Note I wrote two pieces in response to Piketty’s Capital .
This one, on Australia, was based on one already published here, but I was asked to crosspost it and I’ve now done so.
Over the past forty years, leading developed economies, most notably the United States have experienced an upsurge in inequality of income and wealth. Most of the benefits of economic growth have accrued to those in the top 1 per cent of the income distribution. Meanwhile, living standards for those in the bottom half of the income distribution have stagnated or even declined.
Piketty’s work, published in reports and academic journals, has documented these trends. His book, Capital, not only brought the issues to the attention of a broader public, but presented an analysis suggesting that worse is to come. Piketty argues that we are in the process of returning to a ‘patrimonial’ society, in which income from inherited wealth is the predominant source of inequality.
Piketty’s work has previously focused mainly on the United States, but the research presented in Capital points to similar trends in the United Kingdom. Although inequality has grown much less in France, the third country on which he has detailed data, Piketty argues that the same trend will emerge unless there is a substantial change in political conditions.
To the extent that there is a general trend of the kind described by Piketty, we would expect it to emerge first in the English speaking world, where the shift to market liberalism and financialised capitalism was earlier and more complete. And, indeed, a sharp increase in inequality may be observed in other English speaking countries including Canada and New Zealand
Australia, on the other hand, looks like a counterexample. On most measures of inequality Australia looks more like France than like the rest of the English speaking world. Although Australia’s have experienced an increase in inequality on most measures, the general picture is one of broadly distributed improvements in living standards, as illustrated by Peter Whiteford’s contribution to a recent seminar on Piketty published by the Australian Economic Review (AER). As Whiteford notes:
Income growth was highest for the richest 20 per cent of the population, at close to 60 per cent in real terms, but even for the poorest 20 per cent, real incomes grew by more than 40 per cent between 1996 and 2007.
Other measures such as the Gini coefficient and the ratio of median to mean income tell a similar story. Inequality has increased over the period since the 1980s, but only modestly and with frequent reversals.
Turning to the top 1 per cent of the income distribution, evidence from tax data, presented by Roger Wilkins in the AER volume suggests that the share of income accruing to this group has risen, but not to the same extent as in other English speaking countries This is consistent with the observations of Piketty himself, who notes:
?the upper centile’s [top 1 per cent] share is nearly 20 percent in the United States, compared with 14–15 percent in Britain and Canada and barely 9–10 percent in Australia
Much of the credit for this comparatively benign outcome must go to the Labor government that held office from 1983 to 1997 and implemented a relatively progressive version of the market liberal reform agenda. Labor managed a reform of the Australian tax and welfare system that shielded low income Australians from the worst effects of the market liberal revolution that swept the English speaking world in the 1970s and 1980s.
In most countries, policies of financial deregulation, privatisation and microeconomic reform were accompanied by regressive changes to the tax and welfare systems. By contrast, Labor introduced broadly progressive tax reforms including a capital gains tax and a crackdown on tax avoidance.
Rather than treating welfare payments and tax policy as separate, the restructuring sought to integrate the two, taking account of the combined impact of means tests and tax policies to optimise the balance between efficiency and redistribution.
These changes weren’t sufficient to prevent growing inequality of income and wealth, and some of them were eroded over time. Nevertheless, in broad terms, a redistributive tax–welfare system was maintained under the succeeding conservative government, even as it was being eroded in other English-speaking countries.
Labor returned to office in 2007, just in time to make its next big contribution: the fiscal stimulus that allowed Australia to avoid the recession generated by the Global Financial Crisis in nearly every other country. In combination with previous successful pieces of macroeconomic management, such as the Reserve Bank’s handling of the Asian Financial Crisis in the 1990s, the result has been an economic expansion lasting nearly 25 years, unparalleled in Australia’s economic history, and scarcely equalled anywhere in the world. The strength of the labour market has encouraged a broad spread of prosperity not seen elsewhere.
Together these factors explain why Australia has avoided the drastic increases in inequality seen in other English speaking countries. On the other hand, although Australia’s a long way from the plutocracy that already characterises the United States, there is no room for complacency.
Australia’s relatively equal distribution of income and wealth depends on a history of strong employment growth and a redistributive tax–welfare system. Neither can be taken for granted. The end of the mining boom has inevitably resulted in slower growth which bears hardest on those at the bottom of the income distribution. And, as elsewhere, the political pressure to take burdens from the rich and shift them to the poor is never-ending.
Moreover, Australia has not proved itself immune to the political dynamic, noted by Piketty, by which increasing personal wealth allows the wealthy to dominate politics, then enact policies that protect their own wealth. The archetypal example is Silvio Berlusconi in Italy but the situation in the United States is arguably worse. The majority of members of the US Congress are millionaires, with not much difference between Democrats and Republicans.
Given the pattern of highly unequal incomes, and social immobility observed in the US today, we can expect inheritance to play a much bigger role in explaining inequality for the generations now entering adulthood than for the current recipients of high incomes and owners of large fortunes. Inherited advantages in the patrimonial society predicted by Piketty will include direct transfers of wealth as well as the effects of increasingly unequal access to education, early job opportunities and home ownership.
The move towards a patrimonial society already happening in the US is evident at the very top of the Australian income distribution. As in the US, the claim that the rich are mostly self-made is already dubious, and will soon be clearly false. Of the top 10 people on the Business Review Weekly (BRW) rich list, four inherited their wealth, including the top three. Two more are in their 80s, part of the talented generation of Jewish refugees who came to Australia and prospered in the years after World War II. When these two pass on, the rich list will be dominated by heirs, not founders.
The same point is even clearer with the BRW list of rich families. As recently as 20 years ago, all but one of these clans were still headed by the entrepreneurs who had made the family fortune in the first place. Now, all but one of the families are rich by inheritance.
So, Australians have no room for complacency. In an economy dominated by capital, and in the absence of estate taxation, there is little to stop the current drift towards a more unequal society from continuing and even accelerating.
On the other hand, Australia’s relative success in using the tax and welfare systems to spread the benefits of economic growth provides grounds for optimism elsewhere in the world. Australia’s experience belies the claim that any attempt to offset the growth of inequality must cripple economic growth. On the contrary, the evidence suggests that there is plenty of scope for progressive changes to tax policy that would partly or wholly offset the trends towards greater inequality documented by Piketty.
John Quiggin 
Grazias, ProfQ, it’s helpful to have your stuff accessible from one central location as far as possible.
Now all I have to do is re-read this, and re-read the Club Troppo post and then see if I can begin to come to a reasoned conclusion as to whether the Hawke-Keating governments, and in particular, the ‘Accord’, were good things, or bad things, or, as I suspect, both good and bad things, often at the same time.
Australia also had a vast demographic bonus compared to most countries, taking in large numbers of middle class immigrants as well as low SES immigrants that had the cultural capital to get them (or their children) out of that status. Many of the comparison countries either took next to no middle class immigrants and some took groups without such cultural capital (some lower than the countries they went too). Almost all (all?) were also in the situation where there is a negative relationship between SES and number of children people have. So part of this difference is probably just related to who has children and who immigrates where.
J.Q., this article and others of yours on the same topic, beg the question. Is there a systemic problem with capitalism? To my mind you seem to avoid this question and any possible conclusions.
To facilitate discussion, we could take a common ground position of ignoring Marx and considering only Piketty. To put it in a nutshell, Piketty has demonstrated a strong tendency in the system. If r>g then to a high probability inequality increases. I mean that this expression applies before the redistribution effects of welfare. In practice it now appears to apply afterwards as well, albeit to a lesser extent in some countries. The inequality tendency (pressure) of the private capital system is now greater than the equalising tendency (pressure) of the welfare redistribution system. Also, in practice it appears we have entered a period where r is likely to greater than g for a prolonged period or perhaps even indefinitely (without a crisis adjustment which destroys capital).
Redistribution, via welfare, is an after-the-fact fix. After maldistribution occurs, the social part of social democracy applies a (now partial) fix. The real question is how to prevent or minimise maldistribution at the initial production phase where the primary allocation of rewards occurs for participation in the productive process. For sure, this is to talk about the relative rewards for labour versus capital. It is also to talk about alternatives to the capitalist system itself. This last is not an exclusive preserve of Marx.
You seem, at least recently, to be concentrating of redistribution via tax and welfare effects after maldistribution has occurred. Why not focus more on the primary aspect of this problem, the initial maldistribution?
I posed the question elsewhere, What would we call thinking which stated that science and technology had reached their apotheosis and no further progress was possible? In that case, why would we assume political economy had reached its apotheosis (final form and end of history) as extant capitalism?
Oh I dunno Ikono, the world population is increasing at 74 Million per annum and is currently expected to reach somewhere between 9 and 11 billion by 2050. That’s a gain in 35 years of between 2 and 3 Billion. How much additional privately ownable assets value would have to be created for the extra population to have some basic share ? Or is it labour and only labour income for everybody from here on out to eternity ?
Is this of any relevance or will the world jusy keep on going as though none of this is happening ?Just for one small example, here’s a quote from the British Office for National Statistics:
“The total net worth of the United Kingdom at the end of 2011 was £6.8 trillion in current prices, according to the annual national balance sheet published today by the Office for National Statistics. This was an increase of £220 billion, or 3.3 per cent, on 2010 values. It equates to approximately a net worth of £110,000 per head of the population.”
Hard to say just how much the UK population will increase by over that time given the increased takeon of refugees and asylum seekers. So yair mate, just how long, do you reckon, before the pitchforks reappear and we perforce have a new social structure. And will things such as “r > g” still have any meaning at all.
JQ, I re-read your 2015 article and again found it useful. It may still be fresh next year at this point in the calender.
There is one technical point I’d like to raise regarding income and wealth:
“… growing inequality of income must precede growing inequality of wealth. This is an arithmetic necessity, since wealth is simply the cumulative excess of income over consumption …”
I am not convinced by the specified relationship between income and wealth because the accumulation process ignores asset prices. Changes in asset prices (physical as well as financial assets) are, together with contractual income streams such as rents and interest, the source of return on capital.
Ikonoclast,
Regarding your #3:
Yes, redistribution occurs, if “the social part of social democracy” applies, only after-the-event – after “maldistribution” – occurs. It seems to me this is unavoidable if ‘evidence-based decision making’ is the only game in town.
Yes, Marx is not the only source of alternatives to ‘capitalism’. To begin with, if mainstream textbooks in economics would avoid obfuscating theoretical knowledge in relation to ‘market economies’ with ‘capitalism’, then a lot of insights could be gained to mitigate maldistribution before the event. I refer to the ‘minimum wealth condition’ about which I wrote numerous times. I refer to Radner’s work on sequence economies with commodity and financial securities markets about which I wrote numerous times. I refer to the work on incomplete markets in relation to environmental issues and ultimate resurce constraints. These insights can be gained from the theoretical literature which progressed more or less independent of policy issues of the day. Second, the division between ‘microeconomic’ and ‘macroeconomic’ is stubbornly maintained in textbooks. This excludes a systems approach IMO. I tend to believe this devision is also a contributing factor for ignoring the theoretical insights mentioned earlier. For example, at present it seems to me a simple policy guideline is: Every policy is to be aimed at mitigating income and wealth inequality (this affects taxation as well as transfer policies) and evironmental degradation (waste not want not) and financial stability. All these policies belong to microeconomics within a systems framework. Unfortunately, people focus on GDP, and other macroeconomic variables. While Keynes cannot and should not be held responsible for this outcome, I do ascribe some responsibility to the various Keynesian schools of thought. (Keynes did detailed studies of the financial system and he was a successful ‘player’ in this part of the economy.)
I don’t subscribe to the idea of an ideal system which avoids maldistribution. Hence some after-the-event policies are called for in the foreseeable future. However, policies which assist the maldistributions, still in place, could have been avoided if only the small sample of the insights, mentioned above, had been taken seriously.
Lets see what 2016 and beyond brings. Today I read there are 60million refugees in the world (source: Sueddeutsche Zeitung). The number of starving people is huge. While 60million people may be a small number in relation to the population of China, it is not a small number in relation to Europe or the USA. It is an overwhelming number in relation to the population size of Australia. The impact of humans on the environment is now such that some authors suggest this era deserves a name reflecting anthropogenic impacts.
Yes, I agree with your emphasis on ultimate resource constraints. However, it is beyond me to make any predictions as to how this problem will be socially internalised in the future. It is diffiuclt to make predictions, assuming ‘the system’ remains in place. It is impossible, IMO, to predict the future allowing for system changes. (IMO, Marx’s attempt to predict system changes is where he went wrong.) Frank Hahn wrote a book on general equilibrium in a macroeconomic context. His book convinced me that the socio-economic-political history in the heads of people is what matters. Now, if you were to kindly apply your general knowledge of the world, you may agree the problem is a formidable one.
Ernestine,
Regarding your #3:
Your final sentence caused me to laugh wryly at myself. You implication is quite right. I have a tendency to oversimplification. This has deep ideological roots (and psychological precursors no doubt). As I have said before, I am Marxian in some of my thinking but not Marxist. That is to say Marxian thinking is not the totality of my thinking and I do not regard Marx as infallible. The latter would be an absurd proposition. It’s perhaps a salutary warning to thinkers like me that “Marxist” exists as an adjective but not “Keynesist”.
I want to look at your ideas point by point, mainly because I think there are important and extensive areas of agreement between us and secondly because I think I can learn more if I properly understand your comments.
1. We agree overall that the problem has, among other many other complex factors, a maldistribution component as well as a redistribution component. Maldistribution could be reduced to some achievable minimum yet some redistribution would still be necessary. This is implicit in the rubric “to each according to her or his need. Some cannot produce (children, invalids, the very elderly). There will also be some unavoidable maldistribution between producers as workers and/or owners in terms of initial income allotments. This comes with the clear understanding that at least some of this maldistribution will be debatable or contestable and there will be no completely objective set of criteria to judge it.
2. I need to understand what you mean by ‘evidence-based decision making’ in this political-economic or institutional-economic context. It is clear to me what the phrase means in a profession ostensibly founded in the first instance on hard science. Medicine is an example. But in an economic, political or sociological science as “soft science” it appears to me it could mean something a little different. I am not sure. Could it mean, for example, that ‘values-based decision making’ should come first? After all, you write “Every policy is to be aimed at mitigating income and wealth inequality (this affects taxation as well as transfer policies) and environmental degradation (waste not want not) and financial stability.” This appears at first instance to be an ethical (value) statement or one with strong ethical precursors. It is a statement I agree with obviously. At second instance, this statement appears to imply something more which might go beyond “greatest good of the greatest number” to enlightened long-term self interest (as in sustainability equals long term survivability).
3. We are in complete agreement about the “minimum wealth condition” issue and also “environmental issues and ultimate resource constraints” being factored into complete markets rather than neglected as externalities. I do not understand the minimum wealth condition postulate in any technical manner that you would recognise. Yet, I think I can tell in principle that it is a valid concept. After all, Marxism (my arena of greater familiarity) puts forward the empirically irrefutable notion of the reproductive cost of labour. The reproductive cost of labour is the minimum income condition for labour to feed itself, house itself, have enough health, energy and education to perform labour (physical or mental) and thence to reproduce children, feed, clothe, house, educate and develop them to replace the parent in the economy as the parent ages and dies. The minimum wealth condition would appear to be the market side of the phenomenon just as the reproductive cost of labour is the production and consumption side of the phenomenon. Production is antecedent as markets presuppose production as an antecedent. Markets also supposed consumption as a succedent.
4. We are in complete agreement that the economy is a complex system. Indeed it is a set of nested complex systems existing in a wider system (the biosphere). I am developing my own philosophical and empirical approach to this arena. (Heaven save us from amateur philosophers and economists eh?!) Nevertheless, I think my approach has real validity. I have no idea if it is new or useful. Probably not, but it is my quixotic project. The “collision” between humans and the environment in any practical undertaking, theoretical discipline or sub-discipline can be viewed as a collision or interaction of Formal Systems with Real Systems. I use the term “analogical congruence” in this form of analysis. You might just use “accuracy” as in “accurate model”.
Analogical Congruence is “A property of a formal system such that it accurately represents a real system in a complex systems manner enabling successful mutual and iterative transfers of information (back and forth) between the real system and formal system with operations on that information in both systems to produce measurable and desired effects in both systems with minimal or tolerable negative unforeseen consequences.”
There is much more to this theory of “Evolutionary Physicalism” as I term it but here is not the place for me to expound on it. Suffice it to say that it aims to supplant in turn the methods and ontological characters of reductionism, supervenience and emergence for a fully evolutionary approach yet still materialistic monism approach. It argues that the interfaces between systems (and sub-systems) are where information transfer as well as material and energy transfer occur. These interfaces are the only places where we can study nature and what happens inside the various systems.
Information theory will play a key role in the analysis. The crux of the argument (in some ways) is that as we move from real basic physical systems, to real biological systems, to real economic systems, and finally to real system || formal system interfaces and formal system || formal system interfaces the importance of information transfer and manipulations compared to matter and energy transfer and manipulations becomes more and more predominant. This clearly has important qualitative effects. But I write too much as usual.
Correction “your #3” above should have been “your #6”.
@Ernestine Gross
Capital gains are part of income.
@John Quiggin
Agreed, but what is the precise definition in both the tax sense and the “Piketty-ian” sense? And are they different?
Presumably, in the tax sense capital gains must be realised by sale of the asset. If Piketty and any like economist wants to make an annual accounting of income and asset worth, how are capital gains handled where assets are retained for one year or longer? One could only go by imputed market value untested by sale. Asset wealth goes up without corresponding income. Is this a problem in assessing aggregates? Is there any real problem at all here or am I imagining one?
@John Quiggin
On both, theoretical and empirical grounds, I am still not convinced that income inequality necessarily has to precede wealth inequality.
Income for individual i for period t to t+1 is wealth of individual i at time t+1 minus wealth of individual i at t.
If we can agree on a definition of wealth, then income requires no separate definition.
The concept of wealth is well defined in all theoretical models of ‘market economies’. For the i’th individual it is the market value (p*e[i]) of everything, (e[i]), owned by i at time t and everything owned by all individuals is traded at the same time (either once as in A-D, or at a sequence of dates). p and e[i] are vectors.
Empirically, not everything owned by individuals is traded and certainly not at the same time. But stuff (say land, buildings, gold, artwork, …) owned by i but not traded can still serve as collateral for bank loans. Bank loans can be used to acquire other ‘assets’. Only the assets acquired by ‘leverage’ need to earn an ‘income’ for at least some time to meet loan obligations. It is only those income earning assets which may result in a ‘capital gain’ (or loss) calculation. In many instances capital gain is calculated only at the sale of the asset (acquired by leverage) and it is calculated as the difference between the sale price and the written down (book value) of the asset. But nothing prevents individual i to use the said asset to borrow again to acquire more assets. So, an individual’s wealth can grow (or decline) much faster than income, depending on asset price changes. Only income earning assets are included in the calculation of ‘income’ for taxation purposes, unless there is a wealth tax.
How was the initial endowment, e[i], acquired? History suggests it was typically not by means of saving. A person who acquires wealth (now defined as income producing asset holdings to link it national accounting data) without inheritance must have a ‘human capital’ endowment (marketable skill) or steal (war loot, …..).
minor correction – Labor left office in 1996 not 1997.
I hope I can take up a theoretical issue that related to Piketty and indeed to all finance economics and indeed probably capitalist economics. People more learned than me can tell me if I have hit on anything worthwhile.
As preamble I must say (again), there are two kinds of systems in the world. These are Real Systems and Formal Systems. A Real System is any system which obeys the laws of physics in particular and the laws of the hard sciences in general. A Formal System is any well-defined system of abstract thought based on the models of language or mathematics. The biosphere is a real system. The real economy is a real system. The financial economy is a formal system. The entire economy is hybrid of real systems and formal systems.
In economics, as in other human disciplines, the success or failure of a formal system which intends to interact with real systems depends on its accuracy and fitness to reality (real systems as defined above). To short-circuit a long philosophical discussion about epistemology, let us consider Piketty’s now famous equation r > g. Of course, this formulation is point-in-history dependent. In other eras of capitalism, it was possible for r = g or r g (return on capital greater than economic growth) has this peculiar quality of relating a formal system term to a real system term. From our examples above, it is clear that this subject is not physics. It is also clear that it is not pure mathematics. It is “capitalist economics” which might say something not exactly praise-worthy about capitalist economics. However, it is still useful for Piketty to develop this equation and to show us that in different historical eras r g. It prompts us to ask what is going on and essentially reveals finance capitalism as a shell game (as if that needed any further revealing).
The world of classical physics is relevant here. Humans and their economy are comprised of macro physical objects. Classical laws hold to a high degree of accuracy.
“Newtonian epistemology is based on the reflection-correspondence view of knowledge (Turchin, 1990): our knowledge is merely an (imperfect) reflection of the particular arrangements of matter outside of us. The task of science is to make the mapping or correspondence between the external, material objects and the internal, cognitive elements (concepts or symbols) that represent them as accurate as possible. That can be achieved by simple observation, where information about external phenomena is collected and registered, thus further completing the internal picture that is taking shape. In the limit, this should lead to a perfect, objective representation of the world outside us, which would allow us to accurately predict all phenomena.” – Complexity and Philosophy – Francis HEYLIGHEN, Paul CILLIERS, Carlos GERSHENSON.
Of course, we don’t achieve that limit of perfect knowledge for at least three very good reasons. One is extensiveness. The entire dataset of the world is too enormous to compute even deterministically. Secondly, indeterminism and perhaps even free will exist (that is if free will is different from indeterminism). Thirdly, there is the issue of emergent and evolutionary phenomena in complex systems.
Accepting the above limitations or caveats (otherwise we would be lead into many more complexities beyond this limited post), the issue in our macro economic world is to first make “the mapping or correspondence between the external, material objects and the internal, cognitive elements (concepts or symbols) that represent them as accurate as possible”. It is clear that our finance system poorly represents reality in the translation of the real to the formal or notional. That r can ever be > g is diagnostic of this problem. One can deduce that r ought always be equal to g as follows. Firstly g (growth) = production – consumption. Economic growth must equal real net asset capital accumulation (growth in material wealth). This must be true if return on capital reflects genuine real asset accumulation.
Clearly, Capitalism is a formal system at variance with the real world. This was observed at least as early as M. Hubbert King pointing out that the finance system depended on endless, exponential growth in a finite system. The “call” of certain actors on real assets does not obey real physical laws. (Rather it obeys other real biophysical laws which the finance system does not explicitly recognise and impute; like legal and military violence as physical force). The capitalist finance and ownership system poorly represents reality. To remove these systemic problems, the system itself must be changed.
JQ, Please delete the above post as some key text was last to a strange and annoying problem induced by me trying to use the “less than” symbol. I will attempt to post again to get my full text in the blog.
I hope I can take up a theoretical issue that relates to Piketty, to all finance economics and indeed probably to all capitalist economics. People more learned than me can tell me if I have hit on anything worthwhile.
As preamble I must say (again), there are two kinds of systems in the world. These are Real Systems and Formal Systems. A Real System is any system which obeys the laws of physics in particular and the laws of the hard sciences in general. A Formal System is any well-defined system of abstract thought based on the models of language or mathematics. The biosphere is a real system. The real economy is a real system. The financial economy is a formal system. The entire existing economy is hybrid of real systems and formal systems.
In economics, as in other human disciplines, the success or failure of a formal system which intends to interact with real systems depends on its accuracy and fitness to reality (real systems as defined above). To short-circuit a long philosophical discussion about epistemology, let us consider Piketty’s now famous equation r GT g. Of course, this formulation is point-in-history dependent. In other eras of capitalism, it was possible for r E g or r LT g to occur and these eras did happen according to Piketty.
The most salient feature of this equation is that it implicitly relates a formal system value to a real system value. Return on capital (r) is a formal system value of the formal financial system. Real economy growth (g) is a real system value albeit formalised by subsequent measurement methods. To generate a physics equation we must relate a real system value to other real system values. For example, F = ma, (Force = mass x acceleration). To generate a true formal system equation, all terms must be formal or notional. For example, the equation x squared = -1. I have chosen this equation as its solution requires an imaginary number i as in x = i where i is the square root of -1. This helps make the point that the equation is formal and thus unreal in the primary ontological sense.
The equation of r GT g (return on capital greater than economic growth) has this peculiar quality of relating a formal system term to a real system term. From our examples above, it is clear that this subject is not physics. It is also clear that it is not pure mathematics. It is “capitalist economics” which might say something not exactly praise-worthy about capitalist economics. However, it is very useful for Piketty to develop this equation and to show us that in different historical eras r GT g, r E g or r LT g. It prompts us to ask what is really going on and essentially reveals finance capitalism as a shell game (as if that needed any further revealing).
The world of classical physics is relevant here. Humans and their economy are comprised of macro-sized physical objects. Classical laws hold to a high degree of accuracy.
“Newtonian epistemology is based on the reflection-correspondence view of knowledge (Turchin, 1990): our knowledge is merely an (imperfect) reflection of the particular arrangements of matter outside of us. The task of science is to make the mapping or correspondence between the external, material objects and the internal, cognitive elements (concepts or symbols) that represent them as accurate as possible. That can be achieved by simple observation, where information about external phenomena is collected and registered, thus further completing the internal picture that is taking shape. In the limit, this should lead to a perfect, objective representation of the world outside us, which would allow us to accurately predict all phenomena.” – Complexity and Philosophy – Francis HEYLIGHEN, Paul CILLIERS, Carlos GERSHENSON.
Of course, we don’t achieve that limit of perfect knowledge for at least three very good reasons. One is extensiveness. The entire dataset of the world is too enormous to compute even deterministically. Secondly, indeterminism and perhaps even free will exist (that is if free will is different from indeterminism). Thirdly, there is the issue of emergent and evolutionary phenomena in complex systems.
Accepting the above limitations or caveats (otherwise this would be led into many more complexities beyond this limited post), the issue in our (macro-sized) economic world is to first make “the mapping or correspondence between the external, material objects and the internal, cognitive elements (concepts or symbols) that represent them as accurate as possible”. It is clear that our finance system poorly represents reality in the translation of the real to the formal or notional. That r can ever be GT g is diagnostic of this problem. One can deduce that r ought always be LT g as follows. Firstly, g (growth) = production – consumption. Economic growth must equal real net asset capital accumulation (growth in material wealth). This must be true if return on capital reflects genuine real asset accumulation.
Clearly, Capitalism is a formal system at variance with the real physical world. This was observed at least as early as M. Hubbert King pointing out that the finance system depended on endless, exponential growth in a finite system (the biosphere). The “call” of certain actors on real assets does not obey real physical laws. (Rather it turns out to obey other real biophysical laws which the finance system does not explicitly recognise and impute; like legal and military violence as physical force). The capitalist finance and ownership system incorrectly represents reality. To remove these systemic problems, the system itself must be changed.
“Fetch the bedpan, dear.. there’s a good girl. And smile, or you stay out of my will”
This threadstarter coincides with some stuff on tax reform on teev just on. Whish Wilson, of FTA fame I don’t mind and the chap from the Grattan institute, but Judith Sloan.. my god, that is a hard one, that one.
That familiar asbestos look, can’t abide it, turned it off. and all those stuffed shirts in the audience silently fretting that someone on welfare might get a few cents off minor tax hikes for them.
@paul walter
Judith Sloan is the “caring” face of capitalism :-0
I’ve seen granite more flexible than that.
This is a political point. It does not necessarily follow.
Capital gains are only effective income when they are realised.
People like to screech and scream about capital gains when they should be crying about transfer of wealth from workers inherent in lowering wages.
This is a political point. It does not necessarily follow.
Capital gains are only effective income when they are realised.
People like to screech and scream about capital gains when they should be crying about transfer of wealth from workers inherent in lowering wages.
@Ivor
Prof. J.Q. hasn’t answered really this question yet after me, Ernestine and you, in that order, raised questions about the bare statement “Capital gains are part of income.”
Ernestine, also a professor of economics I understand, raised the most substantive question whilst also remaining in the general paradigm of standard economics and finance. I was kind of hoping J.Q. would at least answer Ernestine’s question.
There are further issues that other types of thinkers (like Marxians) would raise but, as these are outside the standard paradigm, too many a priori assumptions of each school would have to be argued about first so I get that J.Q. won’t enter that fraught field. I don’t get why he won’t answer Ernestine’s question. Maybe it’s a time and attention thing. J.Q. is no doubt busy with various work projects.