The return of "patrimonial capitalism": review of Thomas Piketty's Capital in the 21st century
) - "Thomas Piketty's 'Capital in the 21st century' may be one of the most important recent economics books. It jointly treats theory of growth, functional distribution of income, and interpersonal income inequality. It envisages a future of relatively slow growth with the rising share of capital incomes, and widening income inequality. This tendency could be checked only by worldwide taxation of capital
Inequality: Capital in the long run
- "Marx's original critique of capitalism
was not that it made for lousy growth rates. It was that a rising concentration of wealth couldn't be sustained politically."
Ten Theses on Growth, Employment, and Inequality
- "Since asset ownership is more unequally distributed than income, attempting to generate full employment through the low interest rates —> asset prices —> investment channel is going to generate an upward spiral of inequality." [1
Capital inequality: It's bigger and a bigger deal than labor inequality
- "I really like this chart
from Catherine Mulbrandon
highlighting the Lorenz curve (a key measure of unequal distribution) for a bunch of different types of income. Several cool points
fall out of the chart right away. One is that the distribution of capital income is much more unequal than the distribution of wage income."
How Valuable Is All the Housing in America Combined?
"When the English-language version of Thomas Piketty's Capital in the Twenty-First Century drops, it's going to be a big deal for the inequality debate. But the book is also just jampacked with fascinating historical facts that are interesting for a wide range of issues. And most of the data is up here for public consumption
if you don't mind reading a little French."
Why Taxing the Rich Is Great
- "Welfare would only fall a little bit."
Wealth Taxes: A Future Battleground
- "Rising wealth is likely to be a tempting target for governments seeking new revenue sources."
People should be taxed on the increase in their net worth
- "Far better that we should get true tax reform, where the clever rich who have hidden their assets from taxation so long, like Mr. Buffett, should pay their fair share. Washington, you want real tax reform? Tax us all on the increase in net worth, and listen to the wealthy scream. They have gamed the system for too long."
Tax price, not value
- "Property rights are primarily rights to exclude. If I 'own' something, what that means is that it is legitimate for me to exclude others who may wish to use or consume it. Exclusion, very obviously, carries externalities. My choice to exclude alternate uses of a resource affects those who might have benefited from those uses... for some classes of property, most notably patents and real estate, a tax on the externalities of exclusion might be very sensible. You can frame it as a Pigouvian tax, or alternatively as a kind of user fee that compensates the state for its enforcement of a right to exclude despite external harms. But on what basis should such a tax be collected? ... There is, of course, a much easier way to gauge what a property would sell for: Solicit from its owner a price."
Why do we pay taxes?
There are a number of reasons to pay taxes. One is to legitimate the currency, as your taxes can't be paid in any other currency than the one legitimated by the government. This means that you have to use this currency and no other. Another function of taxes is to serve as an economic redistribution mechanism, which is a political function that sometimes works well and at other times not so well. At present, it isn't working well in this sense at all. A third function of taxation is to control spending, sometimes as an aid to reduce inflationary pressures. Whether this is the best mechanism for doing this is a matter of some debate.
None of this has anything to do with supplying the government with money to spend. The type of economic system we have now is what is known as, and called so by Keynes, a fiat system accompanied by a floating exchange rate with foreign currencies. In a fiat currency system, money is created by government fiat, that is, ex nihilo, out of nothing. Should anyone else attempt to create this currency, they become counterfeiters. Where else can it originate?
If the government creates all the money, then it must spend it before anyone has any of it to pay any taxes that might be owed to said government. In a deflationary situation in which we currently find ourselves there is a good argument for substantially reducing the tax burden for both companies and individuals. In an inflationary situation, this may be a good time, depending on circumstances, to increase taxes, which would hopefully calm economic activity.
This means that a government with its own sovereign currency can never go broke. The US Constitution mandates the government to pay all its debts. Congress may interfere with this but this becomes a political issue. The US, the UK, Japan, and other sovereign nations with their own sovereign currencies are not like the members of the Euro, who have surrendered their own sovereign for a foreign currency over which they have very little if any control. Neither the US nor the UK are in the position of Greece or Spain. These countries can go broke. And, like California and other individual states of the US, must balance their budgets. There is no need whatsoever for a sovereign government to balance its budget, as it is under no economic constraints given that it is the creator of the currency in the first place.
There are a number of consequences that flow from looking at the system is this way and I have no space to go into them now, so instead I invite you to read Wray's Modern Money Theory. This issue, among many others, is discussed there.
-The Biggest Myths in Economics
: The market monetarists and me
-A new good called 'security'
-The repo market as a form of free banking
- "The subject is important for several reasons. First, as Chuck Tilly
emphasized, the capacity of the modern state to increase and rationalize its ability to collect taxes is key to the extension of military and administrative power."
The Decay of American Political Institutions
- "Interest groups, having lost their pre-Pendleton Act ability to directly corrupt legislatures through bribery and the feeding of clientelistic machines, have found new, perfectly legal means of capturing and controlling legislators. These interest groups distort both taxes and spending, and raise overall deficit levels through their ability to manipulate the budget in their favor. They use the courts sometimes to achieve this and other rentier advantages, but they also undermine the quality of public administration through the multiple and often contradictory mandates they induce Congress to support—and a relatively weak Executive Branch is usually in a poor position to stop them. All of this has led to a crisis of representation. Ordinary people feel that their supposedly democratic government no longer reflects their interests but instead caters to those of a variety of shadowy elites."
more background & context:
- The Defining Challenge of Our Time: President Obama Speaks on Economic Mobility - "Rising inequality and declining mobility are bad for our democracy. Ordinary folks can't write massive campaign checks or hire high-priced lobbyists and lawyers to secure policies that tilt the playing field in their favor at everyone else's expense. And so people get the bad taste that the system is rigged, and that increases cynicism and polarization, and it decreases the political participation that is a requisite part of our system of self-government."
- US economic mobility data - "Note that mobility data over quintiles does not address the increasing concentration of wealth at the top: see US wealth inequality and Inside the 1%." [1,2,3]
- The Strange Case of American Inequality - "Most Americans should be as worried today about the quality of their democracy as they are about the inequality of their incomes." [1,2,3]
- The government is the only reason U.S. inequality is so high - "Before the government taxes people and/or sends them money, inequality in Sweden is as high as it is in the U.S. Then everything changes."
- What the US should do to enhance economic growth and distributional equity - "Among developed countries, the US has the least generous and progressive transfer system. The US spends a much smaller share of GDP on family-assistance programs – including cash transfers, tax breaks, and direct government services – than its developed-country counterparts, where reliance on regressive consumption taxes to fund progressive transfer programs has kept income inequality significantly lower."
- Transfer payments and the modern economy; More wealth = more redistribution - "Empirically, the extent of a nation's income redistribution appears to be a function of its income level at least as much as its stated or perceived ideological disposition. The comparison between the US and China is especially stark. In recent years, Communist China's 'capitalism with Chinese characteristics' has taken on the distinct historical flavor of the 'robber baron' capitalism experienced by the US at the turn of the last century. The free market champion of the US, while certainly no Scandinavia, has adopted an extensive social welfare system (now including universal healthcare) far more extensive than communist China's."
- The Political Threat Of Soaring Inequality - "When societies grow more unequal, commonalities fray. Wealth accumulates among the few, who begin to see the polity as something to be used for private interests rather than engaged in for public-spirited reform. But as wealth at the top grows and grows, and as more and more of the middle class attempt to become part of the super-wealthy club, the loss of economic demand among the increasingly struggling majority puts a crimp in the social mobility of the wannabe elites. So we have a wealth glut: hugely wealthy one-percenters and a larger group of under-employed or unemployed professionals."
- The American Plutocracy - "If millionaires in the United States formed their own political party, that party would make up just 3 percent of the country, but it would have a majority in the House of Representatives, a filibuster-proof super-majority in the Senate, a 5 to 4 majority on the Supreme Court and a man in the White House."
- Unemployment and Profits: A dirty little secret - "A high unemployment rate keeps wages down for most working Americans - and the recent income growth has flowed mostly to the owners of corporations and not to labor. This is not an ideal economic situation for most Americans (but ideal for a few)."
- Economic Possibilities for Our Children - "If one augmented the production function to include entrepreneurs, for example, it would not be difficult to address the rising share of income going to the top one percent of the population. My conjecture is that for the next generation we are likely to see this process continue, both because of the very substantial scope for current levels of computing power to support capital-labor substitution on a larger scale, and because of the scope for increased computational power to make possible capital-labor substitution of a kind that we have not seen to date."
- Democracy, Redistribution and Inequality - "We first explain the theoretical reasons why democracy is expected to increase redistribution and reduce inequality, and why this expectation may fail to be realized when democracy is captured by the richer segments of the population..."
- The Single Best Argument Against Inequality - "Inequality undermines growth and hurts everyone."
- Capitalism: In search of balance - "While the income gap in industrialised societies grows inexorably wider, global inequality is shrinking."
- Good News and Bad News About Global Inequality - "If you set aside China and India, which admittedly isn't very wise, you find that, worldwide, the gap between rich and poor countries is as large as it’s ever been, maybe even larger. And even if you do include China and India, the two great success stories, it's surprisingly hard to find evidence that inequality has fallen on a global basis."
- Much ado about rising inequality
What, then, is the best response? First, globalisation has created opportunities for a large swath of humanity. Those opportunities need to be preserved and extended. The world's better-off should continue to help the poorer to prosper.
Second, the combination of globalisation with technological change, financial liberalisation and opportunities for rent extraction have generated highly unequal distribution of gains within nearly all countries. The Pope is right: this is socially corrosive. Unfortunately, the processes that generate the unequal distribution of gains undermined willingness and ability to respond effectively.
Third, domestic and global order depend on the ability of states to provide essential public goods. Partly for this reason, the obligation to help the relative losers and particularly the children of such losers is most pressing within countries. Otherwise, the sense of solidarity essential to sustaining trust and consent may be in peril.
Finally, countries should help one another. This is particularly true in the area of taxation.
- Why Wealth Taxes Are Not Enough - "The administrative difficulties of instituting a comprehensive wealth tax are formidable."
- Save Your Worry - "Business savings may be more mobile internationally than are household savings. You also can view these numbers as a harbinger of greater wealth inequality in our future."
- G20 must act to rewrite international tax rules - "The G20 must go further by agreeing that all multinational companies should report their profits and tax payments to governments, supporting an automatic system for the exchange of tax information by 2015, and putting an end to phantom companies by making sure company ownership can no longer be a secret."
- Big business wants to keep these four things secret - "1) How much companies pay in U.S. federal income taxes; 2) Where employees are located; 3) Where earnings come from; 4) Why executives get paid as much as they do."
- Say Ja to Socialism - "Tax returns, like most everything else in Norway, are a matter of public record. Anyone anywhere can log on to a website maintained by the government and find out what kind of scratch a fellow Norwegian taxpayer makes."