Garett Jones reviews Piketty

Here is one bit:

Market-oriented economies that learn to live with inequality will reap the rewards: More domestic capital for workers to use on their jobs, more foreign capital flowing in to a country perceived as a safe investment, and a political and cultural system that can spend its time on topics other than the 1 percent. Market-oriented economies that instead follow Piketty’s preferred path—taxing capital heavily, preferably through international consortiums so the taxes are harder to evade—will end up with less domestic and foreign capital, fewer lenders willing to fund new housing projects, fewer new office buildings, and a cultural system focused on who has more and who has less.

…The Boston University economist Christophe Chamley and the Stanford economist Kenneth Judd came up independently with what we might call the Chamley-Judd Redistribution Impossibility Theorem: Any tax on capital is a bad idea in the long run, and that the overwhelming effect of a capital tax is to lower wages. A capital tax is such a bad idea that even if workers and capitalists really were two entirely separate groups of people—if workers could only eat their wages and capitalists just lived off of their interest like a bunch of trust-funders—it would still be impossible to permanently tax capitalists, hand the tax revenues to workers, and make the workers better off.

And:

…One lesson of this story is that it’s good to be patient. So let’s start training ourselves and our children to delay gratification, to forego that great sound system on the new car, to eat at home a little more often.

The full review is here.

Comments

Sharp.

No. Obvious.

Piketty is what, 45? He isn't old enough to have seen the socialist worker's paradises reject his wealth seizing rhetoric and adopt market liberalization, leading to thriving economies. The wealth generated by those reforms worldwide has funded people like him, and created wealth to seize. Those reforms were not forced upon anyone except by reality and circumstance; if you want a generous and working health care system you need a thriving and growing economy. You can't in perpetuity borrow money to pay for the care of old people. Something that the best and the brightest in the US haven't figured out yet, proving that they are blithering idiots.

I think Garett Jones' most important point is when he says to get over it, grow up and stop being uselessly preoccupied with what someone else has. If you want money, go make it, save it. By the way, the only people putting up roadblocks to doing that are the same that are gushing over the wonderful wisdom of spending other people's money uselessly.

When I refer to those people 30-40 years ago rejecting Pikettyesque rhetoric, I mean that. This stuff is so old and worn. I hear the gushing over these wonderful insights as if they were new and am convinced of nothing except the historical ignorance displayed. Marx was late 19th century, his ideas were implemented by force and bloodshed over decades, and failed miserably by all measures except everyone was equally poor except those in power.

"Piketty is what, 45? He isn’t old enough to have seen the socialist worker’s paradises reject his wealth seizing rhetoric and adopt market liberalization, leading to thriving economies."

From the NYTimes profile: "Thomas Piketty turned 18 in 1989, when the Berlin Wall fell, so he was spared the tortured, decades-long French intellectual debate about the virtues and vices of communism. Even more telling, he remembers, was a trip he took with a close friend to Romania in early 1990, after the collapse of the Soviet empire. 'This sort of vaccinated me for life against lazy, anticapitalist rhetoric, because when you see these empty shops, you see these people queuing for nothing in the street,' he said, 'it became clear to me that we need private property and market institutions, not just for economic efficiency but for personal freedom.'"

Obviously, he was not spared the debate about the alleged "virtues" of sommunism. He merely believes that the East European subhumans were not able to implement socialism the proper way.

"Piketty is what, 45?"

Well, I'm 55. I was a true-believer in the Wall Street Journal editorial page in 1979. And guess what? I was mostly right back then. The policies I supported triumphed on such a vast scale that by 1992 the Soviet Union was no more.

That historic victory means, however, that we face a new set of challenges today. Doing more of the same old same old just runs into the law of diminishing returns.

Piketty is what, 45? He isn’t old enough to have seen the socialist worker’s paradises reject his wealth seizing rhetoric and adopt market liberalization, leading to thriving economies."

Because no one knows anything about stuff that happened before they graduated from high school.

I am staunchly opposed to this artificial domestic/foreign capital dialectic that is both arcane and unnatural to the laws of economics. Surely open borders in which capital and workers are allowed to flow freely is the only way an economic system is naturally supposed to work.

The observation that taxing capital destroys capital is just plain sound economic sense. If my unique differentiated labor makes $100 of capital out of thin air by virtue of my pure brilliance and the government takes $10 away from me, I only have $90 left. Capital destruction! Of course, the government has that $10, but they will waste it on ruinous programs like roads, public schools, developing the internet, NASA, and funding of art museums. Imagine--giving my money to artists!

By NASA, did you mean NSA?

No, of course we need the NSA because the government's only job is to protect capital and holders of capital. The NSA does that. NASA, on the other hand, is a waste of resources when Elon Musk can get us to the moon more efficiently by using the private market and never taking any tax credits or government funding at all.

Can't tell if you're trolling or being stupid

Then why does he (Musk) keep asking the Federal government for more money for Space-X?

Yeah those are the only things governments spend our money on.

Odd that this is the first review I've seen to mention what I thought was a fairly uncontroversial economic consensus: that taxes on capital gains are inefficient in the long run.

Nor has the wonderful equaling effects of the wars of the 20th century been described. To quote something about Vichy France:

"The main surprise in our research was to discover the sheer scale of the spoliation of Jewish property and assets, and the chilling small detail in which it was prescribed by the authorities," Ms Andrieu said yesterday.

For some reason utopians think that it would look different this time.

"For some reason utopians think that it would look different this time."

If you'd bother to read Piketty, the whole motivation behind his desire to study and regulate inequality is an understanding of just how horrible and violent unregulated equalizations have been in the past.

The question is not how to "regulate" inequality in a non-horrible way. The question is why somebody thinks it's necessary. Not even Piketty's own data support his conjecture.

There are many forms of inequality which I believe that citizens of liberal democracies would wish to avoid. Hereditary nobility and inequality before the law is one. The kind of state "capitalism" currently evolving in Russia, China and elsewhere, wherein the political and economic elites of the nation are more or less the same group of people and who rig the game so as to further entrench their power and wealth and are able to pass it on to their kin. Which is not to say that Piketty's prescriptions are right or wrong, just that historically inequality in wealth and power have been intertwined in ways inimical to liberal democracy.

A higher inheritance tax would in no way negatively impact the economy, and would help prevent the accumulation of wealth that propagates a capitalist aristocracy.

It depends on how it is collected and distributed. Should the tax disrupt capital accumulation and induce capital consumption, then it could most definitely negatively impact the economy in the long run.

Indeed. Right now there is a potential conflict where a country is annexing parts of their neighbor. They are doing it on the cheap; the Europeans don't have the resources to mount an army to stop them, and the US is shrinking it's military because of lack of resources. Does anyone doubt that if there were ample resources at the disposal that they all would be used to rearm and establish massive military presences on both sides of the border in question?

Isn't the entire purpose of amassing capital to pass it to one's children?

Maybe if that capital is a really nice yacht that you have named after your daughter in the hopes that she will one day sail the world blowing her inheritance in seaside gambling dens and Louis Vuitton outlets.

I was thinking more along the lines of the capital that returns interest income.

Do you want to give your kids things like access to a great education, which provide therm an opportunity to achieve their own success and earn a good income, or do you prefer to just hand over automatic easy income that the children of poorer parents would never receive? Serious question.

What is in your will, Jan?

Please provide a real response. We already have taxes, were just negotiating.

Jan,

I take it then you will be leaving an inheritance to your children, then, instead of leaving to the children of poorer people.

I have no children, but I'm young yet and I may one day. I expect to leave them something. But if I do happen to have many millions of dollars in old age, certainly most of that will go to charity and not just the kind that will advance the interests of my progeny. You will probably say I'm lying.

That's noble of you, Jan. And in the absence of your own fortune to donate, you can just have the government take it from someone else.

But doesn't the US already have an estate tax system that works to prevent "a capitalist aristocracy"? Would a higher rate really make any difference? And an exemption lower than the current $10 million would only impact folks without real aristocracy-creating levels of wealth. Those with so much wealth that they could create such an aristocracy...the Gates and Buffets...are taxed at 55% unless they give that wealth away to charity...which most do usually in the form of a foundation or a bequest to a university. This fear on the left of capitalist dynasties really seems overblown.

Not really. The estate tax affects less than 0.5% of deaths and the exemption amounts are so high and deductions so numerous that the few that are taxed pay out less than 20% of the estate's value, on average. The tax itself is officially 40%, not 55%, but again that is after exemptions and any other deductions. For the super wealthy, there is a whole hell of a lot to pass on, even with the estate tax.

But if the purpose of the estate tax is prevent dynasties...rather than raise revenue...it would seem to be working if the tax collected only affects the very few super-rich and then only collects a relatively small amount of tax. The exemption amount is not that terribly high (a reasonable $10 million of decedents' life's work going to their heirs and so as to not bankrupt small businesses) and the only significant deduction for the uber-wealthy is for charitable transfers. That just means that a charitable foundation or university gets the wealth rather than the government. That seems to me to be a respectable result.

The assertion that the tax is in any danger of harming small businesses is a myth. See below for more.

The tax has multiple purposes, so don't get too caught up in preventing dynasties.

But anyway, how does it prevent dynasties if only collects a relatively small share of those very rich families' fortunes?

I don't consider $10 million especially reasonable, since it only affected 20 small businesses in 2013, owing an average of less than 5% of their overall value in taxes. http://www.cbpp.org/files/estatetaxmyths.pdf

Charitable donations are in generally quite reasonable in my opinion, and they are quite significant. That wealth is just not captured in inheritance taxes. One issue with creating charitable foundations is that they can give to orgs that lobby to protect wealth carryover. But more importantly, here is a snippet from a Bloomberg article that I think you will find surprising: "A donor locks up assets in these trusts, formally known as charitable lead annuity trusts, or CLATs, for a period of time, say 20 or 30 years. An amount set by the donor is given away each year to charity. Whatever is left at the end goes to a beneficiary, usually the donor’s heirs, without any tax bill." http://www.bloomberg.com/news/2013-09-12/how-wal-mart-s-waltons-maintain-their-billionaire-fortune-taxes.html

This is incorrect, the assets passing to heirs are still subject to gift and transfer taxes, which while mitigated somewhat by the charitable deduction are still substantial. It's the same thing that prevents the superrich from just taking their billions and giving them to their kids: gift taxes.

You have it in your head that the very rich can pass on their estates through complex schemes...but other than giving it to charity they will be taxed at fairly hefty marginal rates on death. Over that $10 mil, it's 50%+ (many states have a tax too). That said, if you got $10 billion your heirs are probably goingto get at least $5 bil. So no one needs to cry for the billionaires.

I love watching an economics blog commentators talk about legal matters.

The tax absolutely was a real danger to small businesses up until recently. Now the exemption is high enough that it isn't much of a threat- but when it was 1 million, it absolutely destroyed capital by leaving heirs with massive tax bills.

What you can do with charitable lead annuity trusts, GRUT, GRIT or otherwise is limited. There is no way to avoid the estate tax so long as your estate is big enough. The Bloomberg article doesnt even cite the law correctly. I have rarely seen a non-specialist, journalist article that even vaguely gets the law right on may of these estate matters.

If the current system was designed to prevent super .01% dynasties it already does that.

'There is no way to avoid the estate tax so long as your estate is big enough. '

The Waltons, who know something about big estates, beg to differ -

'America’s richest family, worth more than $100 billion, has exploited a variety of legal loopholes to avoid the estate tax, according to court records and Internal Revenue Service filings obtained through public-records requests. The Waltons’ example highlights how billionaires deftly bypass a tax intended to make sure that the nation’s wealthiest contribute their share to government rather than perpetuate dynastic wealth, a notion of fairness voiced by supporters of the estate tax like Warren Buffett and William Gates Sr.

Estate and gift taxes raised only about $14 billion last year. That’s about 1 percent of the $1.2 trillion passed down in America each year, mostly by the very rich, former Treasury Secretary Lawrence Summers estimated in a December blog post on Reuters.com. The contrast suggests “our estate tax system is broken,” he wrote.

Alice Walton’s mother and brother poured more than $9 billion into trusts since 2003 that fund charitable projects like Crystal Bridges and are also designed to protect gifts to heirs from taxation. Another Walton pioneered a tax-avoidance maneuver that is now widely used by U.S. billionaires.

“I hate to say it, but the very rich pay very little in gift and estate tax,” said Jerome Hesch, a lawyer at Berger Singerman LLP in Miami who reviewed some of the Walton family’s trust filings for Bloomberg. “At the Waltons’ numbers, the savings are unbelievable.”

A family spokesman, Lance Morgan, said in a statement that “any charitable or estate planning practices employed by the Walton family are broadly available and commonly used.”' http://www.bloomberg.com/news/2013-09-12/how-wal-mart-s-waltons-maintain-their-billionaire-fortune-taxes.html

@Nick, fair enough I am not a tax lawyer. But how does it prevent superrich dynasties if the taxes only kick in after certain thresholds (which seem high to me) and the tax rate itself is still a max of 40-50%? Doesn't that allow the transfer of massive amounts of wealth?

So when the Bloomberg article finally got around to describing how the Walton family "avoids" the estate tax it said:
"The type of...trust used by the Waltons doesn’t generate a break on income taxes. When a donor sets one up, the IRS assesses how much gift or estate tax is due, based on how much of the trust’s assets...will go to heirs. The IRS makes its estimate using a complicated formula tied to the level of U.S. Treasury bond yields during the time when the trust is set up. If the trust’s investments outperform that benchmark rate, then the extra earnings pass to the designated heirs free of any estate tax."

Isn't that Piketty's formula r>g?

The appreciation in excess of the Treasury bond rate goes to the heirs free of estate...not income...tax. So what's the problem?

The tax absolutely was a real danger to small businesses up until recently."

No it wasn't. The evidence just doesn't support this claim.

Note also that during the great "death tax" debates the Republicans never produced any actual small businesses that were affected. Most are too small to incur much tax, and larger "small businesses" tend to have multiple owners, so no individual faces an estate tax on the value.

I don't even understand why inherited wealth is the bugaboo here, when I hear people complain about "the 1%" they mean the top earners right? Aren't they usually pointing to people like Rupert Murdoch, the Kochs, various CEOs, investment bankers, etc who are making money from ongoing enterprises rather than inherited wealth? There's certainly a legitimate point that certain long-lived institutions (megacorps, governments, etc) are excessively powerful but in the need to personalize this phenomenon there is a huge logical disconnect owing to the fact that modern "inequality" is not caused by inherited wealth. Maybe this book presents the necessary evidence to link it up, but if so it would be contrary to everything else I've seen.

Can't it be both?

For the average person, I think most of the eyebrow raising is at CEOs and investment bankers who make 100's of times what their average employee earns, yet they go to work everyday just like the typical schmo. People have a hard time understanding that their contribution to the firm is literally worth 100s of times more than their own. Inherited wealth is not the core of inequality right now, I'll give you that, but I think that is about to start changing. The Kochs may be a good example -- look at how they got where they are.

It's annoying when you completely obliterate someone's position and they just move the goalposts without even admitting that one of their key premises was wrong.

Obliterate? Dude, the Kochs--your example--are nothing without their inherited wealth and business interests. Are you reading?

"Inherited wealth is not the core of inequality right now, I’ll give you that"

Dude, yourself.

The point about covetousness doesn't make much sense to me. The extremely wealthy will still be extremely wealthy after the proposed taxes. Why would I envy such a person any less if envy were my motive? Generally, I find that it says more about the people bringing up envy or covetousness to explain higher taxes on the wealthy than the people they're imputing it to.

Here's how to write a book review without resorting to typical political stereotypes and tired cliches:
http://blogs.hbr.org/2014/04/pikettys-capital-in-a-lot-less-than-696-pages/

It's simply intellectual laziness to go for "He called for a tax on wealth? His book is just a Communist Manisfesto!"
The book isn't really about solutions. Even he has admitted he doesn't have solutions, only proposals that may (or may not) work. You could completely ignore his wealth tax proposal and that wouldn't invalidate anything about his empirical evidence or its conclusions.
The point is he has identified a problem not that he's the genius who has all the answers.

Manifesto!

It seems Piketty has identified that inequality exists, but what's "the problem"?

Well, what he's said that yes it exists, and has always done so...but also, it's accelerating, and may already be back to the level where the have nots start to get restless. That said, I think absolute wealth is far more important, but you can see how human nature would indicate growing resentment in the 'West' if the proles fall further and further behind.

So, what Piketty has identified is a potential problem...revolution...that might result from populist envy? I probably won't read the book, but does he lay out how this potential problem could tip over to become a real problem beyond just popular angst?

From now on, this link should just be included on all Piketty conversations henceforth www.vox.com/2014/4/8/5592198/the-short-guide-to-capital-in-the-21st-century/in/5397209 because this conversation is getting passé all too quickly.

Thank you Phill

By the way, did you know this is not the first 700 pages book he writes?

He wants policymakers to aim towards creating a "cultural system that can spend its time on topics other than the 1 percent"?

I'm wary of any argument that we should aim to create a "cultural system" that forestalls the discussion of uncomfortable ideas.

Nothing against you at all, libert, but that's exactly what we have! Fortunately, in the US it is really widespread only in universities.

I think you're missing the point that this topic is a horrible waste of time and energy, not that he'd want the cultural system to ban discussing it. It upsets me more when my favorite football team loses than when someone travels via private jet (unless they also lecture me about reducing my carbon footprint).

"The entrepreneur who earns a few billion from innovation might be frugal enough to pass on a massively compounded pile of capital. But between the possibility of spendthrift descendants who fritter away her fortune and the possibility of multiple descendants who divide it into tiny slices, there's good reason to expect the long-run trend will be for the capital of billionaires to grow at about the same rate as the overall economy. Since capital helps the average worker do her job, we should hope that the world's billionaires will be frugal rather than reckless, lending their capital to fund innovation the world over, but we are unlikely to be so lucky. Billionaire wealth can turn into multimillionaire wealth with just a few ill-judged marriages."

I'm not really all that in favor of Piketty's international wealth tax, but the backlashers arguing that such taxes will destroy capital formulation are twisting themselves into knots. If the reason we don't have to worry about an aristocracy forming is that the mega-wealthy just fritter it all away through risky investments or conspicuous consumption, then there is zero downside to wealth taxes on mega fortunes. You can't believe Piketty and the tax man are about to destroy the beautiful machine of capitalism if your story already has the mega-rich wasting the future away already.

"But we could also use tolerance for luck-based inequality: for the inheritor of a fortune, for the pretty-good CEO who gets an eight-figure bonus just because his company's product went viral on Vine."

Jones has a pretty fucked up view of who's actually intolerant in this world. The fortunes of the wealthy are quite safe, and none of the heiresses and CEO's suffer from a lack sychophants. Maybe the world would be better off if we had a little more tolerance that worked it's way down the income ladder, rather than always demanding more obedience from the unlucky.

I had a broadly similar impression of the argument in the review, and I really find it fishy that these sorts of considerations completely eluded the author. The debate should start here.

The problem is that at times and places there are more takers than workers. And the biggest taker is government. If government spending gets above 20% of GDP, disaster is not far behind.

But on the other hand we have been reducing taxes on capital in the US since about 1980 and about the only ones to benefit from it have been the 1%.

Moreover, it has been an era of the great stagnation so if cutting taxes on capital has not worked out very well in the US why should we jump to the conclusion that doing just the opposite would produce bad results.

It is a great theory but it has not worked well in practice. What I want to see is someone explaining why US economic history over the past 30-40 years does not discredit the theory that lower taxes on capital produces such great results.

"But on the other hand we have been reducing taxes on capital in the US since about 1980 and about the only ones to benefit from it have been the 1%."

How so? The 1% wealth share has only grown a percentage point or two since 1979 (according to Edward Woolf). Yet total wealth has grown quite rapidly. A small increase in wealth share by top groups accompanied by a large increase in overall wealth seems like a good thing to me. It's certainly better than the small decrease in top wealth shares that occurred in the 1970's alongside stagnant wealth growth (possibly negative in real terms).

"Moreover, it has been an era of the great stagnation so if cutting taxes on capital has not worked out very well in the US why should we jump to the conclusion that doing just the opposite would produce bad results."

But lowered GDP growth per capita since the early 1970's (not 1980) is a feature of all rich industrialized countries. It's mostly a mix of lower productivity and lower labor force growth than what occurred during the mass-production era of the 1950's and 1960's. U.S. GDP growth per capita has actually fared no worse than other rich nations, despite starting from a higher initial level (no convergence).

Everyone knows how the UK achieved faster growth in GDP per capita post-1980 by cutting MTR's and statuatory rates on capital income. It was recently reported that Canada has equaled the U.S. in median income per person - Canada has in fact cut capital gains tax rates and MTR's the past fifteen years. These are international examples of how lowering capital taxes does not produce or correlate with stagnation. Where are your counterexamples of how raising such taxes produces faster grow in GDP and overall wealth?

"It is a great theory but it has not worked well in practice. What I want to see is someone explaining why US economic history over the past 30-40 years does not discredit the theory that lower taxes on capital produces such great results".

The U.S. raised capital gains rates twice between 1969 and 1978 and also instituted a higher top MTR for capital income (70 percent) than wage income (50 percent) under Nixon in 1971. These were not particularly good years for GDP per capita, productivity, wealth gains, capital gains tax revenue. These years are in fact considered "great stagnation" years.

Too much envy here. Probably hard wired. Can't be helped much.

The concept of diminishing marginal returns is useful in thinking about public policy. My impression, having lived through this, is:

Reagan-Thatcher era tax cuts: Did a lot of good to spur enterprise in part, by persuading the enterprising that their countries wanted them to succeed, which seemed arguable in the leftist mid-70s.

George W. Bush era tax cuts: Diminishing marginal returns. The capitalist class was riding high. They didn't need more encouragement.

Well put. Which is why Obama rolling a lot of those back was a good idea, and didn't lead to anyone going Galt or anything like that.

Chamley Judd is is yet another example of what happens if you start with unrealistic assumptions

http://www.interfluidity.com/v2/4218.html

I'm a skeptic of Piketty's capital tax because our supranational institutions are poorly suited to meaty pursuits, but those rejecting such taxes out of hand on efficiency arguments are being dishonest.

I'd like to see Tyler tackle this.

"but those rejecting such taxes out of hand on efficiency arguments are being dishonest."

I suspect that you are unlikely to convince anybody by lazy name calling of that sort.

I'm not able to do anything close to the heavy lifting that Waldman does digging into the models, but I can be a semi-literate voice calling out the "Econ101 tells us capital taxes are everywhere and always ruinous" crowd. Epistemic closure is not just a danger for lesser souls.

I apologize to you Jwatts, but I'm pretty confident that any breaches of decorum on my part stack up pretty well against the ad hominems about Piketty the Marxist or Piketty the bobo Jesus that get a lot more prominent airing.

Here's an empirical study that could be done:

New York City taxes high incomes at a marginal rate of 3.6%. Theory suggests that should drive out rich people. And yet, it appears to me that rich people have been pouring into NYC during the Giuliani-Bloomberg era of good government.

One simple way to do this study would be to look up where Yankees and Mets lived over the years. A fellow I knew pitched for the Yankees in 1995, and was the only Yankee to live in Manhattan and pay the city income tax. I bet that has percentage is higher today.

The best places cost the most. But there is some limit...if NYC kept raising that tax rate eventually people would react.

I think property taxes are very significant indeed, especially as a share of total income in the U.S. Yet, would we say that those taxes have destroyed housing development or ownership? I believe that is hard to argue.

I think all the reviews of Picketty that have been linked here are quite negative. It would be good to provide a slightly wider scope of opinions on the book..

Adulatory reviews aren't exact hard to find

How about reviews that are actually about the book and not political commentary disguised as reviews?

http://blogs.hbr.org/2014/04/pikettys-capital-in-a-lot-less-than-696-pages/

You should post this as many times as possible in every thread, Piketty-related or not.

You might give a try to adding something constructive to the conversation rather than ad hominem and useless "witty" one liners.

It's a shame such a potentially consequential book is given the treatment of our typical political pissing matches instead of real analysis of it's content.

In response to a commenter who asked for a different kind of review and who had obviously not seen the link. What's ad hominem is the implication that I'm posting randomly Piketty-related or not."

Check the previous comments by that Urstoff character and see if you think he's advancing the discussion.

MR Comments: SRS BUSINESS

Thanks. This is the kind of review that a lot of readers would probably appreciate.

How does cooking at home more prevent concentration of capital?

I never thought those YouTube cooking videos could be a tool for the neoliberal right.

Jones writes a lot about the "it will make people jealous" problem with inequality, but seems to ignore the far more serious "it will abet rent seeking plutocrats in their efforts to control the government" problem. Didn't some study get posted here that reviewed archived newspapers to argue that corruption really was a bigger problem in the gilded age?

So "let's just live with inequality" is a better solution than "let's tax capital," but I would be more comfortable if the people advocating "live with it" paired that with advocacy for campaign contributions, limits on campaigning, mandatory voting, rewards for passing civics tests, policies promoting more foot voting, allocating more power to higher profile and easier to monitor officials, and/or other reforms that would help democracy function better in a climate where a small percentage of voters, all with similar class interests, command most of the bribe money.

I fear that many conservatives and libertarians will not adjust their positions on these issues, though. Ideally the more sure people were about future inequality the more they would be willing to accept second best, compromise policies that address the political effects of inequality, like more robust campaign contribution limits. Unfortunately, the more willing people are to criticize Piketty's global tax as politically impossible, the more likely they are to insist on politically impossible policies for improving democracy.

Well the libertarian response to corruption is to limit the power of government so that politicians that are bought can't do very much; this seems the reasonable response to basic public choice findings about non-corrupt democracy: special interests will rule even in a democracy with incredibly strict campaign finance laws simply because of the asymmetrical incentives for voting, gathering knowledge about topics, etc.

Democracy function better? Lipstick on a pig.

So “let’s just live with inequality” is a better solution than “let’s tax capital"

Talk about a false dilemma.

How's about a more radical solution - taxing consumption and rents. Why is it that lefties never talk about that ? Maybe because Robin Hanson is right - all talk about "inequality" is actually an excuse to grab things.

http://www.overcomingbias.com/2013/08/inequality-is-about-grabbing.html

Bingo!

For example, the media narrative of the Progressive left is about how the estate tax is "broken" because it does not collect as much tax for the government as the authors would like. What they do not address is how the estate tax system very effectively funnels that wealth to non-government civil institutions.

The first phrase in the quoted sentence is enough to infer the author's predisposition. There is nothing to read further.

If inequality is a non-good - something that should be tolerated for some other loftier objectives, there is no argument.

If inequality of wealth is acceptable, why not inequality of power? why not the dictatorship of 1%?

If inequality of wealth is unacceptable, what inequalities are acceptable? Why not the dictatorship of the mob?

Obviously some inequality of wealth has to be acceptable in any society that's not universally destitute. The question that no one seems to be debating (rather, just assuming the answer to on either side without argument) is whether there is a certain level of inequality of wealth that is unacceptable and whether we're near that level.

Urstoff, here is something to try: draw yourself a wealth distribution chart with the level of inequality in society that you think may be ideal, or perhaps the maximum level of inequality that would be acceptable. Then compare it to the actual level of inequality in the U.S. (not sure where you are from, but the U.S. is a decent example). I did this myself and was quite surprised.

I have no illusions or desire for a totally equal society, but wow. In my opinion we are past the level of unacceptable. Things are not really looking good at all for the bottom 60% of society.

"Things are not really looking good at all for the bottom 60% of society."

How is that caused by income inequality?

There clearly needs to be some contextual factors and counterfactuals drawn in, otherwise this exercise is working off nothing but intuitions of "fairness", which really can't be applied to actual situations that have various causes of their distribution of wealth. For example, when I'm drawing such a chart, do I assume that everyone's wealth is relative to the value of their productivity (labor or capital productivity or both), or do I assume there's just a giant pool of money to be divvied up among some population? Do I assume that there is no difference in total wealth between various distributions, or do I take the common sense view that at least very even distributions contain much less wealth than more uneven distributions (the only societies in which everyone earns the same are those in which everyone earns very little)? etc., etc.

Obviously my question above doesn't consider these, but any half-way sophisticated answer should.

"and a political and cultural system that can spend its time on topics other than the 1 percent"

I don't see this as self-evident. Rather, it seems to me increased economic inequality necessitates an increase in political inequality, and so our political system would spend even more resources helping rent-seekers, and listen even less to the concerns of the middle and the poor.

"...it seems to me increased economic inequality necessitates an increase in political inequality..."

And the evidence of that is...what? Romney lost.

"The concerns of the middle" are mostly that they want someone else to pay to maintain their standard of living.

rent seekers love Piketty- his solution would greatly up the pot available for rent seekers. If we have a 10-30% wealth tax and tax incomes above 200-500K at 80%- all that revenue will be there for the politicians to dole out to their cronies (the rent seekers). We not only will have less capital for job formation (since it will be greatly taxed) but much of the govt directed capital will be wasted by rent seekers- you will get Solyndras rom coast to coast. K street will party like never before.

Interesting review. I hope it is widely shared. - Brad Ingarfield

Is it wrong I thought of this guy first?

http://en.wikipedia.org/wiki/Garrett_Jones

One lesson of this story is that it’s good to be patient. So let’s start training ourselves and our children to delay gratification, to forego that great sound system on the new car, to eat at home a little more often.---Garrett Jones

I Agree. I say we delay gratification for all federal employees, civilian or military, and fund no pension until age 65.

Let's play out the Piketty scenario to its ultimate conclusion where society reverts to two classes: pharaohs and the stone-haulers who build their pyramids. Is Jones saying that it's been proven by Chamley and Judd that it's impossible to tax the pharaohs, hand the revenues to the stone-haulers, and make the stone-haulers better off? That must be quite a model.

Even IF (a very unlikely if) Piketty is right, we have no reasonable expectation that gov't intervention in the market will not cause even worse problems (see Solyndra, GM- I mean UMW bailout etc). It is a clear case of the therapy would be worse than the disease- let see the cure is to massively increase the power of the central gov't (IRS on steroids, regulators get to really pick winners & losers etc)-what could go wrong with that? While there is little doubt that income inequality has gone up, I have not seen any proposal to fix it that won't worsen the problem. Of course I am very suspicious when the Eliz Warrens of the world lead the crusade- she has made her academic career & lots of $ manipulating the system to her advantage. I have no doubt that the "experts' & technocrats love this idea, but the rest of us need to recoil in horror. The lefts answer to all problems is further govt control & intervention-even if the problem is worsened by prior govt action - "gotta have more cowbell" is always the response.

He tore it apart, but will it make a difference? =/

>So let’s start training ourselves and our children to delay gratification, to forego that great sound system on the new car, to eat at home a little more often.

This line is 100%, unadulterated mood affiliation.

Mr. Cowen forgot to give the link to the site that proclaims that 'countries that encourage slave wages to labor will flourish'.

"Market-oriented economies that learn to live with inequality will reap the rewards: ..."

That's an interesting hypothesis, but there's no data backing it. Reducing inequality speeds economic growth, though it does slow the growth of the most wealthy in comparison to everyone else. That's what this is all about.

Market-oriented economies that learn to live with inequality will reap the rewards

Which will of course flow to the owners of capital.

How is Mercatus funded again?

Is it a fallacy or just bad faith, all this venom. Piketty is not talking here about all people with capital. Het talks about the unlimited accumulation of capital in only a few hands, giving a few individuals the power to buy things that should not be bought. Making the meritocracy we want to live in a farce.

We are not talking about the 10 % but the 1 %.

I admit there is only one Steve Jobs. However, are there more people with the management capacity of Carly Fiorina at HP? Would they be ready for a lower salary? Perhaps a keg of beer would have done a better job? Remeber the Dilbert Principle. Paying a third each to 3 or four people could it have been more efficient, and would not have been taxed the same way.

Would capital be so much less productive spread over a smaller group?

Capital would flee countries with high taxes on capital? Not at all, the capitalists would flee, but the capital not. Some capitalists would even stay. Probably most. Sweden has not been so void of investment.

My main question is more fundamental: why so defensive against the overwhelming proof that the society is being corrupted by a very small elite?

Why do people with a normal salary (say less then 231.000 USD/month) choose to defend a system clearly skewed against them and excluding them from power and participation.

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