The other side by Peter Morici
The new book by French economist Thomas Piketty, "Capital in the Twenty-First Century" has rocketed to the top of the Amazon.com and New York Times best-sellers list. It accomplished this feat by offering yet another apocalyptic vision of capitalism in the tradition of Malthus, Ricardo, and Marx.
To American workers and a middle class besieged by stagnant wages and rising taxes, it provides justification for the dangerous elixir of confiscatory taxes on the wealthy hustled by liberal pundits and politicians.
Pikettys model of capitalism is tight and compelling because of what it ignores.
Examining an incredible range of data across many countries and several centuries, the author purports to demonstrate that over time capitalist economies naturally concentrate ever greater shares of wealth and income into the hands of a few, leaving less and less resources to pay the wages of ordinary workers.
The theoretical mechanics of his assertions are as arcane as classical physicsand only a Ph.D. economist could reasonably divine their weaknessyet Pikettys answers to income ine******y are remarkably seductive.
He proposes an 80 percent tax on incomes over $500,000 or $1 million and an annual levy on wealth of as much as 10 percent. In turn, the revenue raised could finance more redistribution programs, championed by progressive politicians seeking v**es, such as state subsidized health care and superfluous government jobs.
Without those taxes, Piketty asserts society will become ever more stratified and hard work will become futile. The best and brightest among those not born to great wealth, like characters in a 19th century novel, will conclude that marrying a fortune is a much better life strategy than seeking gainful employment. All this will k**l economic growth, and make ordinary people poorer and poorer.
Piketty argues the ever greater concentration of wealth continued into the 1920s, when disparities between rich and poor reached a peak. It was only the disruptions of two world wars and the Great Depression that destroyed much of the capital concentrated in the hands of the wealthy and permitted the post-World War II prosperity and rise of the middle class.
Now, Piketty argues, the forces driving ine******y have reemerged. We live in another Great Gatsby-era with Wall Street barons earning in the millions while workers toil at Manhattan restaurants for barely more than the minimum wage.
Pikettys model of capitalism is tight and compelling because of what it ignores.
The 1920s was a period of exceptional optimism and opportunity in Americaif you need your memory jogged, go view a Harold Lloyd movie on Netflix.
Nowadays a good deal of the mega-incomes are not accruing to the heirs of the Rockefeller and Ford fortunes but falling into the hands of middle class offspring who became entrepreneurs or worked hard to become top corporate managers, stars in the media, financiers, and the like.
The founders of Microsoft, Fedex, Facebook and other recently established mega-enterprises were generally not particularly privileged as young adults but rather they had great insight or ideas and the drive to commercialize them.
The huge incomes of top corporate managers, athletes and entertainers may be set by arbitrary forces. For example, the monopolies granted by congress and federal agencies to the cable TV providers permit NFL athletes to receive outsized salaries financed in significant measure by unregulated and ever-rising cable subscription fees. And top corporate leaders do set their own pay by controlling the membership and serving on one anothers boards of directors.
Its a fools errand to try to solve those kinds of problems by simply taxing high incomes and wealth.
Rather, modern economics prescribes that when natural monopolies emerge, such as in the delivery of cable television, it is the responsibility of governments to regulate ratesas they do the electric utilitiesto ensure fair incomes to providers and reasonable prices to consumers.And to discipline corporate governance to ensure senior managers do not place their interest above those of shareholders and ordinary workers at large corporations.
The extreme positions for and against measured government intervention embraced by politicians too often block such prudent regulation.
In the end, its a failure of democratic governments to act responsibly, not the shortcomings of capitalism that is failing Americas workers and middle class.
Peter Morici is an economist and professor at the Smith School of Business, University of Maryland, and widely published columnist. He is the five time winner of the MarketWatch best forecaster award. Follow him on Twitter @PMorici1.
Nickolai wrote:
Thomas Piketty is no radical. His 700-page book Capital in the 21st Century is certainly not some kind of screed filled with calls for class warfare. In fact, the wonky and mild-mannered French economist opens his tome with a description of his typical Gen X abhorrence of what he calls the lazy rhetoric of anticapitalism." He is in no way, shape, or form a Marxist. As fellow-economist James K. Galbraith has underscored in his review of the book, Piketty "explicitly (and rather caustically) rejects the Marxist view" of economics.
But he does do something that gives right-wingers in America the willies. He writes calmly and reasonably about economic ine******y, and concludes, to the alarm of conservatives, that there is no magical force that drives capitalist societies toward shared prosperity. Quite the opposite. He warns that if we don't do something about it, we may end up with a society that is more top-heavy than anything that has come before something even worse than the Gilded Age.
For this, in America, you get branded a crazed C*******t by the right. In this past weekend's New York Times, Ross Douthat sounds the alarm in an op-ed ominously tited "Marx Rises Again." The columnist hints that he and his fellow pundits have only pretended to read the book but nevertheless feel comfortable making statements like "Yes, thats right: Karl Marx is back from the dead" about Piketty. TheNational Review's James Pethokoukis joins in the games with a silly article called "The New Marxism" in which he repeats the nonsense that Piketty is some sort of Marxist apologist.
For Douthat and his tribe, the proposition that unfettered capitalism marches toward gross ine******y is not a conclusion based on carefully collected data, strenuous research and a sweeping view of history. It has to be a C*******t plot.
The very heft of Piketty's book is terrifying to the Douthats, and no wonder they don't dare to read it, because if they did, they would find chart after chart, data set after data set, and hundreds of years worth of economic history scrutinized.
Income and wealth ine******y have not been comprehensively studied to date, which has to do with the paucity of historical data and the difficulties of making comparisons between countries and populations when there are so many variables. Piketty's contribution is to painstakingly comb over the available data and illuminate trends that would leave no reasonable person in doubt of the fact that capitalism's inherent dynamics create ine******y, and that only our express intervention, in the form of things like a global wealth tax, investment in sk**ls and training, and the diffusion of knowledge can lead us to a different outcome.
To the horror of conservatives, the public is rushing out to buy this weighty economic treatise: the book is #1 on Amazon and has hit the New York Timesbestseller list. A public that not only inuits conservative economic nonsense but has the detailed information to back up that gut instinct is just too awful for words.
Piketty is scaring the right because he is a serious researcher and a calm, disciplined observer who writes in measured tones. But for conservatives who have based the last several decades of economic discussion on mythology, this dose of reality has come at them like a chillling blast of Arctic air.
Let them have their hysteria. It's a testimony to the utter bankruptcy of their ideas.
Memo to liberals and progressives: making Piketty into a rock star isn't helping, either. Let's let the facts speak for themselves.
Thomas Piketty is no radical. His 700-page book Ca... (
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