Three from Dan Kervick

Three from Dan Kervick.

Rugged Egalitarianism

Democracy through Solidarity

If we must get more organized, then the chief political question is what form that organization will take. The struggle for the 21st century will be a struggle between the forces of democratic systems of human organization and hierarchical, corporate systems of organization. It will be a struggle between democratic political communities of various shapes and sizes, on the one hand, and concentrations of organized and unaccountable private capital and entrenched privilege on the other.

Why Did Economists Neglect Distribution for So Long?

And yet there has been a very palpable taboo, a detectable sense of embarrassment, discomfort and irritation, around the distribution question. So it seems to me that we need to consider other hypotheses to explain why most economists have, in recent years, neglected distribution. And the hypothesis I would suggest is that this stance has much more to do with the cultural, political and ideological norms that have prevailed in the field of economics, as a living, breathing institutional reality concerned in unique ways with social order and power, than it does with more general scientific norms distinguishing descriptive from normative inquiries. In a word, economics is a “peculiar institution”, and the constraints, taboos, incentives and disincentives imposed on its practitioners have a more direct connection with established power structures and authoritative political ideologies than do the norms in most other sciences....

I have one other hypothesis to propose. Despite their claims to political independence and rigorous scientific scruples, economists are political animals like the rest of us. Some of the dominant figures have well-known partisan loyalties and commitments. It appears to me that much of the recent concern with inequality only arose after a groundswell of political discontent with the savage cruelties and injustices of American society had reached a level that partisan power-brokers could no longer contain, and that even economists could no longer ignore.

A Flaw in The Economist’s Explanation of Piketty

This paragraph contains a mistake. Piketty does not argue that “as a general rule wealth grows faster than economic output,” and that is not the dynamic captured by the expression r > g. Nor does his argument require a rate of wealth growth higher than income growth in order for the forces of divergence to predominate and produce greater inequality. What he argues is that, for a given savings rate s and national income growth rate g, the wealth-to-income ratio will tend to stabilize around the ratio s/g. If the wealth-to-income ratio is less than s/g, then wealth will grow more rapidly than national income. But if the wealth-to-income ratio is greater than s/g, then wealth will grow more slowly than national income.

So assume a savings rate of 10% and a growth rate of 2%. Only if the wealth-to-income ratio were less than 5 would wealth be growing faster than income. But that’s neither here nor there, since it will stabilize near 5 in any case over the long run, and the capital share will stabilize at rs/g. Whether or not wealth is growing faster than income is not what drives growing inequality. What drives increasing inequality of capital ownership, as I understand Piketty’s argument, is that some individuals save at a higher rate than the national savings rate, and other save at a lower rate; and the savings rate for individuals is likely to be higher in proportion to the amount of previously accumulated wealth they already possess. As a result, even in an economy with a stable wealth-to-income ratio and stable capital share, the rate of change in the proportion of the capital share flowing to a given possessor of wealth will tend to vary directly with their wealth. The rich don’t just get richer; they get richer at an increasing rate depending on how rich they already are....

Note also, that these portions of Piketty’s argument only deal with issues related to inequality of capital ownership. But there are other factors driving inequality. Piketty tells a very complex and nuanced story about the forces tending toward inequality in wealth and income, a story spread over six chapters of the book. The story weaves together three factors: inequality in capital ownership, inequalities in labor income, and inequalities related to the way in which the first two factors interact. He also stresses that he does not rely on one single synthetic index of inequality, such as a Gini coefficient, but that inequality is a multidimensional phenomenon, and that it is best to examine and understand these dimensions separately.

Dan Kervick