I have a couple of pieces up on the topic that’s likely to consume much of my attention for some time to come: Piketty’s Capital in the 21st century.
Here’s a long review article at Inside Story focusing on the conditions that have made Piketty a bestseller. And here, at The Drum is my take on claims by Chris Giles at the Financial Times that Piketty’s data is fatally flawed.
Update Piketty has responded to the Financial Times. To sum up, as I said in the Drum piece, the criticisms are (mostly incorrect) nitpicks except for the point about UK wealth inequality. Here Piketty’s demolition is convincing. The FT hasn’t used a consistent series. Rather, it’s taken a recent survey estimate (likely to underestimate wealth) and spliced it onto older estate data to produce the counterintuitive finding that the inequality of wealth hasn’t increased.
John Quiggin 
@yuri
If you think it’s well worth considering the empirical question of the attractiveness of employment in academic positions, why have you not investigated the evidence? If you don’t do that before drawing your conclusions, of what value are your conclusions?
What we are seeing now amongst the rich is unrestrained gluttony. Higher tax rates once reined in the worst excesses of greed. The gap between rich and poor is far more than mere dollars and cents. Income inequality also manifests itself psychologically in the lack of empathy seen in Ikonoclast’s example at 48 by Gina Rinehart.
@yuri
I referred to other possibly omitted factors on the basis of your previous statements about the role of multiple (unspecified) factors in explaining variation in incomes. If you challenge me to provide evidence for the view that many factors influence variation in incomes, you create the impression that you are disavowing that view, which previously you seemed to endorse. Since I was commenting in response to your stated views, I should like to be clear on what your view is. If you think that many factors influence variation in incomes, why do you think that? or, if you think that few factors influence variation in incomes, why do you think that? or do you have no sufficient basis for forming a view?
As for your answer to my question, what I wanted to know was not what made one particular idea pop into your head, but rather what made you think it was worth mentioning. Many things pop into my head: some of them are worth mentioning, but some of them are not. If you are serious about the possibility that you made your comment as a clever-dick input into the conversation, then what you wrote was something not worth mentioning. If you had written at the time ‘this isn’t worth taking seriously, so don’t bother responding to it seriously’ this whole exchange between us would not have taken place.
@John Brookes
Different physical variables have different probability distribution functions. Some conform to normal distributions; some to log-normal distributions; some to exponential, or Pareto, or Cauchy distributions. I see no reason to expect incomes to behave like gas molecules in particular rather than following some other pattern.
It’s worth posting this link for Singapore again.
http://www.intmath.com/blog/singapore-wealth-mean-and-median/5227
The general shape of the second graph would hold for all capitalist nations. The first is the normal distribution if wealth matched ability and effort which for humans follow a normal distribution.
The second graph shows the existent wealth distribution with many poor and very few rich. The two graphs are complete mismatch. Therefore wealth distribution does not follow ability and effort.
@Midrash
You have shown no basis for your confidence that there would be almost universal acceptance in China for rising inequality as a concomitant to increasing prosperity.
You have also shown no basis for any expectation that increasing prosperity in China must mean declining prosperity in Australia, but even if it does, declining prosperity is just as compatible with decreasing inequality as with increasing inequality.
Steve Kates has identified a basic error in economic theory in Capitalism in the Twenty-First Century:
So it follows that the 1% have not become richer, and more politically influential relative to the rest of the population. Dr Piketty should be thrown out of the economic profession and his book is worthless. Or are there alternative explanations?
@Midrash
I am sorry if I did not make the meaning of my question clear enough.
My question was not just about why yuri had chosen to use specific rather than general terms but also about why yuri had chosen to mention some only of the specifics. Saying ‘the pattern of variation in incomes depends on identifiable factors [X], [Y], and [Z]’ is more specific than saying ‘the pattern of variation in incomes depends on multiple factors’, and this specificity can be good. (It does depend on being able to identify X, Y, and Z.) Saying ‘the pattern of variation in incomes depends on [X]’ or ‘the pattern of variation in incomes depends on [X] and other factors’ suggests not only a desire for greater specificity (which is well enough in itself) but also some reason for referring to X but not to Y and Z, perhaps because you consider X to the most important variable, which prompts questions like mine about why one specific factor is being emphasised over other specific factors.
However, since then we’ve had further comment from yuri suggesting that the comment may have reflected no such serious analysis and may perhaps have been a mere piece of smart-aleckry, not to be taken seriously.
@wmmbb
It’s a cheap gotcha rather than a substantive criticism of the main argument. The comment thread suggests a bit of sloppiness in the translation was to blame. Haven’t bothered checking on this.
Worthwhile plug (not completely ‘off topic’ because we’re talking about inequality):
Watch SBS1 in about 3 minutes time, Pilger’s latest damning film “Utopia” is on. It’s about our disgraceful treatment of our first nations peoples.
Someone needs to explain why inequality is a bad thing when Australia has a massive transfer payments in the form of welfare and relatively low tax rates. What is bad about someone wanting to be rich by risking their own cash? If an entrepreneur risks his/her money, works 80+ hrs per week, sacrifices comfort and earns a shed-load down the line, what right do you have to confiscate that wealth through extraordinarily high taxes in the name of “inequality” and “fairness”?
@faust
If you think inequality is a good thing, then surely you should be thrilled to bits that somebody has found evidence that it’s increasing and also that it is on course to continue doing so?
Is Piketty saying that it’s bad for people to get richer and richer by their own efforts? or is he rather saying that it’s bad for people to get richer and richer by inheritance?
Wmmbb,
Steve Kates is both taking a quote out of context and missreading it. Piketty makes only an incidental assumption between demand and price a not causal link on the the one hand and implies a broad time frame on the other. As I se it, the impatient Kates demands instantaneous transition in his wilful missinterpretation of the point Piketty is suggesting.
In a book that size and with so much data it is no surprise that there are a few innocent errors.
there are also nitpickers who like to check quotes to their original source to find minor errors as well.
@J-D
Then that requires an inheritance tax, not an 80% tax on high incomes or a “global wealth tax”.
David Leyonhjelm was on the ABC the other day trying to explain his position, as a fascist, on certain issues (of course that terminology is mine. “Hypocrite” is probably more accurate).
He said that all tertiary education should be provided by the private sector without any public funding whatsoever.
He acknowledged his own scholarship (that old fascist/libertarian/neo-con chestnut about “worthies” being chosen for the kind of ‘special’ treatment they would deny the unworthies).
His point was that the “free market” should reign supreme and that only those who could afford tertiary education (or those who won a prize) should get tertiary education.
I could follow that ‘libertarian’ point of view until he argued that students who couldn’t afford to pay could be offered “loans” (at usurious rates – presumably from the ‘free market’) so they could go to these profit-driven universities.
So market distortion is perfectly OK if it tilts the way of the wannabe neo-feudal class, apparently.
That is not only stupid, it’s just mean.
PS: I see David Leyonhjelm is a long time IPA type.
> “free market” should reign supreme
Free markets, of course, weigh people’s preferences in proportion to their income. Isn’t it odd that a small group of rich people would prefer that economic and policy issues be resolved through people voting with their dollars rather than voting with their ballots?
[incidentally, faust, this is the heart of the per-se problem with inequality: the best possible overall compromise given other factors might have a certain degree of inequality, but all else being equal — which it isn’t, yes — more inequality means lower average and overall utility/welfare. More inequality means trading off lots of people being able to get their second priority for a few people able to get their third: this is a terrible tradeoff, because the benefit is both smaller per-person [the marginal happiness of giving someone their third priority is less than the marginal happiness of giving someone their second priority], and given to fewer people. Which I’ve gone over before.]
Also, faust: taxes-and-transfers reduce the inequality of any particular income distribution, but if the underlying income distribution becomes more unequal over time then taxes-and-transfers will only make the final inequality smaller over time if taxes-and-transfers grows over time and faster than inequality.
Which I’m reasonably confident isn’t the case.
This is a stocks-vs-flows error, or rather a flows-vs-rate-of-change-of-flows error.
@faust
Also, by what measure do you decide Australia has “massive” transfer payments? Our welfare spending is modest by international standards
I have a copy of Piketty and am only slowly reading it. It is a large task and so it is easy for critics to confuse people by quoting bits of it in isolation. I have read the FT criticism and now Piketty’s thorough response. I think at this point, the critics are desperately trying to find some flaw in the work, not to ensure an impartial overall judgement, and certainly not to engage in genuine debate. To acknowledge that Piketty’s overall conclusion on wealth is correct would force them to admit their beliefs about economic policy are false. Much better to try to destroy the evidence that you are wrong, than to admit it. It is the climate change debate all over again.
At this point I think that the FT critic has done his own credibility considerable damage. He has been disingenuous. His claims about the UK economy are plainly false. Never mind, he will pick up plenty of work in the private sector, or for various right wing think tanks who generate justifications for inequitable policies. To solve this debate we need an ethicist, and maybe a psychiatrist. No amount of economic debate will make the defenders of unregulated capitalism admit they are wrong. It would damage their egos and possibly incomes too much.
@Socrates
You are painting a picture of “Piketty denialists”, who no doubt will employ the techniques of the global warming denialists.
I’m in favour of continual redistribution of wealth to make a fairer society. Extremely high rates of income tax in the middle part of the 20th century failed to stop the US being a super power. My own observation of the behaviour of ambitious hard working people is that they enjoy the process just as much as the reward. The argument that high rates of taxation will cause these people to down tools and leave us lesser mortals drifting rudderless in a sea of despair is utter rubbish.
@John Brookes
Why do you deserve my money? I work for it: you take it by force (tax). That makes you extraordinarily greedy.
@faust
I think the term greedy is probably better used to describe the people who go to a great deal of trouble to get lots of money.
Redistribution of wealth is not greedy. Its simply a measure to fix a flawed system. We have a system that enshrines property in law and protects it, but there is no particular reason to believe that such a system is in any way ordained.
I think that such a system is good at producing material prosperity, but bad at distributing wealth. No one deserves your money. Its just a better system if there is redistribution. Its no big deal.
@faust
And of course, the social and economic system, including technology and legal systems, that enables you to earn high wages was entirely your personal creation, so you are entitled to be outraged if it asks for a return from you.
@faust
I note the implication that its OK to confiscate unearned income such as inheritances, dividends etc. Was that your intention?
@faust
I’ll hop in as well:
What “money” is that? You mean plastic notes created by the ‘mint’ that I pay for with my taxes?
Why do you deserve to use my money to claim a unique right for yourself?
How did you make this money of yours, about which you are so protective?
Please explain how you can make “money” completely and absolutely independent of a structured society such as we have in Australia today.
None of us who live in a relatively democratic and civilised society can claim 100% entitlement to “our money”. You included, unless you are a master counterfeiter.
@John Quiggin
The translation is not at fault (I have checked with the French text). But John is right that it’s a cheap gotcha that fails to engage with the argument. Piketty is a classical not a marginalist economist; he does not AFAICT believe the real economy is ever in equilibrium for the aggregates in which he is interested. The context is the scarcity and price of urban real estate, and he suggests it may take decades for adjustments like population shifts to the countryside to take place.
@faust
How are you forced to pay tax? You have choices; you can move to a lower taxing country or go Sea Steading.
Also, faust, you can’t argue that the problems of increasing inequality are fixed by taxes if you’re also arguing that taxes are wrongful.
faust,
Your tax money is spent serving your own personal interests, no-one elses.
It sounds like you would prefer to be a free loader.
@faust
If there is going to be government at all, it has to be paid for somehow. Some people maintain, consistently, that there should be no government at all, with the corollary of no taxation. Some people maintain, consistently, that there should be government and that taxation is justified to pay for it. If you have a third option, I am keen to hear what it is.
> Please explain how you can make “money” completely and absolutely independent of a structured society such as we have in Australia today.
Money is meaningless absent people to exchange it with, of course: there’s a case you could make that property rights in objects are not rooted in communal agreement, but for cash money that’s just plain silly.
@J-D
No government means anarchy. Anarchy is never benign. It is the law of the jungle. The big eat the small metaphorically speaking.
Government of society is necessary. Indeed, without government, there is nothing cohesive and coherent enough to call a society. Then, the problem becomes, good government or bad government.
Of the three options, anarchy, bad government or good government, only good government is good. It’s almost a truism of course.
You might have missed something Faust.
Having spent a bit of time observing non-human and human animals I can reliably state that formal ownership is a delusion that is peculiar to humans. In other species, it is essentially a case of take it if you can, and, on the other side, defend it to the point where the physical risk becomes too great. The assessment of the risks of taking and maintaining ownership relies on evolved heuristics. Without these evolved-in heuristics the whole idea of ownership would be considered obviously fanciful or crazy, as indeed human ownership claims are often found to be in the face of superior fire power or regime change.
Ownership may be a useful delusion in humans as it allows the accumulation of productive resources but the operational delusion and the can only be maintained by force, habit or compact. Obviously, there will be a practical mix will required, but in the end, if we assume modern ideals like democracy, we will ultimately rely on some kind of compact: violence is undesirable and habit (alone) is unreliable. The haves must offer the have-nots something for the benefit of the maintenance of the ownership delusion by the force of the state.
@Ikonoclast
I am not persuaded that the arguments of anarchists can be dismissed as glibly as you think. I don’t think it’s necessary to take a position one way or the other on the merits of anarchism in order to make the point I was making: to be consistent, faust should either frankly and avowedly take up an anarchist position, explain how government can be funded without taxation, or acknowledge that at least some taxation is justifiable.
I know that anarchy is often used to mean no more than absence of laws, but anarchists don’t describe their politics this way. Anarchy can be a society in which there are no identifiable rulers or elites — our caricature in the early scenes from Holy Grail sketches a vision (despite his poor nomenclature — “anarcho-syndicalist” in a society without organised social labour and unions LOL).
In practice, I don’t accept that anarchism is possible this side of the disappearance of class society, which is in turn a consequence of scarcity. In theory however, it is possible, albeit, we won’t live long enough to see it.
we prefer to call it “anarchism” – a la “liberalism” or “communism” or “individualism” or “socialism” – and leave “anarchy” to polemicists. i’m glad i don’t have to defend against that old canard of a false equivalence between “anarchy” and “anarchism”. thanks to whose who agitated for clarity before i got home. if anyone really wants to know the range of what anarchism proposes in lieu of the stat.e george woodcock’s “the anarchist reader” is as good a place as any to start. what Jim Birch says about animals sounds like kropotkin. -alfred venison
“anarcho-syndicalism” does not propose a society without unions. it is a philosophy which proposed to use the power of unions to force a general strike to confront the system & bring it down. europe arguably could have done with a dose of anarcho-sydicalism in 1914, rather than socialists voting the imperialists their war credits. would that juares hadn’t been shot dead before the vote in paris! nettl in his biography says rosa luxemberg was coming around to the idea of the general strike as an instrument to rock capitalism towards the end of her life. -a.v.
@alfred venison
You misunderstood me, AV. Of course anarcho-syndicalism looks to unions — that is the syndicalist part. There were no unions implied in that scene from Holy Grail, nor even industrial workers or capitalists.
looks like i did misunderstand. apologies. good to see you’re up to speed 😉 the scene in monty python looked, no offence intended, like primitive communism to me. -a.v.
oh sigh, i get it now, Fran Balrow; its been a long arduous monday for me and memory has not served me well. enough. -a.v.
I haven’t read the Piketty book but Wayne Swan has given some confirmation of Piketty’s analysis in his Guardian article today: “When Rudd was prime minister and I was treasurer, our electorates ranked 22nd and 46th out of 150 respectively…All the Liberal party’s recent leaders have come from four of the five wealthiest electorates in the country.” If you add to this list the Man Who Squibbed It, Peter Costello MHR for Higgins, it’s probably 5 out of the 6 wealthiest electorates. What a powerful conclusion: class analysis is as relevant now as ever.
The flat real wages of recent times (see Ian Verrender at The Drum, “Slashing wages could smash our economy”) challenges their authority. As well as winning the intellectual argument, this is a strength for democratic representation, because there’s more of us than them. “They” circulate in a different world to the rest of us, and are exposed as reflecting their daily experience, which is different to ours.
The “Monday” thread is closed, so I’ll put this here (and make it “on topic” by stating that inequality in the US so often manifests itself in the targeting of the masses by 1% military industrial complex propaganda).
There is a great mid-1997 De Niro/Hoffman film called “Wag The Dog”. In the film the US needs a propaganda distraction and enlists the best PR/Advertising/Hollywood talents for the task. At one point they come up with an invented story of a soldier captured by the terrrsts the US is fighting.
They fabricate his entire story for the purposes of domestic PR consumption – which works precisely as planned. The PR narrative works on the idea that he is like “Good Old Shoe”, a fabricated ‘old classic tune’.
Long story short: “Bowe Bergdahl”.
It is too perfect for words.
PS: It’s not just a good film in the ‘dark satire’ genre, it is alarmingly prescient.
@Everybody
I mentioned earlier that I think a 40% top rate of income tax is appropriate anything more becomes legalised theft.
Yet no one has explained why you are entitled to my hard work. Arguing that the government must be paid for is one thing: but that does not entitle you to a majority of the income I create whether by work or taking risks with my own capital that I have accumulated. What right do you have to determine that my wealth accumulation is evil, but your envy/desire/moral outrage is appropriate and that whatever I produce a majority of which should be taken in order to prevent me from becoming very wealthy?
So far all I have heard is that I should be happy to be slugged with massive tax rates and that this should not be a disincentive. Indeed, it seems that everyone here wishes me to work hard and take those risks in order to make you rich and me poor!
@faust
I don’t accept that you work hard; what does that mean? How do you judge your work making money and climbing the ladder is harder than the work that I do?
List your criteria for assessing your self as a hard worker.
> Yet no one has explained why you are entitled to my hard work.
Posts 23, 24, 26, 31, 32 [by implication], 34. Essentially two reasons:
+ your property was made yours by a process that involves a whole lot of work from the rest of the community, and the community — which is essentially identical with the state for our purposes — can set terms for its involvement the same as you can.
+ on a larger scale, the whole “property” thing is a creation of the state anyway, and the state can/must set limits on what constitutes property rights and what they can be held over with an eye to the best interests of the whole community, not just the “property-rights holder”. If it’s necessary for the best interests of the population collectively — which isn’t the same thing as “if it wants to”, btw — the state can take away all your property rights, in the same way as if it’s necessary the state can have you live out the rest of your life in a small locked room [say for taking property the state has assigned to other people].
So you can’t say that explanations haven’t been given. You may not understand or agree with the explanations, but for that you’d best look at yourself: in general you can’t expect to understand your errors even when they’re pointed out, because this amounts to belief in your own infallibility.
As there seems to be no open thread, here’s one for Ikono … And perhaps Megan.
http://wp.me/pGd5z-48l
I am saying that 2c is a bridge too far … Still, it’s a fun populist romp so what the hey …
@faust
It is unreasonable for you to expect people to respond to your requests for explanation when you resist responding to theirs.
What is your position?
Is it your position that there should be no government?
Or is it your position that there should be government, but that it should be paid for by some other method than taxation; if so, how?
Or is it your position that there should be government, and it should be paid for by taxation, but that there should be some limits on that taxation; if so, what limits are you proposing and how are they derived; are your complaints only about income tax or about all forms of taxation?
It doesn’t make you sound as if you know what you’re talking about when you refer to a 40% top marginal rate of income tax and then complain about having over half your income taken away.
I’m not asking to have you taxed to make me rich. I do not know anything of your financial affairs and don’t wish to, but I don’t mind telling you that I am paying income tax at the top marginal rate.
Edward Fullbrook is bang on correect;
“Over the past thirty years in the US and the UK there have been large upward redistributions of
income from the bottom 90 per cent to the top 1 per cent and especially to the top .1 per cent.
These redistributions are specific to these economies rather than a general phenomenon of
advanced economies. This paper argues that these redistributions have taken place because
of fundamental changes, albeit informal, in the political structures of the US and the UK.
Drawing on Citigroup reports and charting the interplay between Goldman Sachs and the
Obama administration, the paper argues that these changes have been realised through
organized, systematic, conceptualized and financially motivated subversions of the democratic
process. Strategies for effecting and preserving these changes are examined.
Some of the changes in law and government policy which were enabled by the new political structure and which in turn enabled the creation of the most recent financial bubble are listed. The paper concludes that it is in the interests of the new political order, secretly called “plutonomy” by its insiders, to have more financial bubbles in the future.”
Of course this is what is happening. If you think the plutocracy don’t have a plan and all this is happening by accident then you also must believe in the tooth-fairy.
@Megan
If you are suggesting that Wag The Dog illustrates the depths to which some people are capable of sinking because of their utter lack of moral scruples, you are correct: that is what satire is for, and there’s nothing prescient about it: such unscrupulous people were contemporary with the film’s making, not just a feature of our present being predicted in advance.
If you are suggesting that Wag The Dog is an accurate literal description in practical terms of the kind of events that could and would actually take place, the evidence suggests the opposite to me. If you are suggesting that the case of Bowe Bergdahl parallels the events of the film to the extent that the story of his being held prisoner was entirely fabricated from beginning to end for US propaganda purposes, I haven’t seen that evidence either.