City Journal Summer 2014

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Summer 2014
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Guy Sorman
The Liberals’ New Hero « Back to Story

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Robert Starkand May 19, 2014 at 7:22 PM
Oh man. Just the same tripe all over again to influence a new generation of young people who don't know anything. This book isn't meant for educated adults. Its meant for the professors to indoctrinate the young. It will take 25 years for these young college students who will read this book to realize that they put their faith in false gods.
I don't think you can support the assertion that one is rewarded by good luck, and then argue that the minor mitigation of that reward by taxation is a punishment. It seems inconsistent to say one is punished as part of ones reward.
Morality is a social convenience useful in maintaining order, not any sort of guide. It ought to be prohibited from consideration in making decisions, which should be pragmatic: what works. Constitutional republican capitalism works. Nothing else does.

IF one desires nonetheless to honor morals, whose morals and which ones? Shall we have a war to find out? That's what an answer to that sort of question inevitably involves.
Belgium is no fiscal paradise, as you seem to suggest. We have one of the highest taxes on income from labor (45 % starting at 19.000 € yearly income, 50% starting at 36.000 € ).The French fiscal expats get special conditions, quite different from Belgian citizens. The number of entrepreneurs who left France for Belgium, is small (rather actors, sangers). Income taxes for normal cItizens are much higher in Belgium than in France. You should get the right information.
A reason for inequality that seems never to be mentioned is that not every person wants to have the same level of income. One person will trade time and effort for income and another person won't. I don't criticize either but I don't know that a society can or should undo this natural event.
Patrick MacKinnon April 27, 2014 at 2:20 PM
Of course we all know that if the world's capital was evenly distributed amongst the world's population within a very short time a new upper class would arise and things would soon be as they were. And even that wouldn't amount to much. Piketty just has no real idea of how many billions of people would need a share. Take the wealth and divide it by the population.And oh, yes who would be doing the redistribution?
"Once society abandons free pricing of production goods rational production becomes impossible. Every step that leads away from private ownership of the means of production and the use of money is a step away from rational economic activity. ...

"Without calculation, economic activity is impossible. Since under Socialism economic calculation is impossible, under Socialism there can be no economic activity in our sense of the word. In small and insignificant things rational action might still persist. But, for the most part, it would no longer be possible to speak of rational production. In the absence of criteria of rationality, production could not be consciously economical."

Socialism: An Economic and Sociological Analysis
by Ludwig von Mises (1st published in 1951)

PART II THE ECONOMICS OF A SOCIALIST COMMUNITY, Chapter 5, The Nature of Economic Activity

Page 105 in the pdf:
After all these years, we still can't improve on Winston Churchill's comment:

"Socialism is the arithmetic of envy, masquerading as the mathematics of justice"
"...why the French remember their revolution and the subsequent Napoleonic period fondly: “It was an era of relative high wages for the lower class following the redistribution of land and mobilization of labor to meet the needs of military conflict.” His book is a trove of similar historical nuggets."

funny, I learned that nugget in high school many years ago. So why gush about it being a nugget?
"...why the French remember their revolution and the subsequent Napoleonic period fondly: “It was an era of relative high wages for the lower class following the redistribution of land and mobilization of labor to meet the needs of military conflict.” His book is a trove of similar historical nuggets."

funny, I learned that nugget in high school many years ago. So why gush about it being a nugget?
I'm now short 500 pages into "Capital in the Twenty-First Century." The policy recommendations await me. However, I do have enough of it turned over that I can tell quotes from substance. Guy sorman has not read the book.

* * * * *
“The entrepreneur inevitably tends to become a rentier,” Piketty writes, “more and more dominant over those who own nothing but their labor. Once constituted, capital reproduces itself faster than output increases. The past devours the future.” This apocalyptic vision of capitalism’s inevitable collapse is strictly recycled Marxist prophecy.
* * * * * *

There is no such prediction that capitalism will collapse. Quite the contrary. Piketty explicitly asserts that return on capital can exceed overall economic growth now and for any foreseeable future.

Marx predicted collapse. Not Piketty.

Moreover, America experienced The Great Depression of the 1930s. That cataclysm wrecked the values of intangible assets held by the .001%ers of the day. The ratio of total fair-market-value property holdings to gross-domestic-product fell steadily from the Crash to FDR coming in to office. Despite GDP falling horribly, wealth holders got hit worse.

Further, Piketty is clear to point out that new technology leads to higher returns for capital. The rate of return on capital will exceed overall economic growth. That comes in at about 2% a year.

And the excess will be concentrated. Statistics are decisive: the "trickle down" fancy has never worked, not in centuries. Instead we have more billionaires and poorer laborers as the 2% difference accumulates to the few at the top. One might also note that modern management training has reduced the risks operating businesses. It doesn't take a genius to get a company to grow its profits faster than the growth rate of the overall economy.

Piketty has disproved a good bit of what Marx thought would happen. Marx was working before we had national economic statistics, so no wonder that he made his mistakes. Adam Smith had his problems as well. But there is no question whatsoever that modern capitalism is causing wealth to concentrate to fewer hands. There is also no "Free Market" mechanism in capitalism to change any of that.

A simple wealth tax starting at 0.1% on intangible wealth above $10-million and rising to the magic 2% figure for intangible wealth above $1-billion is the simplest, least political, least biased remedy for this concentration. The alternative is that we will see hereditary empires or dynasties, combined with political bribery, paid lying, and blackmail. Taxing for 20% a decade might even encourage the very wealthy to call "Enough!" to seeking wealth for the sake of wealth. Beyond a billion, it would go for taxes anyway.
First of all, we already have a wealth tax in the US: real estate taxes are imposed on the largest component of wealth for most US families--their homes.

Second, tax on capital is absolutely the most idiotic idea ever proposed. If returns on capital are so attractive compared to those on labor, doesn't it make sense that we ought to be adopting policies designed to encourage accumulation of capital??!

What is needed in an economy in which labor will be in growing surplus for many years to come is to tax labor at high progressive rates, with the provision that savings from that labor would not be taxed at all, and impose no tax on interest or dividend income.

This will encourage those in the labor market to obtain more of their income from capital and less from labor, thus freeing up scarce jobs. The Ph.D. in economics driving a cab could then pursue a career as an economist, while the someone unemployed could take his place driving a cab.

Unfortunately, the short-sightedness of politicians and an American population that has become increasingly present-oriented seem to preclude that policy option from being adopted.
I would not concede so fast that Piketty shows that wealth is more often a matter of luck than talent. Telling the two apart is an eminently tricky task. A successful hedge fund manager is in a real sense "lucky" because the success comes from random movements in the stock market. But the hedge fund manager put himself in the position of earning these high returns - through career choices, hard work, talent, and risk taking on a level very few of us would be willing to supply. In fact this activity is sufficiently risky that ex ante it is not at all clear that a career in finance has such a high return. We only see the few that were successful, and those are the salient stories that stick with us. They owe their success to a very complex combination of talent, hard work, risk taking and a bit of luck for sure, but to peremptorily argue that it is all luck and thus must all be taxed away is without any justification either moral or practical.
"Piketty admits that he considers economics not a genuine science, but a subdivision of the social sciences, such as history or anthropology."

He's obviously correct on that account. Economics is a lot closer to anthropology than it is to physics.
"why should we care that Bill Gates is a billionaire?"

Billionaires have great power in our society. We should care about what they think and what they do. In many cases their actions are destructive to society at large and aimed only at enriching themselves. Gate's desire to flood the American labor market with H1-b visa workers from abroad, for example.

Billionaires in general favor socialist policies and large, intrusive government. You can't oppose the socialist policies without also opposing the billionaires.
"From the end of the World War II until the late 1970s, a middle class expanded in the West, and incomes from wages and capital converged. But this convergence, Piketty argues, was a historical accident. "

And I'd have to agree with him on this. So many in the USA take this as the baseline, a golden age we should return to, instead of a historical accident brought about largely by WWII.

Aside from that, I haven't read the book and so can't really criticize it. It is, after all, 700 pages and stuffed with statistics- not a light, quick read.

What will probably be missing from the future is this large middle class supporting itself on semi-skilled jobs (think of a UAW member during this period). But those with the right skills will probably prosper, as will many of those with the entrepreneurial skills to open and operate a small business.

And I still don't see the point in this emphasis on inequality rather than poverty. If I'm making a good living why should I care if a tiny number of someone else's have become fantastically rich?

Oops. I forgot to add the quote

'Piketty adds a new twist to Marx. Wars and global crises'
I'm not sure this is entirely new. Jack London wrote the same idea into his fictional 'Iron Heel'.

Socialists have plenty of good ideas. Unfortunately, one of their not so good ideas, is the evolutionarily exalted moral being that will control or mold the utopia they desire to create.
The French do not remember the Napoleonic era fondly because lower classes made more money due to wealth redistribution and land reforms. They remember it fondly because it was the last time they were the continental hegemon. After the French lost at Waterloo, in large part due to Prussian (German) strength, they never regained that position in Europe.

And to the extent the French have some ancestral memory of the good old days of the Empire, that may just be because Napoleon appropriated money and resources from all of France's vassals in order to fund his wars and so France for most of this period was spared the full effects of its Emperor's constant wars against the rest of Europe.
Sound like he's been hanging around with Marxist David Harvey while in NYC
So why do "Progressives" celebrate prophecies of collapse? And favor policies that stifle innovation? And declare apocalyptic doom-sayers "right"? These "Progressives" are not progressive. They are simply lovers of government and foes of innovation and liberty. That's not very progressive. This fol-de-rol has about as much legitimacy as global warmist alarmism. And the more government does about either, the poorer we all will get.
I have a suggestion: property taxes are a medieval serfdom type of landlord tax that implies that no one owns property, but that all property is a priori owned by the state. Why don't we eliminate property taxes? Along with income taxes. Finance government on the basis of consumption taxes only. Then government will have vested interest in economic growth, and government interests will align with economic growth and the richest, those who consume the most, will pay the highest taxes. Wouldn't that be fair?
Michael Bernstam April 23, 2014 at 8:13 AM
Excellent. Plus this, as I pointed out recently:

Krugman pointed out that the innovation of Piketty is using the tax records. Fine for historical England and France and the U.S. - and in each of these cases he found the stability of historical shares of capital and labor income in national income for centuries. But the tax records now include S-corporations, LLCs, and stock options of founders and other employees of C corporations. This is where the bulk of capital gains are, for numerous reasons (S-corporations pay minimal salary to founders to avoid payroll taxes and pay the rest in the form of dividends; C-corporations defer labor compensation to founders and give them stock options; etc.). In the tax records, this is return on capital. All of it. In the real life and in the true accounting sense, this is deferred labor compensation. In the economic sense, it is return on human capital. So the bulk of Piketty's empirical findings rests on mis-classification of income in the modern tax rules and misinterpretation of tax records. Once you correct for deferred labor compensation and move it from return on capital to wages, which should be right in any accounting, economic, and common sense, all the effects of rising relative returns on capital disappear and the edifice collapses. Plus, as several critics pointed out, there is some mix-up in interpreting depreciation as opposed to pure profits in the gross operating surplus. Sometimes he uses gross operating surplus, sometimes net profit. This also skews and biases his findings.
Warner Todd Huston April 23, 2014 at 8:07 AM
Another Euro-weenie liberal whitewashing millions of murders by communists using the "we just haven't tried it right" defense. These people should be excoriated, not celebrated.
His book is very expensive. Any chance of him donating the profits to a charity?
Communists in the US are always anxious to find new reasons to steal other peoples' wealth.
Please stop calling them liberals. They are not liberals. They are LEFTISTS! Liberal implies a tolerance, reason, love of freedom and logic that these LEFTISTS do not possess.
So-shall-ism bosses April 23, 2014 at 7:36 AM
Equality of income does not lead to equality of outcome. Given some freedom, people's fortunes will still rise and fall according to their own natures and, sure, strokes of luck.

No laws or superbureaucracy of social and economic justice could-- or even wish to-- create a completely egalitarian state maintaining an engineered equilibrium. Socialists are the first to say the masses need a techno-academic-richer elite to "lead" them. Stratification and classes are their thing, they just want less competition and more people under their boot, that's all.

Krugman and his net worth says it all about how the leftist intelligentsia is determined to become and remain more equal than others. One could wonder whether all the materials in his egalitarian mansion are free-trade and if each member of the construction crew was sufficiently remunerated according to his needs.

Has Krugman a hired staff of maids, cooks and gardeners who wait on him in his egalitarian mansion? Because we all know there's some theoretical egalitarianism via imposition of commensurate salaries but then there's real life social and employment class disparities that hurt people's souls. So maybe we need our betters to arrange society and economy so that everyone but the elites have jobs of muted but equal status and some outward dignity.
As George Orwell said "Only an Intellectual would believe such nonsense, no ordinary person would be such a fool"
per wwwDOTusdebtclockDOTorg as of NOW
the total U.S national assets is ~$113.7T
a difference of about $15.1T

so, given the M. Piketty thesis, what plan does he propose to cover the gap, since the ever-popular capital-flight gambit is available to concerned capitalists

bonne chance, mes amis :)
I am a resident of the no longer sarcastically called "The Lucky Country". (Not a few Australian politicians over the last 30 years have governed intelligently though it is admittedly hard to know whether they could have without, initially, being able to learn from the sometimes horrible example of others. New Zealand started pulling itself out ofan economic mire earlier because its situation was so dire, but having Reagan and Thatcher as contemporaries helped too.) We have no death duties either state or federal although they wreaked havoc even with a maximum combined marginal rate under 60 per cent before they were abolished in a rush about 36 years ago. Not long afterwards the first capital gains tax was introduced and that has some impact on many estates. Capital taxes exist in the form of municipal rates and state land taxes which can be quite high because progressive. But Australia is certainly a good place to own capital compared with almost any other medium size to large country with substantial welfare provision. But, but, but. Would Australia's democracy work so well if there wasn't a happily booming economy - 22 years of virtually uninterrupted growth if the country wasn't, and wasn't so easily prosperous. Perhaps countries like people are not vrry often ennobled and made nicer by sickness and pain.
Piketty studied at LSE.