Capitalism simply isn’t working- here are the reasons why

The Observer/Comment is Free, By Will Hutton, April 12

Suddenly, there is a new economist making waves – and he is not on the right. At the conference of the Institute of New Economic Thinking in Toronto last week, Thomas Piketty’s book “Capital in the Twenty-First Century” got at least one mention at every session I attended. You have to go back to the 1970s and Milton Friedman for a single economist to have had such an impact.

Like Friedman, Piketty is a man for the times. For 1970s anxieties about inflation substitute today’s concerns about the emergence of the plutocratic rich and their impact on economy and society. Piketty is in no doubt, as he indicates in an interview in today’s Observer New Review, that the current level of rising wealth inequality, set to grow still further, now imperils the very future of capitalism. He has proved it.

It is a startling thesis and one extraordinarily unwelcome to those who think capitalism and inequality need each other. Capitalism requires inequality of wealth, runs this right-of-centre argument, to stimulate risk-taking and effort; governments trying to stem it with taxes on wealth, capital, inheritance and property kill the goose that lays the golden egg. Thus Messrs Cameron and Osborne faithfully champion lower inheritance taxes, refuse to reshape the council tax and boast about the business-friendly low capital gains and corporation tax regime.

Piketty deploys 200 years of data to prove them 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.


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  • Krugman: Worried About Oligarchy? You Ain’t Seen Nothing Yet

    ‘Even those of you who talk about the 1%, you don’t really get what’s going on. You’re living in the past.’
    – Jon Queally, staff writer

    Common Dreams, April 18

    In an interview with journalist Bill Moyers set to air Friday, Nobel laureate and New York Times columnist Paul Krugman celebrates both the insights and warnings of French economist Thomas Piketty whose new ground-breaking book, Capital in the Twenty-First Century, argues that modern capitalism has put the world “on the road not just to a highly unequal society, but to a society of an oligarchy—a society of inherited wealth.”

    The conclusions that Piketty puts forth in the book, Krugman tells Moyers, are revelatory because they show that even people who are now employing the rhetoric of the “1% versus the 99%” do not fully appreciate the disaster that global wealth inequality is causing.

    Says Krugman:

    Actually, a lot of what we know about inequality actually comes from him, because he’s been an invisible presence behind a lot. So when you talk about the 1 percent, you’re actually to a larger extent reflecting his prior work. But what he’s really done now is he said, “Even those of you who talk about the 1 percent, you don’t really get what’s going on. You’re living in the past. You’re living in the ’80s. You think that Gordon Gekko is the future.”

    And Gordon Gekko is a bad guy, he’s a predator. But he’s a self-made predator. And right now, what we’re really talking about is we’re talking about Gordon Gekko’s son or daughter. We’re talking about inherited wealth playing an ever-growing role. So he’s telling us that we are on the road not just to a highly unequal society, but to a society of an oligarchy. A society of inherited wealth, “patrimonial capitalism.” And he does it with an enormous amount of documentation and it’s a revelation. I mean, even for someone like me, it’s a revelation.

    Truthout: An Indictment of the Invisible Hand

    Washington Monthly’s Political Animal Blog (Society Watch): Did someone say patrimonial capitalism? The White House hosts a meeting of teenage billionaire “philanthropists”

    • That One Was a Must Watch, Raja…,
      especially Moyers closing commentary:

      BILL MOYERS: The evidence keeps mounting. Just this past Tuesday, the 15th of April, Tax Day, the AFL-CIO reported that last year the chief executive officers of 350 top American corporations were paid 331 times more money than the average US worker. Those executives made an average of $11.7 million compared to the average worker who earned $35,239.

      As that analysis circulated on Tax Day, the economist Robert Reich reminded us that in addition to getting the largest percent of total national income in nearly a century, many in the one percent are paying a lower federal tax rate than a lot of people in the middle-class. You will, no doubt, remember that an obliging Congress, of both parties, allows high rollers of finance the privilege of carried interest, a tax rate below that of their secretaries and clerks. And at state and local levels, while the poorest 20 percent of Americans pay an average tax rate of over 11 percent, the richest one percent of the country pays half that rate. Now, neither nature nor nature’s God drew up our tax codes. That’s the work of legislators, politicians, and it’s one way they have, as Chief Justice John Roberts might put it, of expressing gratitude to their donors. Oh, Mr. Adelson, we so appreciate your generosity that we cut your estate taxes so you can give $8 billion as a tax-free payment to your heirs, even though down the road the public will have to put up $2.8 billion to compensate for the loss in tax revenues.

      All of which makes truly repugnant the argument, heard so often from courtiers of the rich, that inequality doesn’t matter. Of course it matters. Inequality is what has turned Washington into a protection racket for the one percent. It buys all those goodies from government: tax breaks, tax havens, allowing corporations and the rich to park their money in a no-tax zone, loopholes, favors like carried interest, and on, and on, and on.

      Listen, there’s a big study coming out in the fall from Martin Gilens at Princeton and Benjamin Page at Northwestern, based on data collected between 1981 and 2002. Their conclusion, quote, “… America’s claims to being a democratic society are seriously threatened … the preferences of the average American appear to have only a minuscule, near-zero, statistically non-significant impact upon public policy.”

      Sad, that it’s come to this. The drift toward oligarchy that Thomas Piketty describes in his formidable book has become a mad dash, and it will overrun us, and overwhelm us, unless we stop it.

      At our website, you can find out much more about Piketty’s book and the debate it has sparked on both the left and right. That’s at I’ll see you there and I’ll see you here, next time.

      • Reading Numerian’s “Who Cut God’s Hair”…
        I was struck by this passage that seems appropriate here:

        We must end this section on a dark note. Civilization, perhaps the greatest of all human achievements, is not a permanent condition. Civilizations rise and fall; history is littered with many failures of societies that achieved noble aims and accomplished much in the way of social peace, economic prosperity, artistic expression, and technological advancement. In this long history of societal achievement, there are certainly examples where humans faltered and contributed to the decline of society. One common marker of such failure is the persistence of economic inequality, where wealth is concentrated in the hands of a small minority of people, while great numbers of people struggle for a subsistence living. Such conditions are not stable, especially if they are accompanied by an exaltation of selfishness and a disparagement of altruism. If a society’s leaders and thinkers mock good behavior, if they blame the poor for their poverty and accuse them of laziness, and if they hoard their own wealth rather than ensure that those who are desperate at least have food, clothing and shelter for themselves and their family, then the dissolution and collapse of society is much closer at hand.

        Right on partner…, write on.

        The Quillayute Cowboy

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