We refute another Leftist Fairy Tale: read as Thomas Piketty Claims "Capitalism simply isn't working and here are the reasons why"

thomas-piketty-economist-will-hutton
 Photograph: Ed Alcock for the Observer

Thomas Piketty has mined 200 years of data to support his theory that capitalism does not work. We refute his theories and declaim that Thomas Piketty is an indoctrinated Statist imbecile, and we have no patience for his Leftist politics of envy, social engineering, and Radical Utopianism. Read on...then read our responses...

*Article by Will Hutton for The Guardian | The Observer

Suddenly, there is a new economist making waves – and he is not on the right. At the conference of the Institute of New Economic Thinking in Toronto last week, Thomas Piketty's book Capital in the Twenty-First Century got at least one mention at every session I attended. You have to go back to the 1970s and Milton Friedman for a single economist to have had such an impact.

Like Friedman, Piketty is a man for the times. For 1970s anxieties about inflation substitute today's concerns about the emergence of the plutocratic rich and their impact on economy and society. Piketty is in no doubt, as he indicates in an interview in today's Observer New Review, that the current level of rising wealth inequality, set to grow still further, now imperils the very future of capitalism. He has proved it.

It is a startling thesis and one extraordinarily unwelcome to those who think capitalism and inequality need each other. Capitalism requires inequality of wealth, runs this right-of-centre argument, to stimulate risk-taking and effort; governments trying to stem it with taxes on wealth, capital, inheritance and property kill the goose that lays the golden egg. Thus Messrs Cameron and Osborne faithfully champion lower inheritance taxes, refuse to reshape the council tax and boast about the business-friendly low capital gains and corporation tax regime.

Piketty deploys 200 years of data to prove them wrong. Capital, he argues, is blind. Once its returns – investing in anything from buy-to-let property to a new car factory – exceed the real growth of wages and output, as historically they always have done (excepting a few periods such as 1910 to 1950), then inevitably the stock of capital will rise disproportionately faster within the overall pattern of output. Wealth inequality rises exponentially.

The process is made worse by inheritance and, in the US and UK, by the rise of extravagantly paid "super managers". High executive pay has nothing to do with real merit, writes Piketty – it is much lower, for example, in mainland Europe and Japan. Rather, it has become an Anglo-Saxon social norm permitted by the ideology of "meritocratic extremism", in essence, self-serving greed to keep up with the other rich. This is an important element in Piketty's thinking: rising inequality of wealth is not immutable. Societies can indulge it or they can challenge it.

Inequality of wealth in Europe and US is broadly twice the inequality of income – the top 10% have between 60% and 70% of all wealth but merely 25% to 35% of all income. But this concentration of wealth is already at pre-First World War levels, and heading back to those of the late 19th century, when the luck of who might expect to inherit what was the dominant element in economic and social life. There is an iterative interaction between wealth and income: ultimately, great wealth adds unearned rentier income to earned income, further ratcheting up the inequality process.

The extravagances and incredible social tensions of Edwardian England, belle epoque France and robber baron America seemed for ever left behind, but Piketty shows how the period between 1910 and 1950, when that inequality was reduced, was aberrant. It took war and depression to arrest the inequality dynamic, along with the need to introduce high taxes on high incomes, especially unearned incomes, to sustain social peace. Now the ineluctable process of blind capital multiplying faster in fewer hands is under way again and on a global scale. The consequences, writes Piketty, are "potentially terrifying".

For a start, almost no new entrepreneurs, except one or two spectacular Silicon Valley start-ups, can ever make sufficient new money to challenge the incredibly powerful concentrations of existing wealth. In this sense, the "past devours the future". It is telling that the Duke of Westminster and the Earl of Cadogan are two of the richest men in Britain. This is entirely by virtue of the fields in Mayfair and Chelsea their families owned centuries ago and the unwillingness to clamp down on the loopholes that allow the family estates to grow.

Anyone with the capacity to own in an era when the returns exceed those of wages and output will quickly become disproportionately and progressively richer. The incentive is to be a rentier rather than a risk-taker: witness the explosion of buy-to-let. Our companies and our rich don't need to back frontier innovation or even invest to produce: they just need to harvest their returns and tax breaks, tax shelters and compound interest will do the rest.

Capitalist dynamism is undermined, but other forces join to wreck the system. Piketty notes that the rich are effective at protecting their wealth from taxation and that progressively the proportion of the total tax burden shouldered by those on middle incomes has risen. In Britain, it may be true that the top 1% pays a third of all income tax, but income tax constitutes only 25% of all tax revenue: 45% comes from VAT, excise duties and national insurance paid by the mass of the population.

As a result, the burden of paying for public goods such as education, health and housing is increasingly shouldered by average taxpayers, who don't have the wherewithal to sustain them. Wealth inequality thus becomes a recipe for slowing, innovation-averse, rentier economies, tougher working conditions and degraded public services. Meanwhile, the rich get ever richer and more detached from the societies of which they are part: not by merit or hard work, but simply because they are lucky enough to be in command of capital receiving higher returns than wages over time. Our collective sense of justice is outraged.

The lesson of the past is that societies try to protect themselves: they close their borders or have revolutions – or end up going to war. Piketty fears a repeat. His critics argue that with higher living standards resentment of the ultra-rich may no longer be as great – and his data is under intense scrutiny for mistakes. So far it has all held up.

Nor does it seem likely that human beings' inherent sense of justice has been suspended. Of course the reaction plays out differently in different eras: I suspect some of the energy behind Scottish nationalism is the desire to build a country where toxic wealth inequalities are less indulged than in England.

The solutions – a top income tax rate of up to 80%, effective inheritance tax, proper property taxes and, because the issue is global, a global wealth tax – are currently inconceivable.

But as Piketty says, the task of economists is to make them more conceivable. Capital certainly does that.


OUR REPLY:

"The solutions – a top income tax rate of up to 80%, effective inheritance tax, proper property taxes and, because the issue is global, a global wealth tax – are currently inconceivable."  Thomas Piketty

It would be a significant understatement to state that we despise and fear these types of crypto-Communist pseudo-scholars advocating for a "collective sense of social justice" as if the parasitic State, its Ruling Class, and its bureaucrat-drones (as entrenched and predatory as the wealth creators / hoarders that they claim to abhor ) is entitled to hound and confiscate a free man/woman's wages from birth to death (and then, in the ultimate insult to his/her hard work and wishes for posterity, BEYOND the grave with an inheritance tax that confiscates income from what was left to him/her and his/her family after a lifetime of previous confiscation).  It is profane and unbearable. 

Thomas Piketty is an indoctrinated Statist imbecile and we have no patience for his Leftist politics of envy, social engineering, and Radical Utopianism. 

Do you want to elevate Capitalism instead of choke it to death?  Institute a Fair Flat Tax, cut out all loopholes, eliminate any "too big to fail" dynamic, respect sovereign borders and markets, compete on talent and productivity and not tax advantages...and finally, what these indoctrinated Socialist sieves always fail to include in their masturbatory Social Engineering Utopian Manifestos...shrink the State, implement strict term limits (thus killing the ultimate drag on True Capitalism - the Professional Political Class and its entourage of sycophants, lobbyists, pimps and whores), eliminate the IRS / Tax authorities and all such bloated predatory Agencies, and make minimal but punitive regulations the norm so that freedom of capital and services is leveraged by laws that severely punish fraud and rent-seeking manipulation of markets. 

Applying these simple rules would shrink government, incarcerate half of the fraudulent Financial Industry, throw out on the street 75% of the parasitic Government Ruling Class and force them to feed and clothe themselves from the efforts of their own labor and not from the backs of productive citizens, revitalize Democracy, and liberate free societies to a productive, more "equitable" future...a citizen would have pathways to success that simply do not exist today and that would be obliterated under the High-Tax/Social-Justice regime of collectivists like Piketty. 

Whenever these privileged pocket tyrants like Piketty start to sprout the "Doctrine of Social Justice" run fast the other way because what they mean is forced Serfdom to the State (under the guise of egality) for the  producers (us) and ultimate power for THEM (the self-appointed elites who will command society). 

No thank you.

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commented 2014-04-14 14:35:21 -0400 · Flag
Ed writes:

Medicare tax increase from Obamacare now means all income over $200,000 goes from about 1% to 2% tax rate on that income without any limit. We pay more in Medicare taxes now than for Social Security. Obamacare also increase the Medicare premiums charged to beneficiaries for those seniors with incomes above $80,000. So many will pay more for Medicare Part B premiums and it escalates over time. All told there are approximately $50 billion in new taxes and fee per year. A huge Trojan Horse of taxes that very few understood. This is on top of the tax increase put in play last year by the President. Wouldn’t be more honest to eliminate all these loopholes and incentive and just have a 20% or 25% flat tax on all incomes above some level (say 2 times the federal poverty level). Lets start a campaign on four issues:

Flat or simplified tax
Term limits in Congress
Balanced Budget Amendment except in times of war
Restore due process on private citizens
commented 2014-04-14 14:30:41 -0400 · Flag
JC writes:

but they can tax it…
commented 2014-04-14 10:06:13 -0400 · Flag
Ed writes:

Delusional analysis by another economist that is cherry picking data. He needs to normalize for periods during and after wars and changes in demographics. These guys just hate private wealth because they can’t control it.
commented 2014-04-14 10:05:24 -0400 · Flag
John D. writes:

It doesn’t take a Ph.D. to see that Piketty’s tax is a far stretch—or in his words, “utopian.” Today most countries tax the income produced by wealth—dividends, rents, capital gains—but they don’t go after the wealth itself. Doing so smacks of confiscation, which was widely practiced in the French Revolution but not the American one. Even if Congress did pass a wealth tax, the IRS would have trouble collecting because the wealthy might transfer title to their assets abroad. Piketty recognizes that, which is why he insists that the tax be global. But getting every tax haven on earth to tax equally and to share data is highly unlikely.
Spain has a wealth tax of up to 2.5 percent of assets but keeps trying to repeal it. France also has a “solidarity” tax on wealth, but it causes more capital flight than the government earns in revenue, according to tax expert Eric Pichet of Kedge Business School in Marseille and Bordeaux, France. “This is typically a French utopia (as you probably know, we are the unquestionable leaders in this field …),”

while I despair & agree that the tax has, at least currently, has
commented 2014-04-13 17:22:25 -0400 · Flag
Stefan Metzeler writes:

Perfect, keep at it!
commented 2014-04-13 17:21:36 -0400 · Flag
reynardmandrake writes:

Strong stuff.
commented 2014-04-13 16:22:03 -0400 · Flag
Spartacus writes:

the ONLY thing that I AGREE with in that absurd Piketty communist manifesto state solution treatise is the Total Corruption going on at Public Co.’s in terms of Executive compensation, these are Not Private Enterprises started by entrepreneurs or visionarys (e.g. Walt Disney) they are Owned by their Shareholders,

the Fact that they have Managed to institutionalize these extortionary Pay schemes: Base Pay & Stock Options is Truly a Cancer heretofore Never Witnessed in the Anals of Civilization, they have become the self-installed Gentry without Actually Owning the Land from which they collect Rents.

The Fact that everyone of these Parasites still retain there Lavish Jobs and Pay after the 2008 Financial Melt-down underscores the Magnitude to the Institutionalized Corruption, None Lost there Jobs, i.e. FIRED for Incompetance and they have gone on during these past 60 months to extract Even Greater Spoils from the Pinata !

That said I agree that the communist manifesto that Piketty outlines is just that, absolute enslavement to the State.
commented 2014-04-13 16:16:42 -0400 · Flag
Chris writes:

a nearly perfect response to this faux scholarly call to collectivism.

i despair when this eco-sophism is what has the credentialed politico-economic professional class manically yapping. it means the level of discourse has degenerated to THAT LEVEL OF STUPID.

this man’s data can be discredited almost immediately, because his very founding premise is a fallacy. ‘captalism doesn’t work’. of course it does you orthodox ninny. it’s CRONY CAPITALISM that doesn’t work, and that’s precisely what has been practiced for the better part of a century now in the US, with it accelerating into overdrive the last 30-40 years.

it never dawns on this factotum of big government mission creep that his very allies, an intractable professional class of government and regulatory functionaries and their pseudo-private sector mandarin partners are the very cause of this widening wealth distribution. how would everything have become hyper-financialized; how would the financial economy become maximally concentrated and rigid (especially over the last 15 years) and divorced from the real economy, were it not for complete regulatory capture and the official sanctioning of a formal revolving door of careerist prostitution via a wall street-K street marriage?

what would income concentration look like if capitalism was actually practiced? if wall street failures were allowed to fail? if financial felons were prosecuted as vigorously as dime bag dope messengers? if regulators didn’t operate behind the specious effrontery of pretending that ‘the modern world would end’ if large ‘systemic’ institutions were allowed to go tits up for their misdeeds?

what would all the public sector leeches do to make ends meet if a flat tax, sans any shelters except for education and capex, were instituted and risk takers and wage earners were allowed to keep the bulk of their income?

what would income distributions look like if the fed and all its central bank acolytes round the globe weren’t stealing savers wealth via ‘targeted inflation’?

it never dawns on professor picketty, assclown emeritus, that the austrians identified this distortion over 100 years ago: this is what happens in an age of monetary prostitution… the more advantageously positioned economic actors engage in directly unproductive rent seeking (i.e. deadweight loss to society) in which they are first at the spigot of fiat debasement, thus they get to direct the flows of currency where it serves them best (hyper-financialization) and they get to use if FIRST before it permeates the entire economy in the form of inflation (i.e. place your bets a-priori, with a de-facto stronger currency).

this ALL escapes the credentialed collectivist, professor picketty.