The Fall of Capitalism and Wealth Inequality? Thomas Piketty thinks so..
(DISCLAIMER: I haven't yet read it. The book is long, around 700 pages, so I haven't been able to read it because I am currently finishing up finals at school. I plan on reading it this summer, and I'll give a more in-depth review on completion of the book.)
Brief Overview:
Thomas Piketty's new book, "Capital in the Twenty-First Century" is causing a lot of buzz around the financial world. Piketty claims that he has a groundbreaking approach to the effects of capitalism and wealth inequality on society by presenting an in-depth historical analysis of these issues dating back to the 18th century to today. All in all, I believe Piketty gives a pretty bleak outlook on the accumulation of wealth and argues that certain circumstances (acceleration of capitalism, war, certain innovations, etc.) have caused the few to have a lot and the majority to have very little. The French Economist believes this is detrimental to the advancement of society and has occurred when individual capital outgrows economic growth (r>g; r= rate of wealth; g=growth of economic output). Piketty believes that a restructuring of society's assets/wealth would make individual income much less substantial/impactful and would lead to a better society, one with more economic growth and less individual wealth discrepancy. Finally, Piketty argues that governments should institute a "global wealth tax" to reduce the difference between individual wealth/economic output in hopes of moving society forward without so much income inequality.
My Opinion:
Now, as the disclaimer states, I haven't read the book but I have discussed it with various economists and professors at my school who tend to side with Piketty's results. I, on the other hand, don't understand Piketty's point, which is why I need to read the book. I understand that wealth inequality can be detrimental to an overall society's well-being, but how would a tax on wealth help/incentivize us to improve our societal standard of living by downplaying our personal careers/aspirations? How many people in this country genuinely want to increase the economic well-being of our country/continent/world over their own individual goals? Is it just me or does Piketty sound like a fantastical follower of Utopianism? Of course, this book is getting a lot of publicity and I've read a few very scathing reviews from the WSJ and Forbes but also a very positive review from the NY Times, as this book does certainly fit well with the left-sided individual. I think the Economist gives the best overview of the book and its arguments. All of these reviews are attached to this thread.
Your Thoughts:
Have any of you guys read the book? If so, what do you think? If my brief synopsis of the book is way off, please comment (I adapted most of it from various reviews/conversations with those that have read it). Also, how does Piketty reconcile the notion of individual gain and the the inherent nature of us all... does he assume we all want to make the world a better place.. does he disregard fact that we all want to be individually sensational? I'm not sure what his full argument is but I plan on reading the book and giving a full review. Also, feel free to write your comments on the book, what you've read/heard about it, and what people think about it on the Street, as this really does point the finger at the top.
WSJ Review:
http://online.wsj.com/news/articles/SB100014240527023038256045795154529…
Forbes Review:
http://www.forbes.com/sites/louiswoodhill/2014/05/06/thomas-piketty-get…
NY Times:
http://www.nytimes.com/2014/05/04/magazine/inequality-has-been-going-on…
Economist:
http://www.economist.com/blogs/economist-explains/2014/05/economist-exp…
Bought it yesterday. Looking forward to reading it.
Marginal Revolution and The Epicurean Dealmaker also discuss it a lot on their blogs. Hadn't really heard of it, but looks interesting and will probably add it to my reading list at some point. From what anecdotal evidence I've gathered from reading reviews though, seems pretty dense.
"Haven't read it yet, but here's my review."
lolwut
I quit reading after you said the guy was French. They have a governmental agency to "sanitize" the French language to keep the "purity."
Can't post links but check out the FT Article- 9 Stages of the Piketty Bubble What stage are you......
Will try to read this...but I can already smell the bullshit.
I get sick and tired of people accusing Capitalism of all the problems we have today...no country on earth (including the US) has anything like real capitalism. And that is the cause of the problems.
All the same I'd love to see the arguments.
We do live in a pretty darned capitalist country. But there are reasonable and sensible controls in a few key areas. We don't let banks lever up like crazy with customer deposits. We don't put lead in gasoline, we restrict pesticides that cause unreasonable amounts of cancer, and we have the government intervene during disasters. (It's cheaper than sending police in to stop people from looting food out of desperation.) There are also regulations on worker protections and minimum wage that are, to be fair, a little more debatable. I do argue that if your utility curve isn't completely flat, if government only exists with the consent of the governed, and if Hobbes' social contract theory holds- that we have government because without wealth really wouldn't exist- then it's fair and reasonable for the government to make sure the deck isn't completely stacked in favor of the rich.
Laissez-faire capitalism is great in theory, but it sucks in practice. Just like Keynesianism. The truth is that there is a happy medium. When it comes to deposits, margin, and lending, it's better to have a little more government intervention. Same with environmental issues.
Laissez-fair capitalism has never been put in to practice. Keep your argumentum ad ignorantiam for yourself.
Global wealth tax is not a bad argument if the money is used effectively. Also the tax cannot incredibly high that the wealthy would start living in their sovereign islands. I don't think I would have any problems to part with like 3-5% extra tax money if it gets used productively in society.
If you think any government would make good use of your money you're kidding yourself.
So why pay taxes at all?
The best argument I've seen against Piketty is that he explains why income inequality exists, without explaining why its bad. He then prescribes a solution to solve income inequality (not QOL as a whole).
Too much inequality leads to unstable an unstable economy and populace. Too much equality (pure socialism) leads to too little growth.
It's theoretical trash.
He assumes a growth rate that is independent of the return to capital (profit). The return to capital is posited as fixed while the growth rate is assumed to decline perpetually. He essentially took the Marxian framework but devoted no time to a theory of value and violated his principle of the declining rate of profit, which Marx required for his explanation of the demise of capitalism.
Leftists always get a lot of undeserved hype, especially from defunct publications like the economist.
Have you read it? Is that the distilled version? If so I am suddenly 99% less interested in reading this.
He also makes the error of defining and categorizing social classes with factor payments. Land owners earn rent, laborers wages and capitalists interest, or the rate of return on capital. Unfortunately, while this was true in Marx's time, this categorization is no longer clear, if it exists at all (at least in modern economies). Something like 50%+ of Americans are at least partially exposed to the stock market and many individuals are simultaneously laborers, capitalists and land owners.
Additionally, as the hype continues to grow, more and more economists and economic historians are reading and analyzing his work. It seems that there is a good amount of pure factual error in his historical interpretation of the development of capitalism.
Easy solution: inheritance tax.
I am a pretty big civil libertarian but someone could convince me to support a ban on highschool and college students from reading Atlas Shrugged.
Seriously the book creates a lot of unreasonable ideologues who struggle to deal with empirical evidence in a fair and reasonable way. And if you have never worked a full-time job and still wear a bowtie, you have no clue how to run the economy for everyone else.
(To be fair, Das Kapital is just as bad.)
First of all, good post and great job on generating some heated discussion. Like how you published this at 1am in the midst of finals week. Also really looking forward to a thorough follow up from someone who read this dense brick of material.
Some considerations: -Yes, pure Laissez faire has been put into practice.. look at the Kowloon Walled City. Unbounded prosperity pulling the masses out of poverty at the cost of severe crime (drugs, prostitution, etc.)
-From WWII to the Korean War, the top income tax rate hovered between 94% and and 91%, respectively. This is outrageous, but so is 35% when it got lowered in the War on Terror... now we got the deficit and inequality problem. At least need above 40% rates on those earning $1M+.
-I'm less inclined to read a book about economic structure and inequality when it was written by a Frenchman
-Trickle down economics are dead, or hibernating until 2017 (Can't post links so look up Businessweek: "The U.S. Job Market Won't Be Normal Until 2017, Says Goldman")
-Although higher taxes are necessary for the deficit, never fully trust authorities to ethically use your money (One of my favorite YouTube videos: "Milton Friedman - Greed")
-Lastly and most importantly, the best solutions in economics (not finance) are told with time, LOTS OF TIME. Probably no one in the present knows what the hell their talking about
Yeah this might sound like common sense bullshit, written by a Liberal Arts major concentrating with a Masters of the Generalities, but too many people overlook the obvious. Go ahead and search the world for the best solution, but you'd be surprised how often the best choice was just hiding underneath your doormat.
WSO has some bad ass speed readers on the site. That or people are judging the book before reading it.
New skill on resume "Reads fast as fuck"
For every book like this, there's another one arguing the counter. I'd probably check it out to see the other side of the debate, but that's about it.
Research has shown that historically, inequality (read: inequality, not living standards) has remained roughly the same. Living standards on the other hand are a whole other issue. Don't just ignore the increase in living standards even the poor have today.
Hence, inequality may not be the problem. I would agree that opportunity may be the problem... but that doesn't seem to be the argument here. Soy latte drinkers can keep posting on instagram. Could they do that 20 years ago?
Here are some good reviews:
Kruggles (best one IMO):
http://www.nybooks.com/articles/archives/2014/may/08/thomas-piketty-new…
Solow:
http://www.newrepublic.com/article/117429/capital-twenty-first-century-…
Cowen:
http://www.foreignaffairs.com/articles/141218/tyler-cowen/capital-punis…
I'm still working my way through it and it's a very good book worth reading, and I'm saying that as someone who's far more conservative than most on this board.
Seeing it alluded to above but not said concretely...why is inequality a bad thing? Don't know that I've seen a rational argument to explain this in my life. Everything that happens in the universe is due to inequality. Are you telling me that it's evil for Bill Gates to have so much more than Lloyd Blankfein?
Inequality is bad because people are rational. In fact, the people who are most ineqaual are the least rational.
This is why we need national family planning and to eliminate the child tax credit.
I think we need to stop incentivizing people to do stupid things...that's about 90% of our problems. It's so easy to be a moron and stay a moron in the US, it's scary.
Book is liberal socialist agenda, a/k/a life's not fair. Life sucks, wear a cup.
More left wing tripe, hurray.
I have hope, though, that libertarianism will be the future. A lot of disruption right now is very anti-regulation. (Airbnb, Uber etc), hell even China is now crony capitalist. So the frenchie can scream all he wants.
We've tried Libertarianism for four years and all we got was a government shutdown and Ted Cruz. No wonder these people are getting run out of office.
I am honestly tempted to challenge Cruz during his next Senate primary. We need sane, sober Republicans who know government has a job to do but want it to do no more than it reasonably needs to do.
The Tea party doesn't even seem truly libertarian to me. The whole bible thumping scene and an absolute pro business stance, all that is hardly libertarian, it is just extreme conservatism. It is their last pushback against liberalism.
Anyway, I am terribly biased against the left wing because my country has been living with extreme socialism for 60 odd years and we are now synonymous with poverty. This year a right winger is coming to power and he might just be our last hope for a while.
This country is becoming more left.
Not sure why a book review has to turn into a political circle jerk. How many people have read this thing and looked at its findings without bias or judgement?
I am finishing my current book tonight and starting it. I'll save my condemnation for when I am through with it.
That was my hope in posting this forum. I just wanted to create some dialogue about the book in hope of hearing from some WSO users who had read it and dissected Piketty's argument. Unfortunately, that didn't transpire ha. I too am about to read it.
Well this one guy did: http://consultingbyrpm.com/blog/2014/05/piketty-cant-even-get-his-basic…
That blog has some fair critiques. That being said, I'm not going to dismiss a book because it being off by a year (I am sure arguments can be made that he wasn't off). Also, whether 1925 is late 1920's or not is subjective.
As for the author twisting things to make it FDR saving the day vs. pro business Hoover, I don't think you need to twist stats for that. Hoover was pretty ineffectual regarding the depression and basically wanted private charities to fill the void. He did a lot of government intervention, but nothing like FDR did. I personally think FDR gets far more credit for the recovery than deserves, but that shit happens. IMO, I think FDR was one of the worst presidents from a Constitutional stance.
I am going to read the book and make my own judgement. Anyone that has read my past posts will tell you I am far from a bleeding heart liberal on much of anything. That being said, I think it is good to read argument with an opposite viewpoint. Maybe my mind will change, maybe it will open to other possibilities and maybe it will just reinforce what I currently believe, but give me a better understanding of how the "enemy" thinks. I just wish more people would read the book or at least refrain from the same old Right/Left wing talking points.
This site is full of educated people with a financial/economic understanding far beyond the populace. It is sad when we cannot have an intelligent discussion regarding topics we all know about and instead descend into the same attacks that you see on Fox News and CNN.
Piketty's book is the tired, sophomoric populist drivel one espouses when they take Econ 101, become enlightened, know what's best for poor people, and true socialism hasn't been tried yet, thus you can't use every vanquished communist economy as an example why socialism does not work. Laughingly hysterical.
Sling it. Pathetic.
What is everyone's reaction about the inconsistencies found in the data used by Piketty?
Especially now that it seems the data was construed in a way to give off the idea that the wealth inequality is increasing.
Oh, the left right divide... Less government, but some government... Fiscal conservatism, but modern civil liberties (gay marriage, etc)
The divide is perceived to be more pronounced due to the multitude of mediums to be heard. Income disparity has historically been the same, it's just the whiners are whining and stomping their feet more and unfortunately have a voice on Utube, FB, Twitter, etc etc
I have actually read the book (unlike most who have posted above) and my only real criticism is that he is assumes the return to capital will be higher then GDP growth going forward but i find is case for lower GDP much more convincing then his case for high returns to capital. He says things like "returns to land ownership will always be high due to scarcity of land"...to me that is a flat out ridiculous assumption and the type of stuff I hear from crazy uncles at family events trying to justify their involvement in some time-share scheme. He also spends only 1.5 pages to the idea that the Federal Reserve and global money printing have been a major contributor to asset price inflation and therefore higher returns to capital.
My own opinion is that high returns to capital relative to wages over the last thirty years are a fact, but they are more a result of globalization, which threw developed market unskilled workers into competition with billions of similarly skilled workers from poorer countries, combined with the Fed and other central banks refusing to allow that wage deflation to translate into general price deflation and therefore printing money and supporting asset prices. I think it has very little to do with the bogeyman of "capitalism" which is really a fairly meaningless term at this point. I am not even really sure which countries practice "capitalism".
Don't you think he makes a good case that as long as there are a large number of people willing to borrow money and essentially trade a dollar tomorrow for 95 cents today capital will have positive returns, even in a low growth environment?
....everyone can want to get 5 cents extra by delaying gratification but interest rates are just the price of money and in a free market if everyone tried to do that the rates would go 0 or negative and it would be impossible. In our modern experience I am quite convinced that excess returns to capital have much more to do with the Fed ensuring capital gains by providing a lender of last resort and by creating asset inflation then they have to do with some natural condition that is a function of capitalism.
Land is scarce, look at Manhattan. Just because all land isn't as expensive as it is in Manhattan doesn't mean that it isn't scarce. You can't create more land, therefore it is the very definition of scarce. Is oil a scarce resource? You would think so based on what you hear in the media. But there is more than 100 years of oil left in reserves. Where do you draw the line at scarce?
I'm over half way through the book and find it interesting and not what everyone originally thought it to be. I'd recommend people read it and then make up their mind.
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