Piketty’s Capital: Wrong Theory/Destructive Program
georgereismansblog.blogspot.com
georgereismansblog.blogspot.com
I'm going to stop right there, because that's the problem.
If capital saved by the wealthy were invested in value-creating, productive pursuits, there would be no problem.
The problem is that investing in value creation is hard. You have to play angel or VC, more or less. You have to understand your domains, pick your investments, do due diligence, etc. There's also a limited number of good investments available at any given times. The best are either oversubscribed or very difficult to recognize and require contrarianism... and contrarianism is not a magic bullet either. Some contrarian investments are incredible, while others are contrarian because they're bad.
It's so much easier to invest in rent-seeking and debt issuance. It takes far less time and far less domain expertise. It also generates -- at least in theory -- more predictable returns. (The 2008 crash occurred when multiple classes of rentier investments suddenly became unpredictable and did things that violated model assumptions... like millions of mortgages defaulting in unison.)
It's easier to invest in schemes to ratchet up real estate and commodity prices to extract rents from the rest of the economy, or to simply lend money at interest. The former has created phenomena like real estate rising while wages are not. The latter has created a series of credit bubbles and a system of debt-based indentured servitude.
At some point private savings seems to become a net social ill and lead us back to feudalism. Or at least that's what things look like today.
Everything is going up except wages (across much of the economy) because money is flowing into rent extraction, not industrial expansion.
Where is all this investment in new productivity?
P. S.
The most unrealistic thing about Ayn Rand is her depiction of businessmen. Characters reminiscent of her heroes are so extraordinarily rare I can name the ones I know of on one hand. The vast majority of "captains of industry" more closely resemble her villains: short-term pragmatic influence peddlers, boring bean counters who harbor a vague hatred for the genuinely creative, political wheeler-dealers, second handers, sociopathic exploiters, ...
... and in consequence you're going to repeat Piketty's assertions, which are pretty much demolished in the article you haven't bothered to read.
Also, you're wrong in your description of Rand's portrayal of businessmen as unrealistic. The majority of businessmen in Atlas Shrugged (and, in fact, the Fountainhead) were as you describe: looters, second-handers, rent-seekers, statists and sociopaths. The exceptions were her heroes, who were as rare in her novels as they are in reality today.
What's wrong with this picture?
It's oddly and ironically Soviet... like back when the USSR's crops were failing and yet Pravda proudly trumpeted ever-increasing crop yields. Those who looked around and asked "then why is everyone hungry?" were dubbed loons or worse.
So no, I'm not interested in yet another Pravda piece on rising crop yields.
If investments were being made in production, wages would be rising.
I suspect you find some "believers" left around here because the tech industry is an exception. It's one of the few industries where substantial investments in new production (vs. rent seeking) are actually being made. Salaries in tech are therefore rising, or at least keeping up with inflation. If that's you, good for you, but you are not normal in this economy and your experience is no gauge of overall reality.
"The result is a steady rise in the productivity of labor, which continually increases the supply of goods produced relative to the number of workers producing them. The effect of this is a steady fall in prices relative to wages, a fall which occurs even in the midst of an increasing quantity of money and volume of spending great enough to raise prices; in this case, the rise in money wage rates outstrips the rise in prices, with the result that prices still fall relative to wages. In other words, the effect is a continuing rise in real wages and the average standard of living."
I encourage you to read the whole thing, and consider that paragraph in particular when evaluating wages vs. cost of goods, especially goods that one could simply not obtain in the past.
Huh? Where is this fall in prices?
Okay... I see it. It's in gadgets and manufactured goods. These are all things people get paid wages to produce. Meanwhile food, fuel, real estate, health care, and college tuition are exploding.
You know... the things people need.
If you were going to extract rents, that's where you'd go... the things people need... the things with inelastic demand.
Pay people less. Extract more rent.
But Pravda says crop yields are increasing, so I guess I'm crazy.
-- Edit: here's my reply as HN won't let me post it:
I was once a Randian myself. I feel like I know what I'm going to read.
I began to question the faith when we allowed the top tier of society to become astronomically wealthy and the promised age of wise captains of industry and private sector innovation didn't materialize.
Instead we got the economic la-la-land we have now where rent and property values are mysteriously holding at unaffordable levels as wages are falling and everyone is in debt.
Granted, we have a few lights in the wilderness. Elon Musk is probably the closest thing to a Rand hero I can think of... but wait... none of his enterprises would exist without government assistance. SpaceX is being built in close cooperation with NASA and with NASA and DoD funding. Tesla would have gone under were it not for a very risky DoE loan.
He's an exception that proves the rule, I'm afraid. He also does not espouse Randian ideology. Honestly most of the greatest captains of industry and genius investors I know of do not espouse Randian ideology.
I have my own peculiar views on the subject:
I think capitalism and socialism fail for the same reason. I call it the "big dumb money problem." It occurs when the concentration of capital exceeds the intelligence of its owner/administrator(s).
It's pretty easy to see how this happens in pure socialist systems. The initial round of investments made by a socialist bureaucracy are often pretty good: roads, schools, hospitals, universities, power plants, etc. But then the problems start. Those were all the easy, obvious investments. As they pay off, the wealth they create coupled with the increasing difficulty of the next steps forward creates a resource allocation problem that rapidly outpaces the collective IQ of the bureaucracy administrating everything. It makes a series of increasingly bad investments. Eventually the whole system collapses in a blow-off of cynicism, ending with something akin to the Russian or Chinese mafia states. (I have a brother in law in China. It is most definitely a mafia state.)
Capitalism in its pure sense follows the same course when too much wealth accumulates at the top. Individual capitalists rapidly find themselves in possession of pools of money too large for them to possibly invest productively. They solve this by delegating the problem to a financial industry not terribly unlike the Soviet bureaucracies of socialist states. This industry proceeds to make a series of bad investments (since it cannot possibly comprehend the problem domains it's investing in) and quickly becomes gun-shy, instead retreating from innovative investments and into the realm of rent extraction. Rent extraction works too well, causing yet more and more capital to be concentrated into fewer and thus by definition dumber (relative to the problem) hands. In the end it blows off a bit differently... instead of a post-socialist mafia state you get a post-capitalist feudal state a bit like the universe of The Hunger Games. Everyone has to go into massive debt and pay rent forever, and class mobility and monetary velocity collapses. Innovation stagnates.
The optimum is probably a hybrid, a system that permits private accumulation of capital up to the limits of the cognitive horizon of those who hold it and redistributes the rest to achieve maximum monetary velocity. The ideal -- probably not achievable since P!=NP -- would be something in which each individual always held an amount of money equal to their knowledge re: how to properly spend or invest that money.
Since again P != NP and the answers are probably not computable, we will never have the optimum. Barring theoretical breakthroughs that redefine the problem, we will have to settle for bad as opposed to more bad. So I think a system with mild progressive taxation spent in ways that improve the lot of the majority is probably best.
Yeah, maaan. I mean, aside from giving us clean water regulations, clean air regulations, safe air travel, excellent roads, safe streets, access to thoroughly tested medicine, plenty of food, safety from invading armies, construction of dams and other large-scale engineering projects, world-class education, GPS, the internet, and putting a man on the moon, what has the government even done with all that money?
There are seriously that many Objectivists here?
Of course, we all code in Objectivist C ( http://fdiv.net/2012/04/01/objectivist-c ) ;)
But seriously ... I'm actually surprised that there aren't more Objectivists on HN. There's a strong anti-authoritarian streak here, with an emphasis on rationality, independence and capitalism. Take a look at the list of objectivist virtues ( http://wiki.objectivismonline.net/Virtues ):
Rationality, Honesty, Integrity, Productivity, Independence, Pride, and Justice
That said I'm not convinced that all of the options there are actually in the same category; some are philosophies, others are political choices based on philosophy. E.g. I know of Objectivists who vote Republican, and Anarchists who vote Green.
Perhaps two polls: one for philosophy, one for voting choice?
Edited: I guess you could have one poll, & people could vote in two categories? I've never set up a poll myself so I'm not sure.