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on May 25, 2014
I'm a software developer by trade, but for career advancement reasons I obtained financial certification a few years ago with CFA Institute, and am now required to maintain my professional credentialing through continued education. This book has generated a lot of discussion in recent months, so I thought it would be a worthwhile read. I was not disappointed.

First, I have to say that the English translation is very good throughout most of the book. I get the feeling that towards the end they were a little rushed to get to print, but overall a very nice job.

As I said, I have only recently started learning finance as an adjunct to my primary career (I work as a systems analyst for a small fixed income investment firm) and as part of this I have begun to learn the fundamental theories of economics and the various systems, predominantly monetary and market, which underpin it. So I can't really argue the merits of this book from an academic basis, as I'm a neophyte in this area.

However, I am encouraged by Piketty's assertion at the end of his book that it is precisely people like me who should be taking a more active interest in how capital is distributed in today's world, and in the political systems that serve to enable such distributions. The author wants the little guy to get the big picture, and has written a book that speaks to us.

So, from a little guy's perspective, I have a few observations to share about Piketty's book:

- Data. In recent days (I am writing this in late May 2014) doubt has been cast in some conservative circles as to the accuracy of Piketty's data collection methods. I get the impression that the accusations themselves are overblown, as the data trend lines for some graphs presented by the Financial Times differ mainly in degree, not direction, to those presented by Piketty. However, some plausible gaps have been identified in the data presented in the book, and these need to be addressed in a future edition.

- Plausibility. Data aside, do I agree with Piketty that the rich are getting richer and the poor poorer? Well, yes, if one believes his data, there is certainly a trend over the past 30 years that indicates an ever-increasing concentration of wealth in the upper decile of the population. But Piketty also concedes that the share of wealth in the (patrimonial) middle class, measured both in terms of income and asset ownership, has also increased in post war America and Europe, and is rising in Asia. In other words, the rich are getting richer, but the less rich have also never had it so good (by pre-WWI standards). The poor who occupy the bottom 50% may indeed be getting poorer, but they have always been poor, at least as far back as the data allow us to measure such things. In fact, they were much, much poorer over a century ago when one takes into account what they had access to in terms of goods and services.

- Solutions. The primary solution offered up by Piketty as a means to stem the growing divergence of capital is a progressive tax on the top earners, especially the so-called "rentier" class, whose ownership of assets, either through inheritance or entrepreneurship (or a combination both) allows them to continually accumulate income without necessarily generating jobs (r > g).

A progressive tax idea is nothing new, and is obviously at the core of all the controversy, pro and contra, surrounding Piketty's work. After all, we are talking about taking something from one set of people and depositing it elsewhere.

It's the elsewhere that bothers me. As Piketty notes, taxes are necessary, as they provide for the common defense and basic social needs of a society. With the aging of the population in the Western world there will be an ever -increasing strain on budgets to provide care to people whose life expectancies far exceed those of their not-too-distant ancestors. Fair enough. We need to have mechanisms in place to care for the vulnerable in our society.

My problem with progressive taxes, however, has to do with human nature itself. We naturally tend to abhor those in the top centile of earners who loll around all day, while earning income from others (in the form of rents of one sort of another), on account of the assets they inherited. Deep down, I think almost all believe that one should be worthy of his wage. The idea of meritocracy is a universal principle, one could argue a moral one. If you have a good idea and are willing to work for it, you should be rewarded.

So it is natural and good that we look with disdain upon people who are enjoying the good life without having to work much to maintain that lifestyle. This applies just as much to the lazy rich trust fund kid (think of the Dudley Moore movie) as it does to the listless welfare recipient. We just know it's not fair. It's funny though how we are always happy for the lottery winner, as if an act of fate based on random number selection exempts them from the same kind of scrutiny as those who benefit by other means.

So back to taxes. A yearly progressive tax, based on net assets, would definitely help to close the divergence gap between the top decile and the rest of us. The question is, what will be done with that money? Piketty mentions education as the primary beneficiary of such funds. This is not surprising, as he is, well, an educator. Yet, I wonder if his arguments regarding super-manager salaries and the concept of "marginal productivity" cannot be equally applied to that of education. In other words, what guarantee do we have that throwing money into the public sector is going to make our kids smarter? Will we end up with more bureaucrats making (semi) super-manager salaries, followed by super-pensions in the last three decades of their life? If you want a taste of this, Google salaries for state employees in Massachusetts. You'll find that most of the highest paid occupy positions in the half dozen or so state universities. What exactly are all these people who are making 100k+ doing? And are they in fact productive?
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on March 17, 2014
This is a monumental work about inequality. Despite the title's allusion to Marx's classic (a point emphasized by the dust jacket design), it's neither a primarily theoretical nor a primarily polemical work, though it has elements of both theory and advocacy. Nor is its author (TP) a radical: he taught at MIT, and is thoroughly at home in the concepts and categories of mainstream neoclassical theory. Nonetheless, I think even many who hold less orthodox views about economics will find this book stimulating, valuable and sympathetic in many respects. And all readers ought to find it disturbing.

In the ultra-long comments below, I begin with the book's audience and style (§ 1); then turn to some of the book's main arguments, which are more nuanced than usually reported (§§ 2-6); then to some things that are unclear or missing (§§ 7-8); and I end with some comments about the book's production (§ 9) and some concluding remarks.

1. In the original French edition, TP says that he intended this book to be readable for persons without any particular technical knowledge. In principle, it could be read by a broad, college-educated audience. TP's prose is very clear and direct, with a low density of jargon and a high density of information. (I read the French edition, but Arthur Goldhammer's translation seems to preserve these qualities very well.) The discussion is enlivened by well-chosen references to literature and a sprinkling of sarcastic barbs, both of them techniques that French scholars have developed into art forms (if not as elegant as John Kenneth Galbraith's irony). The allusions here range from Balzac, Jane Austen and Orhan Pamuk to "The Aristocats," "Bones" and "Dirty Sexy Money;" and the sarcasm hits both university economists and The Economist (@636n20), among others.

But: this is a long and demanding book. It talks relatively little about current events or the policies of particular governments, unlike, say, Joseph Stiglitz's "The Price of Inequality" (2012). I wouldn't say Stiglitz's is an easy book, but it was written more with of a popular audience in mind (picking up 270+ Amazon reviews in less than 2 years). TP's presentation is far more methodical and meticulous than Stiglitz's. It helps for the reader to be interested in the fine points of data series and categories, and in the sources of uncertainty in data. Occasionally the discussion will focus on concepts from academic economics, such as Cobb-Douglas production functions, elasticities, and Pareto coefficients; while TP uses words rather than math on these occasions, he generally assumes you pretty much know what he's talking about. Finally, if, as I did, you make it through the whole thing while reading with some attention, I bet dollars to donuts you'll come out of the experience feeling very, very down, on account of TP's message. Actually, that mood will hit you long before the end. Despite its felicities of style, this is an arduous read.

2. The "capital" in the title includes not only farms, factories, equipment and other means of production, but also assets typically owned by individuals, such as real property, stocks and other financial instruments, gold, antiques, etc. -- what's sometimes called "wealth". TP excludes so-called "human capital," because it lacks some features of true capital (ability to be traded in a market, inclusion in national accounts as investment), unless it's in the form of slaves.

The distribution of capital is far more unequal than that of income. Even the Scandinavian countries have a Gini coefficient for capital of 0.58 -- comparable to that for income inequality in Angola and Haiti, among the 10 worst in the world (World Bank figures). For Europe and the US in 2010, the coefficient is at 0.67 and 0.73 respectively, worse than any country on the World Bank income inequality chart. (Of course, the worst countries on that World Bank list have hair-raising capital inequality, too.)

The book's main thesis is that economic growth alone isn't sufficient to overcome three "divergence mechanisms" or "forces" that are in many places returning inequality in income and/or capital to pre-World War I levels. The main mechanisms are:

(A) the historical tendency of capital to earn returns at a higher rate ('r') than the growth rate of national income ('g'), which typically sets a constraint on how workers' salaries grow, symbolized by the mathematical expression, "r > g".
(B) the relatively recent (post-1980) widening spread between salaries, not only between the wealthiest 10% or 1% and the mean, but even within the top 1%.
(C) an even newer inequality in financial returns, which correlates r with the initial size of an investment portfolio -- i.e., different r for different investors.

A point to keep in mind is that g relates to national income, not to GDP. National income = GDP - depreciation of capital + net revenue received from overseas. Among other benefits, this measure corrects for the reconstruction boosts in GDP after wars, hurricanes, earthquakes, etc., since the depreciation term takes the destruction of property into account. Also, an increase in national income usually has two different sources: part of it is truly economic, coming from productivity growth (output per worker), and part is due to population growth. Historically, it's the latter that has dominated.

3. The r > g argument has received the most attention. It's to be seen "as an historical reality dependent on a variety of mechanisms not as an absolute logical necessity" (@361). TP finds that this condition has held throughout most of the past 2,000 years. As long as it does, he says, it's the natural tendency of capitalism to make inequality worse -- and the bigger the difference (r - g), the worse that inequality will be. Many commentators about this book make it sound as if this is an obvious mechanism. But if you play with it on Excel, using reasonable values for r and g, it turns out to be slower and more sensitive to initial conditions than you might expect.

Here's a toy example: Let's suppose r = 4%, g = 1.5%, and that salaries rise as fast as g (a very idealistic assumption!); and let's assume these rates are net of taxes or that no taxes apply. I'll compare the situations of three people in Silicon Valley: X, an engineer who made $8.5 million by exercising stock options when the company she used to work for had an IPO; Y, the same company's former HR manager, who made $6.0 million from her options; and Z, a young lawyer at a local law firm, who has a $200,000 salary when we first meet her.

After a year, X has $340K in disposable income, Y has $240K, and Z gets a raise to $203K. Suppose X and Y spend all their income from their capital every year. Eventually, Z can earn more than each of them: it will take her about 37 years to exceed X's annual income, but only 13 years to make more than Y. Now suppose X and Y each save the equivalent of 1.5% of their capital. Then Z will never overtake either one in gross annual revenue, but the situation as to disposable cash is a bit different. After saving, X will always have more cash to play with than Z, but it will take more than 15 years for her to have just 50% more than Z does. As for Y, she'll actually start out with less annual cash than Z, and it will take her 13 or 14 years just to catch up -- even though she's a multi-millionaire.

The true potency of the r > g mechanism comes from its working in conjunction with other circumstances. For example, according to TP's historical data, I've been way too conservative in my assumptions about X's and Y's advantages over Z.

From the 18th through the early 20th Centuries, the people who earned money from capital had proportionally a lot more than they do today: e.g., in 1910, the wealthiest 1% in Europe held > 60% of all European wealth, about triple the share they hold today (see Fig. 10.6). The US was not so extreme, but still very unequal: From 1810 to 1910, the share of the top 1% grew from 25% of American wealth to 45.1% (Fig. 10.5), compared to 33.8% today. So to set our example 100-200 years ago, the endowments of X and Y could plausibly be much bigger relative to Z's wages (especially if we chose, say, Wilhelmine Germany instead of Silicon Valley).

More recently, since the 1980s, most folks with a lot of capital also earn salaries -- and having a lot of capital tends to be correlated with having a salary well above average. So in a more realistic modern example, we should consider that X and Y have moved on to new companies where they receive hefty salaries, which would give each in total a healthy and growing excess of annual spendable cash versus Z. This is the realm of the second divergence mechanism, which is especially formidable in America. In 2010 the richest 1% not only held more than 33% of American wealth, but they earned between 17x and 20x the mean American income (depending on whether capital gains are included). Even the wealthiest 0.1% of Americans work, for average incomes roughly 75x the mean (or 95x, if capital gains are included) (see Table S8.2). At the other end of the spectrum, I was shocked to learn that the purchasing power of the US Federal minimum wage peaked in *1969* -- what was $1.60 an hour back then would be worth $10.10 in 2013 dollars. In those same dollars, the current statutory minimum hourly wage is $7.25 or a bit less (see Fig. 9.1 and nearby text).

On top of these trends, succession to family wealth is becoming important again today, even if not to the full degree it was in 19th Century novels. TP frames this in terms of the dialogue of the worldly Vautrin and the young, ambitious Rastignac in Balzac's "Père Goriot" (1853). Rastignac aspires to wealth by studying law. Vautrin counsels him that unless he can claw his way to become one of the five richest lawyers in Paris, his path will be easier if he simply marries an heiress in lieu of study. Cut to the present: judging by TP's Fig. 11.10, law school might have been the better choice for Baby Boomers, but if you're a Rastignac in your 20s or 30s when you read this, consider marrying up. Maybe you think you'd rather found the next Facebook or Google -- but why work so hard, and against such long odds? TP shows that when Steve Jobs died in 2011, his $8 billion fortune was only 1/3rd that of French heiress Liliane Bettencourt, who has never worked a day in her life.

4. There's another way that "r > g" is inadequate as a summary of TP's argument: TP calculates that during the past century (1913-2012), we've seen r < g, the opposite of its usual polarity (Chapter 10).

High rates of growth -- or at least, what we're accustomed to thinking of as high rates of growth, 3%-4% or more -- aren't a sufficient explanation. In fact, such rates of growth aren't sustainable in the long term, and were not sustained in most countries; they're mainly a catch-up mechanism lasting a few decades, according to TP. During the period from 1970-2010, the actual per capita growth rate of national income averaged about 1.8% for the US and Germany, 1.9% for the UK, and 1.6%-1.7% for France, Italy, Canada and Australia. The wealthy country with the highest per capita rate was Japan, at 2.0 (Table 5.1). (Think about that, next time you're tempted to swallow what Paul Krugman and other pundits pronounce.) Nonetheless, growth rates in this range appear to be what TP calls "weak" (e.g., @23).

Rather, the main reasons for the flip are the tremendous destruction of capital in Europe due to the two world wars, and the imposition of very substantial taxes on capital, at an average rate of about 30% in recent years. These greatly reduced r.

Despite these trends, inequality has been getting worse during the past few decades. This isn't a paradox, but rather the impact of the other divergence mechanisms, especially the rise of the "working rich" and the spread of inequality in salaries. So we should be quite alarmed by TP's assertion that we'll flip back to r > g during the 21st Century. His explanations for this seem rather more speculative than most of the rest of the book, though it's clear he expects g to remain low. I return to this a bit more in § 7 below.

In any case, it's clear that r > g isn't a necessary condition for inequality to get worse.

5. TP reserves his most anxious prose ("radical divergence," "explosive trajectories and uncontrolled inegalitarian spirals") for the third mechanism, inequality in returns from capital (@431, 439). Those with a great deal of capital are able to earn higher returns on it -- such as 6%-7%, or even 10%-11% in the case of billionaires like Bill Gates and Bettencourt -- compared to those with only a few hundred thousand or millions of dollars, who may earn closer to 2%-4%. This results from two types of economies of scale: the ultra-rich can afford more intermediaries and advisers, and they can afford to take on more risk.

Unfortunately, public records don't provide adequate information on this point, and while TP does look at Forbes's and other magazines' lists of the wealthy, those present many methodological issues. So TP corroborates his findings by looking at the more than 800 US universities who report about their endowments. Most spend less than 1%, or even less than 0.5%, of their endowments on annual management fees. Harvard University spent around $100 million annually (ca. 0.3%) on management of its $30 billion endowment, and earned net returns of 10.2% annually during 1980-2010 (not counting an additional 2% annual growth from new gifts). Yale and Princeton, each with a $20 billion endowment, earned a similar rate. A majority of universities have endowments of less than $100 million, and so obviously can't fork over $100 million to managers; they earned average returns of 6.2% during that period (still better on average than you or me).

TP of course doesn't worry that universities will own most of the world, nor does he find it plausible that sovereign funds from Asia or oil-producing countries will either. The bigger danger, he contends, is private oligarchs, and he believes this process is already underway. Since the officially documented ownership of global assets comes up slightly negative, TP calculates that either the rich are already hiding the equivalent of at least 8% of global GDP in tax havens, or else that our planet is owned by Mars (@465-466).

6. In Part IV of the book, TP considers policy approaches to deal with the three forces of divergence. In short, the answer for all three is a progressive, annual global tax on capital, to be set at an internationally agreed rate and its proceeds apportioned among countries according to a negotiated schedule (@515). This will also need a global real-time reporting system for transactions in capital assets. Many will attack these ideas, but it seems that TP's main intention is to get a serious conversation going. His admits his approach is utopian, but maintains that utopian ideas are useful as points of reference.

What interested me most was that TP doesn't see pumping up g as a viable approach to preventing r > g from returning. For one thing, demographics create some limitations in how far g can be pushed, especially in countries whose populations will soon be declining (or Japan, where that's happening already). For another, the same forces that pump up g can also increase r, at least in theory, so (r - g) wouldn't necessarily change much. The more practical answer then, is to bring down r.

In his final chapter TP turns to the very topical question of public debt, which he sees as an issue of wealth distribution and not of absolute wealth. He reminds us about two of its important aspects: One is that public debt takes money from the pockets of the mass of citizens, who pay taxes, and puts it in the pockets of the smaller group of people who are wealthy enough to make loans to the state. The other point is that nations are rich -- it's only states who are strapped for funds. He calculates that in many countries, a one-time progressive capital tax of up to 20% on property portfolios worth more than 1 million Euro could bring the national debt to zero, or nearly so.

Actually, TP doesn't believe that such a drastic reduction in debt levels is urgent, any more than he believes that such a gigantic tax is politically feasible. But his observation puts the lie to the notion that one must raise consumption taxes or income taxes (or, for that matter, experience economic growth) to reduce debt levels.

7. There were a couple of rare instances where I didn't feel the text was sufficiently clear. TP very graciously replied to my emailed inquiries about these matters, but without that input, I'd have remained quite confused by them.

(a) The first arose in Chapter 1, where α (alpha) is defined as designating the "share of income from capital in national income." According to the perhaps intemperately named "first law of capitalism," α = rβ, where β is the ratio of the stock of capital to the flow of national income (and r is as above, the rate of return on capital).

But an important category of income from capital is capital gains, the profits you make when you buy assets cheap and sell them dear. Unrealized capital gains make up a substantial part of the fortunes of Bill Gates, Steve Jobs and other billionaires mentioned in the book. And capital gains are *not* included in national income, according to the algorithm for computing that quantity. (Nor are they included in GDP.) This makes the use of the preposition "in" confusing -- does it mean that capital gains aren't considered as income from capital?

This issue seems to have its root in academic economics, where α appears as a parameter in the neoclassical growth model developed by Robert Solow. The model represents an economy that produces one type of good -- i.e., it's all about making and selling stuff that gets consumed, so capital gains aren't considered. (In a sense, this model supplies a lot of the motivation for Part II of the book: the academic debate over the relative shares of capital and labor in the national income, i.e., the size of α and whether it changes with time, is a long and at times contentious one. But you can still benefit from reading Part II without knowing that.)

The answer I got from TP is that because capital gains don't seem to be very important in the long term (>100 years), netting out to roughly zero over such periods, he didn't consider them when discussing α. The subject of capital gains does come up later in other contexts, though, and TP does consider them important in the short-term (which in some contexts can mean a timescale of several decades).

(b) The second issue relates to TP's prediction that our current condition of r < g will flip back to r > g later this century. TP mentions that for the past 100 years, wartime destruction and, later, an average 30% tax rate on capital have brought r below g, despite currently weak growth rates in many countries. The data in the book, though is rather opaque about the relative contributions of these factors. Also, the book's clearest explanation of why matters might reverse rests on the possibility that countries will compete to attract capital by a race to the bottom in capital tax rates, allowing r to edge back up. This sounded rather too speculative to warrant such definite conviction about the return of r > g.

I checked the online material, and found the Excel file (not the pdf file) of supplementary Table S10.3, which mentions some of TP's assumptions. Among other things, this makes it clear that TP factors in destruction of capital from WWII in calculating r even for the most recent 50 years. It seems plausible that this will be less important going forward, so that even a 30% average tax rate on capital might not be sufficient in and of itself to prevent r from popping above g again ... maybe. I'm still not entirely convinced that TP's argument about the future of r is among the strongest in the book; but I'd be even less so if I hadn't consulted the online information.

8. No book can talk about everything pertinent to its theme, so it's all too easy to think of things one wishes had been included. Still, I was disappointed that the book was conventional both in its thinking about economic growth, and in its thinking less about growth's environmental consequences.

TP tells us that part of "the reality of growth" is that "the material conditions of life have clearly improved dramatically since the Industrial Revolution" (@89). Its main benefits include its roles as a social equalizer, and as a "diversifi[er] of lifestyles" (@ 83, 90). "[A] society that grows at 1 percent a year ... is a society that undergoes deep and permanent change" (@96).

Growth's equalizing effect, though, comes largely from population-based growth, whereas "a stagnant, or worse, decreasing population increases the influence of capital in previous generations" (@84). So is a country already in that condition, such as Japan, supposed to open its doors to immigrants? As an immigrant to Japan myself, I can appreciate that there are many social, cultural and political reasons why this could be a bad path both for country and for many of the immigrants as well. How about focusing on productivity-led growth instead? Maybe, because "in a society where output per capita grows tenfold in a generation, it is better to count on what one can earn and save from one's own labor" (@84), instead of relying on an inheritance. The problem is, this takes for granted that gains from productivity improvements will be shared with labor, rather than shareholders. Yet Part II shows that labor's share has been flat or declining. In Japan, productivity improvements nowadays tend to come from using temporary employees instead of higher-paid permanent ones, and from using robots in lieu of employees at all. These have worked out to be more methods for enhancing inequality, than for abating it.

Both population growth and productivity growth have other costs, too. The rapid growth of output TP alludes to could only be of the transitory, catch-up sort, such as China has been experiencing since the 1980s. The environmental consequences of that haven't exactly been benign. Nor does the book give any consideration to the environmental consequences of population growth, when the population in question aspires to a wealthy country's per capita environmental footprint.

So are countries with declining populations doomed to oligarchy until all the other countries in the world can agree on a global capital tax? Obviously there are better ways to proceed. Such as examining whether growth truly is necessary for further improving health and other material conditions of life, even in an already-wealthy country. And inquiring whether deep and permanent change is a virtue in itself, or whether good sorts of changes can be achieved without following policies obsessed with growth. Exploring such questions thoroughly would certainly have been outside the scope of this book, but failing even to hint at their existence was either a missed opportunity or a lapse of imagination.

9. In addition to the good translation, some other aspects of the book's transition to English succeed. The US hardcover has sewn signatures; my closely-read and much-shlepped French copy, which comes in at nearly 1,000 pages in a perfect binding, is already showing signs of loose leaves. The US edition has a pretty good index, whereas the French lacked one entirely. It's not quite complete, though: e.g., you won't find the above-mentioned references to Mars, "Bones" or The Economist in it, and I noticed a few references to Japan that were missing, too. On the other hand, the notes didn't fare as well. The notes in this book are long, discursive and informative; you really should read them. The French original used footnotes, but Harvard opted for endnotes, which means you'll either be doing a lot of flipping back and forth, or else ignoring a lot of good material.

A mixed blessing in both editions is that the technical appendix has been punted online. The package is generous, and includes files for the book's tables and figures in both pdf and Excel formats. The expository appendix (evidently translated by someone other than Dr. Goldhammer) includes hyperlinks to pertinent scholarly articles. Downloading the 2013 paper TP wrote with Gabriel Zucman, "Capital is Back," along with its own humongous technical appendix, might be a good choice: the present book's technical appendix refers to this often. If you want all relevant Excel files (including, e.g., some UN data and TP's comments to the Angus Maddison historical data), be sure to scroll through the pdf of the appendix and click on appropriate links, since several such items are absent from the website's "Piketty 2014 Excel files" folder.

Unfortunately, no one can know if this website will be maintained a few decades from now, or how easy it will be to read .pdf and .xls files by then. Just as is the case today with books by leading mid-20th Century economists, this is the sort of book that scholars will still want to read in future, even after it's out of print. They'll be very frustrated by the many cross-references to the technical appendix (at least 100-200 times by my eyeball count) if the information has vanished. I hope that in the not-too-distant future TP will freeze and publish a hard copy of this supplemental material for archival purposes.

It's also surprising that not even the website provides a comprehensive bibliography. The technical appendix includes a number of references, but these are spread out over a list at the beginning and more references embedded into a chapter-by-chapter commentary. Even this fragmented resource doesn't pick up many of the books and articles mentioned in the printed book's endnotes/footnotes. Again, I hope TP or the publisher will remedy this soon.


Among its other accomplishments, the book demolishes a couple of abstractions from the 1950s that economists have cherished for decades. One is the "Kuznets curve," according to which income inequality first rises, then peaks and thereafter declines as per capita GDP (or earlier, GNP) continues to rise. Another is the Modigliani "life-cycle" saving theory, which posits that the people save for their retirement and then spend pretty much everything by the time they die. TP's long runs of data show that both of these theories were plausible, if ever, at best only during a brief era around the time they were formulated, when both capital and income were distributed in a more egalitarian way.

How will the economists of today react to this book? Paul Krugman didn't provide an encouraging sign in his blog a few days after the US edition appeared. First thing he did was to try to "understand" it by plugging TP's data into another abstract 1950s-era mathematical model. The vast majority of mainstream economists didn't see the 2008 crash coming, but after it happened they insisted that their models weren't defective. If an historical event of that magnitude couldn't make a dent in their worldview, one has to be a great optimist to believe that this book will. More realistic may be to hope that this book's impact can be political. Luckily, that isn't up just to economists, but to readers like us.
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on August 8, 2014
Marx and Engels began their Communist Manifesto with a warning and a threat: “A specter is haunting Europe — the specter of Communism.” According to French economist Thomas Picketty, a new threatening specter is haunting the world: the specter of economic inequality.

According a reviewer, Picketty’s new book, Capital in the Twenty First Century, has almost overnight captivated “Main Street, Wall Street and the cream of Washington’s trend-minded policymakers and think tankers.”[1] What is Picketty’s book main thesis? That the gap between the poor and the rich has reached dangerous levels. Picketty warns that the U.S. may be on the same trajectory as France before the Revolution, where the very rich ended with their heads chopped-off.

After analyzing data from the U.K., France, Germany, Japan and the U.S., Picketty proved with hard data what many people already have been talking about for many years: the rich really are getting richer, and their wealth is not trickling down. Actually, it is trickling up.

In his study, Picketty shows how the wealthy, who make their money mostly out of stock portfolios, pay less or no taxes at all and get richer, while the working middle class, who make their money out of heavily taxed paychecks, get poorer. But then, he jumps to the farfetched conclusion that the sure and only way to change this economic inequality is by modifying the current tax system. According to him, the current form of wealth tax is not adapted to the 21st century structure of wealth. The solution, according to Picketty, is adopting a more just, equitable global wealth tax.

A key to discovering the source of Picketty’s ideas is that the institution that funded his study is the Institute for New Economic Thinking, a George Soros-backed nonprofit organization. Therefore, it doesn’t come as a surprise that Picketty’s solution to the problem is exactly the one the hyper rich globalist conspirators have been pushing for many years, of lately disguised as a “carbon tax.”

But, though Picketty’s “discovery” that the one percent is getting richer and the rest of us are getting poorer is absolutely right, the solution he offers is not only simplistic but also outright naïve. Apparently Picketty believes that the hyper rich are not aware of the problem, and that, just by telling them that what they are doing is wrong (and immoral, unscrupulous, unethical, dishonest, criminal, wicked)[2] they will change their evil ways.

Unfortunately, that will not be the case. Nevertheless, whether they like it or not, the monster they have created will turn against them, because eventually a Ponzi scheme of this magnitude will end in disaster for the schemers themselves.

True Capitalism VS Monopoly Capitalism

Unknowingly, when Henry Ford decided to pay his workers twice the amount other companies were paying their workers for similar type of work, he jumpstarted the American middle class. As a result, well-paid workers were able to buy houses, cars, fridges, radio, TV sets, and many other household items that otherwise would have been available only to the rich. This unexpected economic phenomenon contributed to an expanding economic growth never seen before in the history of mankind.

This economic growth propelled the entrepreneurial spirit of many Americans to create their own private companies to provide the newly-created consumers with the products they wanted to buy. This started an upwardly expanding spiral of economic progress that extended for half a century.

Initially, these companies were individually or family-owned. Of course, the possibility of monetary gain was key in their efforts, but because they felt proud of the product they were creating, many of them gave their names to their companies.

Unfortunately, however, the bankers who illegally created the Federal Reserve Bank in 1913 needed a way to fill their arks, and the easiest way to do it was by stealing other people’s money. So, to steal it “legally,” they also imposed a federal tax and created the infamous Internal Revenue Service to enforce its collection.

In theory, all citizens were supposed to pay the federal tax. But, given the fact that the idea of a national tax was one of the planks of Karl Marx’s Communist Manifesto, they created a progressive or graduated income tax as Marx advised. According to this plank, the more money you made the higher percent of taxes you were supposed to pay. Most people were happy, because this tax was supposed to hurt only the very rich.

But you have to be very naïve to believe that the very ones who created the tax were really going to pay it. Actually, they created a tax code full of loopholes to avoid paying taxes. Currently, if one is to believe Rush Limbaugh and other disinformers, the U.S. has the highest corporate rate of the industrialized countries. What he never mentions, though, is that the U.S. Tax Code also has the highest number of loopholes.

Another method the robber barons invented to avoid paying taxes was by changing their private companies into corporations, but this opened a Pandora’s box. Contrary to privately owned companies, which have an emotional connection to the products they made, corporations are impersonal entities. Despite that the Supreme Court has asserted the legal standing that corporations are people,[3] pride is an emotion corporations lack. Despite their pervasive propaganda, the corporations’ goal is not to serve society with the products they create.[4] Their main goal is to maximize the earnings of their executives and stockholders, and they reach these goals mostly by exploiting their workers and eliminating the competition.

Most people would agree that competition is probably one of the best characteristics of true capitalism. Competition benefits customers and fuels innovation. No wonder monopoly capitalists hate it so much. John D. Rockefeller, the inventor of the trust (a monopoly of monopolies) once said, “Competition is a sin.”[5]

This goal —maximize earnings by exploiting their workers and destroying the competition — have been exacerbated with globalization. With the implementation of the so-called “free trade,” transnational corporations have totally lost their link to the countries where they originally were created. Proof of it this their callousness when they decided to move their production lines to Third World countries in order to increase their profit margin.

One of the main costs of any business is paying the workers who create the product. So, to minimize this cost, they moved their factories abroad to countries where they hired quasi-slave workers who are paid miserly salaries. They never gave a thought to whatever would happen to the lives of the American workers and their families they were sending into unemployment and poverty.

The corporations who pioneered the outsourcing move got an immediate economic edge over the rest. They were producing cheaper products and selling them to the still employed American consumers at the same price as before, when they were produced here in the U.S. But, as most big corporations joined the outsourcing trend, the growing mass of workers who had lost their jobs now was not able to buy the products these corporations were now producing abroad and importing to the U.S. without paying any tariffs because of the “free trade” policies."

This has created a downward economic spiral. While the corporations’ stockholders and top executives are getting richer, the American middle class of well-paid workers is in serious trouble. Currently, 90 million Americans are unemployed. The economic crisis we are now experiencing is the direct result of a economic phenomenon known as “the tragedy of the commons.”

The Current Tragedy of the Commons

The Tragedy of the Commons is an economics theory developed in 1833 by William Foster Lloyd, according to which individuals, acting independently and rationally according to each one’s self-interest, behave contrary to the whole group’s long-term best interests by depleting some common resource.

To demonstrate his theory, Lloyd used as an example a group of herders sharing a common parcel of land on which they are each entitled to let their cows graze. In many English and European villages, shepherds sometimes grazed their sheep in common areas, and sheep ate the grass closer to the ground than cows. Overgrazing could result when, out of greediness, each shepherd adds additional sheep, and he could receive benefits, but just for a while, because if in the long run all herders made this individually rational economic decision, the common could be depleted or even destroyed, to the detriment of all.

In the present case, the common resource the greedy corporations are destroying is the American middle class[6] of well-paid workers, and this is a real tragedy for everybody in America. As Lloyd predicted, eventually it will be a tragedy even for the very greedy transnational corporations that created the problem.

Unfortunately, some naïve or ill-intentioned politicians are trying to convince us that just by raising the minimum wage America’s economic problems will be solved overnight. But no. Far from solving it, rising the minimum wage would only serve to somewhat hide the true source of the problem for some time until it becomes intolerable. Actually, the minimum wage will very soon become the maximum wage for most American workers.

So, is there a right solution to this problem? Well, there is, but none of the politicians we elected allegedly to protect our interests will tackle it. The true problem is corporations, particularly the big transnational corporations, but our elected politicians will never bite the hand that feeds them.

For more than half a century, under the pretext of protecting the national security, We the People of the United States have been paying, with our blood and taxes, for a military whose only job has been to defend the spurious interests abroad of U.S.-based transnational corporations. Adding insult to outrage, most of these corporations pay no taxes at all. If they need and army to defend their billionaire enterprises abroad, the least they can do is to pay for it by hiring mercenaries to do the job.

No anti-American terrorist organization could have accomplished what U.S.-based transnational corporations are doing: destroying the middle class, America’s economic and social backbone. U.S.-based transnational corporations are the greatest threat to the national security of the United States. They are conspiring in the shadows to eliminate the sovereignty of all nations and impose a global government under their full control — a totalitarian communo-fascist government they call the New World Order.

U.S.-based transnational corporations are the true enemy of America. The choice cannot be clearer: either we get rid of them as soon as possible, or eventually they will completely destroy us.


1. Rana Foroohar, “Marx 2.0: How Thomas Picketty’s Unlikely Blockbuster, Capital, Set the World’s Economists and Leaders Spinning,” Time, May 29, 2014, p.46.

2. Most big transnational corporations exhibit the characteristics associated with sociopathic behavior. They are manipulative and conning, have a grandiose sense of self, are pathological liars, lack remorse, shame or guilt, are callous and lack empathy, frequently engage in criminal behavior. This is a direct result of the fact that they are controlled by psychopaths. See, Andy McNab and Kevin Dutton, The Good Psychopath’s Guide to Success. See also, Theo Merz, “Why psychopaths are more successful." Andy McNab and Oxford psychology professor Kevin Dutton reveal how acting like psychopaths could help us in work, life and love,” Telegraph UK, May 7, 2014.

3. See, Thom Hartmann, Unequal Protection: How Corporations Became “People.”

4. Big corporations spend a large amount of money in advertising campaigns whose only purpose is to convince you about how much they care for you, your family, the community and their own employees. The truth, however, is quite different. See, i.e., WalMart: The High Cost of Low Price, a documentary film by Robert Greenwald.

5. A March 23, 2013, article by Jerry Z. Muller in Foreign Affairs, “Capitalism and Inequality: What the Right and the Left Get Wrong,” expressed the idea that it is true that “inequality is indeed increasing almost everywhere in the postindustrial capitalist world. But Inequality is an inevitable product of capitalist activity, and expanding equality of opportunity only increases it — because some individuals and communities are simply better able than others to exploit the opportunities for development and advancement that capitalism affords.” What the author does not say, however, is that this inequality is not the result of expansion of true capitalism, but of monopoly capitalism. And monopoly capitalism, both in its communist and fascist varieties, is not capitalism but socialism.

6. See, Thom Hartman, Screwed: The Undeclared War Against the Middle Class.
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on August 26, 2014
The writing is pretty clear, and the book has some interesting statistics. The rest warrants the book one star.

The author has a single-minded concern -- inequality. How much capitalism has increased standards of living and life expectancies in the last 200+ years is irrelevant by omission. Many poor people today live better than the wealthy did many years ago. The latter didn't have electricity, central heating, cars, televisions, computers and phones. The interdependence of capital and labor are also irrelevant by omission.

One of Piketty's tricks is to treat capital and labor as completely separate categories, not just conceptually but in reality. When businesses do capital spending, e.g. to build a new factory or store, upgrade one, erect new cell phone towers, or venture capitalists fund an Internet startup, they compensate labor, directly or indirectly, in the process. Another trick is that there is a "fixed pie" that a government or "society" has the Karl Marx-inspired moral authority to decide how the pie should be sliced.

Piketty's fundamental thesis is that r>g; the returns to capital are greater than the growth rate. He defines 'r' with no mention of taxes, implying pre-tax. Yet he sometimes uses it meaning after taxes. Due to income tax rates varying over many years, 'r' meaning pre-tax or after-tax when showing data is a significant issue.

Anyway, according to Piketty capital simply grows to eventually dominate the economy, driving growing inequality. It is a gross non sequitur. Let CII (capital owners' investment income) be a proxy for "r" and LI (non-capitalist labor income) be a proxy for "g". The size of CII minus LI alone does not imply more inequality. The extent of real inequality depends much upon what those with CII do with the money. They pay taxes. If they reinvest it in the manner of capital spending as described above, that raises LI. If they spend it on luxury consumer goods, that raises LI directly or indirectly in the process. If they merely save it; it merely appears to not raise LI. As Piketty readily admits, wealthy capitalists don't put their CII in a mattress or in a money bin like Scrooge McDuck. Instead, like Piketty says, they invest in private equity funds, venture capital funds, hedge funds and obtain higher than average returns. But what do these funds do? They directly or indirectly enable capital spending, which raises LI. If those with CII give to charity, that raises the welfare of "the poor", which reduces inequality.

Piketty's book is conspicuously silent about charity. That doesn't surprise me, because his agenda is massive tax increases, and recognizing charity would weaken his rationalization for his agenda. I don't have detailed, accurate statistics to support my claim, but I will give it a first try using numbers I found on the Internet. U.S. public charities reported over $1.65 trillion in total revenues and $1.57 trillion in total expenses for 2012. At least 75% of most charities' spending go to the programs and services they exist to provide.

Piketty's Table 7.3 says 20% of U.S. income goes to the lower 50% (for 2010, but assume 2012 is the same). Suppose 75% of charity expenses go to benefit recipients, 80% of that within the U.S., and what stays in the U.S. goes to the lower 50%. 0.75*$1.57 *0.8 = $0.94 trillion. U.S. gross national income in 2012 was $15.7 trillion. (0.2*15.7 + 0.94)/(15.7 + 0.94)= 0.245. So the lower 50%'s share is not 20%, but 24.5%, a very significant difference (near total equality would be 50%). Moreover, such 24.5% does not include a large chunk of charity (food, education, health care, etc.) from governments, nor employer-paid benefits, that don't appear on the recipient's income tax return.

An even simpler demonstration undercuts Piketty's statistics. Suppose a U.S. billionaire makes a huge donation to a charity. It does not reduce his/her pre-tax income. It does not increase reportable pre-tax income of the charity -- charities are largely exempt from taxes, period -- or the ultimate recipients. In reality inequality is reduced, but is unrecognized by Piketty's statistics. There are also employee benefits like for health insurance and retirement plan contributions that don't appear in the employee's taxable income. He is like the drunk man who lost his keys and searches for them only under a streetlight because that's where the light is. His only light is income statistics, and with them he can't see charity and employee benefits that go to end recipients but don't appear on their income tax returns and thus in the income statistics he uses.

Despite the huge growth of government spending on social programs since about 1900 and especially since about 1965 in the U.S., Piketty's book shows no data about the empirical effectiveness of these programs in reducing inequality. So it seems Piketty, while stressing the importance of data and wanting to appear so empirical, expects readers to buy his agenda of government activism with zero supporting empirical data of its effectiveness.

Some reviewers here claim that Piketty is not a socialist. Duh. He was economic advisor to the Socialist Party candidate for the French presidency in 2006-07.
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on June 13, 2014
Thomas Piketty, a neo-Marxist French Professor, has written a near-700-page book, published by Harvard University Press. His book is titled Capital in the Twenty-First Century, in honor of Karl Marx's 19th century Das Capital. It has been greeted with fervent applause from the left-wing intellectual establishment and has been on The New York Times' and Amazon.com's best-seller lists.

While his book is ostensibly devoted to the study of capital and its rate of return, Piketty comes to his subject apparently without having read a single page of Ludwig von Mises or Eugen von Böhm-Bawerk, the two leading theorists of the subject. There is not a single reference to either of these men in his book. There are, however, seventy references to Karl Marx.

In his book, Piketty argues that saving and capital accumulation by wealthy capitalists serves to reduce wages. The capital accumulated does nothing to increase production, he claims (pp. 228, 358, passim). All that it accomplishes is allegedly to increase the share of national income going to profits while equivalently reducing the share going to wages (p. 361). Because there is no additional production, the effect of the change in shares is a corresponding change in absolute terms, i.e., real profits up, and real wages down.

In order to avoid endless such destructive capital accumulation and its accompanying "inegalitarian spiral," Piketty advocates a progressive income tax as high as 80 percent "on incomes over $500,000 or $1 million a year," accompanied by a progressive tax directly on capital itself, as high as 10 percent per year (pp. 512f., 572).

Now Piketty's claims about the wage and profit shares are refuted simply by imagining an increase in saving and investment by capitalists and then observing the consequences both for wage payments and for the amount of profit in the economic system. It will be found that wage payments necessarily rise and the amount of profit necessarily falls, results in diametric opposition to Piketty's claims.

Thus, assume that initially the total amount of profit in the economic system is 200 units of money. (Each unit can be conceived as representing as many tens of billions of dollars as may be necessary for 200 units to equal the actual current amount of aggregate profit.)

Assume also that accumulated capital in the economic system is initially 2000 units of money. Thus the initial average rate of profit is 10 percent.

And, finally, assume that the capitalists, who have up to now been consuming their 200 of profit, decide to save and invest half of it. They now make an additional expenditure for capital goods and labor in the amount of 100.

Whatever portion of this 100 is wage payments necessarily increases the total of wages paid in the economic system. At the same time, the spending of an additional 100 on capital goods and labor must sooner or later add 100 to the aggregate costs of production of business that are deducted from sales revenues, thereby equivalently reducing aggregate profits.

The rise in costs can take place immediately or over many years, depending on what the 100 is spent for. At one extreme, if it were spent entirely on items that were not capitalized, such as, typically, selling, general, and administrative expenses, it would show up immediately as equivalent additional costs. At the other extreme, if it were spent entirely on the construction of buildings with a 40-year depreciable life, it would take 40 years for it to show up as equivalent additional costs of production. But one way or the other, it will show up as equivalent additional costs and thus equivalently reduce the amount of profit in the economic system.

Thus, Piketty's "findings," as they are called, are reversed. The capitalists' saving and investment that increases the ratio of accumulated capital to income, increases the wage share of national income and decreases the profit share.

Moreover, the larger supply of capital goods that results from the transition to a higher capital/income ratio serves to raise the productivity of labor and increase the total of what can be produced, including a still larger supply of capital goods. With technological progress to offset diminishing returns to a growing supply of capital goods, capital accumulation in physical terms can potentially go on indefinitely, without further increases in the ratio of capital to income. But a higher ratio would reinforce this process. This is because insofar as it represents a more abundant supply of savings, it makes it possible for the economic system to implement more costly technological advances, thereby increasing the contribution of technological progress to capital accumulation.

Piketty's program is one of unmitigated economic destruction. America and the world, above all the wage earners of the world, need the abolition of taxes and regulations that stand in the way of capital accumulation and the increase in production. Capital accumulation and more production, not egalitarianism and its absurd theories and programs, are the foundation of rising living standards in general and rising real wages in particular.

P.S. On July 21, I published a twenty-thousand word critique of Piketty titled "Piketty's Capital Wrong Theory Destructive Program. My essay is available in Kindle format at http://amzn.to/1tDmV1D.

Copyright © 2014 by George Reisman. Permission is hereby given for electronic duplication with attribution. George Reisman, Ph.D. is Pepperdine University Professor Emeritus of Economics and the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996). See his Amazon.com author's page at http://www.amazon.com/author/george-reisman for additional titles by him.
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on May 12, 2014
Thomas Picketty offers the disclaimer that his book is ‘as much a work of history as of economics’ (p33) which he then goes on to prove. He introduces his 2 core economic equations and asks readers not well versed in mathematics not to immediately close the book. It is in fact readers who are well versed in mathematics who might well close the book, since his equations make no sense and cannot bear the weight of interpretation he places on them throughout the book. They are core to his argument, but they fail. He nowhere derives them, proves them, or empirically tests them. He merely states them.

According to Picketty, the ‘first fundamental law of capitalism’ (p52) is that α=rxβ where α is the share of capital in national income, r is the rate of return on capital, and β is Picketty’s capital/income ratio. This is a simple identity, is no more than telling us that a/b x b = a. Picketty admits this identity and tautology but nevertheless insists that this is the ‘first fundamental law of capitalism’, a claim he simply cannot justify. His ‘second fundamental law of capitalism’ (p166) is that β=s/g where s is the savings rate and g the growth rate. His example claims that a savings rate of 12% and a growth rate of 2% give a capital/income ratio of 600%. This is simply untrue. A simple spreadsheet taking 100 units of GDP growing in row 1 at 12%/year, showing 12% saving of that GDP in row 2, cumulating that in row 3 and dividing the result by row 1 to give Picketty’s capital/income ratio in row 4, shows that it becomes 600% only in year 199. Not only does this ‘fundamental law’ take so long to be true, as Picketty admits, but it is only true in that year and thereafter continues to grow, contrary to his claim that it reaches a long term equilibrium. His third equation is his claim that r>g drives capital accumulation. r and g are however measures in different units, r is a scalar ratio, whereas g is a first differential over time. Equations and inequalities require variables on each side to be in the same units. Picketty’s comparison of the return to capital and the growth rate are like comparing one person’s height to another person’s weight. His model is bogus.

He then conflates capital and wealth (‘I use the words ‘capital’ and ‘wealth’ interchangeably’ (p47)). This obscures more than it elucidates. Capital traditionally defined in economics is the means of production. It is an input to the economic process. Wealth by contrast is an output. We might very well care differently about how much capital and wealth we have, and who owns them. More effective capital may drive up output, whilst more wealth has no creative function and attracts a moral question. Picketty is wrong, analytically and morally, to confuse the two in one measure.

Picketty is disparaging in very short measure of Marx (p227-230), Keynes (p220), mathematical economics (p32), and economists generally (p296, 437, 514, 573, 574). Only Picketty has it right (p232). He quotes Jane Austen and Honoré de Balzac, more than he does either Marx or Keynes. His book is unnecessarily long and a tedious read, due to its rambling repetitive style. It could have been far more concise.

His main point is however well taken. Ownership of wealth has become increasingly unequal. His remedy is a global progressive tax on capital. By this he means all capital. But he doesn’t say what effect a progressive tax on each form of capital would have, how it would be paid, and what should be done with the payment. Would companies owning productive assets have to hand factories to the state? Or to the poor? Would house owners have to sell their houses, or shareholders their shares, in which case would their price be sustained? Or is he assuming asset owners also have income to pay the capital tax, in which case it becomes an income tax? And what’s the point? The purpose Picketty tells us on page 518 is ‘to regulate capitalism’ and thereby to ‘avoid crises’. But he doesn’t tell us how capitalism would be thereby made more acceptable or how crises would be avoided. He also admits it will never happen!

Whilst I agree with Picketty that extremes of income and wealth are morally repugnant, my complaint is that i) he should do more to investigate and attack the processes which allow this outcome, for example regulating the software market more effectively to avoid Bill Gates becoming obscenely wealthy based on Microsoft’s extreme and unjustified monopoly rate of profit, whilst also regulating natural resource markets to avoid billionaire build up there, ii) this is not in fact the major issue facing capitalism today. Far more important is the lack of effective macroeconomic demand and the fall in real wages caused by the high productivity of automation technology. For this a citizen’s income funded by QE (ie without being added to government debt) is the only and the urgently needed solution. Maybe we could compromise and use the proceeds of Picketty’s capital tax to fund a world citizen income. He clearly has a very good PR machine promoting his book – see the low votes attached to any critical review on Amazon, a fate very likely to meet this review!

Geoff Crocker
Author ‘A Managerial Philosophy of Technology : Technology and Humanity in Symbiosis’
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on April 21, 2014
FLASH, Flash.......update 5/23/2014

The highly respected Financial Times in the UK Headline 05/23/2014:

"Piketty findings undercut by errors".

"The central theme of Prof Piketty's work is that wealth inequalities are heading back up to levels last seen before the first world war. The investigation (by the Financial Times) undercuts this claim, indicating there is little evidence in Prof Piketty's original sources to bear out the thesis that an increasing share of total wealth is held by the richest few".

In the book Piketty states the highest marginal personal income tax rate under President Hoover was 25%. In fact it was 63%. This Frenchman can't even get simple facts correctly and his editor must be a dunce. You Marxist buffoons out there in Obamaland want to believe the rest of his drivel?

Oh dear this is embarrassing. Our little French Poodle, beloved by the Obama and Hollande crowd, is not only a woman beater (see below) but also plays extremely loose with data. Anyone who buys into this epigone economist is suffused with the envy and resentfulness baggage typical of Marxists. Cuba and North Korea would seem a better place to research his idiotic ideas. They have worked so well there.

Why don't we start a kickstarter program to raise the needed funds to send the little poodle to each country for 20 years each. That should do it nicely.

Flash, Flash .....update 5/10/2014

Our little French Poodle of a man dated Aurelie Filipetti, France's Culture and Media Minister in the current Marxist Hollande administration. Mme. Filipetti, who I dare say is quite fetching, has now accused Monsieur Piketty (French meaning: little weakling) of being a "woman beater". So after he convinces Obama, Hollande and other lefty idiots to steal our hard earned money through crazy taxation he will be after our women to show them what a man he is. Hide them away if you see our heroic Poodle near them. The crisis continues.

Original Review starts here:

Piketty is French. The current French Socialist President, Francois Hollande, is quoted as saying "I hate the rich". Hollande owns three homes on the French Riviera. Uh huh. The French detest English/American free markets and capitalism. Don't think so? Read their newspapers. The French are driving productive businesses out of their country due to insane laws, regulations, taxation and restrictions. The latest is the government fatwa of outlawing smart phone usage or email after hours for business purposes. See, the French need their play period and 6 weeks of vacation so the Marxist government will enforce leisure whether the French want it or not.

The French came up with the word entrepreneur and despise these productive people. The French came up with the word dirigisme. the concept of government directing investment. That's more like it. As Martin Armstrong has pointed out, Karl Marx got his stupid ideas from the French.

Want to read a Frenchman who understands economics and government:


Want to learn economics, read these and forget Monsieur Piketty's not so clever income redistribution nonsense:


and this


The fact that Monsieur Piketty's book has received glowing reviews from Paul Krugman should be enough to discredit it. On the other hand if Herr Reichsfuhrer Obama is your cup of tea, I am sure you will like this book.
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on May 3, 2014
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.

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 physics—and only a Ph.D. economist could reasonably divine their weakness—yet Piketty’s answers to income inequality 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 votes, 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 kill 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 inequality 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.

Piketty’s model of capitalism is tight and compelling because of what it ignores.

The 1920s was a period of exceptional optimism and opportunity in America—if 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 another’s boards of directors.

It’s a fool’s 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 rates—as they do the electric utilities—to 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, it’s a failure of democratic governments to act responsibly, not the shortcomings of capitalism that is failing America’s workers and middle class.
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on April 15, 2014
"Just what we need – another economist with ZERO real work experience. The latest economist destined to destroy the world in the same manner as Karl Marx is Thomas Piketty and his new book Capital in the Twenty-First Century that is destined to perhaps kill more people than Marx ever did...
Piketty claims the current level of rising wealth inequality imperils the very future of capitalism. He claims he has proved it with his book – good one! He totally fails to even comprehend HOW the global economy functions or that John Maynard Keynes (1883-1946) in the end admitted his ideas were wrong and that he had hoped that Adam Smith’s Invisible Hand would save Britain...
Piketty fails to understand that capitalism is not about money, but freedom, and socialism is all about government control. He fails to address the results of this socialism that 70% of the national debt is accumulative interest that did nothing to create “social justice”. He does not comprehend that if 40% of a nation’s debt is held offshore, then 40% of that interest stimulates foreign markets undermining his “social justice”...
Piketty then, amazingly claims, he has studied 200 years of data to prove capitalism is wrong. Capital, he argues, is blind. Once its returns – investing in anything from buy-to-let property to a new car factory – exceed the real growth of wages and output, as historically they always have done (excepting a few periods such as 1910 to 1950), then inevitably the stock of capital will rise disproportionately faster within the overall pattern of output. Wealth inequality rises exponentially. In other words, those who invest and save make more money than those who do not. Gee! This is astonishing. Note that within his little sample of just 200 years, he has to concede there are exceptions to his theory. There should be NONE if you are going to destroy the world!...
Pikitty focuses on this human inherent sense of social justice claiming it has been suspended. He fails to address the wild changes in tax rates or the introductiuon of the payroll tax for World War II. Yet he further argues that the solution is more economic slavery where the top income tax rate should be raised to 80%, effective inheritance tax, proper property taxes and, because the issue is global, a global wealth tax. Piketty claims that the GOAL of economists is to make “social justice” and support total economic slavery where we are all just mindless drones working for the state.
Somebody need to tell this guy who may end up killing more people than Marx, that 200 years is not enough. Rome fell because of his “social justice” and they kept raising taxes on property that people just walked away. The first city to ever reach 1 million in population in 180AD was not matched until London in the Victorian period.
This is the problem with those who PRETEND to do research. They start with an ASSUMPTION and everything they look at is constructed to support that ASSUMPTION. Only Adam Smith approached his research to try to understand HOW it functions – Piketty began with an idea and merely extracted the data that supports it ignoring the facts. When I read this stuff, I just want to leave and live on a boat sailing in circles to stay as far away from these crazy people who will destroy the world under the pretense of making it better. The scary part – people are listening."
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on April 6, 2014
The author aggregates a lot of interesting very long time series going back to the 1700. But, his overall analysis is flawed. His principal argument is that inequality invariably rises in a capitalist society because the return on capital exceeds economic growth. And, that such a condition is a natural consequence of capitalism. But, as we shall soon demonstrate, this is not the case. As a result, Piketty's analysis of the cause of modern inequality is really weak and really pales compared to other authors I'll mention later. Additionally, his recommendations to resolve inequality are not good.

When looking at most of Piketty's graphs going back to the 1700 (graph 3.1 and 3.2 for the UK and France among others), you will notice something striking. Contrary to what his main tenet suggests, the Capital/Income ratio has not steadily risen over time. This C/I ratio was already around 7 back in 1700. If capital indeed grew at an annual rate of 4%to 5%; meanwhile, income grew by only 0.1% over the long term during the preindustrialized era (as he indicates), his C/I ratio should have grown very rapidly by a yearly compounded factor of 3.9% to 4.9% a year. Compounding at just 3.9% per year, his C/I ratio would have risen from 7 to 15 over 20 years and onward to 32 in 40 years (let's say from 1700 to 1740). But, his own data shows this exponential growth of the C/I ratio starting out at 7 never occurred going forward. Looking at his own graphs (3.1 and 3.2), instead the C/I ratio remained perfectly flat from 1700 to 1910. It then abruptly dropped and remained a lot lower because of the shocks of WWI, Great Depression, and WWII. Since, 1950 it has mean-reverted back upward to between 5.5 and 6.5 (graphs 3.1 and 3.2 among others),or not yet back to its somewhat natural state of 7 that prevailed for two centuries (from 1700 to 1910) before the mentioned brutal economic shocks occurred.

Other commentators have questioned my interpretation of the data and my focus on this C/I ratio. But, reviewing some notes I wrote down a quote by the author confirming my focus is an appropriate interpretation of the author's data. Quoting Piketty: " The most natural and useful way to measure the capital stock in a particular country is to divide that stock by the annual flow of income. This gives us the capital/income ratio, which I denote by the Greek letter Beta. For example, if a country's total capital stock is the equivalent of six years of national income, we write Beta = 6." The author also speaks at length that the return on capital r typically is around 4% to 5% and is way higher than the rate of economic growth g at around 1% over the long term. But, again such inequality is not sustainable. That's because the return on capital is a function of economic growth. Economic growth is actually the causal factor. Other commentators stated one should focus not on the return of capital but on the greater % of national income derived from capital instead of labor (wages). But, it is a very related concept. The % of national income derived from capital is a pretty direct proxy of the actual return on capital. And, the latter can't be permanently disconnected from general economic growth.

Besides the mentioned countries, there are many others when Capital did not grow as fast as Income for several decades. This has been the case in Japan since 1989 to this day. There economic growth has been stagnant, and so has been income growth. But, return on capital has actually been negative ever since. The Japanese market today is still far off from its peak back in 1989. Similarly, in China Capital has not grown nearly as fast as economic growth and Income. The former and latter have increased by 7% to 9% for several decades. Meanwhile, investors' returns have been really lackluster over the same period. The Economist had a fascinating article on the subject fairly recently.

Given the above structural error that Capital does not grow faster than Income over the long term, Piketty's analytical framework fails to explain much of anything regarding the underlying causes of inequality.

Other graphs (10.2, 10.3) disclosing household wealth inequality in France and the UK show that the level of inequality has precipitously dropped since 1910. The author readily explains it away due to the two WWs and the Great Depression. But, that's the thing capital wealth is by definition risk capital. And, economic shocks happen that can devastate part of that risk capital. Just writing off those shocks as exceptions that do not reocur in various shape is just unrealistic. Taleb takes a more realistic view on the uncertainty of economic shocks in The Black Swan: Second Edition: The Impact of the Highly Improbable: With a new section: "On Robustness and Fragility". Also, this other author makes a more insightful analysis on wealth capital and its volatility over time without dismissing downturn in such wealth capital as mere aberration The High-Beta Rich: How the Manic Wealthy Will Take Us to the Next Boom, Bubble, and Bust.

The Financial Times found many errors in Piketty's data gathering that discredit his analysis. Some of the errors include unexplained entries in spreadsheets similar to the ones that Carmen Reinhart and Kenneth Rogoff committed in their work regarding Public Debt/GDP ratio vs economic growth. Once the FT corrected for those errors, there was little evidence that inequality in recent decades had risen to near record levels.

Gregory Clark, a leading economic historian, is another authority that entirely contradicts Piketty's premise that capital grows faster than income and leads to rising inequality. Gregory Clark in his A Farewell to Alms: A Brief Economic History of the World (Princeton Economic History of the Western World) within chapter 14 demonstrates that capital has not grown any faster than income over a very long period of time. His Figure 14-4 on pg. 280 shows that capital's share of income actually steadily declined from 1750 to 2000 in England. Over the same period, he shows that labor share of income increased rapidly leading to a reduction in inequality over the reviewed period.

Piketty's own earlier research contradicts his own "Capital" argument. While his book is all about how wealth concentration and the percent of income derived from that wealth (or capital) are the main cause of inequality. But, his very own earlier research contradicts that. In his paper "Income Inequality in the United States, 1913-1998" he states on page 17: "In contrast, in 1998 [the end of his reviewed time series] more than half of the very top taxpayers derive the major part of their income in the form of wages and salaries. Thus, today, the "working rich" celebrated by Forbes magazine have overtaken the "coupon-clipping rentiers."" Yet, his book somehow is the flawed revival of his "coupon-clipping rentiers" which he knows full well have been supplanted by the high wage earners (Wall Street, Silicon Valley types). When factoring his own research, his book is just a collapsed castle of cards.

Piketty's recommendations to reduce inequality are not good. Quoting The Economist (May 3d-9th 2014 issue, pg. 12 "A Modern Marx") that did a very effective and succint review of his plan: "He prescribes a progressive global tax on capital (an annual levy that could start at 0.1% and hits a maximum of perhaps 10% on the gretest fortunes). He also suggests a punitive 80% tax rate on incomes above $500,000 or so. Here "Capital" drifts to the left and loses credibility... Most economists, common sense... would argues that higher taxes on income and wealth put off entrepreneurs and risk taking; he blithely dismisses that. And, his to-do list is oddly blinkered in its focus on taxing the rich... Mr. Piketty's focus on soaking the rich smacks of socialist ideology, not scholarship. That may explain why "Capital" is a bestseller. But it is a poor blueprint for action.

Far more insightful authors on the cause of modern inequality include Charles Murray in Coming Apart: The State of White America, 1960-2010 and Erik Brynjolfsson's The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies. The rise of inequality as reviewed by these two authors has not a whole lot to do about capital alone (even though, they do think it plays a certain role). But, it has a lot more to do with our modern society being increasingly efficient at sorting, selecting, and monetizing the value of human capital. And, that's due in good part to the advent of digital technology that allows human capital to be leveraged worldwide far more than it ever has. Their respective analysis on inequality goes far beyond and is far more accurate than anything Piketty states on the subject within "Capital in the 21st Century." Also, these authors' recommendations are far superior to Piketty's. They entail boosting the quality of K-12 education quality so high school graduates come out with an education that renders them adequately litterate and numerate. They also promote the development of specialized trade training programs similar to Germany's. They also promote the streamlining of regulations to facilitate the formation of new businesses to create more jobs.
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