Monday, April 21, 2014

Thomas Piketty, scholar/economist, exposes myth that "capitalism raises all boats"...

Some of us learned, very early, a cracker barrel aphorism that went something like this:
"them that has gets, and them that haven't lose"...a street reference to how the rich always seemed to be getting richer while the poor were getting even poorer. We did not understand the nuances of such a perception, but we did firmly believed that it was true, and that it would likely always be true. Right up there with aphorisms like " red sky in the morning-sailor's warning" or "an east wind blows storms" or "too soon old, too late schmart" one of my father's favourites, the notion of the rich getting richer while the poor got poorer held considerable sway in a small town in Ontario where evidence of these bromides seemed irrefutable.
In fact, seeing that there was a kind of inevitable immutability baked into the social, political and economic cake prompted some of us to challenge that inevitability. Why, we asked, was the economic system determining the lives of too many people by sentencing more than a single generation to poverty and hunger? Why, on the other hand, were people not more important than some economic system and why were those making 'big' decisions not thinking about how to accomplish that reversal? Why were the families of the rich always admitted to the universities, and then to the local elite, almost, it seemed to innocent eyes, irrespective of their intellectual capacity or their dedication to the discipline required for graduate school? And, on the other hand, why were there too many occasions when teachers would look at the name on a new class list and comment, 'we can't expect much from him/her, given the poverty of that family!' Of course, the world has changed, and one of the changes that we are witnessing is the accumulation of mountains of data, meta-data, making it much easier to discern patterns of relationships between various previously unconnected and therefore presumed unrelated phenomena.
Looking into the history of decades of development, for example, through the lens of computer-acquired and hard-disc-stored data, a new 'economist' by the name of Thomas Piketty has developed, in his new book, Capital in the Twenty-First Century, the theory, or perhaps the reality that capital growth (the acquisition of income from capital investment) exceeds the rate of economic growth and that income inequality is likely to be with us for a very long time. Naturally, that premise calls for a different and far more radical demand that governments begin to think differently about their role in the 'equation'.
Some, like Paul Kruggman, call this book one of, if not the most important book on economics of this century.
The New York Times has provided its readers with a primer on the book, through their reporter, Steven Erlanger. Here are a few quotes from his recent piece:

In his new book “Capital in the Twenty-First Century” (Harvard University Press), Mr. Piketty, 42, has written a blockbuster, at least in the world of economics. His book punctures earlier assumptions about the benevolence of advanced capitalism and forecasts sharply increasing inequality of wealth in industrialized countries, with deep and deleterious impact on democratic values of justice and fairness.

The rate of growth of income from capital is several times larger than the rate of economic growth, meaning a comparatively shrinking share going to income earned from wages, which rarely increase faster than overall economic activity. Inequality surges when population and the economy grow slowly.....

We are now back to a traditional pattern of returns on capital of 4 percent to 5 percent a year and rates of economic growth of around 1.5 percent a year.
So inequality has been quickly gathering pace, aided to some degree by the Reagan and Thatcher doctrines of tax cuts for the wealthy. “Trickle-down economics could have been true,” Mr. Piketty said simply. “It just happened to be wrong.”
His work is a challenge both to Marxism and laissez-faire economics, which “both count on pure economic forces for harmony or justice to prevail,” he said. While Marx presumed that the rate of return on capital, because of the system’s contradictions, would fall close to zero, bringing collapse and revolution, Mr. Piketty is saying the opposite. “The rate of return to capital can be bigger than the growth rate forever — this is actually what we’ve had for most of human history, and there are good reasons to believe we will have it in the future.”
(By Steven Erlanger, Taking on Adam Smith (and Karl Marx), New York Times, April 19, 2014)
Clearly, if Piketty's work is worthy of serious consideration, and for many it will be until it is tarnished by new evidence, a growth rate of some 1-2% linked to a pattern of investment returns of 4-5% will continue to provide more capital for "them that has" and less for "them that don't have"....

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