Hacker News Reader

Comment by guylhem | Hacker News Reader

TLDR : rising inequality a return to "normal" after 2 huge destructions.

Inequality is returning to pre world-wars level - ok, that's an easily verifiable fact.

However, how do we know it's a bad thing? There is no conclusive evidence that rising inequality will have bad consequences on say growth - it might. We just don't know for sure.

OTOH, we know quite well how we got into that "equality" period - destruction of huge amounts of capital and human lives in 2 world wars that turned European countries from world leaders into 2nd rate places - yet very equalitarian (Gini coefficients etc) compared to other places.

It doesn't strike me as a "good thing".

View on HN

If you're interested, check out the Economist's 2012 special report on inequality (http://www.economist.com/node/21564414).

To quote from another Economist article around the same time (http://www.economist.com/node/21564556#sthash.AXidvmgE.dpbs):

"It is also true that some measure of inequality is good for an economy. It sharpens incentives to work hard and take risks; it rewards the talented innovators who drive economic progress. Free-traders have always accepted that the more global a market, the greater the rewards will be for the winners. But as our special report this week argues, inequality has reached a stage where it can be inefficient and bad for growth."

This is due to, but not limited to, cronyism and lack of equality of opportunity (e.g., college).

But also, I think the new Princeton/Northwestern study that says the US is an oligarchy provides enough reason to be worried about inequality. If we agree democracy is important -- which means we value the voices of all citizens -- then growing inequality in its current state is concerning because it means the average citizen has a "miniscule...impact on public policy."

but we don't agree that democracy per se is important. There are plenty of cases where "the value of the voices of all citizens", can create inequality or severe injustice.

If you are measuring public policy in a nationalistic sense, then yes, an individual does have a miniscule impact on public policy because the per-individual impact is decreasing as the population increases. Then perhaps a presciption would be to decentralize governments, so that an an individual has more net political agency.

The anti-capitalist prescription, however, does exactly the opposite by concentrating political power in larger organization with broader oversight over bigger populations of individuals. Which, of course, exacerbates inequality because the mean marginal impact of an individual necessarily decreases.

I think you'd also agree with this review [1] of the book, concluding

Over the course of history, capital accumulation has yielded growth in living standards that people in earlier centuries could not have imagined, let alone predicted -- and it wasn't just the owners of capital who benefited. Future capital accumulation may or may not increase the capital share of output; it may or may not widen inequality. If it does, that's a bad thing, and governments should act. But even if it does, it won't matter as much as whether and how quickly wages and living standards rise.

That is, or ought to be, the defining issue of our era, and it's one on which "Capital in the 21st Century" has almost nothing to say.

[1] http://www.bloombergview.com/articles/2014-04-20/the-most-im... (hat tip:Tyler Cowen)

>But even if it does, it won't matter as much as whether and how quickly wages and living standards rise.

>That is, or ought to be, the defining issue of our era, and it's one on which "Capital in the 21st Century" has almost nothing to say.

It seems odd for the Bloomberg review to state that the book says nothing about this issue. In fact, it appears to be the very premise of the book, or at least a primary implication.

This Bloomberg review appears to be attempting a de-linking of the two issues. That is, it implies that rising inequality is independent of the rise of wages and living standards. It glosses over the inequality issue by saying that it's essentially unimportant as long as wages rise.

In fact, the book itself is making the case that inequality and labor-based living standards are interdependent. It goes through history to show where forces conspired to create more equality--be it destructive to capital (e.g. wars) or beneficial to labor (e.g. unions). It's during those periods of greater equality that wages and living standards tended to rise (or at least track with the overall economy).

Here's a key assertion from the book that refutes the Bloomberg review in a nutshell:

>The main driver of inequality--the tendency of returns on capital to exceed the rate of economic growth--today threatens to generate extreme inequalities that stir discontent and undermine democratic values.

That is, when returns on capital exceed the rate of economic growth, those who depend on growth (laborers) are left with stagnating or declining wages and living standards.

As most of us commenting here, I haven't read the book. That said...

Your quote does not support your conclusion. It says that (given Piketty's assumptions) inequality is likely to escalate. This says absolutely nothing about whether the standard of living of the poorest will improve or decline.

And as far as I can tell, this whole discussion (not just the book, but the broader complaints of inequality) are founded on a mistaken idea that accelerating growth of the richest somehow means that the poorest will be worse off. All of history shows us that this is false. Even the poorest today enjoy a life that was unimaginable to kings of a couple centuries ago, and rivals in most ways the hyper-rich of just decades ago.

If the poorest really were "downtrodden" - that is, that the rich achieved success by actually pushing down the poorest, there's be something to get excited about. But the actual fact, that the poorest are getting rich more slowly than the richest, is morally a non-issue to me.

>...inequality is likely to escalate. This says absolutely nothing about whether the standard of living of the poorest will improve or decline.

I believe you are making the same mistake as the Bloomberg reviewer in separating inequality from the fate of the poorest.

To see the connection, you have to look deeper. That is, you must consider the causes of inequality that Piketty offers. You might argue that inequality in itself doesn't produce a negative outcome for the poorest, but that the causes of our current inequality produce those negative outcomes as a side effect. I would say that's semantics, but in any case, what Piketty lays out does support the notion of a rising inequality along with a comcomitant stagnation/slippage for the poorest/others.

So, let's say it the other way, if you prefer: some of the primary reasons (increased productivity, automation, etc.) for the rate of wealth-accumulation for the rich that we're seeing also produces negative outcomes for the poorest (unemployment, downward wage pressure, etc.). This has led us to (or, rather, is by definition) the growing inequality that we're seeing.

Finally, these arguments of the ilk that "inequality must be OK because the standard of living for the poor has risen even in the face of historical inequality" fall flat. It really is a false equivalence.

Firstly, such arguments imply that degree is irrelevant and that no degree of inequality would produce (or represent) a negative outcome for the poor. In fact, there is some point at which capture by one party must come at the expense of others to the extent that the latter parties slip backwards. Secondly--and to the first point--Piketty outlines that the degree of inequality was historically kept in check by various forces in other examples where the outcomes for the poor weren't detrimental.

In those cases, the threshold for negative outcomes was simply not crossed. However, this is certainly not proof that they cannot be.

  > There is no conclusive evidence that rising inequality will have bad consequences on say growth - it might.

I agree that there is probably more research to be done, but I think it is important not to forget about the social and political implications of inequality. Those pre-world war inequality levels also coincided with less representative governments and more socially stratified societies, both widely viewed as being "bad" things.

Of course, if the government can't be malicious on behalf of malicious people, then a less representative government could be a good thing for those with lesser means.

That's an excellent point. I wish I could think of an alternative that would be an improvement, though. The "benevolent, incorruptible dictator" is kind of a cliche in the political science world I think.

As an entrepreneur, it worries me a fair bit. If most of the capital is tied up in a relatively small number of families, then it will be much easier for existing players to defend their financial turf.

It won't matter much for me, but I'd be sad to see America's broad culture of entrepreneurship die in future generations.

"There is no conclusive evidence that rising inequality will have bad consequences on say growth". Lets say economy is an organism like a human and money is the blood. Would you say that this organism is healthy and grows normally, if up to 90% of the blood would flow to the brain and only 10% would flow to the other organs, despite of a 1:40 brain to body proportion ? No one denies that the brain should receive more blood flow than the liver or pancreas but when the disproportion is so extreme and the only organ that "grows" is the brain, there should be no surprise when the liver is not able to sustain the functioning of the organism with the disproportionate head.

What is so good about growth if proceeds only go to the people who already have capital?

Now there's a solid question. Seriously.

Right. It is high time that percentage change in GDP is not the sole consideration when measuring growth. While GDP will always be important, measures like Gini and HDI (or others which measure overall human "happiness") be taken into account when judging if a country is prosperous.

He's not just saying inequality is rising, he's also pointing out how: it is because in our time, capital grows at a faster rate than labour output (this is my lay person's reduction, please do correct me if needed).

Is the latter a bad thing? It depends what kind of world you'd favour. Let me put it this way: if people whose great-grandparents were innovators but who are now simply in the business of owning stuff get greater rewards in life than people who take risks, innovate and work hard to build new things, is that a bad world?

It's not clear to me how one would measure 'labor output'. What constitutes 'labor'? Is sitting at home playing a video game 'labor'? What if you're beta-testing for a games company?

So fundamentally this thesis is flawed because there is no well-defined concept of 'labor'. You could take the value theory of labor, which states that 'labor is any non-property that you're willing to pay for', but in that case capital cannot grow at a faster rate.

Really inequality is growing because we have legions of administrator working to redistribute wealth. These are usually well-intentioned ideas that are designed to elevate the less fortunate, but result in corruption and redirection of those funds to the already-rich (who are generally more adept at lobbying for those funds, perversely, especially under the regime of stronger campaign finance laws)

Consider the case of Bell, California, a city with a median income below ~40k, where the city administrators took it upon themselves to line their own pocketbooks (to the tunes of half a million dollars in annual salaries) with city funds. 5 out of 6 administrators were convicted of corruption. http://articles.latimes.com/2013/dec/09/local/la-me-1210-ang...

Or, the case of the centinela valley school district, again, a low-income area, where SCHOOL officials lined themselves with money (600,000 salaries, interest-free loans on property, etc etc), and awarded very lucrative construction contracts to their cronies. http://www.latimes.com/local/la-me-centinela-probe-20140417,... Meanwhile the teachers are underpaid and the kids are not getting educated in failing-grade schools.

When the poor get screwed, it's often not the free market that's screwing them. It's the people with authority that are warping the bureaucracy and taking advantage of the fact that they are spending 50-60 hours a week on tenuous employment and have little time to concern themselves with arduous bureaucracy and regulatory minutiae, that we 'vote' people in to handle.

what's even more amazing is that in the US, us as voters seem to insist on our higher level elected officials to have had 'experience' as a prerequisite for advancement to higher office. Are these really the people we want to elevate to have broader authority? And there is a bootstrapping? The country is really 'federalizing'; giving more authority to the federal government, so there is less of a 'filter' against local officials, because there's just simply less to do, and less incentive for voters to look carefully at who their, say state and local level representatives are.

It wasn't anything inherent in the wars themselves that caused this. It merely put financial pressure on governments, who then had raise to money, and proceeded to raise it from the people who had it.

This pressure need not be caused by war. Any big, ambitious, inspirational project like fighting climate change or colonizing Mars will do just as well.

> Any big, ambitious, inspirational project like fighting climate change... will do just as well

I'm curious, which of the following is the most compelling argument for "fighting climate change" with government authority?

  a) The survival of the planet depends on it
  b) Developing cleaner economies is necessary, even ignoring the science
  c) It is a suitable project for the purpose of lowering economic inequality
  d) All of the above

Reply on news.ycombinator.com