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Piketty Is Rickety On Government Complicity
French economist Thomas Piketty’s book on inequality – Capital in the Twenty-First Century – has gone completely viral.
Mainstream economists like Paul Krugman and Joseph Stiglitz endorse it. So does Economist magazine. The Financial Times and New York magazine both call him a ”rock star economist”.
Slate notes:
While recently passing through D.C., he took a little time to meet with Treasury Secretary Jack Lew, the Council of Economic Advisers, and the IMF. Even Morning Joe, never exactly on the leading edge of ideas journalism, ran a segment about Capital Tuesday morning.
Is Piketty right or wrong about inequality, its causes and the prescription for addressing inequality?
Piketty Is Right about Inequality
We noted in 2010 that extreme inequality helped cause the Great Depression … and the 2008 financial crisis. We noted in 2011 that inequality helped cause the fall of the Roman Empire.
In a few short years, mainstream economists have gone from assuming that inequality doesn’t matter, to realizing that runaway inequality cripples the economy.
Pikettey correctly notes that inequality is now the worst in world history … and will only get worse.
Asset Prices Rise Faster than Wages
Piketty argues that the main cause for inequality is that the rate of return on capital – land, natural resources, stocks, bonds and other assets – is far higher than the growth rate of the economy:
Because the growth rate is much slower than the rate of profit from holding capital assets, the asset-holders’ wealth increases much faster than the wealth of workers. In other words, working stiffs can’t keep up with those who make their money from investing in (and seeking rent from) land, stocks, bonds and other assets.
Piketty – a rigorous data researcher – is probably right that this is one of the main causes of inequality.
Government and Central Bank Policy Is What Is Making Assets Soar and the Economy Sink
But Piketty underplays the fact that bad government and central bank policy have greatly widened the gap between growth rate. After all, Fed chairman Bernanke, Treasury Secretary Geithner and chief economist Summer’s entire strategy was to artificially prop up asset prices – including the stock market – and see this, this, this and this.
At the same time, government policy has harmed the general economy, caused unemployment and hurt the average American.
Indeed, real wages have actually plummeted since 1969, and most of the new jobs that have been created are part times jobs with no benefit.
In other words, bad government and central bank policy have made the rate of return on capital much higher … but lowered wages. As such, bad policy is the core cause of the recent increase in inequality.
Nobel economist Joseph Stiglitz said in 2009 that the government’s toxic asset plan – a scheme to inflate the value of assets held by banks – “amounts to robbery of the American people”.
Bailouts Feather the Nests of the Fatcats, While Doing Nothing for the Average American
The American government’s top official in charge of the bank bailouts writes:
Americans should lose faith in their government. They should deplore the captured politicians and regulators who distributed tax dollars to the banks without insisting that they be accountable. The American people should be revolted by a financial system that rewards failure and protects those who drove it to the point of collapse and will undoubtedly do so again.
Only with this appropriate and justified rage can we hope for the type of reform that will one day break our system free from the corrupting grasp of the megabanks.
What’s he talking about?
Well, the Fed threw money at “several billionaires and tens of multi-millionaires”, including billionaire businessman H. Wayne Huizenga, billionaire Michael Dell of Dell computer, billionaire hedge fund manager John Paulson, billionaire private equity honcho J. Christopher Flowers, and the wife of Morgan Stanley CEO John Mack
And the bank bailouts weren’t a one-time thing in 2008. The government has been – continuously and massively – been bailout out the big banks for the last 6 years.
Indeed, virtually all of the banks profits comes from government bailouts. A top banking analyst estimates that subsidies to the giant banks exceeds $780 billion dollars each year.
A study of 124 banking crises by the International Monetary Fund found that bailing out banks which are only pretending to be solvent – like most of the big American banks – harms the economy. So growth is slowed, while the richest fatcat bankers rake in the dough.
Indeed, the bailout money is just going to line the pockets of the wealthy, instead of helping to stabilize the economy or even the companies receiving the bailouts:
- Bailout money is being used to subsidize companies run by horrible business men, allowing the bankers to receive fat bonuses, to redecorate their offices, and to buy gold toilets and prostitutes
- A lot of the bailout money is going to the failing companies’ shareholders
- Indeed, a leading progressive economist says that the true purpose of the bank rescue plans is “a massive redistribution of wealth to the bank shareholders and their top executives”
(Top economists, financial experts and bankers say that the big banks are too large … and their very size is threatening the economy. They say we need to break up the big banks to stabilize the economy.
If we stop bailing out the Wall Street welfare queens, the big banks would focus more on traditional lending and less on speculative casino gambling. Indeed, if we break up the big banks, it will increase the ability of smaller banks to make loans to Main Street, which will level the playing field.
We’re all for forcibly breaking them up. But we don’t even have to use government power to break up the banks … the big banks would fail on their own if the government just stopped bailing them out.)
QE: the Greatest Wealth Transfer in History
It’s been known for some time that quantitative easing (QE) increases inequality (and see this and this.) Many economists have said that QE quantitative easing benefits the rich, and hurts the little guy. 3 academic studies – and the architect of Japan’s quantitative easing program – all say that QE isn’t helping the American economy.
The Federal Reserve official responsible for implementing $1.25 trillion of quantitative easing has confirmed that QE is just a massive bailout for the rich:
I can only say: I’m sorry, America. As a former Federal Reserve official, I was responsible for executing the centerpiece program of the Fed’s first plunge into the bond-buying experiment known as quantitative easing. The central bank continues to spin QE as a tool for helping Main Street. But I’ve come to recognize the program for what it really is: the greatest backdoor Wall Street bailout of all time.
***
Trading for the first round of QE ended on March 31, 2010. The final results confirmed that, while there had been only trivial relief for Main Street, the U.S. central bank’s bond purchases had been an absolute coup for Wall Street. The banks hadn’t just benefited from the lower cost of making loans. They’d also enjoyed huge capital gains on the rising values of their securities holdings and fat commissions from brokering most of the Fed’s QE transactions. Wall Street had experienced its most profitable year ever in 2009, and 2010 was starting off in much the same way.
You’d think the Fed would have finally stopped to question the wisdom of QE. Think again. Only a few months later—after a 14% drop in the U.S. stock market and renewed weakening in the banking sector—the Fed announced a new round of bond buying: QE2. Germany’s finance minister, Wolfgang Schäuble, immediately called the decision “clueless.”
That was when I realized the Fed had lost any remaining ability to think independently from Wall Street.
Even the president of the Federal Reserve Bank of Dallas said that Fed’s Fisher said that “QE was a massive gift intended to boost wealth.”
Billionaires have admitted that they are the beneficiaries of QE. For example, billionaire hedge fund manager Stanley Druckenmiller said the following about QE:
“This is fantastic for every rich person,” he said Thursday, a day after the Fed’s stunning decision to delay tightening its monetary policy. “This is the biggest redistribution of wealth from the middle class and the poor to the rich ever.”
“Who owns assets—the rich, the billionaires. You think Warren Buffett hates this stuff? You think I hate this stuff? I had a very good day yesterday.”
Druckenmiller, whose net worth is estimated at more than $2 billion, said that the implication of the Fed’s policy is that the rich will spend their wealth and create jobs—essentially betting on “trickle-down economics.”
“I mean, maybe this trickle-down monetary policy that gives money to billionaires and hopefully we go spend it is going to work,” he said. “But it hasn’t worked for five years.”
And Donald Trump said:
“People like me will benefit from this.”
Economics professor Randall Wray writes:
Thieves … took over the whole economy and the political system lock, stock, and barrel. They didn’t just blow up finance, they oversaw the swiftest transfer of wealth to the very top the world has ever seen.
Economics professor Michael Hudson says that the big banks are trying to make us all serfs.
Economics professor Steve Keen says:
“This is the biggest transfer of wealth in history”, as the giant banks have handed their toxic debts from fraudulent activities to the countries and their people.
Money “Creation” Stuffs Bankers’ Pockets with Money
The advent of central banks hasn’t changed this formula. Specifically, the big banks (“primary dealers”) loan money to the Fed, and charge interest for the loan.
the banking system is founded upon the counter-intuitive but indisputable fact that banks create loans first, and then create deposits later.
In other words, virtually all money is actually created as debt. For example, in a hearing held on September 30, 1941 in the House Committee on Banking and Currency, the Chairman of the Federal Reserve (Mariner S. Eccles) said:
That is what our money system is. If there were no debts in our money system, there wouldn’t be any money.
And Robert H. Hemphill, Credit Manager of the Federal Reserve Bank of Atlanta, said:
If all the bank loans were paid, no one could have a bank deposit, and there would not be a dollar of coin or currency in circulation. This is a staggering thought. We are completely dependent on the commercial Banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the Banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon.
Debt (from the borrower’s perspective) owed to banks is profit and income from the bank’s perspective. In other words, banks are in the business of creating more debt … i.e. finding more people who want to borrow larger sums.
Debt is central to our banking system. Indeed, Federal Reserve chairman Greenspan was so worried that the U.S. would pay off it’s debt, that he suggested tax cuts for the wealthy to increase the debt.
The big banks (“primary dealers”) loan money to the Fed, and charge interest for the loan. This is in contrast to what the Founding Fathers intended, and a massive redistribution of wealth … unnecessarily transferring extra money on every loan to the big primary dealers.
Lawlessness Is a Core Cause of Inequality
Joe Stiglitz said:
Inequality is not inevitable. It is not … like the weather, something that just happens to us. It is not the result of the laws of nature or the laws of economics. Rather, it is something that we create, by our policies, by what we do.
We created this inequality—chose it, really—with [bad] laws …
Conservative Ron Paul points out that the system is rigged for the rich and against the poor and the middle class:
We asked the top regulator and prosecutor during the S&L crisis, who obtained over 1,000 felony convictions for major white collar fraud – professor of law and economics, Bill Black – what are the core causes of inequality. Professor Black told Washington’s Blog:
The industry that is the largest single driver of surging income inequality is finance. Finance dramatically increases inequality through three primary means. The obvious means is the massive flow of profits out of the productive sector and into finance, particularly compensation for finance elites. We know that a very large amount of that compensation is the product of the “sure thing” of accounting control fraud. They have been able to lead the fraud epidemics with absolute impunity. No Wall Street elite officer who led the frauds that caused the crisis has ever been prosecuted. [Background.] There are virtually no cases of “claw backs” from the C-suite perpetrators’ compensation even when it is now inescapable that the “income” they reported to “earn” their bonuses were lies and they were actually creating horrific losses.
The second means is that the three most destructive epidemics of financial fraud in history caused our financial crisis and hyper-inflated the bubble. This too was a “sure thing” because of the fraud “recipe.” The household sector’s wealth loss was over $11 trillion. Over 10 million Americans lost their jobs. The productivity loss is estimated at over $21 trillion. Each of these actions caused a vast loss of wealth suffered disproportionately by the 99%.
Third, finance, even absent fraud, is a major cause of increasing inequality. It is the means of tax evasion, which is (in $ terms) a crime that is all about the 1%, hedge funds, and large corporations. It is also the means, and the excuse, for outsourcing American jobs in the productive sector and extorting domestic tax giveaways by putting U.S. states and cities in competition to induce them to locate in a particular city.
In the savings and loan debacle we sought to remove all the proceeds of fraud from the guilty elites.
Indeed, the big banks continue to manipulate every market and commit crime after crime and … and profit handsomely from it, while law-abiding citizens slide further and further behind.
Yet Obama is prosecuting fewer financial crimes than Bush, or his father, or Ronald Reagan. Indeed, the government has actively covered up for – and encouraged – criminal fraud.
Indeed, there are two systems of justice in America … one for the big banks and other fatcats, and one for everyone else.
Holding the little guy to the letter of the law – while letting the fatcats run around immune to the law - is making inequality much worse.
Black points out that we should claw back ill-gotten gains from criminals under well-established fraud principles. Specifically, the government could use existing laws to force ill-gotten gains to be disgorged (see this and this) and fraudulent transfers to be voided.
Economist Michael Hudson also criticizes Piketty for failing to address crime and fraud as core causes of inequality:
The other thing that is left out of the income tax statistics is of course how fortunes are really made, and that’s crime and fraud. The good thing about Piketty is he points out, why is it that French novelists and English novelists tell you much more about wealth than economics? And he points out that in the 19th century novels by Jane Austen and Balzac, the way to make a fortune is to marry into it. That’s true, but what Balzac also said is that behind every fortune is a great theft.
Government Subsidies to the Biggest Fatcats
The government shovels mass quantities of money to giant corporations through direct and indirect subsidies.
This includes subsidies to:
- Participants in the failed drug war
Why You’re Paying Too Much In Taxes Today: Because the Ultra-Rich Pay Nothing … Or Get Tax Refunds
The big boys use loopholes – including claiming their profits in foreign countries – to pay little or no taxes .. or to get tax refunds.
The middle class gets saddled with a heavier tax burden because the richest avoid taxes.
Government Creation of Monopolies
Wikipedia notes:
A better explainer of growing inequality, according to Stiglitz, is the use of political power generated by wealth by certain groups to shape government policies financially beneficial to them. This process, known to economists as rent-seeking, brings income not from creation of wealth but from “grabbing a larger share of the wealth that would otherwise have been produced without their effort”
Rent seeking is often thought to be the province of societies with weak institutions and weak rule of law, but Stiglitz believes there is no shortage of it in developed societies such as the United States. Examples of rent seeking leading to inequality include
- the obtaining of public resources by “rent-collectors” at below market prices (such as granting public land to railroads, or selling mineral resources for a nominal price in the US),
- selling services and products to the public at above market prices (medicare drug benefit in the US that prohibits government from negotiating prices of drugs with the drug companies, costing the US government an estimated $50 billion or more per year),
- securing government tolerance of monopoly power (The richest person in the world in 2011, Carlos Slim, controlled Mexico’s newly privatized telecommunication industry).
(Background here, here and here.)
Stiglitz says:
One big part of the reason we have so much inequality is that the top 1 percent want it that way. The most obvious example involves tax policy …. Monopolies and near monopolies have always been a source of economic power—from John D. Rockefeller at the beginning of the last century to Bill Gates at the end.
Government creates monopolies even in the U.S. (and see below regarding government creation of the too big to fail banks.)
War Makes Us Poor … But Makes Fatcats Richer Quicker
War makes the bankers and executives in defense companies rich.
But – contrary to a long-standing myth – it makes the rest of us poor.
As such, war is a major cause of inequality.
Over-Financialization
When a country’s finance sector becomes too large finance, inequality rises. As Wikipedia notes:
[Economics professor] Jamie Galbraith argues that countries with larger financial sectors have greater inequality, and the link is not an accident.
Government policy has been encouraging the growth of the financial sector for decades:
And see this.
Economist Steve Keen has also shown that “a sustainable level of bank profits appears to be about 1% of GDP”, and that higher bank profits leads to a ponzi economy and a depression.
The government is largely responsible for this over-financialization. For example, MIT economics professor and former IMF chief economist Simon Johnson points out that the government created the giant banks, and they were not the product of free market competition.
Inequality Started Soaring When Nixon Took Us Off the Gold Standard
The New York Sun notes that inequality started soaring in 1971 … the same year that Nixon took the U.S. off of the gold standard. The Sun shows the following chart from Piketty’s book:
Zero Hedge emphasizes the inflection point:
Money Being Sucked Out of the U.S. Economy … But Big Bucks Are Being Made Abroad
Part of the widening gap is due to the fact that most American companies’ profits are driven by foreign sales and foreign workers. As AP noted in 2010:
Corporate profits are up. Stock prices are up. So why isn’t anyone hiring?Actually, many American companies are — just maybe not in your town. They’re hiring overseas, where sales are surging and the pipeline of orders is fat.
***
The trend helps explain why unemployment remains high in the United States, edging up to 9.8% last month, even though companies are performing well: All but 4% of the top 500 U.S. corporations reported profits this year, and the stock market is close to its highest point since the 2008 financial meltdown.
But the jobs are going elsewhere. The Economic Policy Institute, a Washington think tank, says American companies have created 1.4 million jobs overseas this year, compared with less than 1 million in the U.S. The additional 1.4 million jobs would have lowered the U.S. unemployment rate to 8.9%, says Robert Scott, the institute’s senior international economist.
“There’s a huge difference between what is good for American companies versus what is good for the American economy,” says Scott.
***
Many of the products being made overseas aren’t coming back to the United States. Demand has grown dramatically this year in emerging markets like India, China and Brazil.
Government policy has accelerated the growing inequality. It has encouraged American companies to move their facilities, resources and paychecks abroad. And some of the biggest companies in America have a negative tax rate … that is, not only do they pay no taxes, but they actually get tax refunds.
(And a large percentage of the bailouts actually went to foreign banks (and see this). And so did a huge portion of the money from quantitative easing. More here and here.)
Conclusion: Piketty Is Rickety On Government Complicity
The bottom line is that Piketty has done a great job of documenting the extent of inequality, and some of its causes. But he misses the degree to which bad government and central bank policy is responsible.
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THE BLOODY PLAYING FIELD has been more and more TITLED to practically become a vertical cliff. That is now so extreme that there are no practically possible ways to fix these problems, other than for them to automatically get worse, faster, until their own madness causes them to self-destruct. Piketty would NOT be a "rock star economist" unless he had DELIBERATELY ignored what this article by George Washington presented, (especially when quoting William K. Black, who is probably the best authority on those topics.)
A relatively objective assessment of the degree to which government has become the biggest form of organized crime, controlled by the best organized gang of criminals, while the vast majority of people have been reduced to Zombie Sheeple, who do not understand, because they do not want to understand, demonstrates that the "PLAYING FIELD" has already been "TITLED" to practically become a very BIG VERTICAL CLIFF!
CIVILIZATION NECESSARILY OPERATES ACCORDING TO THE PRINCIPLES AND METHODS OF ORGANIZED CRIME. To the degree that most people do not understand that, and have been conditioned to not want to understand that, they will continue to suffer from runaway triumphs of organized crime controlling their government, because they will continue to believe that impossible ideals should be the source of the solutions to these problems, despite that thousands of years of history have shown that those impossible ideals always make the opposite happen in the real world.
The "metaphor" about it being a BLOODY PLAYING FIELD is crucial to comprehend what really happened, which is something that even the vast majority of Zero Hedge readers also appear to not want to fully face, which can be summarized as that MONEY IS MEASUREMENT BACKED BY MURDER, because the debt controls depend upon the death controls. There are no realistically possible better resolutions to these problems which are not based on understanding how those problems were created by the methods of organized crime, and so, could only be ameliorated by better applications of the methods of organized crime.
I REPEAT WHAT SHOULD BE OBVIOUS: We are NEVER going back to level playing field capitalism, because we were NEVER there! The production of destruction always controls production. Human civilizations were always operating as general energy systems, which have been deliberately presented as BACKWARDS to the ways that they actually worked. If guys like Piketty did not DELIBERATELY ignore the ways that governments are the biggest form of organized crime, controlled by the best organized gang of criminals, then he would never become a "rock star economist."
Of course, that is WHY guys like Piketty DELIBERATELY ignored "the degree to which bad government and central bank policy is responsible," because economics is a science like warfare is a science. Economists have successful careers to the degree to which they are able to act as professional liars and immaculate hypocrites. The more radical the truth, the less popular it becomes. I regard that as being why authors like George Washington present a series of excellently researched articles, which always follow relatively good analysis based upon useful relative dichotomies, to then collapse back to the same old bullshit of false fundamental dichotomies, and the related impossible ideals, when presenting "solutions."
RM, I'm always intrigued by your writing.
Please give me an executive summary: what is YOUR solution?
GW, please see my reply to disguntled hou ... below ...
George, there are no "solutions." The very word "solution" implies finality. We're in constant flux.
Most, no matter how well "educated" or what, cannot recognize the PROBLEM.
We seem to be able to identify that things stink, but we're failing to really find what is dropping the turds. Many "think" they know, and they'll bring up all sorts of fancy theories and or conspiracy stories, but there is ZERO connection to the PHYSICAL world. We are merely playing mind games. And I don't know whether this is because humans are highly deceptive or whether it's because we're clueless, no matter, same result.
I agree, SEER, that there is always a constant flow of energy, without there ever being any apparent ending: "We're in constant flux." Therefore, the only "solutions" are on-going changes in the on-going dynamic equilibria.
Meanwhile, I think it is extremely necessary to comprehend the degree to which civilizations were created in the crucible of conflicts. War was the father and king of all. However, the oldest book on The Art of War, starts by saying that "success is based on deceits," and ends by saying "spies were the most important soldiers." That was the source of the reasons WHY "humans are highly deceptive." Furthermore, that kind of success was also the source for why those who were ruled over by the rulers doing that "we're clueless."
The social pyramid systems of Neolithic Civilization were primarily base upon slavery, wherein the domestication of some human beings by others was the core to the rest of the benefits from the domestication of other animals and plants. When the industrial revolution pumped everything up by many orders of magnitude, due to harnessing inanimate energy sources, the same basic social systems continued, and were pumped up by many orders of magnitude! HENCE, THE GROWING PARADOX THAT THE LAWS OF MEN ARE RELATED TO THE LAWS OF NATURE BY THE ABILITY OF VIOLENCE TO BACK UP LIES. Those are the completely convoluted ways that society is connected to the "PHYSICAL world."
The most successful death controls, based upon the maximum possible deceits, segued into the most successful debt controls, based on the maximum possible frauds. Along the way, the resultant social polarization depended upon attitudes of evil deliberate ignorance, and the resultant destruction of the natural world also depended upon even worse deliberate ignorance. Therefore, the real limits of the environment get mediated through a society which is almost totally dominated by systems of legalized lies, backed by legalized violence, whereby special interest groups, with short-term horizons, dominate civilization, in vicious feedback loops, whereby the runaway social polarization and destruction of the natural world are deliberately ignored, since the profits are privatized, while the losses are socialized.
THAT is the context in which somebody like Piketty can become a famous economist, despite deliberately ignoring all of the most relevant factors that George Washington has explained in his article. Within the established social system, based upon a long history of paradoxical success through deceits and frauds, becoming "educated" often amounts to learning how to be a better professional liar and immaculate hypocrite.
OBVIOUSLY, HUMAN BEINGS DO LIVE IN THE PHYSICAL WORLD, AND NEED AIR, WATER AND FOOD, ETC.. However, the social world that controls those resources became based upon a long history of backing up lies with violence, which makes that social world have an extremely tangled up connection between the PHYSICAL world and the social world. The history of warfare, and the history of economics, reinforced each other, through their combined murder/money systems.
That is why, I REPEAT, economics is a science like warfare is a science. Both are extremely paradoxical, because in both their social success depends upon skillful dishonesty. Thus, there are almost infinite tunnels of frauds and deceits to plunge through, when attempting to understand how the combined money/murder systems actually work. In that context, guys like Piketty, OF COURSE, are socially successful to the degree that they perfect the best from of lying, which is LYING BY OMISSION, which is the point rightly made by George Washington, in this article about how Piketty Is Rickety On Government Complicity
George - I agree - the problem is that the government is either complicit in this criminal fraud, or worse still allows ceratin bad apples to get away with criminal fraud - look at TARP, Fraudclosure, Corzine, Solyndra. Look at the Banks - making a spread between what the Fed charges to borrow and the Treasury Rate - pure arbitrage made out of money created from thin air. This is what irritates the average guy (no sexism intended).
"Wealth obtained through hard work and innovation should be kept ... otherwise, it ain't capitalism."
What happens when that wealth obtained through hard work etc. is inherited by offspring with slightly lower ethical standards?
Then the person who generated the wealth disposed of it poorly, and their fortune is likely to be squandered.
Squandered? Or allied with the fortunes of those with even lower standards?
It takes a high degree of perception to realize your children are right bastards and leave them nothing. And having done that, to whom do you then bequeath your fortune?
Who cares? If you have a fortune it's yours to give to shitty kids or charity or get a cashier's check and take it with you to the grave. The point is, it's none of your business what happens to someone else's wealth.
The issue of purchasing political influence can't be solved by exerting political influence over someone's accumulated wealth.
"The point is, it's none of your business what happens to someone else's wealth."
When that wealth is directed at oppressing me, then it definitely becomes my business.
That aside, I don't think it's too nosey of me to wonder where the money goes, at least from a historical perspective. I mean, isn't that what we're supposed to do? Follow the money?
How about those Rockerfellahs, eh? Ever wonder where their money went?
none of our business, right?
You should read the entire comment next time.
Yeah, folks need to realize the difference between reality and emotions.
To think that the "wealthy," who are responsible for the laws, are going to allow themselves to be targets of the law, well...
"Piketty argues that the main cause for inequality is that the rate of return on capital – land, natural resources, stocks, bonds and other assets – is far higher than the growth rate of the economy"
Martin Armstrong:
"To survive the future, it is time to realize “social justice” suppresses economic growth and lowers the living standards for everyone."
Los Angeles mayor Garcetti, recently acknowleged that the city's gross income business tax, is suppressing job creation.
Toyota just announced that it was moving part of it's California operation to Texas. California is known as a state that is anti-business. Texas is a state that is pro-business.
"The Economic Policy Institute, a Washington think tank, says American companies have created 1.4 million jobs overseas this year, compared with less than 1 million in the U.S"
As can be seen by Toyota's action, business goes where it is appreciated. Los Angeles does not appreciate business, so job creation in Los Angles is suppressed.
WSJ is not reporting that Texas is going to PAY $10k for each job!
And for those still gloating about how great Texas is, its greatest influx of residents from other states is, drum roll.... CALIFORNIA! Yup, so perhaps this just all makes sense, Texas is morphing into California!
Sore loser! "Everything is big in Texas," egos included!
But hat's off to ya for helping fund the relocation of those hated Californians! (look up what happens when companies move from one location to another- they tend to bring along more employees than they hire from the new location [the higher-end jobs come pre-filled, meaning the locals get to fight over the scraps]).
Pretty soon we'll be able to laugh at the stupid stuff that Texans are doing! Oh, wait, that time is NOW! Ha ha!
moneybots, there is no value in quoting a poltician as "PROOF" for one's position. It is well understood now that all USA politicians are purchased goods.
The recent Princeton Paper shows that we live in an OLIGARCHY and that we are not the Representative democracy we are supposed to be on paper.
http://www.princeton.edu/~mgilens/Gilens%20homepage%20materials/Gilens%2...
By the way, are you advocating that Capital should continue to be allowed to shift to whatever land pays workers the least and has the least taxes and least regulations?
Are you saying you are in favor of this race to the bottom?
"moneybots, there is no value in quoting a poltician as "PROOF" for one's position. It is well understood now that all USA politicians are purchased goods"
The truth is, regardless that a politician is the one speaking it.
"By the way, are you advocating that Capital should continue to be allowed to shift to whatever land pays workers the least and has the least taxes and least regulations?"
Capital will go where it is welcomed. How much capital went to China under Mao? 46 billion in capital just fled Russia.
As has been shown time and again, wage and price controls don't work. Toyota is moving part of it's California operatiion to Texas. Toyota also builds cars in the U.S. Should Toyota build those cars in Japan and Americans be without jobs? Alstom, a French company, which GE is trying to buy, builds subway cars in the U.S. Should France build them and ship them here and Americans be without jobs?
Nothing is static. Companies are always in competition. Countries are always in competition.
When Bush Jr. was President he placed tariffs on steel. It benefitted steel producers at the expense of steel users. Did steel users cut jobs to compensate for increased costs?
Water always seeks its own level. China has to build up an economy, so that it can afford to buy American products produced in America.
"China has to build up an economy, so that it can afford to buy American products produced in America."
Is that written somewhere?
If we're banking on this outcome then we're going to be in for a big surprise.
It was the motivation for the US (Nixon era) opening up trade relations with China. Doesn't seem to have worked out to well for America.
China will soon be hitting the wall. The reason is quite clear when you realize that they very export-dependent and the global economy is contracting: and consider that a lot of what they export can be deemed not essential. These pressures, however, are being masked by their govt, through massive "public works" projects (that may or may not be branded State; they are, nonetheless heavily influenced by State policies); rather than cutting back on consumption they are pushing it, and all growth requires energy, something that the Chinese aren't very well endowed with- translation: decreasing exports and increasing imports. The result is a further entrenching of dependence on imported energy. Seems the fell for another such trick a couple of centuries ago...
I don't think that there's enough left in this game to have the US exporting cheap shit to China...
"Are you saying you are in favor of this race to the bottom?"
A cycle always completes itself. That is what people do not want to understand. 100% of booms end in a bust. End of discussion. Since 2008, the effort has been to avoid the culmination of the bust, by creating ever more debt. Global debt has grown from 70 trillion to 100 trillion.
Every country wants a weaker currency so it makes their products cheaper to sell elsewhere. Mathematically, that is impossible. Water seeks its own level. If one currency goes down, others will go up in relation to it. The race to the bottom is sought by all. The U.S. didn't like China manipulating its currency while the U.S. was trying to manipulate its own.
The stages of economic depression- they exist because they have been repeated. Beggar thy neighbor is one of them.
Economic busts are deflationary. The end of a boom/bust cycle is the trough of the bust. That is what the "race" is toward and there is no preventing it. It does not matter whether i favor it or not, it is what the process comes to.
Gresham's Law is so easily adapted to so many circumstances.
So many "social engineering" intiatives throughout the government, Federal, State and Local. Makes my head hurt just thinking about it. No one seems to understand that nature just doesn't work this way.
What it all boils down to is at the higher levels maintaining control. Power. At the lower levels, it is about people who have an axe to grind. The symbionic relationship between these levels of sociopaths fuels the whole centralization process.
Gresham's Law is so easily adapted to so many circumstances.
As was pointed out 70 years ago by Albert J Nock, a genuine sage.
And Nature's Law applies to ALL things ALL of the time. Perpetual growth on a finite planet is not possible, no matter how "strong" a currency is.
And having no government would be better? Having no regulations would be better?
Are you saying that Monopoly and Plutocracy, the only state of order that will exist when you remove government, is better than the struggle we are in today? Crazy.
Messenger. Message. Make the distinction!
Nowhere did he say either of those things. You are creating your own storyline out of the horrors in your own head.
Hey, this is Zero Hedge, right?
Please note that I was ASKING...when you hear the usual lead up one assumes that the antiGubment meme is playing itself out...so I asked if this were so.
Note I gave you an upvote because your own point was well taken.
"As can be seen by Toyota's action, business goes where it is appreciated. Los Angeles does not appreciate business, so job creation in Los Angles is suppressed."
And in lots of cases businesses go where there are sales. Was it Ford or Toyota that announced their manufactuing was leaving Australia? In that case it demonstrates a clear signal that they expect sales to go to shit. Taxes and wages are part of the equation, for sure, but so to are shipping/distributing costs and sales...
B.S. on the entire "inequality" crap! That is, if we're going to measure, and we're all humans, then perhaps we measure everyone... Most have no clue that they're WAY above the bottom. Here, here's a sample (from around where my wife is from):
https://www.flickr.com/photos/thehousekeeper/4656435881/in/set-721576240...
Fucking down-arrowing pussy. Reality for you is going to be one fuck of a bitch. Road kill...
...but our reptilian brains "know" that the REAL PROBLEM is the poor and their "abuse" of povery programs.
If we could only eat the poor, then our societies would all come-up roses.
/Sarc
i once attended and filmed an anti war protest,
2003, and composed a short movie of the experience
and delivered it to the organiser of the event.
on my own, i took up this project. in it i suggested
to the protesters that exact same thing, why not
eat the dead that war creates just to be "economical"
about the effort. surprisingly, the organiser of the
protest never got back to me, it was a good documentary
film, it even had fire works at the end.
Great and apt comments, novic, and the ONLY article to read about this is Prof. Michael Hudson's critique of Piketty's book, and his easy demolishing of bank lobbyist, Paul Krugman (and we ALL get so tired of hearing about pseudo-economist Nobel laureates and realize no Nobel was ever rewarded in economics):
http://www.nakedcapitalism.com/2014/04/piketty-wealth-gap-wakeup.html
And "ECB'S DRAGHI SEES CONTINUED PROBLEM OF LOW INFLATION IN THE EURO ZONE"
WTF? low inflation is NOT a problem thicko. YOU are the problem!
You are brain washed. Everyone now says that Inflation is BAD...why?
'cause your tiny savings will lose value and a loaf of bread will cost 20% more (as an example). 'cause those on fixed incomes will suffer (like who REALLY cares about the poor on fixed incomes, anyways?).
Racer, our monkey brains cannot understand relative proportions of things very easily...and so you are against inflation. But inlfation would help correct a system heading for disaster. It has done so many times in the past.
The three mechanisms for correcting wealth inequality: TAXATION, CONFISCATION, --OR-- INFLATION.
you may or not know there are few who
appreciate full bore, full body
contact, unannounced and unadulterated
sarcasm. rest assured my friend, i am
one of that particular few.
.
sincerity also works well.
BOTTOM LINE:
Picketty says that it is unhealthy that there is a Gap between GDP growth and Investment returns...and that the gap, which is huge, goes right into the pockets of the wealthiest on this planet.
The author presents an enormous data set for critics to identify Picketty's evidence base. It is an academically rigorous work. No one denies this.
---> But Zero Hedge/George Washington want to remind us that the gap is really due to Government and Central Banks?
Huh?
Does anyone else find it curious that whenever there is a controversial topic on Zero Hedge (controversial = hints at socialist solutions) that the article will be excessively long and meandering and deviate far from the topic and the evidence that few will bother to read said article? That there will be an excessive use of "slights of hand" arguments and an appeals to WRONG assumptions?
George Washington, is this deliberate? Is this a conscious attempt at obfuscation or is it an unintended result of your personal discomfort in the topic and the evidence.
I'll admit, I just found this article and have only given it a 2 minute skim so far,,,so I could be jumping the gun here. Later today I will read the article adn comment in detail if comment is warranted.
Meanwhile, if you want to see the ground breaking IMF article (Ostry et al) from some months back that heralded Picketty's results, here it is in PDF format:
http://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf
I'll be back later!
But chew on this:
The Government is a tool now of the Ultra Wealthy. So when ZH beats on Government to distract us from the effects and unfairness of Wealth Inequality, the target must move to the currupt Campaign Finance System.
We must admit that the election system (not government, per se) which allows the 0.01% to run national policy choices by dint of their deep pockets is the real problem.
It is just wonderful that the gliteratti have found a new "rockstar" economist. Now, if someone could only show me how Picketty´s theory differs from Marx´s theory of surplus value, I would gladly celebrate this great new achievement in economic theory. Unfortunately, this is just another sad commentary on the state of modern economics in which 130-year-old ideas are repackaged and used to justify government and elite policy.
If I had only mastered the art of rephrasing other people´s ideas and selling them off as my own, I probably would have made myself into quite a celebrity in intellectual circles as well. Well, I also would have had to castrate myself or develop homosexual appetites, insist that women are better than men at everything, and spend 15 years working as an adjunct faculty member, serving my feminist masters in whatever way pleased them.
the individuals in charge will tell you its the system, (and we can't change the system?) the people who understand the system (very few really) are reluctant to tell you its the people in charge, if they have mass media access and wish to keep it. otherwise you are part of that group which screams from the balcony (armstrong) isolated in the blogosphere, (where the mass media seldom ventures for information). this really changed at the onset of the Iraq war when journalists were made to get security clearances. the devolution of the mass audience is important as well, the noisy few or those who hold the bullhorn(gwb) make policy. i call it the 45% majority, people who govern without the consent of the majority but with the approval of an active group of supporters (like obama and college students). for the layman critic of all this it seems as though it must be the system, bush and obama come from opposite parties, opposite backgrounds, and opposite personalities, yet they both govern identically. but be careful of easy correlations. we could change the system by electing someone with that determination in mind. critics call reformer efforts social engineering, but we already have a socially engineered economy, its just not working for us.
Piketty Is Rickety On Government Complicity
Yes this is true:
Because the growth rate is much slower than the rate of profit from holding capital assets, the asset-holders’ wealth increases much faster than the wealth of workers.
Say what? That doesn't even follow, there is no way to establish a necessary relationship between asset values and the "wealth of workers". In fact, the entire concept of "wealth of workers" is dubious. Pretty much by definition workers don't HAVE wealth! What they have is a higher standard of living because they spend virtually all they earn.
And all workers are members of a society which is wealthier anytime ANY element of that society is wealthier. And there should be a trickle-down roughly proportional to any increase in the wealth (or income) of the rich. This isn't even government, it's macroeconomics.
The final case is if the elite DO "earn" more on their capital, but all they do is hold onto it. Then they are basically sucking the life out of the economy and might as well be burning the entire economy's earnings, but then at least their obscene and unused wealth DOES NOT CAUSE INFLATION. Do that sound a familiar note?
So, what is a well-meaning socialist to do? I hope it's the same thing a well-meaning conservative would do. Try to reduce these inequalities at the source, with some mechanism other than, earlier than, taxes. I don't think this is really rocket science, in this actual world what has been killing the middle class has been the export of jobs to China (and other destinations from India to Mexico). When the elite earn money by yanking it from the American middle class, guess what, the American middle class, loses. It doesn't matter that an iPhone is only $300 instead of $3,000 if you're unemployed.
The classic economists have made a fundamental error, markets are not infinite, each actor cannot ship jobs from America to China because if ALL actors do so, then the market collapses. Oh, there might be a macroeconomic equilibrium on this over a hundred years or more, but we don't want to go there, and that "solution" involves virtually destroying America and reducing all to the lowest common denominator.
So, we must conclude, you can Piketty your friends, and you can Piketty your nose, but you can't Piketty your friends' noses.
"I don't think this is really rocket science, in this actual world what has been killing the middle class has been the export of jobs to China (and other destinations from India to Mexico). When the elite earn money by yanking it from the American middle class, guess what, the American middle class, loses. It doesn't matter that an iPhone is only $300 instead of $3,000 if you're unemployed."
Every transaction has a seller and a buyer.
The U.S. middle class was destroyed from 1930-33. Jobs were not shipped to China back then.
People are always missing the forest for the trees that they want to see. Every cycle completes itself. A cycle is not static. It builds toward a peak, then falls toward a trough. A boom builds toward a peak and falls to the trough of the bust.
Interest rates moved up after WW2, until the recession of 1981. They slowly worked their way down to where they have been during this economic depression. The cycle of interest rates has come full cycle. One can place the blame on this or that tree in the forest, but take out that tree and the forest remains. Once the interest rate cycle peaked and whenever it would have peaked, the direction would have changed to lower and lower rates.
If jobs did not go to China, something else would have happened that would have had a similar effect on the middle class.
It is nothing but Marx´s theory of surplus value using modern financial instruments: bonds, stocks, etc. in place of Marx´s use of the word capital. Unfortunately, Marx had a point 130 years ago. The solution, since Marx, has been for government redistribution schemes. This has obviously failed. The real question is how to fix this problem of capitalism without resorting to government confiscation or redistribution. When Picketty or Stiegitz or Schumpeter or the Austrian School actually come up with an answer to this question, then they will have actually contributed something to economic thought... until then... ALL ECONOMISTS ARE FRAUDS
gold backed money slows the process because it inhibits financialization and encourages the classic theory of saving money to fund investment instead of encouraging the spending of money because fiat currency takes the place of savers.
Failed? Since when? We did about 150 years after Marx and it worked pretty well. I'd say it was working well until about 1991, when it get pretty rickety (!), and then got worse after 2000 and the US supporting derivatives without reserves like AIG, and then the OBVIOUS happened finally in 2008, and since the Obamanation we've been in a neo-fascist state and it's not clear how much "capitalism" is still allowed.
Piketty, pauvre con - égalité, fraternité,stupidité
Corruption, parasitism, stealing, fraud, the historical evidence is astronomical and obvious. Amazingly the logic is equally compelling.
1. People who consume resources but contribute little or nothing.
2. People who manage resources to benefit themselves at the expense of the many or are actively destructive of resources.
Now exactly who is left to make up the difference?
The political class has demonstrated they have no qualms over burning through fantastic amounts of resources to secure relatively small benefits in absolute terms but still substantial from the insider perspective.
To add a little perspective just think about how much in resources the lowly common freelance criminal burns through.
Human ingenuity being what it is, people are able to put their thumb on the scale and cheat at every activity. The people who make can't cheat enough to keep up with the people who take. But they can come much, much closer when allying themselves with the people who take.
The modern difference is the confiscation game has become more complex. Now we have the hilarious development that more taxing is being touted as the fix for all the new fangled "innovations".
"Human ingenuity being what it is, people are able to put their thumb on the scale and cheat at every activity."
And there you have it.
Fundamentally, the source of human inequality is the unequal distribution of intelligence in our species.
Solutions directed at the symptoms of this inequality, whatever the meme de jour may be, will inevitably be gamed by those with the advantage of greater intelligence.
As with CD's enlightened self-interest, this is really just a restating of the Prisoner's Dilemma.
<edit>
I'll just add:
an open question to anyone proposing solutions of the "we ought do this" or "they ought do that" variety:
Who gets to say? You? Me? Our elected representatives? And how do we ensure that narrow self interest doesn't overide our/their altruistic impulses?
Piketty is more than a useful idiot, praised by Krugman, Lew, the FT, the NYT and all the rest of the government/financial elite run media. The media and Piketty's conclusion is that if you find yourself with less and less and them with more and more, you have empower the ruling elite's government puppets even more. Piketty is a major accessory to their crimes, while posing as a friend of the exploited.
And just what are you going to do about that besides post on an internet blog site?
The finance/government question is answered by observing it's circular. The wealthy have bribed their way into a government that benefits them. The government makes sure the wealthy grow richer. The wealthy pay a portion of this money to keep the people who run government on retainer. And on it goes.
The circle's turned into a spiral. As in spiraling up. And the evidence is rising inequality.
The obvious solution is to break the cycle. Build legal walls between the wealthy and the government, or slow down the acquisition by the wealthy. Breaking the wealthy into small bits only if need be. Breaking the government is for those who imagine that short, nasty, and brutal will happen to someone else.