Picking Piketty Peeks

Thomas Piketty, a young and successful French Science Po economist wrote “Capitalism in The XXI Century”. I bought it ASAP, and then did not read one page. The reason is that there was a waiting list. By the time I got the book, it was clear it was rehashing part of what I have been saying for years.

For example, to my knowledge, I was the first to make the rapprochement between the present situation and the Ancient Regime. The Nobles (2% of the population) did not pay (most) tax.

Piketty recognizes that he just discovered “his book’s principal idea” that the “taux de rendement du capital” (return on capital) was higher than return on work. “Moi je ne le savais pas avant”. I have been pounding that fact for a decade or so.

The Higher The Return On Capital, The Lower the Growth (Piketty)

The Higher The Return On Capital, The Lower the Growth (Piketty)

It is nice to see Piketty saying these things I have been saying, now, but I have moved on, long ago. I condemn the very way money is generated (by the private-public banking system).

It is first obvious to whoever has studied past societies. Plutocracies are basically those societies where, at some point, taxation on the wealthiest has not been applied enough to limit the EXPONENTIATION of capital.

I do not find alluring to listen to my old observations. Not to demean Piketty. Others such as Saez in Berkeley, also French, had published enlightening research on inequality, for years.

I agree with all what Piketty proposes. Yet, many of his answers are all too mild.

In the period from Roosevelt to1981 (arrival of Reagan), the upper marginal tax rate of the USA averaged 82%. It applied above one million dollar income (constant dollars). Growth was maximum.

What Piketty did not say: In the next 20 years the maximum margin on the richest came down to (less than) 15%. Yes, less than secretaries.

Piketty wants to rise the upper margin tax rate of income millionaires to 80% or 90%. I agree.

To this critics of Piketty, in France or the USA, reply that will kill innovation. A French cutie interviewer told Piketty that with rates like that the robot who heads Facebook (OK, she did not use “robot”) would not have been motivated to invent Facebook.

Who cares?

As it is, Mr. Z from Facebook stole an idea from France. Besides, Facebook-like companies already existed (Myspace). There is also plenty of evidence Facebook was a government operation (the protégé of Larry Summers, parachuted to the USA government under Clinton, was parachuted to Google, and then parachuted to Facebook).

Piketty vaguely mumbled something about the research which really mattered was public. But he was weak and indecisive.

Why? Well, after all, Piketty teaches at Science Po, a place full of young arrogant greedsters who think they are becoming qualified to lead the world. They live according to a principle that Piketty himself condemns: politics as a profession. Piketty said that the fact Hollande had been in politics all his life was a problem (the same is true for roughly all politicians).

Professional politicians should not be condemned to clean the toilets exclusively, but certainly ought to be left to sort out the details, of the laws passed by the People, like they increasingly have to, in Switzerland. That’s the only exclusivity they should pretend to.

In truth, business creators are nothing much. Business creators motivated first by money are even less.

Piketty to Bill Gates: ‘If 30 years ago, one would have told you: you will earn one billion dollars, not 50 billion, would you have refused to invent Windows?’ Of course not says Piketty, answering his own question.

Piketty: Without counting that all these innovations rest on an ecosystem of public research.

Piketty missed the obvious remark that France was at the forefront of the electronics age: transistors and CPUs (chips), and even the Personal Computer (PC), were all invented, and produced first in France. He probably does not even know this.

And the fact he does not know is testimony enough to the dirty ways of money.

The hard creative work is from engineers, scientists and the philosophers who back them up, not forgetting the historians, sociologists, writers, artists and poets helping to inspire the preceding crowd.

All the world of lasers and the like came from publicly funded lab in Paris. In 1953, Kastler invented optical pumping:

https://patriceayme.wordpress.com/2013/06/20/genius-irreplaceable-jobs-follow/

The same lab has made more Nobel prize winning work founding outright a completely new field: how to see light with atoms (my own formulation, don’t accuse Serge Haroche!)

Such labs are now starved by austerity.

If you ask people at Apple Inc. why they are so good, they don’t say “Steve Jobs”. It’s not just that Steve has experienced technical difficulties, it’s that Apple engineers feel empowered. Apple has $700 billion in market cap (twice Google).

After a level of inequality, it has no effect on the motivation of individuals: why to pay traders millions of Euros? Say Piketty.

What I say is that much of trading itself, should not exist.

Much of what Piketty says about Europe and the Euro Zone is correct. One should homogenize the core part of the Euro Zone, and those who don’t like it, like Luxembourg, can stay out.

Right now in Europe, large companies pay less tax than medium and small ones. It’s even worse with middle class people versus the wealthiest.

A point Piketty makes is that inequality is not everything, but opacity also matters. He mentioned that Carlos Slims (world’s richest man) obtained juicy contracts from the government. (Piketty is careful not to say that this was a case of obvious corruption; he obviously knows this, but he wants to be keep on being invited in the power circles, and his books to create the buzz that brings millions of sales).

An objection made to Piketty is that the classification of the richest people has changed over 30 years. To this, Piketty has not clear retort, but I do.

That is indeed a silly objection: The founder of Walmart passed away. His heir have, all together, more money than Bill Gates.

More historically, under the terrible Roman plutocracy, the richest of the rich changed all the time, for similar reasons. But, although it was hard to maintain just as high a status, it was easier to maintain one just below. The Curial class (= local plutocracy) survived for 4 centuries.

Karl Marx? Piketty rightly points out that Marx wanted to cancel private property, but did not think about what would happen the next day.

Piketty suggests to create new notions of property, including hybrids between public and private property as conceived now.

Piketty was asked why he was so keen, him, such a young guy, to go all around the world, to be received by Obama, to be admired by all, etc. … Instead of being working hard? Especially with the crisis we have now?

Piketty replied he believed in the power of ideas. He believes politicians are just into doing what they believe is the dominant thinking We The People (he did not use that expression) go by. So, in the democratic debate, one should try to modify this dominant opinion.

Notice the naivety: one is very far here from my Satanic interpretation of common human behavior, especially at the leadership level

The answer to this is simple: some play, some think. Real thinkers are not in the White House, they are in distant caves, watching the sea. Occasionally, when not thinking deep.

Piketty points out that oligarchic regimes bring social problems, thus scapegoats, thus nationalist drift, and then, ultimately, like Hitler, or Putin, war.

All right, truth be told, Piketty did not mention Hitler, but he did mention Putin. Not a word on the problem of banks. Out of 29 extremely dangerous banks, the equivalent of potential super-novas on the verge of explosion, four are French. BNP is roughly the same size as French GDP. Those banks are the main engines of inequality, besides the fact any of them, by imploding would make the situation instantaneously worse than in 2008.

Those banks are still allowed to engage in a form of trading which is the modern equivalent of slavery. Piketty does not mention the problem, which is at the core of the money generating-austerity craze.

And he is not afraid to say that many of the time honored ways of economics are actually outright insanity (he repeatedly uses the word “delirium”). Piketty is no genius, but he makes an excellent impresario.

Patrice Ayme’

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19 Responses to “Picking Piketty Peeks”

  1. John Rogers Says:

    OK, the value of financial derivatives, the game of musical chairs loved by the plutocracy, is over 20 times the size of the WORLD economy. (It’s all about how to make more money on your money divorced from any physical reality or actual product – you know, like any gambling casino game.) I assume this is the sort of trading you’re talking about.
    http://www.dailyfinance.com/2010/06/09/risk-quadrillion-derivatives-market-gdp/
    Anybody remember 2008? Credit default swaps? AIG? Lehman Brothers and all that? And, of course, there’s been no financial reform.

    Even Forbes thinks catastrophe is inevitable.
    http://www.forbes.com/sites/stevedenning/2013/01/08/five-years-after-the-financial-meltdown-the-water-is-still-full-of-big-sharks/

    But we can trust the big banks.
    http://www.theatlantic.com/magazine/archive/2013/01/whats-inside-americas-banks/309196/?single_page=true

    As someone said, things go on until they don’t. Alas, we are going to live in some interesting times. We’re probably going to look back on the present day as our very own Weimar Golden Era.

    • Patrice Ayme Says:

      Even when they don’t repeat 2008, they suck us dry everyday. Because most of the money (credit) created by banks go towards those 800 trillion of derivatives. You may well be right about Weimar.

      Putin is a pure product of that Finance Supreme System (HARVARD helped create FSS in the 1990s, the same guys who brought us Obamacare, and now don’t want it since the presidency of Harvard tried to impose it on faculty!!!!!!!!!!!)
      Hitler was to, with more of an industrial USA component.

      The psychological (psycho, for short!) were the same.
      So we are indeed in bad straights. Putin still intents to grab Ukraine, he was just not ready this week… Both Ukraine and Moldova have association status with the EU (and the EU, rightly so, has a defense clause, contrarily to what the media often says). It’s the very fact that Putin is persuaded (wrongly) that London backs him up, which makes him so aggressive…

    • Patrice Ayme Says:

      Very interesting links, thanks, Roger. It got worse since.

      Contrarily to what the High Finance Liars say, the “notional amount” of a derivative trade can be entirely lost. (The house example with interest rates involves makes this pretty clear!

      Even if one could ignore the notional amount, the fact is even the High Finance Liars agree they spend about twenty-five trillions on derivatives, nearly half of world GDP. All these trades ought to be as illegal as voluntary slave trading. (And it has worse consequences than voluntary slavery, as the innocent, ultimately pay with their lives.)

  2. ianmillerblog Says:

    The one problem you did not mention, at least directly, is derivatives. I have no problem with trading “real” things, but the huge amounts of money circulating on derivative grading is a bomb waiting to go off. One possibility is a small tax on each trade – if nothing else it would raise a lot of money. The lack of tax on the rich, and tax havens, as you note, should also be stamped on.

    • Patrice Ayme Says:

      Well, I have mentioned derivatives until I got blue in the face, even before the reign of my good and most superb friend Obalalablabla. Derivatives are why these 29 banks are ready to keel over. If any of them, does, it’s game over (that’s why the principals at HSBC don’t fear the 30 years of prison and total expropriation they should be condemned to).

      Obalabla’s goons gave the top 20 USA banks 8,000 trillion, half of one year of GDP. I don’t think Obablabla felt qualified to dare to understand anything that was going on.

      Piketty does not mention banks, and that is a giant hole in his inequality picture. That Marx did not see that hole either is no excuse. EARLIER than Marx, a full generation earlier, Rothschild and president Jackson were very clear about this. That’s why the later refused the former, and tried his best to prevent the rise of fractional reserve as we have now. (I have been highly critical of Jackson about his Indians policy, etc., so one can hardly accuse me of being a Jackson lover! But on banks he was right. BTW, it took me a long time to understand why Jackson was so angry about banks…).

      So Piketty is not even half way where I was seven years ago. But, well, an ally nevertheless!
      PA

    • Patrice Ayme Says:

      France and Germany have tried to institute a Financial Transaction tax, but London blocked it. I say: f… the EU. Let France and Germany unite (see what I say to Picard!)

  3. EugenR Says:

    Dear Patrice, the major economic problems the humanity faces at the beginning of the 21 century, is the limited capacity of world resources to sustain the existing trend of world population growth together with increasing demand for ever growing consumerism, that is spreading gradually to most parts of the world. When speaking about limited resources, usually people tend to think about limited energy resources or other row materials. But the technological development trend showed us, that when such a problem occurred, the science and technology found its way to solve this problem within reasonable period of time. So when I speak about limited recourses I mean the world itself, as a living organ, where interlocked ecological processes created a certain balance that enabled life on earth to evolve, until reaching todays point, when human consciousness and cognitive processes gave to humanity tools to thrive and farther develop toward higher level of consciousness. On the other hand the same development gave to humanity tools to destroy the delicate balance on earth that enabled all this to happen.

    The other very important economic problem is the uneven distribution of the wealth between different regions and cultures. The uneven distribution of the wealth is not only a problem of participation in the welfare the modern states are capable to create, but also diversion of the population growth from the developed rich world, with developed education systems, to poor countries, with very limited education system, or education system that opposes the modern values, of openness to diversity in cultural, ideological, and belief values. Your article about Pickett’s book is focused on the uneven distribution of the wealth in the modern developed world. I would say this is a local problem and less a global one, but still an important one, since we all live in this local region :). The unequal income distribution of the wealth is a direct result of capitalistic system, that tends by its nature to prefers the yield income upon the income out of work. This phenomena of “yield economy”, gets positive impulses when there are no events to interrupt it, like, war, revolution, dramatic change of leading elites, etc. Without these only public political intervention that interrupts the natural flow of the capitalistic system, like progressive taxation, social security, well focused public spending can make some difference in the natural trend towards growing uneven distribution of the wealth.

    I have difficulty to believe, that any major change can be done within the existing economic system, so much focused on ever growing need to increases the yield on capital. To me seems almost inevitable that we are heading towards a new economics paradigm change, its nature is unpredictable. The phenomena of global unrestrained money printing, called “Quantitative Easing”, has to have at the end of day some major consequences on the global economy. No one, (not even Krugman) knows what consequences will have this economic policy to the world monetary system. I don’t want to be the new Roubini, (the doom day economist), but see my statement above as a prediction to some kind of catastrophic event in the future.

    Back to the issue of yield driven economy, this system has to be changed and better in some organized way than as result of some catastrophic event, like world war, revolution, world ecologic collapse etc. I personally focus most my spare time to come out with some idea of an economic-political system, not based on yield and not on centrally managed economy, that potentially could cope with these major problems.

    • Patrice Ayme Says:

      Dear Eugen: I have to go, so will read your comment fully later. However, let me have you consider this: there are 8 (eight) million citizens in Israel (with 1.6 million Arabs, Lieberman’s friends). What is a proper population for Israel? 10 million? 20 million?
      Israel looked made like a rat, a few years back. But now it has very successful high tech, and plenty of off shore gaz.

      With infinite energy, water can desalinated, brought from Aqaba, dumped in the Dead Sea, whatever…

      So? I think Israel can survive and prosper, Greater Israel, even domesticate the Arabs, given enough science and high tech. I am actually all for it.

      World demographics is not a problem. TECH is. If tech stagnated from here on (it won’t bcs Israel has to survive!), world population would crash by 90%, to start with (only the Americans would survive, as they would invade Canada and plant coconut trees in the Arctic archipelago).
      PA

      • dominique deux Says:

        Your comment on population size reminds me of a not so old movie, “2012”. Its over the top visuals enthralled the audiences, with nobody paying attention to its (scant) storyline:

        Step 1, an astronomical quirk initiates a geological process which destroys most of mankind’s habitat, wiping out 99,99% of the species;
        Step 2, plutocrats of the world, duly warned, unite, conspiring to build a secret fleet of survival arks with China’s enthusiastic complicity;
        Step 3, the plutocrats do survive, to the audience’s cheers, and they steam towards Africa to colonize it.

        There was no moral outrage, either in the script or in the audiences. All is well.

        So why bother?

        • EugenR Says:

          I remember to see it with my boy. It was one of the many stupid Holywood made films. The Russian plutocrat was very unrealistically, humanised in the last moment.

          • dominique deux Says:

            Agreed. But Hollywood blockbusters are carefully crafted to reflect (NOT influence) the audience’s mood, so as to milk its purse to the largest extent. Hence their interest to students of the crowd.

          • Patrice Ayme Says:

            That certainly was impossible, the last moment humanization of a plutocrat. Watch Bill Gates with Thomas Piketty: others ought to pay tax, but not me, Bill the Great, because I am so clever… And so good too… That’s why, my mom being on IBM’s board, I was able to steal all their secrets, and here I am, deciding which research on which diseases ought to be funded…

        • Patrice Ayme Says:

          My point is that we can’t sustain, long term, even a billion, with present tech. With advanced tech, 20 billion ought to be sustainable (I ma not saying I want that; we would go over 20 billions if Asian densities found in the habitable areas was extended worldwide: with Asian densities, South America would carry clearly more than ten billion!)

          So tech is the problem. More advanced tech. Plutos don’t like really advanced tech, because it means too much power to intellect…

      • EugenR Says:

        Dear Patrice, i will refer to you in detail about Israel in one of my future comments. In mean time as to 10, 20 million people in Israel, i would comment only that you can have fantasy freely about it only because you probably never drew your car in a regular Tel Aviv traffic jam starting at the morning and ending after midnight. 🙂

        • Patrice Ayme Says:

          Let there be levitation! Yaveh can surely make it so. Israel, at this point is like a spaceship that has landed in the Middle Earth. It’s actually hilarious, looked at it the right way.

      • EugenR Says:

        Dear Patrice, You asked me how i feel about Israel and here is my analysis.
        Israel started its existence in 1948 with Jewish population of about 700,000. Today’s population of Israel is about 8 million. This unprecedented increase in population was mainly due to Jewish emigrants. The Jewish immigration was continuous since establishment of Israel, but also characterized in several big waves, that substantially changed the demographics of Israel. The main waves were immediately after the establishment of the state, when hundreds of thousand Jewish survivors of concentration camps entered the new state. This wave was immediately followed by Jews from Arab and Muslim countries, mainly Morocco, Iraq, Yemen and Iran. By the way, the number of Jewish emigrants from the Muslim countries exceeded the number of Palestinian refugees estimated at about 700,000 expelled from Israel in 1948, .
        This emigration wave ended in early sixties, bringing Israeli population to about 2 million, out of which about half originated from the Muslim countries. Almost all these emigrants came to Israel as refugees, without personal capital, bringing with them only their cultural heritage, that even if based on long Jewish tradition, was very diversified. A new wave of rather lower emigration wave started again in the early seventies, but mainly due to natural population growth the Israeli population at eve of Soviet Union collapse was about 3,7 million people. The new and probably the last big emigration wave came to Israel with the collapse of USSR and increased Israeli population by 20%.
        In-spite of all these above mentioned circumstances, Israel not only successfully absorbed the Jewish emigrants, integrated them socially and economically, but created a relatively well functioning modern democratic state, comparable to any European country. At 2013 the Israeli GDP per capita was above that of France and just under that of GB and Japan. This was achieved without the impact of the newly found gas resources, expecting to add few additional percents to the GDP per capita. This development is comparable only to some Asian Tigers like Taiwan, South Korea etc. It has to be remembered that Israel since its creation had to fight at least 5 major and several minor wars against the neighboring Arab countries.
        What i see not less impressive, is that Israel also created an unique cultural and intellectual hub, where many unique high quality things are happening and not only in the high-tech sector. For example less known is the Israeli film production, which in the last years are almost annually represented on the world most important international documentary and feature film festivals and are nominated for first prices.
        Yet all these achievements cannot cover the basic fundamental problems which continuously exposes Israel to threat of extinction. The well known is the external threat, that comes from the Arab and Muslim countries, mainly from the Israeli neighborhood (if Iran and Iraq is considered neighbor). The Arab world never excepted Israel as a legitimate entity in the middle east and continued its revanchist policy toward it. If in the near past Israel had to cope with countries of large population and resources, since the Arab revolution it has to cope with even larger uncertainties with the collapse of countries as Syria, Lebanon and Iraq. I don’t mean to go into details in this article about the subject of the Arab world and the Arab Israeli conflict, that is well documented in other places. All i want to add is that the Arab world supported with the lefty European intellectuals, never excepted legitimacy of Israel as a Jewish state. Until this problem of legitimacy is not solved there is no solution for the Israeli-Arab conflict. I would add, that if at the first years of Israeli existence, majority of Israeli, who were immigrants and had wider world perspective as to the Jewish state, today, most of the Israeli population is Israeli born and brought up there, and sees itself belonging to the region on the same level as anybody else. Their perception of being and living in Israel is not mixed with confusion. They belong to Israel, this is their home, with their culture and language and anybody who wants to take this from them, they will fight until the last drop of their blood. No one can moralize them that because they are militarily much stronger than their enemies, they have no right to defend themselves with all their military might.
        The less known facts about Israel are their social and political structure, that may cause problems on the long run. Out of population of 8 million about 6 millions are Jews, 1.5 Arabs and the rest others. But the 6 million Jews are also divided to subgroups, mainly according to their religious believes. About 50-60% of the Jewish population are secular, like in any other country, about 25% are religious in orthodox way, and the rest have certain positive traditional inclination to religion. The religious groups are subdivided to three communities, the Ashkenazi (European origin) religious orthodox community (about 5 % of the population), the Sephardic (mostly Arab country originated) orthodox community (about 10% of the population) and the modern orthodox community (also about 10% of the population), who are mostly identified with the settlers on the occupied west bank. The remaining 75% of the population is divided between population with conservative-traditional tendencies and the population with liberal tendencies. Politically because the conservatives, whose representative is Mr. Nathaniahu, are closer to the religious parties, he is the one who has more chances to create government, and the liberal fraction with almost 50% of political representation stay mostly in the opposition. It may look perfect to Mr. Nathaniyahu, but he has a problem. Because the Israeli intellectual and economic elites, to whom he naturally and socially belongs, due his family roots (His father was an important historian) are opposing him, his political support originates mainly from the less educated and the more religious parts of the society. So he has to feel very isolated in his political existence.
        This social fragmentation to different social groups is not only political but also social. There is almost no interaction between the different religious social groups i mentioned and the secular Jewish population, and even less social interaction between the Jewish and Arab population. They have separated education systems, with different curriculum, live in separated enclaves, and even not always share the same working places. Even if many Israeli Arabs are highly educated, the intermarriages are very rare, practically nonexistent.
        As to economic integration the Ashkenazi and Sephardic orthodox population and the Arab population, who are together about 35% of the population, are not fully integrated into the economic activities and also don’t take part in the military service, so important to the Israeli identity. The birth rate of this social group is much higher than the other social groups, so their political influence growth with the years. As the result of it, the secular, mainly liberal population feels its way of life is threatened in the future. This of course creates increasing social tension.
        As to your question, to where all this is heading, i would have to say hard to predict. In one hand the today’s events do not give too much reason for hope, and the trend within Israel and out of it is continuous strengthening of the religious irrational, non liberal forces. On the other hand it seems there are things happening within the religious communities as well. In the Islamic world the main stream Muslims start to understand that as contrary to the slogan, Islam is not the solution. As to Israel, with increased confidence in the ultra orthodox Jewish communities, they start to understand, that segregation from the main part of the Israeli society in materially poor life, and trying to make living by milking the Israeli social system by political means has its limits and can create a boomerang effect.
        As to the future, there is an old saying the prophecy was given to the fools. So i don’t want to try it.

        • Patrice Ayme Says:

          Dear Eugen: Very interesting, thanks.
          Only thing I differ is:
          IMF lists France at 44K per head, UK at 39, Israel at 37. In 2013.
          But that does change the gist of the message, namely that Israel has achieved a rich Western country way of life.
          Israel secret, or not so secret, ally is France. Until 1967, it was Israel’s main, if not only, ally. Now it may well still be the case. The USA takes care about the USA first. France and Judaism go back 20 centuries, and Manuel Valls was very clear about this recently. France is arguably more Jewish than Christian.

          The present situation is not bad for Israel. At least with France (with the USA, there are cracks).

    • Patrice Ayme Says:

      Economics has to be based on what I call AWE” Absolute Worth Energy.

      I have nothing against capital. Soon we will have Von Neumann robot armies mining asteroids, and rushing to the Centauri system: capital, ever more capital!

      QE is about giving capital to serial killers. Bad.

      Poor countries are neither here, nor there. They need hi tech. They can’t think of it. That makes them out of history as my frienemy Sarko would say. If one can live on one euro a day, perfect. In places like the SF Bay Area, it cost a fortune to live in modest conditions.

  4. New economy | EugenR Lowy עוגן רודן Says:

    […] https://patriceayme.wordpress.com/2015/02/13/picking-piketty-peeks/ […]

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