic believes that authority is perverse, that the whole point of having power is to abuse it, not to help others. Therefore, in a position of power, he will do the wrong thing, because that’s what he thinks of as what he is supposed to do, expected to do.

Resist cynicism. It rots the soul.

 

Piketty: Chapter 2

These first two chapters are Piketty setting the stage for his story. In Chapter One, he defined the basic variables in his calculations – in Chapter Two he lays out the mechanism of exponential growth.

The idea of exponential growth in economics goes back to Malthus and the Essay on the Principle of Population, first published in 1798. The young Malthus wrote it as a response to the optimism of writers such as Condorcet, a French aristocrat who had predicted, amidst the Revolution of the 1790s, an approaching age of prosperity through the perfection of economic arrangements and technology. (The Revolutionaries cut his head off.) Malthus put the kibosh on this through his population principle, which basically said that most people will live in grinding poverty, because population grows geometrically (that is, exponentially) while food production only grows arithmetically.  It is useful to recall that, in 1798, exponents were a new thing, and Malthus looked like a real smarty-pants for using the idea in his theory.

Anyways, two centuries later, the idea of exponential growth is pretty much indispensable in economics, and Piketty demonstrates why. Rates of growth – which are central to the interests of finance, industry, and demographers everywhere – show us how small differences can become crucial in the long run. As Piketty writes on page 77,

The central thesis of this book is precisely that an apparently small gap between the return on capital and the role of growth can in the long run have powerful and destabilizing effects on the structure and dynamics of social inequality.

If one looks at global population growth in the period 1700-2012, it has grown at an annual rate of just 0.8% – and if we extend that growth rate across the next three centuries, the population would be 70 billion – which Piketty declines to say is impossible. That he does not dismiss such numbers out of hand is something I really like about this book – an environmental scientist might imagine that if there were roughly ten times more humans living on the earth, they’d rapidly consume all available resources and transform the planet from a blue-green marble to a cinder. Thankfully, the discussion is limited to economics. This is, again, one of my favorite aspects of the book: there are constraints placed upon what the analysis can do. He never claims that these limits are absolute, or that the analysis is definitive – indeed, he makes clear that the work at hand is plastic, and therefore subject to manipulation. Why is this so important? Take this quote, from page 85:

The plain fact is that [the idea that the new information economy will allow the most talented individuals to increase their productivity many times over] is often used to justify extreme inequalities and to defend the privileges of the winners without much consideration for the losers, much less for the facts, and without any real effort to verify whether this very convenient principle can actually explain the changes we observe.

I’ve known folks who make the sort of claims Piketty is talking about, and I’m pretty sure that if they read this passage, they’d suddenly be in a huge hurry to say that Piketty must be wrong about everything. Not because they care whether or not he is, but because they don’t want anyone to say anything about their stacking cash in the present tense. This is, in general, a big part of life under capitalism, I think. We’re critical of other people making money, but not too critical, because we want to be making money ourselves. What Piketty is about in this book is criticizing capitalism, which means criticizing the way we actually live, and that can be harder to bear than I think most people realize.

So, Piketty sets up this idea of exponential growth, and then goes about decomposing that growth in different ways to demonstrate what’s driving it. Global output growth has two components: one is the growth of the population, the other the growth of the population’s productivity. Between 1700 and 2012, world output grew 1.6% – with population growth accounting for half of that, and per capita output growth accounting for the other half. He is also able to break down this growth in different ways over various time periods and geographical locations, to show differences between times and places.

Comparing production and consumption over centuries and continents is, of course, pretty difficult to do with any consistency. The method employed here focuses on comparative price levels and incomes. Looking at prices and output, Piketty decomposes production into three categories: industrial, food, and services. The price of food in North America and Europe has mostly kept pace with the relative price level, whereas industrial goods have fallen, and services have risen. Certainly you could argue with the part about food prices, which, in the United States, are considerably lower now than they were 50 or a 100 years ago – and that those prices are what they are relative to everything else, and why, is its own interesting story. Suffice to say that I find Piketty’s basic outline here pretty solid – we can make comparisons about relative living conditions over time and so on, and doing so is useful for discussing the dynamics of wealth and income.

Within his discussion of comparative prices and so on, Piketty makes a really interesting observation about health care – if you have different health care systems with comparable outcomes, and one costs more than the other, then the more expensive one is inflating it’s home country’s GDP. Comparing private healthcare in the US to public healthcare in Europe, the data suggests that the two are roughly equivalent in terms of outcomes, but the system used in the US costs considerably more. In my view, the extra cost is not mere waste inflating the GDP, but rather a necessary expense incurred through providing healthcare to a large, diverse population composed of competing demographics prone to mutual distrust. It’s easy for smaller, demographically homogenous nation-states like Denmark, Sweden, Finland, France, Germany, Japan, South Korea, Ireland, Italy, Austria, Poland, Norway, or even Mexico to create socialized health care systems, because most everyone identifies with everyone else. In the US, most people think of themselves as Americans, but can identify some other resident group as sub-Americans (black people, hillbillies, immigrants, the bourgeoisie, etc) and thus we are always able to rationalize the exclusion of some group or groups from the provision of what should otherwise be public goods. Health care is always, always an interesting topic.

Towards the end of the chapter, Piketty engages in a compelling discussion of inflation. I was not aware of this, but it turns out inflation is largely a 20th century phenomenon. In the 18th and 19th century, inflation was close to zero, so that authors – Piketty uses Jane Austen and Honore de Balzac as examples – could use monetary amounts to describe characters and place their period and social status. To be considered wealthy in Europe in the 19th century demanded a yearly income 20 to 30 times larger than that of an ordinary working person. The particular quantities of money over these two centuries were remarkably stable. Moreover, the exchange rates between Western countries in this era were also stable – £ 1 = $5 = 20 Marks = 25 Francs – from the 19th century through to the first world war.

So what does inflation actually do, besides giving a name to the appreciation of prices throughout the economy? It redistrubutes wealth and income. Within this portion of his discussion, I think Piketty underlines what economic growth means – widespead social change. In the 20th century, the rise of inflation indicates a departure from the norms of the 18th and 19th century. In the 21st century, the return of slow growth and low inflation suggests that we are perhaps moving towards a new equilibrium – a new normal.

Whatever the case, Piketty has laid out his framework. We are able to compare statics – quantities and magnitudes of wealth and income – as well as dynamics – rates of growth, monetary inflation, price levels, and so on. The discussion is limited to fairly standard economic parameters – we’re not talking about the environment, we’re not talking about justice, we’re not talking about happiness or the meaning of life. I think this is a very useful way to go about discussing the topics at hand. One of the great problems of economics, in my experience, is the temptation to bring the world into every discussion, thereby making it futile to speak at all. Thus far, I think there’s a good balance.

What am I doing here, anyways?

I have a lot going on these days – parenting is a demanding vocation, and I’m doing other stuff, like writing this blog, besides. And there’s so much to write and think about! But I also worry a lot that I’m an obnoxious troll.

I’m hoping to get the next part of my Piketty project up by Tuesday night, and that it will pick up some momentum as I move along. In the meantime, I wanted to think about some articles I was looking at today. Both Frank Bruni and Ross “I would do anything for love but I won’t” Douthat wrote columns about Facebook. I read a pretty nice piece about the backlash against bell hooks after she wrote critically about the new Beyonce record. And there were a couple of neat little pieces on Vox about hyper-partisanship in this years election. Also a delightful think piece exploding Bernie Sanders as Messiah.

If you spend much time on Facebook, you’ll see articles about how some person “destroys” (or some other way does violence to) something someone else said or wrote or tweeted or whatever. It’s a very stupid way to describe criticism. For one thing, if you could really destroy someone else’s argument, then doing so would force them to recognize their folly. If Elizabeth Warren destroys Donald Trump on Twitter, liberals cheer, and conservatives grimace, and that’s it. Donald Trump does not admit to being wrong. (Ever.) And I would love it if it were possible to argue in such a way that somebody with some entrenched view of the world would suddenly and radically change their mind, but in my experience, it’s not possible.

So what are all those arguments and counterarguments about then? Its all part of the sorting process. Social media helps us find our communities and thereby to define ourselves. That we do this by interacting with a machine, sitting alone somewhere, is kind of disturbing. It’s great that I can find people who are interested in the same stuff I’m interested in – although that has generally not been my experience with social media. I still only know a handfull of people who like Stereolab as much as I do. And I know they’re out there somewhere, because somebody had to buy all those albums and attend all those shows. They’re just not people I know. And that’s fine.

It’s also not great to know things on the internet, because there is a temptation to criticsm. I once wrote a super harsh criticism of some well-meaning Chinese person’s writing on economics, on an economics Facebook group I belonged to. He kept using “the economic” where he should have used “economics” – I suppose an easy enough mistake to make when your primary language is Chinese and you’re writing in English. But for some reason I just dug into him, and it felt good, but it didn’t get me anything but a heap of scornful comments. Which I deserved.

On the other hand – sometimes, I realize, I long for forceful authority. Like, when I hear someone say something like “Those homeless people chose their homelessness” or “the National Debt must be paid off” or “man made climate change isn’t real” that a giant hand would reach out the sky and smack them, over and over and over, until they would finally admit that those things simply aren’t true, and that they need to think differently about poverty and national accounting and global warming. And in some sense, that’s the “invisible hand of the market” – if you try to get paid doing something or making something that has no value to society, you will fail. Not that the world works that way.

What am I doing on this blog? Am I babbling incoherently? There are no authorities to answer my question. Which is great, because if there were, they’d probably tell me to give up and go back to working in restaurants. And maybe it would have been better for everyone involved if I had just stayed in kitchens. But I didn’t. So here I am.

Piketty: Chapter One

Piketty begins the chapter with a story about a platinum mine strike in South Africa. Of all the ways he could have started off, I think this demonstrates that Piketty is engaged in a rhetorically sophisticated endeavour. The labor strike is symbolic of the struggle between labor and capital that has characterized capitalism from its inception. Mining is, in some sense, the most capitalistic of industries – capitalism is all about the extraction of value, and mining precious metals is a perfect metaphor for that activity. South Africa, the former British colony, that has seen imperialist wars (the journalistic coverage of which paid Winston Churchill’s considerable spirits accounts throughout much of his life), as well as the long and terrible legacy of apartheid, and the inspiring rise of Nelson Mandela. And when did the strike mentioned at the outset take place? 2012. The present day. So that is where we begin: the conflict between labor and capital, which is tied into exploitation and violence (towards both the earth and human beings), imperialism and alienation; a conflict which has a long history but which also exists in the current day.

Still on the first page, Piketty mentions the Chicago Haymarket Affair of 1886, as well as an event at Fourmies in France in 1891 – both of which took place on May 1st – May Day. He sets the stage in such a way as to relate the present with a past based in Western labor struggles – May Day is International Workers Day, a kind of Communist Easter, which is to say, a day which acknowledges both the global scope of capitalism and also its roots in Western Europe. The chapter is mainly about setting up the definitions that will be used in analysis that comprise the book, but Piketty demonstrates a nuanced understanding of political economy here. On the one hand, he has already shown that anybody looking for the Revolution here will be disappointed, but on the other hand, he is not offering a merely mathematical analysis either.

In this first chapter, Piketty offers up plenty of material for the objections of other economists – if you want to dispute his conclusions, all you really need to do is insist that his assumptions are incorrect. And I think he does an admirable job of putting his cards on the table as far as assumptions are concerned, and of making clear that the measurements he is using are imperfect.  One of Marx’s major appeals was that his version of communism was scientific – rigorous, data driven, and so on – and his overbearing tone on this account was, I think, meant to convey a tone of authority and incontrovertability. Piketty, in contrast, is easily superior in his command of data (he has some not inconsiderable advantages over Marx, of course) and the rigor of his method – but he is scarcely insistent of his authority. His modesty is appealing to me, although I wonder how it will affect his long-run impact on economic discourse. As Oscar Wilde once said, “Moderation is a fatal thing. Nothing succeeds like excess.”

What is especially interesting to me in this first chapter is that Piketty sets up his study as global in scope. I find that as a general rule the discussion of economic inequality likes narrowness – people want to talk about inequality within whatever they perceive as their society. Piketty is setting up a discussion in which capitalism globalizes society itself, I think, which is, in its way, a subversive thing to do. Many people tend to think in terms of national societies – in the US we think about inequality in terms of the difference between the middle class and the upper class elites. Piketty makes a comparison at the end of the chapter between the regions in terms of per capita incomes in those regions. The poorest regions are sub-Saharan Africa and India, the richest, North America and Western Europe. And the difference between per capita income is roughly a factor of 10 – i.e. people in North America and Western Europe earn, on average, ten times what people in sub-Saharan Africa and India earn. China is offered as something of an average in this scale. As Piketty points out, this doesn’t tell us anything about inequality within those regions.

What a historical examination of the global distribution of income and wealth can tell us is that the world has been converging since roughly the end of the 1970s. Between 1900 and 1980, 70-80% of global production was concentrated in Europe and the Americas (North and South) – but that share, as of 2010, has fallen to 50%. “Regardless of what measure is used,” Piketty writes on page 67, “the world seems to have entered a phase in which rich and poor countries are converging in income.” This particular conclusion is really compelling for a few reasons – one is that Piketty cites the diffusion of “human capital” (a term I will discuss below) as one of the main drivers of convergence; also, it reminds me of the Hecksher-Ohlin-Samuelson theory of international trade, in which trading countries are expected to see a convergence of labor and capital endowments over time. The most compelling aspect of this conclusion is, however, that it means that those of us accustomed to the enormous advantages of US or European citizenship will perhaps see those advantages erode in the not-too-distant future. It seems to me that Americans have been only too happy to accept capitalism while they were reaping net-benefits from it – but now that capitalism seems poised to disrupt the US political economy in ways not as readily acceptable to Americans, I have a feeling they might change their minds about free enterprise. But not before capitalism goes about overturning culture and so on. There’s a lot more to be said on this topic, and I have a feeling I will have ample opportunity to return to it later.

Piketty identifies two basic types of income: labor and capital. Last year I read Hannah Arendt’s The Human Condition, which decribes Western civilization as dominated by the phenomenon of animal laborans – an idea I found enormously compelling. She points out that we’re basically a consumer society, and that labor is the necessary balance of consumption, and that we are therefore a laboring society. This is why we ask people we’ve just met “What do you do?” because our public identities are conceived in terms of the labor which we exchange for money, which we then exchange for consumption. There’s a lot more I could say about this, but let us say for now that labor income is one of the basic kinds of income. The other kind is capital income. Now, income is defined as a flow, and capital is defined as a stock, so a capital income would be a stock which generates a flow. Moreover, Piketty defines capital as something you can exchange on the market, and thus dispenses with quantifying “human capital,” or including it in his calculations. He does mention that one could identify human capital as slaves, such as those in the US before 1865, but that is something of a special case. I’ve heard that if you calculate the value of the slaves before the Civil War in monetary terms, the losses incurred by the slave owners by the War are greater than the total value of the total capital stock of the northern states at that time. But of course, when modern economists talk about human capital, what they mean is the returns on accumulated education, i.e. if you have a PhD, then your income should, in theory, reflect that. The idea of human capital goes back to Gary Becker, one of the primary cogs in the University of Chicago economics machine. Personally, I think it’s a huge mistake to imagine people as a stock of capital, and besides which, the point of education is not merely to maximize the potential productivity of some individual. But what’s really odd is that at the end of the chapter, Piketty returns to the idea of human capital as one of the main drivers of convergence, by which he means the diffusion of knowledge. That he chose this particular way of characterizing convergence is really interesting – I’ll looking out for his views on education, and how he thinks of people in the context of society, and the economy.

The last thing I want to point out about this first chapter is that includes Piketty’s “First Fundamental Law of Capitalism.” When people talk about how economics has physics envy, this is, in some sense, what they’re talking about. In order to talk about the economy systematically, economists describe a system, and then fit the data into the framework of that system. If you were inclined to reject Piketty’s conclusions, which he has already stated in the Introduction, you might think of a “Fundamental Law” as being ridiculous, presumptuous, and obviously wrong. I don’t really think that the law Piketty is setting up is like a law of physics – rather, it’s a tool for analysis. He takes some accounting identities – income, capital, and growth – and sets them up in an equation to establish a relationship. I think its a very clear way of proceeding, myself.

Anyways – that’s what I have to say about Chapter One. If you’re reading along, and have thoughts, please feel free to comment on this entry, or to email and let me know what you think. I’m very interested in hearing what other folks have to say about this fascinating book.

 

The Piketty Project: Introduction

Why Piketty?

I have, for quite some time now, wanted to work through Thomas Piketty’s Capital in the 21st Century – a book I have owned for two years but have not yet read in its entirety. Like many folks, I read the introduction shortly after getting it. And I have read a grip of reviews – some of which I shall link to below. The book was a big deal when it came out, in part because of its statistical density, and because of the author’s reputation as an economics wunderkind (he became a Professor at MIT at the tender age of 22), and because it legitimated the idea of the “1% and the 99%” that was used so effectively by the Occupy Wall Street protests. It was also a New York Times bestseller, which was remarkable for a very long book about economics.

Piketty appeals to me, however, for more particular reasons as well. Paul Krugman, long an important influence for me, was an early supporter of Piketty’s work. And it was unpopular with the University of Chicago crowd, and with business and finance writers generally, which of course made the book attractive to me.  But those obvious endorsements aside – what I found so interesting was that the book was not especially embraced by the heterodox economics community, which I have contact with through my education at Roosevelt University. In general, heterodox economists seem to dismiss Piketty, after recognizing that he didn’t especially support whatever their particular research program, or ideological paradigm, happened to be. And so, after a great deal of initial excitement, everyone went back to whatever it was they were doing before the book came out. Krugman, at the end of his long review of the book, wrote that it had the potential to change economics as a discipline in the long term – a sentiment I found quite compelling, and was very excited by at the time.

Back in the Great Depression, Maynard Keynes wrote The General Theory of Employment, Interest, and Money – a book now recognized as revolutionary in economics, and influential enough to have inspired numerous schools of thought following the ideas introduced by Keynes (Keynesians, New Keynesians, Post Keynesians, etc). What is not now well recognized is that when Keynes wrote the book, the ideas it put forward were not especially well recieved politically. In England, it was certainly not endorsed by conservatives, who remained more or less faithful to Classical economics, nor was it of much interest to the Labour party, who were adherents of socialism. Keynes’ ideas did not become relevant until the onset of the war, when the British treasury gave him an untitled position with immense power and influence, from which he helped manage the finances of the United Kingdom during war time, and was one of the leading designers of the post war paradigm created at the Bretton Woods conference in 1944. Crucially, Keynes argued for the adoption of the US dollar as the global reserve currency, and appeared in front of Congress, and met with President Roosevelt as well. Despite his influence on the post-war economic paradigm, Keynes is still a controversial figure, reviled by conservatives and socialists alike.

Interestingly, Piketty does not mention Keynes in the Introduction of Capital in the 21st Century. He talks about Malthus, Ricardo, Marx, and Kuznets mostly. All four of them are important, highly influential thinkers as well, of course. I heard Brad Delong say in one of his lectures on American economic history that economists are all basically disciples of David Ricardo. The implication there is that Adam Smith isn’t really so much the father of economics as the grandfather, or, perhaps, the godfather. Whatever the case, I have a tendency to defer to Delong in matters of economic history.

One of the best things about having a heterodox education in economics is that the fractious nature of the discipline is made clear. Indeed, economics has been beset from the very beginning by interminable internecine wars of ideology and influence. And these quarrels matter, too. Because they have everything to do with the making of economic policies upon which the fortunes of nations, states, communities, businesses, armies, and so on, rise and fall, collapse or succeed, leave a lasting imprint upon history or fade into obscurity.

As Piketty notes in the Introduction, “without precisely defined sources, methods, and concepts, it is possible to see everything and its opposite.” And economists are forever arguing over sources, methods, and concepts – but as Ha-Joon Chang says “Economics is a political argument.” The thing that has most drawn me to Piketty is how the various responses to his book have brought out the political positions of those responding. Clearly there is much more to this book than a consideration of the distribution of income and the future prospects of capitalism.

Blogging Piketty: A Summer Project

So, the basic idea I have here comes from two places. One is the idea for forming a reading group around Piketty’s book. Maybe a year ago, some friends of mine expressed interest in such a group, but I never quite got it together to make it happen. In some sense, this blogging project is an attempt to accomplish an interactive experience (i.e. through comments on this blog and so on) of reading and discussing Capital in the 21st Century. I also am inspired by David Plotz’ Blogging the Bible, published on Slate, which I read maybe 6 years ago. And in general, I’m just trying to blog more regularly, and develop as a writer.

Piketty’s book is, conveniently, divided up into 16 chapters, plus an Introduction and a Conclusion. I will write a post for each of these (this one includes a discussion of the Introduction). Ideally, I will put up a couple of posts a week, and be through the whole book by mid-July. We’ll see how that goes.

As I mentioned above, there has been an enormous amount already written about this book. For those interested in taking a look at some reviews and assessments, here’s a list of links:

There are many more reviews, of course, and interviews and videos and articles besides, and I will strive to post more of them as I go along. The main idea of this whole enterprise for me is to really dig into this book. Reading reviews, I have often been struck by pronouncements of its richness, so I really want to explore each chapter. I also want to get past the simple divisiveness inherent in the Piketty’s conclusions – why are so many people so hard up to reject the arguments here? What can the discussion around income inequality tell us about politics and society?

A Brief Discussion of the Introduction

Capital in the 21st Century begins with a succinct introductory chapter surveying the work at hand, acknowledging intellectual influences, and presenting the shape of the arguments to come. The two biggest influences seem to be Karl Marx and Simon Kuznets – a disparate pairing that indicates Piketty’s unusual perspective. Marx, author of the Communist Manifesto, and the sprawling, unfinished Capital – volume one was published in 1867, while volumes two and three were only later released as assembled by Engels from notes following Marx’s death in 1883 – is a more important thinker for economics than is commonly recognized in the United States, where the legacy of anti-communism hangs heavy over our intellectual traditions. Kuznets is somewhat obscure, but more recognizably relevant in the context of the study: he was the economist hired by the Roosevelt administration to develop a system of national accounts. Nowadays we take statistics like GDP for granted, but it was Kuznets who did the actual work of thinking through how to come up with an accurate calculation of national income.

And it is Kuznets whom Piketty seems most interested in – particularly the conclusion of his Presidential address of 1954 to the American Economics Association, that a “rising tide lifts all boats.” The economic growth of advanced, industrial societies, although unevenly distributed in its early phases, appeared to even out as it developed. Piketty’s interest is in extending Kuznets’ analysis to other major industrialized economies – in particular, the US, Great Britain, France, Germany, and Japan (because they all have long standing, consistent systems of national accounting) – and across time, using data stretching back into the 18th century, and also bringing them into the present. His findings overturn Kuznets’ conclusions. The emerging dynamics of capitalism in the 21st century, in Piketty’s view, seem to indicate the divergence of economic interests in industrialized societies, and he pays special attention to these forces in the work ahead. He summarizes his results with the inequality r > g, “the main force of divergence in my theory” and “nothing to do with any market imperfection” (p 27). The basic idea here is that the rate of return on capital is greater than the rate of growth of the overall economy, and that this is normal under capitalism, a subversion of Kuznets’ theory.

In explaining his ideological framework, Piketty writes that he is of a generation that saw the collapse of Communism, and that he is “vaccinated for life against the conventional but lazy rhetoric of anticapitalism” (p 31). He has “no interest in denouncing inequality of capitalism per se” (p 31). Although this is quite appealing to me, I can see how many people might be turned off here. Occupy Wall Street, for example, was all about denouncing inequality and capitalism. Bernie Sanders’ campaign is built upon a similar foundation. Personally, social, political, and economic injustice seem pervasive and ubiquitous – to feel outrage over every injustice would simply consume me. This is why protest rarely appeals to me – I do not understand injustice as a disruption to the world, but rather the other way around – justice is a disruption in the world, a conspiracy mete out by conscious actors. Hence, the appeal, for me, of what follows the quotes cited earlier in this paragraph:

…I am interested in contributing, however modestly, to the debate about the best way to organize society and the most appropriate institutions and policies to achieve a just social order. Furthermore, I would like to see justice achieved effectively and efficiently under the rule of law, which should apply equally to all and derive from universally understood statutes subject to democratic debate. [p 31]

This recalls Rawls to me – the discussion of justice is properly one of the basic structure of society. Piketty sets up his discussion of the distribution of income as focused on social justice – and I am inclined to recieve his intentions as genuine. Even if it would cast the dissention of American economists as vanity rather than earnest disagreement.

There is a discussion of the historical and geographical constraints upon the study that I found interesting – in particular, Piketty writes that his focus on France has everything to do with the system of national accounting established by the Revolution in 1790s, and the fact that France has been more or less the same country since then, giving him a remarkably long running, consistent data series. He is not, he tells us, merely focusing on France because he is French. The comparison of France to England, where aristocracy still has a hand in government, and the rule of primogeniture was in place into the 20th century, and the US, which has seen its population grow by a factor of 100 since 1790, and expanded its territory enormously in that time, makes the example of France a useful one. I am very interested to see how historical and geographical considerations play out within the book, and how they will relate to debates regarding income distribution.

The other thing I think is worth mentioning before I wrap this all up is Piketty’s definition of income. There are two components of income in his definition: labor and capital. This is a source of controversy within the economics community – McCloskey, for example, denounces Piketty for ignoring “human capital” – although I rather think the definition is a good one. Nevertheless I think it is important to note that the terms of accounting – the epistemology – used within Capital is specific, and not necessarily accepted by economists everywhere, often for very interesting reasons.

I’m excited for this project. The dynamics of income distribution is crucial for any discussion of economics and social justice, and Piketty takes these matters seriously. Moreover, I am looking forward to delving into the debates inherent in the book. The first part of the book, comprised of two chapters, will set the stage for the discussion to come, with an exposition of capital, income, accounting, and how we came to quantify those ideas historically, and so on. There’s a lot of history in this book, as well as speculation, and I want to spend time with both. In no small part because of the present conversations around the Presidential elections here in the US, the current political meltdown in Brazil, and the ongoing state of crisis in Europe. Hopefully at some point I will be joined by commenters and be able to build some of the discussions around voices other than my own. But whatever happens, I’m ready to dive in.

 

…and one more thing…

I really hate it when I hear people say that Hillary Clinton is a Republican.

She’s a Democrat. She’s been a Democrat the whole time.

Bernie Sanders only became a Democrat when he wanted to run for President. Until then he was an “independent” – who caucused with Democrats in Congress.

The Democratic Party is not the Left. It isn’t. It never was. Not ever. It was never the “Party of People.” Never. Not in the history of the United States.

People who say Hillary is Republican and how dare she work with investment bankers and corporate executives and try to attract conservative voters – these are people who envy the current GOP its lockstep ideological bent. But the thing is, it isn’t a real ideological bent. It’s almost entirely reactionary. The only differences between the various factions of the GOP is what they’re reacting to. Some of them want to repeal the 60s. Others want to repeal the 40s. Others would like to just repeal the 20th century altogether.And none of it matters, because none of those things are possible. Those people will be disappointed and angry no matter what.

I feel like people right now simply have no grip whatsoever on how politics works. They don’t know anything about history, or about coalitions, or factions, or negotiation. They don’t really want democracy. They want everything to just go their way, even if that means everything going horribly wrong.

And I feel like Trump has a very, very good chance of being elected this fall.