Friday, September 26, 2014

David Graeber and Thomas Piketty — Soak the Rich —An exchange on capital, debt, and the future

This exchange is from a conversation in Paris between David Graeber and Thomas Piketty, discoursing on the deep shit we’re all in and what we might do about climbing out. It was held at the École Normale Supérieure; moderated by Joseph Confavreux and Jade Lindgaard; edited by Edwy Plenel; first published by the French magazine Mediapart last October; and translated from the French for The Baffler by Donald Nicholson-Smith.
The Baffler
Soak the Rich —An exchange on capital, debt, and the future
David Graeber and Thomas Piketty
(h/t Ignacio in the comments)

24 comments:

Matt Franko said...

Piketty: One of the points that I most appreciate in David Graeber’s book is the link he shows between slavery and public debt. The most extreme form of debt, he says, is slavery: slaves belong forever to somebody else, and so, potentially, do their children. In principle, one of the great advances of civilization has been the abolition of slavery.
As Graeber explains, the intergenerational transmission of debt that slavery embodied has found a modern form in the growing public debt, which allows for the transfer of one generation’s indebtedness to the next.

These 2 believe in intergenerational accounting and that we are 'borrowing from our grandchildren'....

Then he goes on:

It is possible to picture an extreme instance of this, with an infinite quantity of public debt amounting to not just one, but ten or twenty years of GNP, and in effect creating what is, for all intents and purposes, a slave society, in which all production and all wealth creation is dedicated to the repayment of debt. In that way, the great majority would be slaves to a minority, implying a reversion to the beginnings of our history."

??????

What about the leading public spending? The effects of the external sector/trade?

Or the situation in the US right now where you have the CB/external CBs buying all the securities and govt doing 90%+ of all lending on homes and student loans?

This conversation is revealing in that it is a good example of two out of paradigm people talking in circles ....

There are only about 1,000 of us on the planet who actually know what is going on in these matters.... these 2 are not among us.

He talks of "debt slaves" here and we had "wage slaves" in the other thread both of these are oxymorons the wage is synonymous with debt, while when we slave, we slave for rations. Slaves are not "in debt" to who they are slaving for...

Matt Franko said...

More:

"Until the nineteenth century, 90 percent of accumulated capital belonged to 10 percent of the population. Today things are a little different. In the United States, 73 percent of capital belongs to the richest 10 percent. This degree of concentration still means that half the population owns nothing but debt. For this half, the per capita public debt thus exceeds what they possess. But the other half of the population owns more capital than debt, so it is an absurdity to lay the blame on populations in order to justify austerity measures."

This is like the idiots who keep pointing to the "National Debt Clock" or something...

WHO CARES that the Alibaba people now have allegedly $220B of "capital" this week that they didnt have last week?

WHO F_ING CARES?!?!

NOTHING has changed in real terms in the last 2 weeks... economists .....

Tom: "But there is almost no concern or investigation of what makes "the lower classes" tick and what they actually want. Hint: they don't envy the rich and want to live like them."

These 2 are manifestly NOT on board with this view... they are all about "the rich"....

Ignacio said...

It's interesting though that Graeber knows about MMT and has pointed it out in his book, as he builds a lot of the background on what money is through chartalism, so he is NOT ignorant of it, butthen we must be aware that he: 1) is a 'radical', and by radical I mean someone who does not support the current system in it's current form 2) he studies the anthropological significance of debt in human societies: debt is something more than the simple accounting of it (unless we can subjectively shift perception about it).

I read it some time ago so don't remember exactly but he points out we are in a cycle where we move from 'metal era' to 'credit era' and this also affects how debt and money is managed and perceived (so we are in that 'transformation phase', if MMT has some place in this transformation to shift perceptions remains to be seen yet).

Old civilizations also had money printing capabilities but that was not enough to keep kicking the can and some sort of 'recycle' or 'debt relief' systems and mechanisms were necessary in the end. Maybe is a matter of perception of the population but when dealign with the economy we are dealing with different rationales and perceptions and we can't ignore that (for example the EZ denies 'monetary financing' by choice, not because it's not possible, and tbh most people I know of agree that it should be that way, and doesn't matter if they are left or right).

It's all flawed logic? Yes, maybe, but that flawed logic is what makes the system run one way or an other (probably for the worse). Too much complexity when dealing with humans, maybe one day we can let a computer run the whole thing on autopilot and delete things like "public debt" from the vocabulary, but today is not that day (yet), Japan has been leading regarding this issues for a long time so it's important to see how things evolve over there to see possible resolutions to all this "debt problems".

Ignacio said...

Did a quick search and you can see it here so you don't need to buy/read the book: http://www.theguardian.com/commentisfree/2013/apr/21/no-need-for-economic-sadomasochism

"Why is Japan not in the same situation as Spain or Italy? It has one of the highest public debt-to-GDP ratios in the world (twice that of Ireland), and is regularly featured in magazines like the Economist as a prima facie example of an economic basket case, or at least, how not to manage a modern industrial economy. Yet they have no problem raising money. In fact the rate on their 10-year bonds is under 1%. Why? Because there's no danger of default. Everyone knows that in the event of an emergency, the Japanese government could simply print the money. And Japanese money, in turn, will always be good because there is a constant demand for it by anyone who has to pay Japanese taxes."


I mean, in the case of Piketty is clear he has fallen in the classical trap of gold standard economics and that he is a traditional socialist asking for redistribution, but in the case of Graeber I think it's a more pure socio-political stance where some mechanisms would shift perception about 'debt' and 'debt relations' (in this same discussion you can see he does not argue that debt abolition is the only way, and that it should be a multi-pronged approach). I tend to think the same, the problem in the end is that you end up discussing moral hazards, and a lot of people wouldn't be fine with using MMT policies to kick the can while the current debt relationships (which are very real) stay the same, there is some real danger that TPTB will abuse that (in fact they already do) in nasty ways to the detriment of the rest of the population. Steve Keen, who has been workign with MMT'ers and knows perfectly about MMT would argue something similar probably.

Tom Hickey said...

The argument over public debt is that the principal and interest on the debt goes to capital but the taxes that fund the debt are paid by the public, so instead of that going to social welfare it goes to owners of rentiers. Similarly taxes also fund the military, which increasingly doesn't merely defend the nation but project national power and protects national interests, which are mostly the interests of capital.

One say that taxes and bond issuance for deficits are not necessary funding sources, but even if there were direct issuance and no bonds, taxes would still be needed to constrain inflation, leaving the situation essentially unchanged.

P&I on the public debt, subsidies, and a large portion of military spending is public expenditure that goes mostly toward the interests of the top of the town and limits spending on the welfare state or reducing the necessity for higher taxation.

This is the kerfuffle politically right now, with neoliberals wanting to lower taxes on the wealthy and shift more the tax burden on the rest of the people including the poor, increase military spending and shrink the welfare state.

It doesn't really matter that much whether one takes the MMT POV or not. The distribution issues remain, and the objective of the top of the town is to garner as much as it can to itself. The necessity to tax to control inflation also remains. That's just capitalism, after all.

What MMT does is clarify the issue, to remove the myths. The actual issues remain, however.

It is sometimes argued that since the wealthy save more than consume they "tax" themselves. This is true to a degree economically but it results in oligarchy politically owing to the power, influence, status and privilege that wealth bestows. This means that only some are free in the sense of exercising self-determination politically and the rest are not free. Being dependent on the freedom of others is a form of slavery.

Tom Hickey said...

My take-away. Piketty is for moderating neoliberal capitalism while Graeber holds that capitalism is a failed system and needs to be replaced.

Interestingly, Piketty believes that his solution is impractical and unlikely to be adopted, and Graeber's solution is so radical that it is also unlikely to be adopted. The difference is that Graeber believes that the point will come (soon) that forces a solution owing to the mountain of debts that cannot be paid.

Human systems and the institutions that comprise some of their defining characteristics develop gradually but at turning points change can appear to be sudden, even though it has been gradually building.

I think that Graeber may be closer to correct. The problem is the mountain of private debt that has built up owing to the dynamics of endogenous money that Minsky laid out in his financial instability hypothesis.

The buffer that protects the system is government, through liquidity provision by the central bank and conversion of private debt into public debt fiscally.

While it is true that governments that are sovereign in their currency are in theory able to provide an unlimited buffer financially, they are not politically. At some point a society realizes that there is a huge transfer of wealth from private debtors, the public, to private creditors, the banks and financial industry, and the ownership class. At that point, the public sends a signal to politicians that enough is enough and demands radical change.

The US approached that point in 2008 but avoided it, but the effects linger. Iceland hit that point and bit the bullet. Other countries are in various stages in between. This is not over yet.

Ryan Harris said...

The latest McCulley takes a more positivist approach than Piketty or Graeber and comes up with what appears a far more likely explanation of what we are seeing.

Tom Hickey said...

Great analysis. I promoted it to a post.

It shows the consequences of Congress choosing to limit the use of fiscal policy, thereby forcing the Fed to use extraordinary monetary policy to address the issue created by the crisis. The result was the asset price explosion with a slow recovery, resulting in the level of wealth and income inequality so great as to draw political attention.

Ryan Harris said...

Yes, there are a few obvious realities omitted but it is less flawed than Piketty. And more likely to lead to a useful political solution than Graeber.

Tom Hickey said...

Piketty is looking at capital from the outside, and McCulley is looking at it from the inside. And McCulley has the advantage of MMT.

However, we shouldn't underestimate the influence of either PIketty or Graeber. It looks like Capital and Debt are going to be two of the big books of the early 21st century. They are both weighty, and not just by physical weight.

Ignacio said...

"And more likely to lead to a useful political solution than Graeber."

IDK if I missed something but I don't see McCulley suggesting any policy just analysing where we are and what will be the likely outcome for the financial markets in the long run.

And about reflating certain asset classes to create 'paper wealth' (equity) there is a problem for the FED: you can't target who gets this equity with the instruments you are equipped with. Therefore, what has happened is that the ever-diminishing middle class (not to say the poor) are even more leveraged than before and with net equity similar to levels prior to 2009. And with each mini-bubble you see a transfer of wealth from the majority to the top of the pyramid in the FIRE sector. That's what is happening in practice.

OFC as long as this happens there is not going to be an increase in wages and in general in the net equity of the majority of the population, because what drives that is demand, and demand is not substantially increasing. Also you have to factor the global 'race to the bottom' practices which do not help the case for rising wages in developing countries.

The FED policies are failed policies, will these policies drive to policy change? Yeah of that I'm sure lol, at some point.

Dan Kervick said...

My take-away. Piketty is for moderating neoliberal capitalism while Graeber holds that capitalism is a failed system and needs to be replaced.

I would say it's the opposite. Graeber is an "anarchist", which means that at the end of the day, despite a lot of pseudo-radical chit-chat about destroying the "system" through "actions", he has no coherent ideas about government, politics and structural reform and the organization of society, and has voluntarist and laissez faire impulses. Graeber is a typical American eternal teenager, fixated on personal liberty and freedom. Anarchists are just libertarians who haven't grown up yet.

Piketty is a socialist who wants to regulate and redistribute wealth and wealth accumulation, and move towards new forms of democratic control of capital. There is nothing at all "neoliberal" about it. It is a clear call for a rollback of neoliberalism and a movement toward a form of democratic socialism.

Debt is a pretty crappy book that doen't even contain a coherent definition of its central concept, and is riddled with errors.

Jan said...

Professor Immanuel Wallerstein
is worth read and listen to it is very heavy dude,here in two lectures:


The University of Nicosia honours Immanuel Wallerstein
https://www.youtube.com/watch?v=KcpHyFGQ8EE

Immanuel Wallerstein talkin to OWS: "Upsurge in Movements Around the Globe: 1968 Redux?"
https://www.youtube.com/watch?v=__o3z-

"... I
special talk by Immanuel Wallerstein, distinguished scholar and author of the essential "The Modern World
System," a classic three volume study of the emergence of capitalism, which has recently been republished alongside a brand new fourth volume. Dr. Wallerstein, currently Senior Research Scholar at Yale University, is not only one of the most respected sociologists of our times, but has been, for decades, a tireless ally of struggles in the global South, and a major theorist of the radical potential of antisystemic movements to challenge the global capitalist status quo.



Analyzing the chaotic and unpredictable historical conjecture in which we find ourselves, Dr. Wallerstein highlights the instability of a world-system far from equilibrium, where our actions may very well be the factor that decides whether the planet succumbs to the spirit of Davos, home of the World Economic Forum and its vision of capitalism without democracy, or, on the contrary, accedes to the spirit of Porto Alegre, home of the World Social Forum and a vision of a global, participatory, and anticapitalist civil society.

talk at 2640 examines the current wave of global protest, from Tahrir Square to Wall Street and our own Mckeldin Fountain, evaluating the historical significance and future possibilities of the antisystemic movement in the midst of which we find ourselves.

Responding to his talk will be Beverly Silver, author of "Forces of Labor: Worker's Movements and Globalization Since 1870," herself a major contributor to the study of the world system and the implications for a radical politics, as well as William Connoly, author of "A World of Becoming," and a theorist of the politics of complexity.

2640, a volunteer-run center for arts, culture, political education and community organizing, housed at 2640 St. Paul St., - sponsored by Red Emma's Bookstore Coffeehouse, with the support of the Johns Hopkins University Department of Sociology.
More info about Dr. Wallerstein: http://www.iwallerstein.com

Tom Hickey said...

Like Minsky and the MMT economists, Piketty says there are many forms of capitalism and aims at replacing a more laissez-faire economic liberalism with a more social liberalism, as did Keynes, for example.

Graeber is indeed an anarchist and a rather radical one at that.

I think that both these views are naïve politically.
Addressing Piketty, as long as an organizational structure of any sort is allowed to prioritize money (financial capital) and machines (real capital) over people and the environment, it is capitalism. If this is reversed, or even if the factors are treated equally, it's no longer capitalism in that capitalism is based on the economic structure resulting from assuming that capital formation is basic to growth and maximum growth results in maximum utility for all, regardless of distributional effects and social and political outcomes. It is therefore a recipe for oligarchy. There is no way around this in this structure.

Addressing Graeber, assuming that his position is as a radical anarchist, this position holds that if the playing field is leveled socially, with all accorded equal rights, then society will organize itself non-hierarchically. This is shared by anarchists of left and right. They just disagree over rights, the right recognizing only the right of personal freedom and ownership of private property, whereas the left has a broader view of rights and does not prioritize them equally, holding that property rights are subordinate to human rights. I think that this view is also naïve.

However, I agree with the ideal of a rights-based society in which all are equal as persons but unique and therefore diverse as individuals. In my view humanity is evolving cyclically rather than linearly, and that the tribal model that was eventually replaced with the military model of organization will arise again in a new form as this cycle comes full circle, but at a higher degree of complexity.

I think that the process can be led but not forced, so I disagree with the radical anarchistic approach. I also think that the process path lies through altering the existing system consciously in the direction of the ideal.

I agree with that what is necessary is transformation and that this is what we need to be focusing on. I think that Roger has argued for this on a scientific basis. Emergence is transformation, not merely change.

Dan Kervick said...

Well, Tom, I think capital formation is pretty clearly essential to any form of sustained per capita growth, and that is agreed by almost all hands, capitalists and socialists included. To think otherwise is to imagine that a society can generate ever-increasing flows of annual output from some fixed level of capital stock. That seems far-fetched, to put it mildly - and posits a degree of ongoing productivity growth that amounts to a belief in magical alchemy. Clearly as a society grows and progresses, it's capital structure has to change and grow along with it.

The practical question is alwasy over how much and which kinds of capital are to be privately owned, and how much and which kinds are to be publicly owned. There are also regulatory and political choices to be made about the precise forms of "control" that different forms of private ownership entitle their owners to.

Frankly, I think Graeber is a fool who has not the slightest idea about what it takes to hold a prosperous and complex modern society together, much less to reorganize it and make it progress. It is extremely depressing that the energy of "progressives" has been drawn off by the pursuit of the idle millenarrain dreams of bohemian fantasists like Graeber. Of course, coming to grips with the reality principle is not a strong suit of Americans of any political stripe these days. We're a country of adolescents with our heads in the sand, living in a variety of fantastic dreamscapes, cooking up endless magical solutions to our problems.

I listened to Greaber's debate the other day with Peter Thiel, and I left appalled by the double-barrelled nonesense represented by those two wings of the libertarian-anarchist spectrum. Grabeber in particular is caught in an irresolvable intellectual bind caused by his desire for all sorts of things whose actual realization would require an effective and coercive intervention of government in our economic lives, and his anarchist repudiation fo government.

Dan Kervick said...

Well, Tom, I think capital formation is pretty clearly essential to any form of sustained per capita growth, and that is agreed by almost all hands, capitalists and socialists included. To think otherwise is to imagine that a society can generate ever-increasing flows of annual output from some fixed level of capital stock. That seems far-fetched, to put it mildly - and posits a degree of ongoing productivity growth that amounts to a belief in magical alchemy. Clearly as a society grows and progresses, it's capital structure has to change and grow along with it.

The practical question is alwasy over how much and which kinds of capital are to be privately owned, and how much and which kinds are to be publicly owned. There are also regulatory and political choices to be made about the precise forms of "control" that different forms of private ownership entitle their owners to.

Frankly, I think Graeber is a fool who has not the slightest idea about what it takes to hold a prosperous and complex modern society together, much less to reorganize it and make it progress. It is extremely depressing that the energy of "progressives" has been drawn off by the pursuit of the idle millenarrain dreams of bohemian fantasists like Graeber. Of course, coming to grips with the reality principle is not a strong suit of Americans of any political stripe these days. We're a country of adolescents with our heads in the sand, living in a variety of fantastic dreamscapes, cooking up endless magical solutions to our problems.

I listened to Greaber's debate the other day with Peter Thiel, and I left appalled by the double-barrelled nonesense represented by those two wings of the libertarian-anarchist spectrum. Grabeber in particular is caught in an irresolvable intellectual bind caused by his desire for all sorts of things whose actual realization would require an effective and coercive intervention of government in our economic lives, and his anarchist repudiation fo government.

Tom Hickey said...

No one who knows anything denies that capital formation is necessary for growth. However, that is turned into the argument that growth is first priority and it supersedes human rights, civil liberties, and the environment. That does not follow it is a presumption of capitalism put forward by capitalists and their cronies, including those in academia. IT is the basis of trickle down economics.

The rationale is that poverty is decreasing globally even in the face of rising social, political, and economic inequality, so critics should just STF.

Meanwhile the so-called rise is in GDP per capita, which means nothing wrt to distributed prosperity and negative externality has poisoned the nest by socializing environmental cost and distorting true price. This is excused as necessary for growth, since imposing anything in the direction of true cost, e.g., imposition of a tax, would "cripple" growth and result in a much lower standard of living than externality involves. It is further argued that public subsidies for private firms in these industries are necessary for growth. Same with the financial industry and financial markets, which must be supported publicly no matter what because without a robust banking and financial industry, growth will be set back. Same with big pharma, which argues that monopoly through intellectual property is required to develop new technology. I could go on but others already have.

It does not follow that capital formation is so important to social improvement that financial and productive capital should be institutionally prioritized above people and the environment. An economy is a life support system for a society and should serve the needs of the society, not the whims of an elite that let some crumbs fall from the table now and then.

Tom Hickey said...

To think otherwise is to imagine that a society can generate ever-increasing flows of annual output from some fixed level of capital stock. That seems far-fetched, to put it mildly - and posits a degree of ongoing productivity growth that amounts to a belief in magical alchemy. Clearly as a society grows and progresses, it's capital structure has to change and grow along with it.

IIRC, Dan, some time ago you were championing public investment. Since then Randy Wray and Marianna Mazzucato have joined forces to argue how most significant private capital formation has come from prior public investment the results of which were made available to the private sector. Also all natural wealth that is owned privately was enclosed from the commons, a large percentage of it by force.

Capitalism rests on myths that just are not true on inspection. These myths are used to justify the power, privilege, status and wealth of a relative small ruling elite and their cronies world wide. Everyone in a prosperous Western country who hasn't yet should examine on whose backs that prosperity was built.

It may not be possible to right all wrongs but it is possible to start doing the right things the right way now, and correcting what mistakes have been made in the past to the degree possible. Very few haves are willing to do this, and most live in denial of what make their comfortable lifestyle possible, let alone its true cost in blood, sweat and tears in addition to treasure.

Tom Hickey said...

Capitalism > market state
Democratic Socialism > welfare state

Capitalism = economic liberalism
Democratic Socialism = social liberalism

economic liberalism > personal liberty and property rights
social liberalism > human rights and civil liberties

Magpie said...

"WHO CARES that the Alibaba people now have allegedly $220B of "capital" this week that they didnt have last week?
"WHO F_ING CARES?!?!"

Mate, maybe YOU don't care. Maybe WE shouldn't care.

But two things are for sure here:

(1) The Alibaba people do care.
(2) The Alibaba people -- and apparently you -- are very happy with that.

Now, the Alibaba people know why that is.

I, for one, believe the Alibaba people know very well what's good for them.

Dan Kervick said...

IIRC, Dan, some time ago you were championing public investment.

I still do Tom. But public investment is one type of capital formation. I was just arguing against the notion that capital development was something that could be eschewed, or that it only characterizes a particlar known as "capitalism."

Tom Hickey said...

Did say that capital formation was not important, or even that it was not a priority? No, of course not.

What I said was it is not the most important matter for a society. The argument that capital formation should or needs to be prioritized over other factors is a false argument that gives capital formation and GDP growth per capita excessive weight as a social factor due to its role it a market state, which economic liberalism assumes as the ideal for society, achieving "the end of history."

This view is based on the assumption that growth is the most important concern of modern societies in which the society is defined by the economy. Accordingly, prioritizing capital formation is the only way (TINA) or the most efficient and effective way (neoclassical economics) to achieve all other priorities of the society. The conclusion is that economic liberalism leads to a market state, which is the basis for the good life in a good society.

In the first place it ignores the question of human rights, but that is not a factor in economic liberalism, which assumes that the basic rights are personal liberty in the sense of freedom from constraint and to chose, along with property rights. This leads to the meritocracy and just deserts arguments that justify oligarchic democracy. Other reasons have been elaborated but the rights argument is sufficient, in my view.

There is no fix in of capitalism as long as it is defined as the priority of financial capital and productive capital over the people and the environment.

It's like trying to fix aristocracy in a feudal system to make more fair. The result is structured in the institutional arrangements. It's these arrangements that need to be changed. The aristocrats of old are now an anachronism. The same thing has to happen to the oligarchs of oligarchic capitalism.

Will that result in utopia? Of course, not, "the people" are not homogenous and there will still be plenty of social and economic issues. But it will up to the people to deal with that, and they will have the institutions and tools to do so, unburdened of kings, aristocrats, dictators, and oligarchs, continuing the transition from the rule of one, to the rule of some, to the rule of many, to the rule of all.

Matt Franko said...

Magpie,

they establish 220 shares, sell 20 at $20B to morons and keep the other 200 and then go all around saying "hey, I'm worth $200B now!...."

Its a scam... nothing more... an accounting fiction... they are zombies living in a dream world...

We have bigger fish to fry...

rsp,

Anonymous said...

It's like trying to fix aristocracy in a feudal system to make more fair...." [TomH]

LOL!!!

.... like letting bears organise a beehive

.... like letting crocodiles organise a river crossing