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Comment by enraged_camel | Hacker News Reader

I read Piketty's book, and some of the critical response. In my semi-educated opinion (I only have a Bachelor's in Economics), the criticisms failed to poke a hole in his main argument: that capitalism as a system is unegalitarian because it allows wealth to grow faster than economic output, resulting in increasing amounts of income inequality over time.

>>But perhaps the greatest rebuke of Piketty to be found among academic economics is not contained in any of these overt or veiled attacks on his scholarship and interpretation, but rather in the deafening silence that greets it, as well as inequality in general, in broad swathes of the field—even to this day.

The reason for this deafening silence is simple: the truth revealed by Piketty is inconvenient, and there are no easy solutions.

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Indeed; I think people are out of ideas. "Right-thinking" people continue to believe in liberalizing economies, globalism and so on, and they've yet to come to terms with the backlash that's fueling people like Trump, UKIP / Brexit, Le Pen, and so on. There's no alternative idea on the horizon; we know socialism isn't very effective at much more than rent capture and corruption, and we know nationalism / protectionism ultimately makes economies non-competitive globally. But we don't have a solution to the problem of global capital chasing efficiency globally, and thereby hollowing out the middle of the income distribution in Western economies.

A lot of ideas have been discredited, or at least played out. But there's still a constituency for those ideas, and there will continue to be until the orthodox "elites" come to terms with what's going on.

(And they're not really elites; I count myself as one of them, as skilled developers are not at immediate risk of being outsourced and are not strongly bound to any one country. I'm still winning from the current economic system. But I can see that it can't continue, the majority won't stand for it.)

Isn't this just a problem of living in an efficient, globalised society? In an efficient global economy, most of the middle class won't be required, because frankly, most of those jobs are useless and shouldn't even exist in the first place.

We'll need the "low level" jobs, e.g. cleaners. Given the cost of automation, it's just not interesting enough to automate this. We'll also need the high level jobs, e.g. anything that requires significant (creative) thinking to some extent. Unique creative thought is probably the only thing that can't be automated at the moment.

Most traditional middle class jobs can easily be simplified / removed / etc. For each job that's created in software development, two traditional ones will disappear. We're optimising the world.

Tl;dr: Most people, imo, haven't realised the world is changing. The people voting Trump / UKIP / Brexit / Le Pen are (unless someone gives me a good argument) fools for thinking the people they elect can actually change things. I'm not saying they haven't been left behind, or there are no legit concerns, but to think these people can change things.. that's just ridiculous.

For example: I dare say Trump doesn't give a flying fuck about what he had to do to get elected. He picked out 5 or 10 focus groups that would give him the necessary votes to win, and focused on those. He won't deliver. He just wanted to be president.

Your comment assumes that Trump/Brexit/Le Pen voters are trying to "do something" with their votes. What if they're just trying to do as much damage as possible, knowing the system has it out for them?

> For example: I dare say Trump doesn't give a flying fuck about what he had to do to get elected. He picked out 5 or 10 focus groups that would give him the necessary votes to win, and focused on those. He won't deliver. He just wanted to be president.

It's weird that we tend to assume people are stupid or disingenuous when we disagree with them. Trump has been on the receiving end of a lot of that and in the case of economics it's easily debunked. He was a supporter of Ross Perot in the 90s, and nearly ran for Perot's Reform party. For those too young to remember, Perot's primary issue was protection for American jobs. The interesting is that, as international businessmen, both Perot and Trump were in more of a position to make money internationally than under the protectionist rules they pushed. When you realize that it looks a little less like self-interest.

There are many reasons to dislike Trump but it doesn't do any good to minimize him. In fact, it's counter-productive. You counter your opponent by really knowing him.

I had originally assumed that the Leave vote in the UK EU referendum was a protest against neoliberalism, but now I'm beginning to wonder. In a few weeks, voters in the UK will have the option of voting for a party (Labour) which now opposes neoliberalism, but it's well-behind in the opinion polls. Even if all the progressive votes (Labour, Lib Dems, SNP/Plaid Cymru, Greens) are aggregated, they're still outnumbered by the combined Tory and UKIP vote. I'm beginning to wonder if support for Brexit was mostly just xenophobia, but not many people like to admit to that.

The election at this point is about nationalism, and is being compounded by an Us-vs-Them narrative as played out (and played up) with the dinner debacle. People who wouldn't normally vote Tory will vote for May because they want to rally around what they perceive as a strong leader against the Other.

Obviously with the dinner debacle the EU side's motive was to inject some realism about the weakness of Britain's hand, but May played it the only way she could have.

Britain didn't learn the full lesson from World War II: that nationalism is actually a bad thing. Its approach to Europe has been wrong all throughout as a result, and it's compounded by being joined at the hip to US foreign policy.

But everywhere else in the world is growing economically, and the West is shrinking as a slice of the overall pie, and this will naturally add to the continuing decline in the US's ability to project its will. The EU is also about creating a larger centre of gravity able to negotiate as an equal to China and the US. It'll take some time for the UK to realize how lonely it is on the outside, especially as protectionism increases - fewer friendly ports on the open sea, and bigger sharks - it's not the best time to be setting sail alone.

While lazily throwing it out there that nationalism is bad, you do acknowledge the benefit of... continentialism?

Joining a group means taking some responsibility for its governance and good running. Too many politicians use Brussels as a scapegoat, rather than something they own a piece of. So in so far as continentalism refers to an agglomeration of different peoples trying to speak with one voice, like US, China, Russia, EU - the thing only works if people don't get too cynical about the centre.

I don't think there's much alternative to joining a larger political entity if you're geographically near one, given what we know about economic links and distances. A possible advantage of something like the EU is that it doesn't have a cohesive enough identity to think nationalistically and get into trouble that way.

> But we don't have a solution to the problem of global capital chasing efficiency globally, and thereby hollowing out the middle of the income distribution in Western economies.

It isn't a solvable problem, honestly, is the big secret no one really wants to admit.

Capitalism, by its nature, is going to chase efficiency globally regardless of what you do to prevent it. Technology, over time, is going to make this worse because it is easier to avoid inconvenient regulations by operating out of "friendly" countries as well as enabling automation that really only leaves "services" that pays very little for many people who used to have better options.

The truth is the Middle Class is going to shrink no matter what you do and you are going to basically end up with a very large gap of people making 6 figures (who can afford to hire people to handle things for them) and less skilled people who will be reduced to jobs servicing them that barely pay above minimum wage.

People don't like "income redistribution" but that is the only way to actually solve the problem long term. It needs to be done in a way that working is still incentived but where those relatively low paying service jobs + the redistribution leaves people with the housing, food, and health care they need.

The reality is, the bottom 50% in most countries need about 20% of the national income to be happy...and in the US they are getting about 12%.

The problem is, right now, that is politically impossible outside of a handful of European countries.

But does that make it "net" less egalitarian than other economic systems (in practice), after accounting for all of the other advantages of capitalism?

Kind of like Churchill's quote about how democracy is the worst form of government, except for all of the others that have been tried.

Maybe for now we can start walking a middle path and soften the blow of our current trajectory for a good chunk of displaced labor. Perhaps policymakers and institutional advisors can listen more to Piketty and start finding a path to stability in the medium term.

There is no such system as "capitalism".

I have not seen a definition of capitalism which was not either contradictory, or which relied on sufficiently general abstractions (utility instead of profit, social contracts and monopolies on force instead of states).

The level of authoritarian control you would have to have over a society in order to prevent a system of government from forming would certainly itself qualify as a system of government. So free enterprise always generates some sort of governing actor, and any mandate that results is, by the transitive property, the result of free enterprise. Since all systems are ultimately the result of free enterprise and "rational" motives, it's hard to argue that "Capitalism" is anything but the trivial classifier, if it is well defined.

I'd argue that the successful policies that Americans incorrectly attributed to the "capitalism" were actually attributable to the sort of meta-philosophy of pragmatism. Which is the philosophy of not really having a philosophy, and never letting any belief become sacred (A philosophy which we certainly do not adhere to now).

Surely capitalism has to do with the existence of capitalists who don't do labor? If Walmart's shareholders couldn't extract all surplus income from the company, the Walton family wouldn't be making an entire country's worth of store owners' income for doing no work.

> I have not seen a definition of capitalism which was not either contradictory, or which relied on sufficiently general abstractions (utility instead of profit, social contracts and monopolies on force instead of states).

That's a very good point.

When we see people complaining about capitalism, these critics are essentially targeted at rule of law and the recognition of a right to private property, and how states don't simply confiscate private property held by those subjectively labeled as "the rich".

Maybe. But the reality is clear: at the current trajectory, we are headed for another French Revolution. Some billionaires knows this too:

http://www.politico.com/magazine/story/2014/06/the-pitchfork...

and there are no easy solutions

From a problem-solving standpoint, I don't think the solutions are really that hard. I think some of them are downright easy. What's hard is getting anything done in the current environment. Perhaps that's what you meant, though.

In this comment I disagree with Piketty. It is written very rigorously, you must find a very careful deductive argument in it. (Otherwise it's useless.)

So, the rest of this comment makes a very dense argument, first using a proxy argument and then switching in the actual argument. The proxy argument is correct but probably you don't like reading it. So just get through it like bitter medicine.

So. Proxy argument. True statement:

Computers are inherently unegalitarian because smarter people get more utility out of them. You simply cannot give the same amount of utility to a dumber and a smarter person at the same capital cost.

So far you might be thinking "Huh? You're saying smarter people get more pleasure out of reading so the Internet is unequal? What the hell... Anyone can read, who cares if some people get more pleasure out of it and others less?"

But the problem is that nearly the same argument applies to startups and creating wealth. Instead of utility (personal pleasure from the Internet), you are now discussing "access to the wheels of capitalism".

Musk slept at the office and shared a computer. Sergey Brin is a Ukrainian immigrant.

The reason these people have unequal results is because computers are inherently not egalitarian: smart people just get more out of them.

You can't stop it, any more than you can stop smart people from getting more pleasure from reading. Can't be done. sorry.

Here is a question Piketty didn't ask: what percent of dynastic, billionaire wealth was created in a single generation in America?

Not addressed at all.

[EDIT: removed reference to more information than is contained here. This comment contains all of the information to understand my point.]

it isn't at all clear what your point is.

Here's my snarky interpretation. First, this is where a lot of people lose interest or get turned away:

> As a person who is extremely intelligent and eloquent, I am sure this post will be downvoted by my peers who are threatened by my conclusions and wit. In fact, I have a very cohesive argument, which I am about to show you. The argument will relate two things. You will then agree that my argument has merit, because it is very well made.

Then a few sentences hidden in the middle, long after people have written it off as a rambling diatribe:

> Capitalism, like a computer, is a tool, and the most intelligent and capable humans make the best use of tools for the most reward. I've heard of rags-to-riches stories. Therefore capitalism must rewards intelligence and capability, not accumulated capital.

Unfortunately these aren't susceptible to skimming to the end, because they're bookended with:

> This means Picketty is wrong and I've e-mailed him many times because my cause is just and righteous. In fact, the emails I wrote are an even more graceful and devastating critique than the argument I just gave you, with rigorous graphs and charts.

Thanks for the criticism. I've removed most of the bookends and reference to any external resource and left just the "few sentences hidden in the middle" which people can read or ignore. I don't think your summary of it is perfect, but close enough, you read me fine. thanks for the constructive feedback. (not sarcastic.)

I didn't downvote you, because I appreciate the effort you put in to your post. However, I think I have some insight into why your post has received some downvotes.

First, you're using some poorly defined terminology that seems to cater to your implicit biases. What, exactly, do you mean by "smart people" and "dumb people"?

Second, you have some arguments here that seem like non-sequiturs. What does it matter that Elon Musk slept at his office? Does a janitor get bonus points for sleeping in the broom closet instead of at his apartment?

Third, the doubt you're raising about self-made billionaires is off topic. That is an interesting phenomenon in it's own right but isn't something Piketty wrote about because it wasn't the topic of his research.

Fourth, your own personal correspondence with Piketty is irrelevant and a distraction. It signals (to us, I suppose) that you care a lot about this topic. The fact that you care a lot doesn't help make your arguments more persuasive.

Finally, the tone of your post here is filled with appeals to emotion, exasperation, and frustration. You're having trouble making cogent arguments because you seem to be heavily invested in your own feelings about this subject. Those feelings are fine, and natural, but they do not make for a cogent argument. There is no point in attempting to persuade others that you are correct by mentioning that you really care a lot and have a lot of emotional investment in the subject.

Okay, I have a few minutes to expand.

I cleared up one point of confusion by editing my original comment - I did not mean that my comment was bitter (it's not) but rather that the reality it describes is bitter.

I've read through your points and I don't feel it will be a productive use of our time to engage further.

However, I will make one last very brief summary in the most rigorous possible logical terms. If owning a computer gives unequal personal utility to people, then if everyone owns a personal computer, people will have unequal personal utility. The world won't be "fair."

Now if instead of "personal utility" you substitute "creation of wealth" and for the computer you substitute all of the wheels of American capitalism, you will see that if everyone has the same access, but due to differing skills and interests differing results, then the world will be unfair. There is no way to make it fair except by shutting off the wheels of capitalism (in the proxy argument, there is no way to make sure everyone has the same level of utility except by taking away everyone's computer). I'm sorry, this is a fully rigorous argument, not at all emotional, and I'm just not prepared to invest any more time in explaining it. I did my best. Sorry if we disagree.

We disagree because I find a flawed premise in your argument that undermines the entire rest of your conclusions. Capitalism is not equal access. Those who already have lots of capital have access to the tools of capitalism. Those who do not already have lots of capital have almost no access.

>Those who do not already have lots of capital have almost no access.

explain how the Russian immigrant Sergey Brin had "lots of capital" or how the South African immigrant Elon Musk had "lots of capital".

Yet they are billionaires. So what do we do about this unequal outcome? Turn off people's right to make startups without requiring any capital?

The simple fact is that while Marx wrote in the 19th century when you needed millions to start up a factory, today the cost for starting to create dynastic, millionaire or billionaire wealth is: $0. It has no capital cost. Of any kind. At east, in silicon valley.

what is to keep this from spreading in the future? What is Piketty's response?

In fact there is no such response. There is no way to stop unequal wealth except by taking people's computers away.

You state that you follow my argument but I don't believe you are able to follow it.

Can you agree with this statement please: If owning a purple rock gives people unequal utility (some people get great pleasure out of it while others do not) then if everyone owns a purple rock, people will have unequal purple rock-related utility under this world scenario. Please agree, it's quite specific and formal.

(I realize this is only the proxy argument.)

Now suppose our most important value were equality of outcome. What shall we do? We must measure people's utility, and somehow take from people who get greater utility from purple rocks, enough of their purple rocks, that they end up with the same net utility. So someone who gets huge utility from owning a purple rock might need to be given just a gram, whereas someone who gets almost no utility from it may need to be given a mountain.

Okay, now apply it to money. If someone gets huge capital out of almost capital, do you have to take it all away? If you took away 99.999% of Sergey Brin's capital away when he was founding Google, then today's $50 billion net worth that he has would be $50 billion * 0.001% = $500,000. Unfortunately, that is still too much - it's more than average.

So should he have had 99.9999% taken away, since taking away 99.999% does not lead to an equal outcome?

This is not a theoretical question. It's a practical question you must address. In 2017 there are no capital requirements of any kind that are necessary in order to create billions of dollars, dynastic-level wealth. Zero.

I am afraid you are not following my argument, and that's okay. You are simply wrong that "those who do not already have lots of capital have almost no access." It is similar to saying only a white male can become President. Why would you say that, when it's demonstrably false?

Since you are arguing from false facts, and also don't seem to follow my argument, this is not going to be a productive exchange. Sorry - I tried.

Sergey Brin was enrolled in an advanced PhD candidate program at a super-elite technology university. Brin's parents were highly educated academics. Brin himself was highly educated and was raised in an environment of middle-class affluence. This is not the story of a struggling immigrant who struggled to pay rent. Brin had a priviliged upbringing.

Elon Musk also had a middle class upbringing with highly educated parents who provided him with an affluent middle class childhood. He enrolled at elite universities (UPenn, NYU Wharton, Standford) where he started his career surrounded by wealth and access to capital.

Musk is an interesting case in particular in that luck and timing account for most of his initial capital. He started a website (Zip2.com) in the middle of the dotcom bubble and it was purchased from him $300 million. The site was acquired by Compaq in 1999 and ceased operations in 1999. The dotcom bubble burst less than one year later. The money from that sale positioned Musk as a member of the capitalist class and he leveraged the money and connections from that for all his future businesses. While he did, technically, bootstrap his career, it would be naive and foolish to ignore the element of luck involved here.

I'm having trouble taking you seriously because you choose such bad examples to make your points and ignore the obvious counter-examples. In short, the system just works differently for people of low socio-economic status. Musk and Brin were not of low socio-economic status. They started as very high status and ascended to become ultra-elite status.

You make another assumption that is flawed and unfounded, and makes it seem like you are arguing against a strawman. I do not assume that equality of outcome is desirable. There are some in the social justice left that believe this but I don't, and in fact very few Americans do (as can be seen by election results). I believe that sane policy must acknowledge that inequality of opportunity is an endemic problem in our society and that success in capitalism is based on opportunities, which are not distributed in a fair manner.

oh hey if your definition of capital included education (and the education and professions of one's family), luck, timing, and socioeconomic class then we're in complete agreement.

Let me state it for the record: in 2017 it's impossible to build great wealth without your updated definition of great capital. completely agreed.

as we're in agreement this conversation is over. nice chatting with you.

> Here is a question Piketty didn't ask: what percent of dynastic, billionaire wealth was created in a single generation in America? Not addressed at all. (And I read his book and wrote to him with my criticism, which he didn't reply to.)

Actually he has addressed this, and the answer is relatively little. Most wealth in the world is passed down from one generation to the next, growing at a rate faster than the economy in general. Many of the richest families in the world from centuries ago are still the richest families. Other than in small pockets of the world, like silicon valley, new money is pretty rare.

But I specifically asked about small pockets of the world, like silicon valley. Specifically, I asked about billionaire wealth in the United States.

>there are no easy solutions

What's so hard about shifting the burden of tax from income to wealth? Week after week having 30% of your income taken away is what prevents a lot of people from ever getting ahead.

> What's so hard about shifting the burden of tax from income to wealth?

Well, there are a bunch of practical difficulties, beyond just political will.

First, "wealth" is much harder to cheaply and objectively quantify than cash income. The value is often very subjective, and changes over time and circumstance.

Even a lot of "what's it worth right now" statements are flimsy: A guy might have X stock in a company worth $Y, but it's only a "if things go right" $Y because if you try to sell it all at once you'll cause a panic among investors and get fairly little for it.

Lastly, it's much easier for people to hide their current wealth, when they have an incentive to lie about it and have years to do it in. You'd need a financial panopticon to make sure nobody's burying gold in their garden while telling the tax man they spent it all on expensive food.

What do you think about Georgism? Land is difficult to move or hide, and is an inherently progressive form of taxation

Sure. But I want to correct you on one thing: the US median income is $52,000. While the marginal tax rate for that amount, when filing as a single, is 25%, the effective tax rate is only 19%. When filing jointly, it is 16%.

You don't reach 30% effective rate (single) until you make $500,000, at which point you're pretty well off. :)

True, but that ignores FICA, state income tax, city income tax (rare), sales tax, property tax, etc, etc. Granted, these aren't all income taxes, they have their own curves, etc, but still, paying an overall effective rate of 30% isn't that difficult.

The numbers I provided include FICA.

For starters the fact that wealth is mostly illiquid. What happens when you slap a big tax bill on wealth is that either it cannot be paid and the owner needs to liquidate, and/or the wealth will move outside the country.

Because taxing capital makes everyone poorer.

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