How to Respond to Thomas Piketty’s Inequality Alarmism — James Pethokoukis

 

030514inequality1-600x451As with physicist Stephen Hawking’s A Brief History of Time, economist Thomas Piketty’s 700-page Capital in the Twenty-First Century is a bestseller destined to have a steep purchased-to-read ratio. For many on the left, it will be enough to simply know that Piketty’s grand theory of capitalism affirms their preexisting worldview: capitalism drives inequality ever-higher, superrich CEOs don’t deserve their fat paychecks, massive taxes on income and wealth are necessary to avoid an inegalitarian death spiral. For many on the right, it will be enough to simply know that Piketty is a French inequality researcher who teaches at the Paris School of Economics. Let the eye-rolling commence.

But Piketty is a first-rate scholar whose magnum opus is well worth reading, whatever your ideological inclination. His thesis is straightforward. At its center are observations and forecasts about the return on capital, economic growth, and the relationship between the two. Some economists, such as Paul Krugman and Martin Wolf, think Piketty’s probably got the story right. Others, including AEI’s Kevin Hassett, Tyler Cowen, and Joshua Hendrickson, take the other side of the trade.

Yet even if Piketty is wrong, there is reason to believe technology and globalization might sharply increase immobility, as well as boost income and wealth inequality—and lead to long-term wage stagnation for the vast majority of workers. The good news here is that many of the most realistic responses — even Piketty thinks his own end-game policy agenda is utopian — are intrinsically good ones. Since slow economic growth worsens inequality, we should want to pursue policies that might boost birthrates (tax relief for parents) and innovation (remove regulatory barriers to entry).

Indeed, Piketty has said as much. If capital ownership is becoming too concentrated, then we should try to broaden it (universal savings accounts) and turn more workers into owners. Cowen highlights “deregulating urban development and loosening zoning laws, which would encourage more housing construction and make it easier and cheaper to live in cities such as San Francisco and, yes, Paris.” And, of course, both primary and secondary education need a strong dose of disruptive innovation to meet the changing needs of students and workers.

If policymakers start giving such ideas greater thought, then Piketty’s book, right or wrong, will have performed an immensely valuable service.

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  1. Guruforhire Inactive
    Guruforhire
    @Guruforhire

    I am increasingly worrying about a world where labor is the new buggy whip.

    Right/Libertarians hold it as an axiomatic truth that freed up labor will be utilized somehow, and I am not sure that this is entirely rational.  Just because it always has doesn’t mean it always will.

    When labor for all intents and purposes become the new buggy whip, what then?  The left has this fetish for education, but well, a healthy number of people are just plain not bright and no amount of education is going to change that.  Retraining is an equally stupid fetish.  It assumes that regardless of ability we are all interchangable with the right software download.  This is patently absurd as well.

    It is an existential imperative that there be meaningful labor for nearly everybody and that includes the people of modest ability.

    A rising tide raising all boats presupposes the existence of a boat.  The more I travel the country the less I am convinced by the right/libertarian view.

    • #1
  2. Misthiocracy Member
    Misthiocracy
    @Misthiocracy

    Apropos of Nothing: I once read that there are more horsewhips sold annually today than there were prior to the invention of the automobile, because more people can afford to own horses and also because of the horsewhip’s popularity in, um, “unorthodox marital relations”.

    I do not have a citation for this factoid, so take it for what it’s worth.

    • #2
  3. Misthiocracy Member
    Misthiocracy
    @Misthiocracy

    Guruforhire: The more I travel the country the less I am convinced by the right/libertarian view.

    Why would travel around a country governed according to progressive economic theories for almost a century be evidence that libertarian economic theory is unfounded?

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  4. wmartin Member
    wmartin
    @

    Even better than tax-relief for parents would be strict restriction on immigration- lower home prices for young people just starting out, higher working-class wages.

    • #4
  5. Guruforhire Inactive
    Guruforhire
    @Guruforhire

    Misthiocracy:

    Guruforhire: The more I travel the country the less I am convinced by the right/libertarian view.

    Why would travel around a country governed according to progressive economic theories for almost a century be evidence that libertarian economic theory is unfounded?

     Because we really haven’t been governed by progressive economic theories, maybe slightly progressive-ish.

    Oh trust me, Progressives are the worst blight on the face of the earth, and they are arguing about why the past was bad, and how its not their fault they signed loan contracts.

    But nobody really has a realistic view on what to do with the vast reams of surplus humanity that dominate the wasteland of the country working crap jobs for increasingly less pay with no real new opportunities out there.

    Progressives are insane, but they are pointing at all the right problems.  What are we going to do with huge swaths of humanity with no real life prospects?

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  6. Guruforhire Inactive
    Guruforhire
    @Guruforhire

    I had my epiphany eating at a place called the federalist in Washington DC.  I saw too many people in fancy clothes sipping fancy cocktails, and I had just been in Mississippi a  little bit before.

    I hate progressives, and generally think they should be hung and Washington DC should be burnt to the ground and its ashes tilled with salt, so that the wretched Pyongyang on the Potomac will never be again.  But we need to have better answers for the hollowing out wasteland that is everything not NY, Boston, DC and LA.

    Hoping that displaced work will get replaced by something is just plain not rational anymore, not in a world where I can conceive of stock shelving drones.

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  7. Guruforhire Inactive
    Guruforhire
    @Guruforhire

    A guy I knew who lost his job, took the long fall, lost his job, home, and family in about that order, and died on some guys easy chair.  Is what america looks like now.  He got “retrained” but yeah that really is just a sick lie isn’t it?  He stocked shelves for awhile living in my parent’s unfinished attic.  What are our new displaced workers going to do when we don’t need cashiers, stock shelvers, burger flippers, and everything else?  When the value of labor is worthless or practically worthless?

    Exactly, technological disruption is going to gut everything not finance, and fashion.  Rob long better get ready to die homeless on some dudes coach too, because content is free.  THe only people making money on content are the people who sell alogrythms to get the free ish content they want to see.

    Oh you want to start a small business?  Cool, that will be a great place to window shop to buy online.

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  8. Guruforhire Inactive
    Guruforhire
    @Guruforhire

    I was in indiana, and the lady at teh cashier had parkinsons so bad she couldn’t put my groceries in my bag.  That is not how I want to go, but realistically I don’t see an alternative future.

    We aren’t going to take a huge portion of our population and start making smart phone apps nobody buys.  That’s a lottery ticket life strategy.

    The end is near, and it will not be awesome.

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  9. Tennessee Patriot Member
    Tennessee Patriot
    @TennesseePatriot

    I believe that the solution for employment of middle class workers is a drive to make energy in the USA cheaper than anywhere else in the world. This would make the USA a magnet for manufacturing, again, and there would be plenty of good-paying jobs for everyone. If we can open up all of our land for energy exploitation the sky is the limit.

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  10. Mendel Inactive
    Mendel
    @Mendel

    Interesting screed.
    I share GFH’s pessimism about the declining need for labor, but not his vision of millions of gray-haired Americans offing themselves when McDonald’s moves to its all-automated line of franchises (although I will be investing in the KevorkianApp for Android just to hedge my bets).

    Pace Mr. Pethokoukis, I think a self-correction is already baked into the cake of human development: population decline. Throughout history, humans have naturally lowered their family sizes as technology and standard of living progress – without the need of government policies.

    Anytime someone on the right mentions population shrinkage, Steynian cries of cultural extinction and takeover by marauders arise. But Western birth rates have been on the decline for centuries and we still dominate the world culturally and economically.

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  11. user_3444 Coolidge
    user_3444
    @JosephStanko

    Guruforhire: But nobody really has a realistic view on what to do with the vast reams of surplus humanity that dominate the wasteland of the country working crap jobs for increasingly less pay with no real new opportunities out there.

     I think you raise some important questions, but first I’d like a better definition of this idea of a “crap job.”  What does that mean, and conversely what qualifies as a “good” job?

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  12. user_3444 Coolidge
    user_3444
    @JosephStanko

    Tennessee Patriot: This would make the USA a magnet for manufacturing, again, and there would be plenty of good-paying jobs for everyone.

    I think Guruforhire’s question is valid, at least in the longer term.  Manufacturing is increasingly automated, more and more is done by machines or robots.  At some point the factory will need a couple of highly-trained technicians to fix the robots, a couple janitors, some security guards, and that’s about it.

    It might be in the U.S., exploiting our cheap energy and turning out goods, but how many “good-paying” jobs will it really generate?

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  13. Guruforhire Inactive
    Guruforhire
    @Guruforhire

    Subsistence labor, or its modern equivilant.  Labor that will keep the body alive (maybe), but offers no other positive benefits.

    My grandpa was once a milkman.  I would think being a milkman is a pretty crappy job, but hey worked sucked but he had a good wife, a house, and kids.  Take away the ability to bankroll a real life and its a crap job.  Or crap job that is otherwise life affirming like being the brand new private off to fight the terrorists, it can’t bank roll a family but it conveys status.  So not a crap job.

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  14. Mendel Inactive
    Mendel
    @Mendel

    Joseph Stanko:

    Tennessee Patriot: This would make the USA a magnet for manufacturing, again, and there would be plenty of good-paying jobs for everyone.

    I think Guruforhire’s question is valid, at least in the longer term. Manufacturing is increasingly automated, more and more is done by machines or robots. At some point the factory will need a couple of highly-trained technicians to fix the robots, a couple janitors, some security guards, and that’s about it.

    It might be in the U.S., exploiting our cheap energy and turning out goods, but how many “good-paying” jobs will it really generate?

     Agree with Joseph. The idea that our future lies in millions of manufacturing jobs strikes me as the type of nostalgia described in Barkha’s thread today. Nonetheless, we shouldn’t unnecessarily hinder energy exploitation or the ability to hire and fire workers – we just shouldn’t look to the economic past as our hope for the future.

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  15. Guruforhire Inactive
    Guruforhire
    @Guruforhire

    Joseph Stanko:

    Tennessee Patriot: This would make the USA a magnet for manufacturing, again, and there would be plenty of good-paying jobs for everyone.

    I think Guruforhire’s question is valid, at least in the longer term. Manufacturing is increasingly automated, more and more is done by machines or robots. At some point the factory will need a couple of highly-trained technicians to fix the robots, a couple janitors, some security guards, and that’s about it.

    It might be in the U.S., exploiting our cheap energy and turning out goods, but how many “good-paying” jobs will it really generate?

    I think its more of a slow the bleeding sort of thing.

    • #15
  16. user_3444 Coolidge
    user_3444
    @JosephStanko

    Mendel: Pace Mr. Pethokoukis, I think a self-correction is already baked into the cake of human development: population decline.

    But isn’t the need for labor more of a proportional quantity?  That is, if you double the population, you need twice as many houses, twice as much food, clothes, cars, and so forth.  You need twice as many doctors, lawyers, policemen, sanitation workers, cooks, nannies, and burger flippers. 

    There are some economies of scale, granted, but more population means more demand for products and services.  If your solution to surplus labor is to reduce the population, in the process you’ll even further reduce the need for labor.  Talk about a death spiral…

    • #16
  17. Mark Coolidge
    Mark
    @GumbyMark

    Joseph Stanko:

    Tennessee Patriot: This would make the USA a magnet for manufacturing, again, and there would be plenty of good-paying jobs for everyone.

    I think Guruforhire’s question is valid, at least in the longer term. Manufacturing is increasingly automated, more and more is done by machines or robots. At some point the factory will need a couple of highly-trained technicians to fix the robots, a couple janitors, some security guards, and that’s about it.

    It might be in the U.S., exploiting our cheap energy and turning out goods, but how many “good-paying” jobs will it really generate?

     I agree that while there is scope to increase manufacturing in the U.S., productivity is now so high even significant investments don’t yield the jobs they used to.  I worked for a large manufacturing company and a $1 billion manufacturing investment that today creates 1500 jobs would have created 15,000 (or more) jobs 30 years ago.

    • #17
  18. user_3444 Coolidge
    user_3444
    @JosephStanko

    Guruforhire: Take away the ability to bankroll a real life and its a crap job.

    So you’re defining it in terms of how much it pays?

    To me, a job on an assembly line sounds like a crap job no matter how much you pay me.  I can think of few jobs more mind-numbing than tightening the same bolt or whatever 8 hours a day, 5 days a week.  I’d much rather stock shelves or flip burgers, at least there’s some variety of tasks and some human interaction involved, not just mindless repetition all day.

    The fact that more and more such jobs can be automated out of existence strikes me as a very good thing overall, because no one is condemned to live such a life, though obviously it creates some new social problems that we need to address.

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  19. user_3444 Coolidge
    user_3444
    @JosephStanko

    Guruforhire: My grandpa was once a milkman.  I would think being a milkman is a pretty crappy job, but hey worked sucked but he had a good wife, a house, and kids.

    I’d much rather be a milkman than work on an assembly line.  You’re outside in the fresh air, driving, walking around, getting some exercise.

    • #19
  20. wmartin Member
    wmartin
    @

    Joseph Stanko:

    Guruforhire: Take away the ability to bankroll a real life and its a crap job.

    So you’re defining it in terms of how much it pays?

    To me, a job on an assembly line sounds like a crap job no matter how much you pay me. I can think of few jobs more mind-numbing than tightening the same bolt or whatever 8 hours a day, 5 days a week. I’d much rather stock shelves or flip burgers, at least there’s some variety of tasks and some human interaction involved, not just mindless repetition all day.

    The fact that more and more such jobs can be automated out of existence strikes me as a very good thing overall, because no one is condemned to live such a life, though obviously it creates some new social problems that we need to address.

     Do you deny the existence of IQ and of IQ differences between individuals? If we are not going to give people who have below-average IQ’s welfare money to live on when their jobs have been automated or “third-world immigrated” out of existence, what exactly are we to do with them?

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  21. user_3444 Coolidge
    user_3444
    @JosephStanko

    Mark:  I agree that while there is scope to increase manufacturing in the U.S., productivity is now so high even significant investments don’t yield the jobs they used to.  I worked for a large manufacturing company and a $1 billion manufacturing investment that today creates 1500 jobs would have created 15,000 (or more) jobs 30 years ago.

    Now there may be some products where, for instance, it’s cheaper to pay 100 Malaysian women a few dollars a day to sew garments than to automate.  But it’s folly to think that, no matter how cheap energy costs are, you could move that operation back to the U.S. and it would generate 100 “good paying” jobs here.  

    • #21
  22. Guruforhire Inactive
    Guruforhire
    @Guruforhire

    Joseph Stanko:

    Guruforhire: Take away the ability to bankroll a real life and its a crap job.

    So you’re defining it in terms of how much it pays?

    To me, a job on an assembly line sounds like a crap job no matter how much you pay me. I can think of few jobs more mind-numbing than tightening the same bolt or whatever 8 hours a day, 5 days a week. I’d much rather stock shelves or flip burgers, at least there’s some variety of tasks and some human interaction involved, not just mindless repetition all day.

    The fact that more and more such jobs can be automated out of existence strikes me as a very good thing overall, because no one is condemned to live such a life, though obviously it creates some new social problems that we need to address.

     I think you are presupposing that any new opportunity will be better, if it exists at all.  I would rather have an old school factory job and have a wife that loves me, than be unemployed, divorced and homeless.

    • #22
  23. JimGoneWild Coolidge
    JimGoneWild
    @JimGoneWild

    Guruforhire: Right/Libertarians hold it as an axiomatic truth that freed up labor will be utilized somehow, and I am not sure that this is entirely rational.  Just because it always has doesn’t mean it always will.

     I agree with everything you said but the above quote. “Just because it always has doesn’t mean it always will.” is gobbledygook. First, labor (I hate that word) is people. Individuals. With individual needs and desires. As long as people can start businesses, people will be utilized. The ability to start a business from almost nothing, i.e. no or very light regulations will always give people a way to be creative via a business–do what they love–and make a living at it.  But if people can easily start businesses, then they will need people, and those people will be competing with established businesses. The next new business may be .. what am I say? .. WILL be the next technology wave.

    People trade. Free people trade freely. Just get out of their way.

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  24. JimGoneWild Coolidge
    JimGoneWild
    @JimGoneWild

    GFH and others have what they called in Jimmy Carter’s days as “Malaise.”  It causes people to not think outside the lines. They only look at what is, and not what can be. Folks on welfare, food stamps and other assistance get this malaise very soon there after. Now you know why Ronald Reagan was so popular–he got people back on the positive thinking track–the rest is just gravy.  Liberals and progressives hate this because they can’t put faith in people but only in institutions of government. They can’t think dynamically or about dynamic outcomes. Socialism is about fixed, static inputs and outputs. With liberals, ideas and solutions involve their solutions that are based on fixed lives. It’s very sad.

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  25. user_3444 Coolidge
    user_3444
    @JosephStanko

    JimGoneWild: The ability to start a business from almost nothing, i.e. no or very light regulations will always give people a way to be creative via a business–do what they love–and make a living at it.

    In order to make a living at it, one must produce a product or service that people want to trade for.  The idea that everyone can make a living doing what they love seems to me to completely ignore the basic laws of supply and demand.

    The number of people who love to play music, paint, act, or play sports far exceeds the demand for professional singers, artists, actors, and athletes.  Meanwhile millions of people are willing to pay someone pick up their garbage, but I doubt there are many people whose dream job is sanitation worker.

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  26. user_48342 Member
    user_48342
    @JosephEagar

    I don’t understand Piketty’s argument.  It’s a bad thing that the return on capital grows faster than the economy?  Isn’t that an important source of revenue for the government?  I.e. more investment leads to both greater productivity and more employment, which in turn puts a lot of tax revenue in the Treasury.  And of course, there are direct taxes on capital as well.

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  27. user_48342 Member
    user_48342
    @JosephEagar

    Guruforhire:

    Right/Libertarians hold it as an axiomatic truth that freed up labor will be utilized somehow, and I am not sure that this is entirely rational. Just because it always has doesn’t mean it always will.

     I’m not sure if this is true.  Hard-core libertarians might believe that unemployment will always solve itself, but at least in my experience most other conservatives disagree.  That’s why Milton Friedman was so popular; he helped pioneer (later perfected by John Taylor, also a conservative Republican) the use of central banks and floating currencies to alleviate business cycles (which allows for a much greater degree of freedom in the economy).  

    • #27
  28. user_3444 Coolidge
    user_3444
    @JosephStanko

    Joseph Eagar: I’m not sure if this is true.  Hard-core libertarians might believe that unemployment will always solve itself, but at least in my experience most other conservatives disagree.

     JimGoneWild does seem to hold it as an axiomatic truth:

    JimGoneWild: As long as people can start businesses, people will be utilized. The ability to start a business from almost nothing, i.e. no or very light regulations will always give people a way to be creative via a business–do what they love–and make a living at it.

    I do see this line of argument frequently on Ricochet, that if we just got government regulation and bureaucracy out of the way we’d have permanent full employment.  And I’m skeptical, as history seems to indicate that periodic recessions with high unemployment were baked into the business cycle even in the relatively unregulated 19th century.

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  29. JimGoneWild Coolidge
    JimGoneWild
    @JimGoneWild

    Joseph Stanko: he idea that everyone can make a living doing what they love seems to me to completely ignore the basic laws of supply and demand.

     Did I say “everyone”? No.  Those who want to and try, can. That IS the American Dream.

    May I add that jobs that pay pretty damn good, like refrigerator repair, TV repair, A/C and furnace installation and repair, are in huge demand. Our local BMW dealer can’t get mechanics, pay bonuses and tuition to those who go to schools for it–No takers. A local company that does railway consulting had a speaker come to a class I had and said they can’t get railroad engineers even though it starts at $60K a year, with really good benefits.

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  30. user_48342 Member
    user_48342
    @JosephEagar

    Joseph Stanko:

    I do see this line of argument frequently on Ricochet, that if we just got government regulation and bureaucracy out of the way we’d have permanent full employment. And I’m skeptical, as history seems to indicate that periodic recessions with high unemployment were baked into the business cycle even in the relatively unregulated 19th century.

    Many conservative activists do think this way, yes.  But lots of people don’t, too, I think.

    • #30
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