Capital Man: Thomas Piketty is economics’ biggest sensation and fiercest critic

http://billmoyers.com/segment/preview-what-the-1-dont-want-y...

This link was posted to HN yesterday briefly but was then deleted.

What is "capital"? Piketty defines capital as:

"the sum total of nonfinancial assets (land, dwellings, commercial inventory, other buildings, machinery, infrastructure, patents and other directly-owned professional assets) and financial assets (bank accounts, mutual funds, bonds, stocks, financial investments of all kinds, insurance policies, pension funds, etc.) less the total amount of financial liabilities (debt)."

Furthermore, national capital can be broken down into public capital and private capital:

"[National capital is] the sum of public capital and private capital. Public capital is the difference between assets and liabilities of the state (including all public agencies), and private capital is of course the difference between the assets and liabilities of private individuals."

...and can be broken down into domestic capital and net foreign capital:

"Domestic capital is the value of the domestic capital stock (buildings, firms, etc.) located within the borders of the country in question. Net foreign capital...is the difference between assets owned by the country's citizens in the rest of the world and assets of the country owned by citizens of other countries."

The rate of return on capital:

"...measures the yield on capital over the course of the year regardless of it's legal forms (profits, rents, dividends, interest, royalties, capital gains, etc.), expressed as a percentage of the value of capital invested. It is therefore a broader notion than the 'rate of profit', and much broader than the 'rate of interest', while incorporating both."

So you've discovered that one data point in a set is not precisely equal to the average of the set.

And you think that means...."loses all credibility".

Oh boy.

It does indeed appear (I have not read the book, and I plan to) that the crux of his thesis is that capital can grow at 4-5% over the long run, whereas economic growth only grows at ~3%, and thus concentration of capital always runs away from normal economic growth.

... and this idea ... that you can regularly achieve even 4% annual return over the very long term ... has gotten a lot of people in trouble. Not just in the recent unpleasantness, but historically over many different economic cycles. Regardless of how receptive I may be to this book, or these ides, I am deeply skeptical of this assumption.

That one could also critique multicellular organization in general is interesting, but irrelevant to anybody who actually has cancer.

Civilization is all about shifting our situation from natural outcomes to outcomes we like. So if ever-increasing inequality is an outcome we don't like, we can do something about that.

One could argue, though, that the flaw is not in capitalist ideology per se, but that you can never fulfill its requirements perfectly:

1. Market information is never disseminated perfectly, i.e. to all parties, equally, at the same time with full accuracy.

2. Human beings are not rational.

3. Human rationality takes a nosedive if a person's wealth vs. time curve take a sudden upswing.

While this is true, what it takes to route around this "power-law like attachment of nodes" that user orasis accurately described elsewhere in this thread has proven a maddeningly difficult problem to solve over the course of human history. The kind of top-down solution Piketty proposes ignores the kind of iterated game that plays out in the real world, and why the wealthy classes invest so heavily into political activity. It is not only relatively easy for the wealthy to eventually route around solutions like Piketty's, but even over the longer con subvert the original institutions into further means of command and control.

There are interesting developments afoot for this dynamic in our current era, and part of the reason why forums like HN are so fascinating.

That said, if the main point of a huge book, even among many other smaller points, is an observation so ho-hum that it would make a college freshman's eyes roll, something else is going on. Maybe he proved his obvious thesis in an unusually gripping way. Maybe he proved the obvious threat to democracy in an unusually gripping way. (But why would it matter? Does anyone still think this is a democracy?)

Or maybe all the lefty economists decided implicitly to push this particular warmed-over cliche as a great innovation. Who knows.

Marx was espousing a theory. He wrote a manifesto. This is based on data that no one else has bothered to look into.

The Marxist thesis is essentially that the bourgeoisie (the rich) exploit the bourgeoisie because they generate more value from the proletariat's work than they pay in wages. Even if one accepts this line of reasoning, it is sort of orthogonal to Piketty's argument. One could imagine a society where the bourgeoisie exploit the proletariat, but, with intelligence, vision, hard work, whatever, the workers can still become members of the bourgeoisie, i.e., the "American dream." Piketty says that, under certain economic conditions, even this becomes impossible.

Yes, Marx argued this; Piketty has an elegant new analysis supported by a lot of newly collected data. The book is in part a rebuttal to Simon Kuznets and others, who argue (plausibly) that capitalism tends to decrease inequality in the long run.

It's the difference between "it sure looks as though the lord of the manor is earning more than he deserves" and, "here are the books showing the lord of the manor took in 2 pounds of rent for every pound that was his by right.".

And Piketty is not even touching on the fact that we know that our financial elites basically rigged the game in 2008.

I don't believe for one second that your prime motivation do make D was economical, for example.

If wealth becomes a hereditary entitlement rather than an incentive for hard work, then no matter how much you work you can never become economically equal.

If you can not earn wealth by working, what is then the point of work?

There are lots of things you have access to by having a great deal of wealth that are simply unavailable in even a reduced form to the average person.

"The rich guy can buy a harvard education, and the poor guy can buy a cheap but effective online education"

And what is the outcome of having Harvard education against having cheap online degree? I am sure Harvard graduates come way ahead of graduates of online universities, both in private job market as well as in influential government positions due to "cliques" and "networking".

But the problem is much deeper than whether you can afford high quality commodities or not. Those with excess capital can accumulate assets, and then rent out those assets to those without capital. If this sounds too abstract, consider a concrete example - bay area housing market. Only those with capital can afford houses. Those with excess capital can buy additional houses and rent them out to those who cannot afford housing. Net result? The ones who cannot afford houses now have to keep paying rent to those who could, thus making homeowners richer.

Piketty has elaborated this in detail. But the most salient question he raised was that inequality, per se, is neither bad or good, but whether it is justified? Today, Bill Gates or Mark Zuckerberg have billions more than I do. But I am OK with that because they took risks, invested their efforts (and yes, also got lucky). But I am don't think someone like Alice Walton or Paris Hilton deserve their billions - in their case, all they did was just to be born to rich parents. And they and their heirs are going to have a better life (education, nutrition, accommodation, entertainment, connections...) than almost everyone else. Why? Doesn't seem "justified" to me.

Edit: Why the downvote? And while I respect your freedom of speech (to downvote), I am sincerely interested in knowing your counterarguments.

It's not the physical goods but intangibles that makes a billionaire a million times better off than the thousand-aire. Some particular intangibles:

Time. The billionaire never has to work again for the rest of his or her life and be assured that he or she has sufficient resources to not starve to death. Not so with the thousand-aire, who is likely living paycheck to paycheck.

Freedom. If the billionaire does want to work, he or she can work on whatever he or she wants. Paris Hilton can be a singer / actress / celebrity because she wants to be that. If Paris Hilton was not a wealthy heiress, I think it's safe to say her career choices would be significantly more constrained.

Influence. The political aspects of this are somewhat obvious, but it extends to practically everything else as well. The thousand-aire says, "It sure would be nice if my team won the championship this year." The billionaire can all but guarantee it.

The USA didn't change much due to the revolution. The US Civil War was a much greater inequality-related upheaval

Or are there second order effects that the reviews (I haven't read the book) don't discuss?

They do, which is why I laugh at the proposed solutions of higher taxes and even a global tax.

So apparently the fact that capitalism naturally produces inequality _is_ controversial.

How to address that inequality is obviously a hard question. However, if you are thinking about it as "rewards", then you are guaranteed to arrive at the wrong answer.

> "But Marx's original critique of capitalism was not that it made for lousy growth rates. It was that a rising concentration of wealth couldn't be sustained politically."

I feel like this is one of the very most important things to consider in any discussion of wealth concentration. Economic growth does not necessarily correlate with a broadly pleasant experience for all participants in that economy. I think we came out of the 20th century with it being taken as axiomatic that some kind of tradeoff must be made to achieve both goals in concert somehow, but this understanding seems to be receding (really starting with the rise of austerity policy in the 80s, but coming very much to a head lately).

Actually, the data says quite a bit more than that. I'm looking at the chart shown in Krugman's review (Figure 1, a bit more than halfway down the page):

http://www.nybooks.com/articles/archives/2014/may/08/thomas-...

First, this chart says that r > g has been the historical norm since antiquity, not just since the industrial revolution. The first data point on the chart is for years "0 - 1000". I'm assuming that Piketty's book gives some explanation of how he figured out the rate of return on capital during the Dark Ages. :)

Second, the chart says that the difference between r and g decreased all through the period studied, up to the "1913 - 1950" data point, when r < g became true for the first time. Then, up through the "1950 - 2012" data point, r and g both rose sharply, but r < g was still true, and the difference between the two was more or less the same.

Third, the chart says that, for the rest of the 21st century, not only will r > g be true again, but r will continue to rise while g will fall sharply--which has never happened before in history. So I think it's wrong to claim that Piketty's prediction for the 21st century is just a prediction of things "returning to the historical norm". It's not--it's a prediction of a drastic change from the historical norm.

But being rich also gets you access to shortcuts, investment opportunities and advisors no one else can call on. They insulate you from risk and target tax loopholes to help.

When that fails you have access to political insight and levers.