T. Piketty - "Capital in the 21st century"

[notenoughreasonsforclaire]

Uskoro u izdanju "Akademske knjige".

[Budja]

"Ciganin hvali svoga konja"

 

 

The Rise and Fall of General Laws of Capitalism
Daron Acemogluy James A. Robinsonz
August 2014.
Abstract
Thomas Pikettys recent book, Capital in the Twenty First Century, follows in the tradition of
the great classical economists, Malthus, Ricardo and Marx, in formulating general lawsto diagnose
and predict the dynamics of inequality. We argue that all of these general laws are unhelpful as a
guide to understand the past or predict the future, because they ignore the central role of political
and economic institutions in shaping the evolution of technology and the distribution of resources in a
society. Using the economic and political histories of South Africa and Sweden, we illustrate not only
that the focus on the share of top incomes gives a misleading characterization of the key determinants
of societal inequality, but also that inequality dynamics are closely linked to institutional factors and
their endogenous evolution, much more than the forces emphasized in Pikettys book, such as the gap
between the interest rate and the growth rate.

 

http://economics.mit.edu/files/9834

[Gandalf]

Milanovic, Branko. 2014. "The Return of "Patrimonial Capitalism": A Review of Thomas Piketty's Capital in the Twenty-First Century." Journal of Economic Literature, 52(2): 519-34.

 

"Ciganin hvali svoga konja"

yep.

[hazard]

"Ciganin hvali svoga konja"

 

 

http://economics.mit.edu/files/9834

 

Da, ali to sto kaze zvuci mnogo smislenije od "r > g, tadaaaa!".

 

Mislim, ni zakoni fizike nisu tako jednostavni, a kamoli u ogromnim sistemima koji imaju ljudsku komponentu.

[Budja]

Problem kod Asemoglua i Robinsona je takodje da korise institucije da objasne sve, upravo ono sto zameraju Piketiju.

 

Pri tome je, koliko shvatam, Piketi barem precizniji. r vece od g je jednostavan koncept, njihov inklzuivnih institucija nije, i pri tome je endogen.

 

Kako bese ono o cekicu i ekseru, e, tako Asemoglu i Robinson.

 

Pre ce biti rec o sujeti, njihovoj teorije svega u Why Nations Fail suprotstavio Piketu svoju, i dobio veci celebrity status.

 

Inace, Milanovic o Asemogluovoj i Robinsonovoj kritici

 

http://glineq.blogspot.de/2014/08/my-take-on-acemoglu-robinson-critique.html

 

 

I do not discuss Acemoglu-Robinson  analysis of South Africa vs. Sweden increase in inequality because I really fail to see a great virtue in it. As I unfortunately have to confess, I often find reading Acemoglu-Robinson descriptions of political changes quite superficial: they read like Wikipedia entries with regressions. I had the same feeling here too.

 

Ouch.

Edited August 27, 2014 by Budja

[Skyhighatrist]

Piketi na TEDu: New thoughts on capital in the twenty-first century

[Lord Protector]

Why Inequality Matters

Oct 15 2014

 

Bill Gates :misko:

 

A 700-page treatise on economics translated from French is not exactly a light summer read—even for someone with an admittedly high geek quotient. But this past July, I felt compelled to read Thomas Piketty’s Capital in the Twenty-First Century after reading several reviews and hearing about it from friends.

I’m glad I did. I encourage you to read it too, or at least a good summary, like this one from The Economist. Piketty was nice enough to talk with me about his work on a Skype call last month. As I told him, I agree with his most important conclusions, and I hope his work will draw more smart people into the study of wealth and income inequality—because the more we understand about the causes and cures, the better. I also said I have concerns about some elements of his analysis, which I’ll share below.

 

I very much agree with Piketty that:

• High levels of inequality are a problem—messing up economic incentives, tilting democracies in favor of powerful interests, and undercutting the ideal that all people are created equal.
• Capitalism does not self-correct toward greater equality—that is, excess wealth concentration can have a snowball effect if left unchecked.
• Governments can play a constructive role in offsetting the snowballing tendencies if and when they choose to do so.

To be clear, when I say that high levels of inequality are a problem, I don’t want to imply that the world is getting worse. In fact, thanks to the rise of the middle class in countries like China, Mexico, Colombia, Brazil, and Thailand, the world as a whole is actually becoming more egalitarian, and that positive global trend is likely to continue.

But extreme inequality should not be ignored—or worse, celebrated as a sign that we have a high-performing economy and healthy society. Yes, some level of inequality is built in to capitalism. As Piketty argues, it is inherent to the system. The question is, what level of inequality is acceptable? And when does inequality start doing more harm than good? That’s something we should have a public discussion about, and it’s great that Piketty helped advance that discussion in such a serious way.

However, Piketty’s book has some important flaws that I hope he and other economists will address in the coming years.

For all of Piketty’s data on historical trends, he does not give a full picture of how wealth is created and how it decays. At the core of his book is a simple equation: r > g, where r stands for the average rate of return on capital and g stands for the rate of growth of the economy. The idea is that when the returns on capital outpace the returns on labor, over time the wealth gap will widen between people who have a lot of capital and those who rely on their labor. The equation is so central to Piketty’s arguments that he says it represents “the fundamental force for divergence” and “sums up the overall logic of my conclusions.”

Other economists have assembled large historical datasets and cast doubt on the value of r > g for understanding whether inequality will widen or narrow. I’m not an expert on that question. What I do know is that Piketty’s r > g doesn't adequately differentiate among different kinds of capital with different social utility.

Imagine three types of wealthy people. One guy is putting his capital into building his business. Then there’s a woman who’s giving most of her wealth to charity. A third person is mostly consuming, spending a lot of money on things like a yacht and plane. While it’s true that the wealth of all three people is contributing to inequality, I would argue that the first two are delivering more value to society than the third. I wish Piketty had made this distinction, because it has important policy implications, which I’ll get to below.

More important, I believe Piketty’s r > g analysis doesn't account for powerful forces that counteract the accumulation of wealth from one generation to the next. I fully agree that we don’t want to live in an aristocratic society in which already-wealthy families get richer simply by sitting on their laurels and collecting what Piketty calls “rentier income”—that is, the returns people earn when they let others use their money, land, or other property. But I don’t think America is anything close to that.

Take a look at the Forbes 400 list of the wealthiest Americans. About half the people on the list are entrepreneurs whose companies did very well (thanks to hard work as well as a lot of luck). Contrary to Piketty’s rentier hypothesis, I don’t see anyone on the list whose ancestors bought a great parcel of land in 1780 and have been accumulating family wealth by collecting rents ever since. In America, that old money is long gone—through instability, inflation, taxes, philanthropy, and spending.

You can see one wealth-decaying dynamic in the history of successful industries. In the early part of the 20th century, Henry Ford and a small number of other entrepreneurs did very well in the automobile industry. They owned a huge amount of the stock of car companies that achieved a scale advantage and massive profitability. These successful entrepreneurs were the outliers. Far more people—including many rentiers who invested their family wealth in the auto industry—saw their investments go bust in the period from 1910 to 1940, when the American auto industry shrank from 224 manufacturers down to 21. So instead of a transfer of wealth toward rentiers and other passive investors, you often get the opposite. I have seen the same phenomenon at work in technology and other fields.

Piketty is right that there are forces that can lead to snowballing wealth (including the fact that the children of wealthy people often get access to networks that can help them land internships, jobs, etc.). However, there are also forces that contribute to the decay of wealth, and Capital doesn't give enough weight to them.

I am also disappointed that Piketty focused heavily on data on wealth and income while neglecting consumption altogether. Consumption data represent the goods and services that people buy—including food, clothing, housing, education, and health—and can add a lot of depth to our understanding of how people actually live. Particularly in rich societies, the income lens really doesn't give you the sense of what needs to be fixed.

There are many reasons why income data, in particular, can be misleading. For example, a medical student with no income and lots of student loans would look in the official statistics like she’s in a dire situation but may well have a very high income in the future. Or a more extreme example: Some very wealthy people who are not actively working show up below the poverty line in years when they don’t sell any stock or receive other forms of income.

It’s not that we should ignore the wealth and income data. But consumption data may be even more important for understanding human welfare. At a minimum, it shows a different - and generally rosier - picture from the one that Piketty paints. Ideally, I’d like to see studies that draw from wealth, income, and consumption data together.

Even if we don’t have a perfect picture today, we certainly know enough about the challenges that we can take action.

Piketty’s favorite solution is a progressive annual tax on capital, rather than income. He argues that this kind of tax “will make it possible to avoid an endless inegalitarian spiral while preserving competition and incentives for new instances of primitive accumulation.”

I agree that taxation should shift away from taxing labor. It doesn't make any sense that labor in the United States is taxed so heavily relative to capital. It will make even less sense in the coming years, as robots and other forms of automation come to perform more and more of the skills that human laborers do today.

But rather than move to a progressive tax on capital, as Piketty would like, I think we’d be best off with a progressive tax on consumption. Think about the three wealthy people I described earlier: One investing in companies, one in philanthropy, and one in a lavish lifestyle. There’s nothing wrong with the last guy, but I think he should pay more taxes than the others. As Piketty pointed out when we spoke, it's hard to measure consumption (for example, should political donations count?). But then, almost every tax system—including a wealth tax—has similar challenges.

Like Piketty, I’m also a big believer in the estate tax. Letting inheritors consume or allocate capital disproportionately simply based on the lottery of birth is not a smart or fair way to allocate resources. As Warren Buffett likes to say, that’s like “choosing the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics.” I believe we should maintain the estate tax and invest the proceeds in education and research—the best way to strengthen our country for the future.

Philanthropy also can be an important part of the solution set. It’s too bad that Piketty devotes so little space to it. A century and a quarter ago, Andrew Carnegie was a lonely voice encouraging his wealthy peers to give back substantial portions of their wealth. Today, a growing number of very wealthy people are pledging to do just that. Philanthropy done well not only produces direct benefits for society, it also reduces dynastic wealth. Melinda and I are strong believers that dynastic wealth is bad for both society and the children involved. We want our children to make their own way in the world. They’ll have all sorts of advantages, but it will be up to them to create their lives and careers.

The debate over wealth and inequality has generated a lot of partisan heat. I don’t have a magic solution for that. But I do know that, even with its flaws, Piketty’s work contributes at least as much light as heat. And now I’m eager to see research that brings more light to this important topic.

 

Edited October 15, 2014 by slow

[Budja]

Nijeo Piketiju, ali jeste o nejednakosti. Standardan argument, ali fino uklopljen.

 

 

 

Inequality at WSJ -- the oped

This is a Wall Street Journal oped on inequality. With 30 days passed, I can post it here. It's a much edited version of my evolving "Why and How we Care About Inequality" essay. 


What the ‘Inequality’ Warriors Really Want

Progressives decry inequality as the world’s most pressing economic problem. In its name, they urge much greater income and wealth taxation, especially of the reviled top 1% of earners, along with more government spending and controls—higher minimum wages, “living” wages, comparable worth directives, CEO pay caps, etc. 

Inequality may be a symptom of economic problems. But why is inequality itself an economic problem? If some get rich and others get richer, who cares? If we all become poor equally, is that not a problem? Why not fix policies and problems that make it harder to earn more? 


Yes, the reported taxable income and wealth earned by the top 1% may have grown faster than for the rest. This could be good inequality—entrepreneurs start companies, develop new products and services, and get rich from a tiny fraction of the social benefit. Or it could be bad inequality—crony capitalists who get rich by exploiting favors from government. Most U.S. billionaires are entrepreneurs from modest backgrounds, operating in competitive new industries, suggesting the former. 

But there are many other kinds and sources of inequality. The returns to skill have increased. People who can use or program computers, do math or run organizations have enjoyed relative wage increases. But why don’t others observe these returns, get skills and compete away the skill premium? A big reason: awful public schools dominated by teachers unions, which leave kids unprepared even to enter college. Limits on high-skill immigration also raise the skill premium. 

Americans stuck in a cycle of terrible early-child experiences, substance abuse, broken families, unemployment and criminality represent a different source of inequality. Their problems have proven immune to floods of government money. And government programs and drug laws are arguably part of the problem. 

These problems, and many like them, have nothing to do with a rise in top 1% incomes and wealth. 

Recognizing, I think, this logic, inequality warriors go on to argue that inequality is a problem because it causes other social or economic ills. A recent Standard & Poor’s report sums up some of these assertions: “As income inequality increased before the [2008 financial] crisis, less affluent households took on more and more debt to keep up—or, in this case, catch up—with the Joneses. ” In a 2011 Vanity Fair article, Columbia University economist Joe Stiglitz wrote that inequality causes a “lifestyle effect . . . people outside the top 1 percent increasingly live beyond their means.’’ He called it “trickle-down behaviorism.” 

I see. A fry cook in Fresno hears that more hedge-fund managers are flying in private jets. So he buys a pickup he can’t afford. They are saying that we must tax away wealth to encourage thrift in the lower classes. 

Here’s another claim: Inequality is a problem because rich people save too much. So, by transferring money from rich to poor, we can increase overall consumption and escape “secular stagnation.” 

I see. Now we need to forcibly transfer wealth to solve our deep problem of national thriftiness. 

You can see in these examples that the arguments are made up to justify a pre-existing answer. If these were really the problems to be solved, each has much more natural solutions. 

Is eliminating the rich, to eliminate envy of their lifestyle, really the best way to stimulate savings? Might not, say, fixing the large taxation of savings in means-tested social programs make some sense? If lifestyle envy...See full post

really is the mechanism, would it not be more effective to ban “Keeping Up With the Kardashians”? 

If we redistribute because lack of Keynesian “spending” causes “secular stagnation”—a big if—then we should transfer money from all the thrifty, even poor, to all the big spenders, especially the McMansion owners with new Teslas and maxed-out credit cards. Is that an offensive policy? Yes. Well, maybe this wasn’t about “spending” after all. 

There is a lot of fashionable talk about “redistribution” that’s not really the agenda. Even sky-high income and wealth taxes would not raise much revenue for very long, and any revenue is likely to fund government programs, not checks to the needy. Most inequality warriors, including President Obama, forthrightly advocate taxation to level incomes in the name of “fairness,” even if those taxes raise little or no revenue. 

When you get past this kind of balderdash, most inequality warriors get down to the real problem they see: money and politics. They think money is corrupting politics, and they want to take away the money to purify the politics. As Berkeley economist Emmanuel Saez wrote for his 2013 Arrow lecture at Stanford University: “top income shares matter” because the “surge in top incomes gives top earners more ability to influence [the] political process.” 

A critique of rent-seeking and political cronyism is well taken, and echoes from the left to libertarians. But if abuse of government power is the problem, increasing government power is a most unlikely solution. 

If we increase the top federal income-tax rate to 90%, will that not just dramatically increase the demand for lawyers, lobbyists, loopholes, connections, favors and special deals? Inequality warriors think not. Mr. Stiglitz, for example, writes that “wealth is a main determinant of power.” If the state grabs the wealth, even if fairly earned, then the state can benevolently exercise its power on behalf of the common person. 

No. Cronyism results when power determines wealth. Government power inevitably invites the trade of regulatory favors for political support. We limit rent-seeking by limiting the government’s ability to hand out goodies. 

So when all is said and done, the inequality warriors want the government to confiscate wealth and control incomes so that wealthy individuals cannot influence politics in directions they don’t like. Koch brothers, no. Public-employee unions, yes. This goal, at least, makes perfect logical sense. And it is truly scary. 

Prosperity should be our goal. And the secrets of prosperity are simple and old-fashioned: property rights, rule of law, economic and political freedom. A limited government providing competent institutions. Confiscatory taxation and extensive government control of incomes are not on the list.

Mr. Cochrane is a professor of finance at the University of Chicago Booth School of Business, a senior fellow at the Hoover Institution, and an adjunct scholar at the Cato Institute.

[hazard]

Odličan tekst.

[MayDay]

@delong: .@WhelanKarl has anyone done so much to demolish a relatively good reputation as @JohnHCochrane?

 

LOL! Smešno mi ovo sa relatively good reputation. Kokrejn je top of the pops, ali nisam sasvim oduševljena tekstom. Svaki argument kako je uklanjanje governmenta rešenje za crony capitalism je bezveze jer bi "jači tlači" momenat bio izraženiji u anarho okruženju.

[MancMellow]

Da, iako ne mislim da je nejednakost glavni problem, tekst ima par "momenata". Recimo

 

 

 

A critique of rent-seeking and political cronyism is well taken, and echoes from the left to libertarians. But if abuse of government power is the problem, increasing government power is a most unlikely solution. 

 

Abuse of government power je ono sto se po kriticarima political cronyism desava tj nastaje u procesu koji kritikuju. Ne da on postoji kao takav, pa ga onda cronyism pojacava. A ima jos, ali recimo ovo. 

[Gandalf]

Presented by Joseph Stiglitz, Paul Krugman, Duncan Foley, and Branko Milanovic at Columbia Law School.

 

https://www.youtube.com/watch?v=RO8KWTb2iPM

[Gandalf]

Nije o Piketiju, ali jeste o nejednakosti. Standardan argument, ali fino uklopljen.

fino uklopljen samo pod uslovom da prihvatis pocetnu premisu, koja je cisto teoretska bez ikakve podloge u realnosti: moguce je izolovati politiku i ekonomiju, i nekim cudom je uopste moguca "A limited government providing competent institutions". 

 

pride je argument falican i sa cisto logicke strane - ako je moguca vlada koja obezbedjuje kompetentne institucije, uvecana moc vlade ne bi predstavljala problem pa ovo ogranicena nije ni potrebno. happily ever after fercera kako god okrenes.

 

o razlikama izmedju lepe teorije i ruzne prakse: http://glineq.blogspot.com/2014/12/coase-theorem-and-methodological.html

 

 

edit: potpuno nevezano za temu, odlican je skoriji Milanovicev tekst o inteligenciji na vlasti.

Edited December 23, 2014 by Gandalf

[Singer]

Uskoro u izdanju "Akademske knjige".

 

Krajem februara, prevodi se... biće to još kasnije obzriom da je od mog poslednje interesovanja bilo krajem januara...

[Shan Jan]

^^ Jos jedan tekst koji brani republikansku poziciju u USA. Cista teorija sa nekim nabacanim zakljuchcima koje nista zivo ne podrzava.