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Book: Capital in the Twenty-First Century

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Book: Capital in the Twenty-First Century

Unread postby Sixstrings » Tue 17 Jun 2014, 01:09:51

This book is #1 / #2 on all the bestseller non-fiction lists.

I saw the author interviewed on Charlie Rose and downloaded the audiobook and am into it now.

It all boils down to:

He argues that when the rate of growth is low then wealth tends to accumulate more quickly from [profits] than from labor, and tends to accumulate more among the top decile and centile, increasing inequality.


Pretty good book, so far. Basically, it's a qualified economist saying what everyone already knew intuitively. He looked at hundreds of years of data, and a century of tax returns, for multiple countries.

The main problem is that world population growth has mostly leveled out, especially in the West. So whether that's from peak oil or it was a bubonic plague or whatever the reason, it doesn't matter, but rather capitalism in an environment of no population growth means that capital will just continue to accumulate and inequality will explode and get worse and worse.

And the only thing that broke the last cycle like this was the Great Depression and world wars, and it was really the wars that did it.

I used to think maybe globalism and offshoring and automation / extreme efficiency were the root problem, but so far where I'm at in the book, that's disproven. Actually, all the Western countries have as much money coming in as they do going out.

So it's not really the offshoring and trade deals, that are the problem.

It's latter cycle capitalism itself, in an environment of minimal population growth. This could be corrected with fiscal policy, it doesn't have to be this way just because the population has leveled out, it's just that it requires some action to correct or the *rich will just eat us all alive* if it goes on how it is.

The author says the data show that the world's rich are increasing wealth at three times GDP growth. So that means they aren't growing the pie, as all the conservatives say, *they are eating ever more of the pie and will devour it all*.

So it's a math thing guys. Conservatives really are wrong about it. The math and numbers show that the pie is not growing, at the rate at which the super rich are eating it, that's just the fact.

The wiki article may give a better summary of the book than I can:

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Capital in the Twenty-First Century is a book by French economist Thomas Piketty. It focuses on wealth and income inequality in Europe and the US since the 18th century. It was initially published in French in 2013, with an English translation released in April 2014. The central thesis is that wealth will concentrate if the rate of return on capital (r) is greater than the rate of economic growth (g).

Over the long term, Piketty argues, this will lead to the concentration of wealth and economic instability. Piketty proposes a global system of progressive wealth taxes to help create greater equality and avoid the vast majority of wealth coming under the control of a tiny minority.

Piketty bases his argument on a formula that relates the rate of return on capital (r) to the rate of economic growth (g), where r includes profits, dividends, interest, rents and other income from capital; and g is measured in income or output. He argues that when the rate of growth is low then wealth tends to accumulate more quickly from r than from labor, and tends to accumulate more among the top decile and centile, increasing inequality.

Thus the fundamental force for divergence and greater wealth inequality can be summed up in the inequality r > g. He analyzes inheritance from the perspective of the same formula.
The book argues that there was a trend towards higher inequality which was reversed between 1930 and 1975 due to some rather unique circumstances: the two World Wars, the Great Depression and a debt-fueled recession destroyed much wealth, particularly that owned by the elite.

These events prompted governments to undertake steps towards redistributing income and the fast economic growth meant that inherited wealth had its importance reduced.

The book argues that the world is returning towards "patrimonial capitalism", in which much of the economy is dominated by inherited wealth and that their power is increasing, creating an oligarchy.


Nobel prize-winning economist Paul Krugman called the book a "magnificent, sweeping meditation on inequality" and "the most important economics book of the year — and maybe of the decade." He distinguishes the book from other bestsellers on economics as it constitutes "serious, discourse-changing scholarship."

Steven Pearlstein called it a "triumph of economic history over the theoretical, mathematical modeling that has come to dominate the economics profession in recent years", but also added, "Piketty’s analysis of the past is more impressive than his predictions for the future are convincing."
Branko Milanović, a former senior economist at the World Bank, called the book “one of the watershed books in economic thinking.”

British historian Andrew Hussey called the book "epic" and "groundbreaking" and argues that it proves "scientifically" the Occupy movement was correct in its assertion that "capitalism isn't working."
According to Nobel prize-winning economist Robert Solow, Piketty has made a "new and powerful contribution to an old topic: as long as the rate of return exceeds the rate of growth, the income and wealth of the rich will grow faster than the typical income from work".

French historian and political scientist Emmanuel Todd called Capital in the Twenty-First Century a "masterpiece" and "a seminal book on the economic and social evolution of the planet".

Ryan Cooper writing in The Week described the book as a "brilliant, surprisingly readable work that synthesizes a staggering amount of careful research to make the case that income inequality is no accident." He also notes that "If Piketty is correct, he has laid the intellectual groundwork for a resurgence of American socialism."

The book has been described as “a political and theoretical bulldozer” in the French press.
The Economist wrote, "a modern surge in inequality has new economists wondering, as Marx and Ricardo did, which forces may be stopping the fruits of capitalism from being more widely distributed. 'Capital in the Twenty-First Century' ... is an authoritative guide to the question."

Will Hutton wrote, "Like Friedman, Piketty is a man for the times. For 1970s anxieties about inflation substitute today's concerns about the emergence of the plutocratic rich and their impact on economy and society. Piketty is in no doubt ... that the current level of rising wealth inequality, set to grow still further, now imperils the very future of capitalism. He has proved it."
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Re: Book: Capital in the Twenty-First Century

Unread postby americandream » Tue 17 Jun 2014, 05:46:07

I am not sure what to make of this. Capitalism largely draws value from labour. Only roughly 2 billions of the world population are urbanised as capital contemplates so to suggest that capital is in some systemic plateau is absurd. Capital is in a cyclical downturn brought on by the end of the Cold War and the opening up of borders to the free flow of capital. It thus follows that Western workers who were paid a return far in excess of any global benchmark will be marked down thus inducing a "depression". In addition, as the global populations swell the ranks of the consumer market, resources will bottleneck and inflate. It is these factors that have consolidation upping the pace. All given momentum by the laissez faire policies kicked off by Thatcher and Reagan.

Western workers make the mistake of assuming that they have some right to a larger chunk of global value, even whilst they continue to vote in leaders who represent interests that think otherwise.

Then they read all sorts of rubbish to add a rationale to their impotent notions.
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Re: Book: Capital in the Twenty-First Century

Unread postby Pops » Tue 17 Jun 2014, 08:45:25

The legitimate object of government, is to do for a community of people, whatever they need to have done, but can not do, at all, or can not, so well do, for themselves -- in their separate, and individual capacities.
-- Abraham Lincoln, Fragment on Government (July 1, 1854)
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Re: Book: Capital in the Twenty-First Century

Unread postby Ibon » Tue 17 Jun 2014, 08:55:27

americandream wrote:I am not sure what to make of this.


That's a good start. The author recommends a global system of progressive wealth tax. A logical recommendation to reverse the inequity. As apposed to a global depression and war.

How could we get from where we are today to policies the author is recommending?

As social tension increases together with the inequality, what would have to happen for global policy makers to agree for the wealthy to pay more taxes?

The psychology of wealth functions as follows. The richer you are the more paranoid you become about losing what you have and your reaction to any threat to your wealth is to preserve it by any means. Not to agree to pay more taxes. By the way, this is the mind set both of the rich individual and the rich nation. Look how fearful Americans have become for example and how apposed to taxes the wealthy are.

Generosity happens after you have lost your wealth and you have less to lose. That is why we see around the globe the poorest of people being the most generous and the wealthy being the most hung up on their security.

The exception to this would be the worlds philanthropists. Check out this list on Wikipedia as a start.

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


But these exceptions are generally members of the ueber wealthy. So back to the question, what would the consequences have to be to have the worlds wealthy and policy makers agree to a set of progressive taxes on the wealthy.

I think it is a two pronged approach which has to appeal to the more primitive part of our brains that we share with lizards and other more primitive organisms. Status (sex) and Fear

1) Status - Most of the philanthropists have reached a level of wealth where their egos search for status has shifted from accumulating more wealth to public works of generosity. Bono or Bill Gates gain status in their humanitarian efforts which brings greater ego rewards than squirreling away a few more billion. So we need to encourage a shift of values globally that redefine status so that these values reach further down the wealth ladder.

2) Fear - If social dislocation and inequality grow more severely then the wealthy will have to go hide their Ferrari's and Rolex's when they go out on the streets for fear of being targeted. Social dislocation has to grow to the point where the worlds poor become "jihadists" in nature to fight whatever security forces are put into place by the wealthy to preserve their wealth. This approach requires awakening the wrath of the poor as a social movement to fight against wealth disparity but managing to somehow avoid a French Revolution type of chaos. To literally scare the shit out of the wealthy to the point that they have to capitulate to a more equitable sharing of wealth as they themselves will recognize this to be the best way for them to secure their wealth.

Any other ideas? Otherwise we are heading toward the historical pattern of depression and war.
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Re: Book: Capital in the Twenty-First Century

Unread postby Sixstrings » Tue 17 Jun 2014, 14:47:44

Pops wrote:http://peakoil.com/forums/post1194807.html?hilit=piketty#p1194807


Oh I'm sorry Pops, I completely missed a thread on this book already. Perhaps you could merge?

edit: I'm not going to rant in this thread I'll just read this time.

I'd just say to AD, and Plant, and critics -- you may want to actually *read* the book before making a firm opinion.

Especially to AD, this author has me seeing that looks like you've been right. Although you are coming at it from traditional Marxist theory, which is a bit different.

You ought to read the book AD, since this is such an interest area for you, at least so that you're aware of an economics book so many people are reading right now.

Pops wrote:NP 6, at least you are actually reading it, after a fashion anyway.


I got an unabridged audiobook, on my smart phone. So yes I'm reading it. Will take a while. I bounce between novels as well. :lol:

(off topic, but by the way I like Amazon's audible audiobook service. These things are too expensive to buy individually. But if you sign up for a monthly plan then you just get your allotment of books included and then 50% off or something, after that, so it makes the books affordable. I wind up spending about the same as I do for netflix but I actually consume more books than watching netflix.

I'm old school with books. I'd never touch a kindle or electronic reader. Yet I'd stopped reading, I have to multitask so I'd stopped reading for years. Glad I got into audiobooks -- I always do unabridged so I'm not missing anything.

If you have a smartphone like android, Pops, there's also an app now that hooks into your local library and all you need is your library card number:

The Library Comes to You
Borrow eBooks and audiobooks from your local public
https://www.overdrive.com/
)
Last edited by Sixstrings on Tue 17 Jun 2014, 15:21:07, edited 7 times in total.
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Re: Book: Capital in the Twenty-First Century

Unread postby Pops » Tue 17 Jun 2014, 14:57:09

NP 6, at least you are actually reading it, after a fashion anyway. I've put in a request for it at my local Ozark library but it isn't likely to show up, not much non-fiction there besides the latest diet, Glenn Beck rant and creation science books.
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Re: Book: Capital in the Twenty-First Century

Unread postby americandream » Wed 18 Jun 2014, 03:28:32

@ six

My issue with many of these books is their subjective appraoch, as in who do we blame. This has been one of the misinterpretational problems with Marx's approach although he was at pains to clarify that his perspective was objective.

By this he meant the fundamental properties of capitalism. In other words, were capitalism to take root on another planet in the cosmos, we would find the exact same outcome or outcomes. Thus in attacking the capitalist, one is essentially attacking the system that brings forth the capitalist. The socio-economic structure which incubates the capitalist. And this is why all the tinkering with the system will be followed by tears...no amount of progressive taxing or carbon allocation or general regulation will alter the relentless trajectory of capital....the culture we all labour under. It is here that capital throws forth the conditions that result in consolidation by the wealthy, globalisation by the owners of capital and of course, the dismantling of all our sacred cows.

And it is only those with no vested interest in capital, the working class (which includes the middle class worker) who are able to dismantle the system, who have that capacity. In addition, such dismantling will as a matter of course, lead to civil strife.
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Re: Book: Capital in the Twenty-First Century

Unread postby Oneaboveall » Thu 19 Jun 2014, 14:12:24

Taki mag posted an intriguing response to Piketty:

In this post-1968 era in which the left has lost interest in the working class, the rich are getting richer a lot faster than anybody else is. But most economists haven’t been in a hurry to talk about this; after all, they primarily get paid by the wealthy. As Adam Smith might say today, “It is not from the benevolence of the economist, the econometrician, or the expert that we expect our rationalizations, but from their regard to their own interest.”

On rare occasions we see an economist using his awareness of the law of supply and demand to point out that, say, “immigration reform” is actually a cheap labor policy benefiting the upper class.

Please share this article by using the link below. When you cut and paste an article, Taki's Magazine misses out on traffic, and our writers don't get paid for their work. Email [email protected] to buy additional rights. http://takimag.com/article/a_blind_spot ... z356slq7fd
When the banksters want something, our policymakers move with the speed of Mercury and the determination of Ares. It’s only when the rest of us need something that there is paralysis.

How free are we today with the dominance of globalist capital and militarized security apparatus?
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Re: Book: Capital in the Twenty-First Century

Unread postby americandream » Fri 20 Jun 2014, 17:06:31

The left haven't lost interest so much as the left is not a homogenous entity. The left (or progressive thought) is composed of those who either objectively understand the condition of humans or do not. Dependent on their consciousness, they will be:

1 The reactionary left....national socialists basically who are essentially made up of elements of socialised thought but act as a bridge to mercantilism (ultimately of little use to the capitalist who MUST globalise to survive). Progressive to the extent that they utilise socialism but then reactionary as they do not understand the forces that drive the capitalist whom they seek to ally with and thus have no understanding of man and the material.

2 The bourgeoisie left....social democrats. Again made up of elements of socialised thought but ultimately reformist in as much as they seek to combine the social element of progressive thought with the economic basis of capitalism. Progressive to the extent that they utilise socialism but then reactionary as they act out of a subjective and not objective awareness. Acting often out of charitable or sentimental impulses.

3 The progressive left who dispassionately understand man and the material and the interactions (social relations) therein. Who understand the cyclical nature of capitalism, it's cultural-economic nature and it's relentless pace. They represent pure progress as thet act to give full effect to the underlying impulse of the material to evolve.

The last group are a very small fraction of progressive thought as consciousness waxes and wanes depending on material conditions.
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Re: Book: Capital in the Twenty-First Century

Unread postby Quinny » Fri 20 Jun 2014, 17:45:46

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Re: Book: Capital in the Twenty-First Century

Unread postby evilgenius » Sat 21 Jun 2014, 12:54:28

Not yet having read the book the synopsis makes sense, if you disabuse yourself of the notion that labor creates any value. People allow the markets, and then they also try and say that somehow a thing can have an intrinsic value outside of that which the market has established for it. This works for labor as much as it does for gold.

Taken this way it simply says that when the rate of growth is lower than the rate of return in some relation then there is not a large enough market for those trading their labor to find positions where they can demand more in exchange for it. The more the imbalance leans the worse it gets for labor seeking better positions.

You haven't said if the theory cites the rate of return as increasing as a result of the rate of growth declining or if its rise causes the rate of growth to decline. Is it causal or a result? I wonder if Piketty gets into that? The answer would lend itself to arguments about economic policy, whether stimulus is best directed at larger or smaller interest groups within an economy and what ties chosen groups have or adhere to.

Think about it, when capitalism is really working well a higher percentage of the wealthy are the new wealthy as opposed to the old wealthy. This reflects how growth creates opportunity, aside from how it creates a broader market for labor.

Cold hard theory aside, the markets aren't formed of nothing but interests. They often perform as if they are nothing but a measure of emotional scale, amongst other things. A thing can gain primacy in the machinations of a market, whether it be an emotional cause or a government dictate. Just because we would expect people to favor a certain outcome is no guarantee they will. The world is full of people who vote against their own interests in more ways than at the voting booth. I wonder if this behavior is somehow also tied to what makes Piketty's formula work?
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Re: Book: Capital in the Twenty-First Century

Unread postby americandream » Sat 21 Jun 2014, 18:09:14

Without labour (as that term is naturally determined in capitalism), accumulation would be non-existent. Labour adds the base value in accumulation at two levels:

1 Commodification of resources;

2 Consumption of those commodities.

Naturally, where a newly globalising capital creates the conditions for the culture of wage inflation (remember this notion that people want something has its roots in the surrounding culture and when growth prevails, so does optimism and it's accompanying sibling, the compulsion to consume.), there will be a drive to wage increase.

Previous cycles in capital were invariably related to its infancy as it moved beyond the last remnants of mercantilism and led to the various wars between dwindling mercantilists and capitalists with the resulting consequences on workers (recessions, depressions and wage deflation.)

The current cycle is the globalising cycle and resilient. It will be marked by sub cycles as the nation state is neutered and the Cold War premiums enjoyed by Western workers are stripped away. In this context, a new set of social relations will arise whereby Western workers become more accommodating of lower wages.

On the issue of how capitalists accumulate, the accumulation always draws itself from the labour pool. In the early stages of good times, this pool is broad and cost accommodating hence capitalists proliferate. As costs become more restrictive, labour share of the commodification process plateaus and falls whilst capitalists ensure that their share survives which includes blood letting between capitalists.

Within all of this, capitalists continue to consolidate bigger chunks of the global value pool...this being an ongoing process.

However, what people want or do not want isn't something that materialises out of nowhere. The underlying social relations dictate our inclinations. This is the objective basis of the system.
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Re: Book: Capital in the Twenty-First Century

Unread postby evilgenius » Sun 22 Jun 2014, 10:52:19

I think it can be tough to accept that labor does not create value. I like to keep my emotions out of the argument, though, and think about the thing that does create value, whether a thing can be sold or not. From that point on there is a reference point from which math can be used to track value over time.

Perhaps the current situation is, in its essence, due to a fundamental misunderstanding concerning the reason for the existence of a business, which is to meet demand. It's popular to characterize business as being in business to make money, but that is not essentially true. Making money is a consequence of meeting demand.

Here is where I think capital has a problem classifying labor. Capital popularly commodifies labor by tracking it as an expense. In this manner it makes sense to them to decrease their expenses as much as they can, so they seek cheaper labor in the labor market. What goes unrecognized is that demand is not static, it is dynamic. Marketing has a huge impact upon the level of demand a business will experience. Marketing is considered an investment. Business recognizes this true enough when it comes to those whose purpose is purely geared toward creating demand, toward marketers and marketing departments, but they don't necessarily see the value that labor can provide toward the same. They fail to recognize that they cannot simply replace one person with another and expect to enjoy the same level of investment in the way that they can expect to experience the same level of expense.

Even when dealing with labor in the vast aggregate this notion has an impact, due to the efficiency with which labor under one circumstance or another can increase productivity. The level of investment, whether that be in management, wages or capital goods has a direct impact upon labor's ability to increase productivity.

Under Capital's assumption that they are in business to make money the temptation is for them to classify labor as an expense. This has served as a trap, resulting in vast underinvestment.

I do agree, however, that in the sense that an economy can be characterized as either inflationary or deflationary there will be a change in demand. I believe this is where Piketty makes the most sense as well. Vast or overwhelming deflation, or inflation, undercuts the ability of the masses to purchase, reducing their ability to demand in real terms. Deflation is worse for them, though, because their future expectations are more bleak in terms of wage increases as a utility. If, even though deflation is reducing the real demand of workers, the capitalists are aggregating a greater and greater share, such that their rate of aggregation exceeds the rate of the worker's loss, then they will not feel the same pain and not be likely to recognize their need to change.
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Re: Book: Capital in the Twenty-First Century

Unread postby americandream » Sun 22 Jun 2014, 16:26:54

Labour is sentient energy. From the conversion of that energy (commodification), comes value. To that mix is added inorganically based energy (fossil fuel) which amplifies that base energy source and this the value. All thus consumed

Without that process, there is no value. For example, slavery, the most basic form, misses the consumer component.

That dynamic is the objective heart of any system socio-economic system.
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