Yanis Varoufakis, in an interview by Andrew Mazzone, offers a cogent, damning criticism of Thomas Piketty’s theory, such as it is, of inequality. Varoufakis contends that not only is Piketty’s theory (as opposed to his empirical work) weak and unworkable, it also ignores the true drivers of inequality in a capitalist system, such as differences in bargaining power. Varoufakis contends that Piketty was more interested in coming up with an explanation that would fit a neoclassical framework and thus be well received by mainstream economists than one that would help make the world better by providing real insight into the problem. The inadequate theory leaves Piketty with redistribution as his only possible solution, and he suggests a sketchy,poorly conceived a wealth tax.
The is a lively and provocative talk.
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if a bank robber has both money and weapons – the former as a consequence of robbery and the later as a means of further robberies
and
his money is mostly spent (on weapons)
and
his weapons are worth thousands or more (him being a high tech modern sort of bank robber)
we can tax his income, maybe his wealth but we can’t tax his capital – his weapons
yes indeed i can see where you guys are coming from
the robbers of the modern world can’t be taxed and those taxes redistributed for social purposes (good or bad) simply because we can’t separate his wealth from his capital
yup – you guys are real clever
i’m going out to buy some weapons yippie – you’ve convinced me that it’s better to have everything invested in robbery
yup
clever
p
i enjoyed that poem.
I’m left wondering what “cogent” was meant to indicate in the description of this video. Three quarters of the time is spent on ad hominem attacks on Piketty. I get the part that Piketty’s 3 laws may be trivial and his definition of wealth is lacking. Both interviewer and interviewee seem to assume that their own positions need no explanation or supporting counter evidence. The video is eaten up by what appears to be sour grapes and envy over Piketty’s popular success. Varoufakis spends an inordinate amount of time attacking Krugman as a means of attacking Piketty. More substance less harangue please.
“Sour grapes” is a standard slur against anyone making an effective criticism, so yoi’ve confirmed that Varoufakis is on the correct track. As for Krugman, the interviewer specifically asked what Varoufakis thought of his response to Piketty, so you’re off-base on that as well.
We established earlier this year what Varoufakis is arguing in the video, that Piketty’s analysis makes inequality into something willed by the universe and best addressed by a tax so ineffective as to be a joke. Both Piketty and Krugman continue to maintain the primacy of conservative theoclassical economic thought which bears little resemblance to reality, and which continues to generate the political agenda concentrating power in the hands of a few thousand people.
“Sour grapes” is a standard slur against anyone making an effective criticism, so you’ve confirmed that Varoufakis is on the correct track.
I’m going to use this in my class on logical fallacies.
Argumentum ad invidiato?
de ratione asini
Ut pro exemplo , vel contra ?
If only Thorstein Veblen were alive. Imagine what total mincemeat he would make of either Piketty and Krugman for their reasoning.
ad hominem is more like he has smelly feet
No – ad hominem is smearing character instead of presenting facts. Statements like “power crazed” personality, desiring to be a “guru”, “ingratiating. Nothing to do with feet.
You don’t believe clean feet are a character issue? What kind of person are you?
(Presented in the spirit of a friendly comic jibe, but to the point: one must adapt one’s character attacks to the prevailing sense of character, lest one provide an unintended endorsement…)
You appear not to have listened carefully. Varoufakis’ remarks about Piketty’s positioning himself within the discipline were asides, but you treat them as main themes.
Varoufakis, for instance, mentioned the Cambridge capital controversy. That ALONE devastates Piketty’s theory, such as it is. He also discusses at length why ISLM makes mainstream economists insensitive to that issue, and therefore to those flaws in Piketty.
We are not going to get to equality – if we do ever get there – in one giant swoop. It’s going to be a little bit at a time, one idea at a time. And Picketty’s work is somewhere along that spectrum. It’s still on the neo side, bit it’s enough to get the neos rethinking their ideologies. Then, when the neolibs have finally digested the fact that we need a little redistribution, somebody else will come along with something a little more “osé”. And so on… if new ideas are too extreme, the neolibs will NEVER get converted, they will just push back
Why would they understand something that goes against their class interests?
Frankly, one of the few advantages of the (insufficiently warmed) “melting pot” is that it makes white cultural imperialists look silly. If one isn’t particularly attached to the Establishment and the claims it enforces (whether simply by the circumstance of bearing no such claims, or by disinterest in what is on offer), it’s better to prevent the ownership class from their superficial ethical pleas that they have common cause with those outside of it, so that they can be prevented/extracted from involvement within the political spheres in which their participation and presence are *at best* a formerly necessary but now obsolete evil.
The neoliberals are not only found in the establishment.
Actually it is extremists, like Malcom X, Communists, and the Tea Party, that scare the elite into granting Martin Luther King a pulpit (and civil rights legislation), unions, FDR and welfare, social security, etc., and government shutdowns/Republican resurgence. Reformism has only ever succeeded when married with a more extreme threat (violence) waiting in the wings.
The thing is that in this case the extremist will only be able to accomplish anything once the average population understands the full extent of the wealth distribution problem… Which was not the case a year ago or even two. Why would the establishment be afraid of extremists if they have no sway on the average Joe?
I believe that technique known as “Good cop, bad cop”.
Ah, yes. Wasn’t that what they said about slavery and civil rights? It can’t happen over night, these things take time, yadda yadda blaa. Why? There is nothing to stop people collectively deciding on reordering social and economic relationships as they see fit.
To everything there is a season, a time for every purpose under the sun… All research shows that Westerners, Americans in particular, were totally out of touch with the reality of wealth distribution. Pipetty’s book has finally pulled the scales off many eyes. It has finally opened up the conversation. That’s it, that’s all. Now it’s time to move on to the next step. No one book or person will offer the holy grail.
And maybe it’s not the book that opened the eyes but the eyes opening and/or the awakening that propelled the book. A case of what came first, the chicken or the egg? The population needs to understand the extent of the theft (which is still not well understood) before anything can change.
This is perception vs. reality:
http://www.ritholtz.com/blog/2013/03/wealth-inequality-in-america/
Thanks for pointing out an important video. Both speakers make interesting, and ocassionally controversial, points but in the end, several simple things stood out. They agree that the ISLM-dominated professional foundation ignores “money” and, thus, credit (leverage). Ultimately, that means that Economics is attempting to be scientific without dealing with one of its foundational concepts. They also recognize other weaknesses but I felt Yanis’s comparison of Piketty’s position with that of John Rawls and the recounting of Nozick’s Libertarian attack on that position was most valuable.
I generally like to give authors, academic or otherwise, a chance to mature before coming to some of the conclusions these speakers and so many others have drawn. Piketty’s argument, as I understand it, represents a recognition and validation of a condition. I think we should give him and the community time to mature that thinking and help it evolve, hopefully in ways suggested here.
Author’s “Right of Reply”, anyone?
At the bottom of this page.
Not the same thing. I mean a meaningful right of reply, a thread–as Varoufakis was allowed here–in which, if the author desires, he can address fully the claims and charges made against him here.
Of course, people could just read Piketty’s book and decide for themselves whether or not Piketty is a friend or foe of inequality or, moreover, whether he’s a genuine proponent of, advocate of the theoretical adequacy and accuracy of the presently prevailing neoclassical capitalist economic model(s).
In Varoufakis’s criticisms, I recognize neither the book I read (partially and which I currently continue to read) nor its author’s motives or intentions.
If Piketty himself presented straightforward and unequivocal denials that he’s in fact what Varoufakis represents him to be, what would the response here be?— “Of course he’d say that!” ?
Piketty’s text, from start onward, indicates to me that, contrary to the claims of Varoufakis, Piketty has and does, indeed, recognize so essential a role as gross inequalities between employer-manager/capital, on one hand, and wage-earner/laborer on the other, in their relative negotiating strengths just as he is clearly capable of recognizing that wealth is found in widely varying forms–from the family silver of the elderly person who has no earned income and lives on a pension to the coupon-clipping millionaire who, also, has no earned income from wages but brings in via interest on investments millions (in $ £ or other) per year.
———————-
Being charitable, I’d say that Varoufakis really, really wants very badly to uncover something which is part of the as yet unappreciated theoretical supports through which both experts and lay people are misled–and mislead themselves–into accepting a false and harmful view of socio-economic practices–the ways by which power gets and holds its place of dominance over others. Finding and exposing such things is, of course, an admirable aim. We’re lucky whenever someone actually does make a contribution to that end. But here, I think Varoufakis has strained himself, allowed his imagination to go far beyond what’s warranted in a critical reading of Piketty’s book and the motivations which Varoufakis imputes to him.
Why that effort so impresses Yves is something that also puzzles me. She puts in enormous time and effort. When she found time to read Piketty’s Capital in the Twenty First Century from end to end I can’t even imagine. Maybe some R & R is in order. Lately, her judgment strikes me as very peculiar.
This is not a fiction book where author and story can be kept separate. It is normal to infer by reading the book and witnessing speeches, interviews and what these people accomplish in their day-to-day lives.
Whether he is right or not is another matter.
The value of this talk was in the last three minutes or so. What was important was the idea that the process needed to be fair, but the outcome was not something you could control in detail. The rest of it was frustrating because of the generality of it. For instance there was a discussion of three points made by Piketty, the first was deemed a tautology, the second was of some value, and the third was also dismissed. There was no discussion of what the three points were and why their description of them was true. I have read the entire book, but I cannot recall what were the three points they were talking about.
The discussion of how Nozick destroyed Rawls’ thesis by asking a simple question was very informative. The fear that the same thing would happen to Piketty as what happened to Rawls was also a lesson well worth learning. I also valued the insight by Varoufakis of what was right and what was wrong with Libertarian philosophy. In essence the focus on process is right, the thought that unfettered capitalism was a fair process was wrong.
Much of the rest of the discussion was useless to me. I can’t pass judgment on how useful it was to anybody else, because I cannot know what prior knowledge someone else brings to listening to this discussion.
Its not perfect, but its a step in the right direction.
Typo in your title:
“Picketty is
sa Defender…”@Steven Greenberg Apologies for not having made the analytical points more cogently in that interview. It is not easy to do this in an interview format. But just in case you want to read them, here is an article that expounds them in full: http://www.paecon.net/PAEReview/issue69/Varoufakis69.pdf
Yiassou Yiannis!
Then milo ellinika poli kala, ala katalaveno ligo.
I wish I could read you in Greek!
thavmasia
Thank you for this interview. What to do with an economic “process” that is so efficient at making money that it destroys its own reason for being? Purportedly creating an ever better life for us humans. Capitalism is just that efficient. It accumulates more money than god. So then all the capitalists say, well capital isn’t money. OK. Whatever. I can vaguely understand it the other way around, that money isn’t capital. Because capital is all of us getting together to cooperate to make a better world and money is just an exchange mechanism that facilitates it. If capitalism can’t evolve to be a distribution mechanism that prevents inequality, capitalism will kill itself.
And speaking of libertarianism, it seems like libertarianism has been the underlying rationale for capitalism for several hundred years and it has brought us to this impasse. Varoufakis’ best question was “Who is going to take out the garbage?” He was talking about bargaining power but he was inadvertently prescient. Applying inequality to analyze capitalism we see ridiculous wealth on one end and lotsa garbage on the other end. If we recycled this imbalance, forcing the wonders of capitalism to actually pay for environmental destruction and barges of garbage dumped in the ocean rather than recycled and etc. then human inequalities would be greatly diminished and great wealth would probably never accumulate.
“The worst form of inequality is to try to make unequal things equal.” — Aristotle
What did Aristotle say about making equal things unequal then?
“You are the master of your fate. You are the captain of your soul.” –William B. Henley
Recent experiments in neuroscience support the view that it is our physical brain, following the known laws of science, that determines our actions, and not some agency that exists outside those laws. For example, a study of patients undergoing awake brain surgery found that by electrically stimulating the appropriate regions of the brain, one could create in the patient the desire to move the hand, arm or foot, or to move the lips and talk. It is hard to imagine how free will can operate if our behaviour is determined by physical law, so it seems that we are no more than biological machines and that free will is just an illusion. -Stepehn Hawking.
lmmao… Free Will – TM. reductio ad impossibilem… you brought that shite on yourself…. now lick my boot…. [head rolling around on stem cackling].
Skippy… amends~
ROTFLMAO
“What did Aristotle say about making equal things unequal then?”
Quite a bit. One could build whole libraries out of it.
You mean like Affirmative Action?
What’s so terrible about measuring Capital in dollar terms ? I mean people do it everyday of the week right ?
My previous response isn’t showing up so I’ll try again:
If you look at neoclassical models you’ll see that aggregated capital isn’t anywhere. That isn’t a coincidence: they don’t know how to measure it. Nobody does. It would require we assume prices are always correct a la Efficient Markets Theory, which then leaves us with the inability to separate the underlying value of the capital from the profit. On these grounds alone inequality lovers would tear any proposed tax apart.
Varoufakis obviously has some bias against Piketty. The way he trivializes Piketty’s first law is unfair. Varoukis says the law is a tautology in the same way as 5 = 5 is a tautology. In reality, the law is a tautology in the same way as 7×8 = 56 is a tautology. Of course if you add 7 eight times or add 8 seven times you will find 56. But we’re taught multiplication tables for a reason. We want to be one step ahead and not redo the computation every time.
Holy moley, you admit Varoufakis is right but you still try to accuse him of having personal animus? How about being annoyed about reinforcement of stupid neoclassical ideas? People on this site have no problem with attacks on those who support bad behavior among our elites, like Timothy Geithner and Andrew Ross Sorkin. So why do you have a problem with an economist taking essentially the same position and calling out that type of behavior within his discipline?
Confused talk about Rawls and Nozick. First of all, the latter lost both the intellectual and the political argument. That Rawls won the intellectual debate is so obvious there’s no point making the case. But Varoufakis makes the common mistake of associating the current oligarchic nature of power with some libertarian incarnation. This is a serious misreading of Nozick. Also, the suggestion that Nozick cornered Rawls on the question of process is silly.
Varoufakis is a good guy. He’s got better things to do than attacking Piketty. This is all a little pathetic, accusing Piketty of padding his book with policy recommendations as a marketing ploy. Come on, Yanis, you’re better than that. Keep on fighting the good fight. Don’t get distracted.
You seem to either have not listened to the talk or not understood it. The big takeaway is that despite creating a lot of discussion in the economics discipline about inequality, Piketty is pro status quo, both analytically and in proposing a remedy (a wealth tax) that is obviously poorly thought out and inadequate (but as Varoufakis explains, all you can come up with if you remain loyal to the neoclassical framework will be inadequate remedies).
In other words, Piketty is not your friend but you mistakenly assume he is because he wrote at length about inequality. The fact that he was invited to see Jack Lew was a loud signal that the Administration approved of the book and was telling the White House press to promote it, which they did dutifully. Piketty basically presents extreme inequality as a state of nature and the US period of shared prosperity as an anomaly, as opposed to treating both as the result of social and economic policies, which reflect the jockeying (or lack thereof) of various blocks within the political and economic system.
RE: …”Piketty basically presents extreme inequality as a state of nature and the US period of shared prosperity as an anomaly, …”
No, he does not present it that way. He says, rather, that capitalist economics–with, implied in the term, in all the varieties of it we’ve so far seen and experienced–does and shall inherently produce lasting and undue inequalities. These inequalities, unless redressed one way or another–either by design through redistributive policies deliberately and routinely undertaken by public authorities, or, failing any such efforts, then, ultimately, by such calamities as war, will simply persist and do general harm to the public’s civic welfare. He places himself squarely in the camp of those who reject doing nothing about redistribution and proposes, inter alia, an world-wide tax on wealth–neither as a panacea nor as a completely effective or realizable end. He says explicitly that these things require coordinated efforts in a larger comprehensive plan.
No amount of coordination could make his prescription work. Piketty is well aware of this, which is Varoufakis’ point.
Tell me, because I wonder: You’ve actually read some of –if not all of–the book, right? I mean, you checked a copy out a library and spent at least one borrowing-period with it reading it in part of in full, or you own a copy and have it on your bookshelf, right?
Varoufakis himself points out what may be largely true for many–that they adopt the book as a kind of talisman, never having read more than–as he estimated it–about a dozen pages. I’d guess that’s an underestimation. I read the first 150 pages before my reading attention turned to other things. But, now, with this discussion going on, I’m prompted to pick it up anew and read from chapter 13 to the end of the book.
Where do we find you on the spectrum of Piketty’s readers of this text? Just wondering.
Are you prepared to argue the economics or not? So far you’ve avoided it and here you do so again.
To recap, my question was,.
“You’ve actually read some of –if not all of–the book, right?”
& ect.
I’ll take your reply as a “no,” then.
Take it as you like. Won’t change that you’re a lightweight.
“[Piketty wants to prove] the proposition that this historical trend of increasing inequality is capitalism’s ‘natural’ tendency.” [Yanis Varoufakis, Oct. 2014]
According to Piketty, the culprit is not the state of nature but capitalism itself. His book makes a strong case. His remedy might well be impractical but it’s rather disingenuous to attack an economist for failing to come up with the perfect cure for capitalism at the end of a long book whose main purpose is to present facts, trends, and relations. Fact is, Piketty and Saez have done more to nucleate a debate on inequality than anyone else on the left. So perhaps their theories are not quite right. Yes, that’s called economics, a field where no theory is ever quite right. Varoufakis seems to imply that, if only we had the theory right, we’d be fine: “Piketty’s particular theoretical construction, in the end, is the greatest enemy.”
Not Goldman Sachs or Jack Lew, mind you. No, no, the greatest enemy is the wrong set of mathematical equations.
Speaking of which, Piketty was invited to talk to Jack Lew. Indeed, and Varoufakis advised the Papandreou government for years. None of this is relevant to the discussion.
What they’re asserting (Yves included) about Piketty is much more sinister than that. For them, Piketty’s work is deliberately done to present both a false set of premises for a particular vexing economic social ill, namely, deep and persistent inequality, [1] and then to present as the best means of redress a world-wide (i.e., ideally, inescapable) tax on wealth which is then used to redistribute the imbalance in wealth to those who’ve been the systematic losers in the economic outcomes–this, say Piketty’s detractors here, he proposes deliberately insincerely because he supposedly knows or believes it to be inherently not feasible and that’s supposed to be his objective–undermine what would otherwise be a useful exposition of the sources of inequality and the real resolutions to that scourge–resolutions from which, though Piketty has or may have discovered them, he’s bent upon distracting us–which he did by writing this 700+ page treatise on the history of inequality as a vexing problem of capitalist systems.
Exactly why Piketty was inspired to do all this tremedous misleading work is explained to us as just his ambition to become in false appearance only, “the guru of inequality”–a problem which is once again very much on the minds of many people today since it describes the miserable conditions in which they find themselves trapped–without really offering anything interesting or useful toward the understanding or the remedying of it.
So, Piketty, to hear these critics tell it, really has to be one of the most dastardly people now at work in the world today since he’s made it his project to present a new and durable apologetics for a ruinous capitalism at the very hour in which people have begun to recognize its devastating effects on their living and working conditions.
If all or–even some– of this were actually true about Piketty, he really would be a monstrous sociopath–a key enabler, by his theoretical treatise’s supporting structure, of the social harms from which millions are suffering.
Odd.
Just recently Piketty was being praised here for “shredding” marginal utility , a neoclassic touchstone :
http://www.nakedcapitalism.com/2014/11/shaky-foundations-neoliberal-economics-marginal-productivity.html
The worst “enemies of egalitarianism” are those who try to destroy their own allies , in obvious attempts of self-promotion. Luckily , in this case , their aim was off , and they merely shot themselves in the foot.
Like “bobs” , above , I thought Varoufakis was better than this. Unlike bobs , I don’t now.
The book is almost entirely about returns to capital, which Piketty conflates with existing wealth, and not returns to labor. So what Masaccio has focused on is accurate in terms of what PIketty says, but it’s pretty much as aside in terms of the thrust of Piketty’s book. His r>g theory has been discussed widely, and both accepted uncritically by some and shredded by others on the right and left. By contrast, his discussion of marginal productivity, which is not central to his argument, has gotten little attention.
The problem is Piketty’s incoherence. On marginal productivity he correctly states the phenomenon cannot be measured, yet as a solution to inequality he proposes taxation of wealth and capital which he knows cannot be measured.
Most of this discussion struck me as incoherent. And I say that as long-time admirer of Varoufakis, whose blog I’ve followed with great interest and sympathy. He is definitely one of the good guys. So why so many cheap shots at Piketty? I get the feeling there is something personal going on. If Varoufakis sees Piketty as part of the neoclassical mainstream then where does he see himself? If he’s a socialist he should come out and say so. If not, then what?
I like the idea of a wealth tax. Unlike so many economic prescriptions, it’s simple and to the point and everyone can (more or less) understand it. And no, your grandmother need not worry about her silverware because obviously silverware sitting in a drawer isn’t wealth in anyone’s definition of the term. Now piles of silverware sittting in a warehouse, that’s a different story.
As for confusing wealth and capital, Varoufakis himself seems to be confusing productive, socially useful capital with any sort of capital at all (such as a warehouse full of silver or gold). The sort of wealth represented by multiple dwellings, luxury items, investments in purely financial products, vast real estate holdings, bank accounts, tax shelters, gold, silver, etc., i.e., unproductive and socially useless wealth, should certainly be taxed. And if you’re worried about everyone’s grandmother, then tax all such wealth over and above a certain reasonable limit, say a few million dollars worth. I.e., excess wealth. Wealth in the form of productive and socially beneficial investments or projects, such as factories, socially valuable services, entertainment, the arts, etc., should not be taxed. Not, at least, any more than it already is.
Of course, the existence of a wealth tax of any kind as a solution to inequality already implies a very strong role for government and the type of government that would be committed to using that tax as a means of redistribution. Which tells me that Piketty is, at heart, a socialist, whether he wants to admit it or not. As for Varoufakis, I’m not sure exactly where he stands.
There is much in this video that runs counter to what Piketty has actually written in his book. I will just present one example. Both the interviewer and Varoufakis insist that power plays absolutely no role in Piketty’s analysis. Yet Piketty writes on page 305 “This theory (neoclassical marginal productivity theory-ed.) is in some respects limited and naïve. (In practice a worker’s productivity is not an immutable, objective quantity inscribed on his fore head, and the relative power of different social groups often plays a central role in determining what each worker is paid.)
Nor is this an isolated quote. There are a number of places where Piketty refers to a bargaining model based on power as providing a superior answer to how distribution is determined. Moreover, in later chapters he explains why those with a greater share of wealth are able to attain a return on wealth that increases with the amount of wealth. The reasons he provides are squarely consistent with a relative power argument.
I believe that Yves reference to the Cambridge Capital Controversy as decisive evidence against Piketty is also misleading. While his presentation of the controversy is flawed and inadequate, there is nothing in his work that violates the conclusions of this controversy. The main conclusion was that there was no physical unit in which to measure capital so that an aggregate measure of capital could be obtained. Nowhere in his analysis does Piketty make use of such an aggregate measure. Indeed, all of his work is in monetary terms, which one would have thought would have been appealing to most heterodox economists, who make much of the fact that we live in a monetary economy. ( There was one other important conclusion that came out of the controversy,But this is a discussion for another time).
Huh??? r>g is a based on an aggregate measure. Your remark is seriously off base.
And I discussed in this thread that the discussion of marginal productivity (where Piketty is anti-neoclassical) is a minor aspect of his book because it relates to INCOME inequity, not WEALTH inequality. If you believe in r>g (which we’ve criticized regularly on this site), income inequality is almost irrelevant, since r>g assures the rich continue to get richer by virtue of their holdings.
See here for a critique we ran:
http://www.nakedcapitalism.com/2014/07/capital-back-thomas-pikettys-capital-21st-century.html
This is widely acknowledged to be a devastating theoretical critique:
http://ineteconomics.org/sites/inet.civicactions.net/files/Lance%20Taylor-Piketty%20Paper.pdf
He doesn’t make use of an aggregate measure because capital can’t be aggregated, yet he proposes it be taxed.
Yves,I am afraid you are missing the point . The Cambridge controversy established that there can not be an aggregate measure in PHYSICAL units, not in money units. The relation r> g is entirely money terms. Piketty makes clear in his book that his analysis is entirely in money terms. As for Ben Johnson, the tax is on wealth measured in money terms, so there is no contradiction.
Wowsers, you don’t understand the Cambridge capital controversy or are choosing to misrepresent it. Even a gander of Wikipedia shows that:
Neoclassical economists assumed that there was no real problem here. They said: just add up the money value of all these different capital items to get an aggregate amount of capital (while correcting for inflation’s effects). But Sraffa pointed out that this financial measure of the amount of capital is determined partly by the rate of profit. This is a problem because neoclassical theory tells us that this rate of profit is itself supposed to be determined by the amount of capital being used. There is circularity in the argument. A falling profit rate has a direct effect on the amount of capital; it does not simply cause greater employment of it.
http://en.wikipedia.org/wiki/Cambridge_capital_controversy
,Please read the Lance Taylor paper. You clearly haven’t.
Rates of profit cause the value of capital to change. Capital intensity affects rate of profit. If a good requires twice the capital to produce as another, should the owner be required to pay twice as much? Will the tax rate increase with capital intensity or profit? How do we separate the two?
A tax regime based on rough estimate will never make it through a legislature: if it did, litigation would quickly reduce it to ashes as the IRS is forced to admit before judges that they can’t accurately determine the plaintiffs’ liabilities. There is no way this approach can work.
Piketty is of the same sordid kind of “correlation is causation” fallacy bunch as most other “empirical” economists. Without a theory up front and then testing it, science always fails or comes to erroneous conclusions that are then put into law, tested, found wanting and then as a consequence made even worse. He should have studied the correlation between shoe sizes and income and suggested some genetic modifications, esp. in women …
You write,
“Without a theory up front and then testing it, science always fails or comes to erroneous conclusions that are then put into law, tested, found wanting and then as a consequence made even worse.”
Both routes happen in science. Sometimes the theory, coming first, fails to prove out. Sometimes, the observations are made without any prior theory explaining them–and lead to theory later, which might or might not be correct the first time out of the box.
——————————–
The main points I got out of this are that 1) the process of distributing wealth in society need not result in “equality” but it must be thought fair by most, if not all, citizens (and surely no system which resulted in inequality like the current state would qualify), and 2) the only way for this to occur is for the population deciding on the fairness of the process to themselves all have fairly equal – or what is perceived as a fair share of – power (i.e. power not solely dependent on pure wealth, but also other measures of bargaining power like unions, legal protections, more mechanisms for direct participation in democracy, etc.). If they do not, then the result is what we have now, where concentrated power begets more wealth for those with the power, which begets more concentrated power, etc… Certainly the point at which we have arrived has resulted from the legal-institutional-governmental structure we have created (and those we have not), and these can also only be changed (to a different structure/system) through the same means (although this becomes harder as power becomes more concentrated). I worry that what is considered “fair” is itself a concept that evolves in tandem, as increasing inequality makes us more accepting of a more skewed social system.