Sunday, December 20, 2015

Dean Baker — Brad DeLong on Piketty's Likely Response to Rent Argument


Significant because rent.

Beat the Press
Brad DeLong on Piketty's Likely Response to Rent Argument
Dean Baker | Co-director of the Center for Economic and Policy Research in Washington, DC

See also

Asymptosis
Yes: Concentrated Wealth and Inequality Crushes Economic Growth
Steve Roth

2 comments:

Dan Kervick said...

Piketty would respond, I belive, by saying that the distinction between "rents" and other forms of return to capital is spurious. He makes that point in the book.

Random said...

This whole discussion is far too technical and misses the obvious. There is no way to end "rent seeking" in the UK or US.

Most voters, or at least most swing voters in marginal seats in the USA, UK, Australia, etc are so-called “aspirational” voters and their aspirations mean mainly two things:

* Ever higher asset prices with ever lower interest rates so the capital gains they enjoy can be cashed in tax-free with cheap remortgages.

* Ever lower wages and reduced rights for workers, because cheap hired help is hard to find today.

This is because neoliberal governments have made speculating on assets, in particular housing property, much more profitable than fighting for better wages and work conditions, and a lot of property owners don’t work or work part time (for example middle aged and older women who got their property via divorce or inheritance).

The numbers are startlingly clear. I'll use an example from the UK:

http://www.bbc.co.uk/news/business-19288208

"In 2001, the average price of a house was £121,769 and the average salary was £16,557, according to the National Housing Federation. A decade on, the typical price of a property is 94% higher at £236,518, while average wages are up 29% to £21,330"

The above involves a pretty modest two-up-two-down terraced house and middle income people like plumbers, nurses, bookeepers, etc.

That is £12,000 a year of extra tax free income via property capital gains on top of an after-tax income from working of perhaps around £14,000.

These people reckon that no trade union, no raise, no strike, no worker rights could have given them an extra £12,000 a year free case without raising a finger other than to vote smugly for neoliberal parties every several years.

They cote relentlessly for higher property prices for themselves and lower wages for everybody else, especially if they are non-working or retired, and there are plenty of retired people that vote, especially women, both because life expectancies have extended and women traditionally have been able to retire 5 years before men and live 5-10 years longer than men. These retired people (mostly women and some men) see their property as their main income producer, and the wages of younger workers as a cost.

It is not (just) a story of "evil elites screwing everybody else" - it is a story “F*ck YOU! I got mine” middle class or middle income people voting their wallets as if they were rapacious elites. It is the mass-rentier mindset.

The Minsky cycle is a *politically* driven cycle, something that matters a great deal, because minimizing the disruption caused by Minsky cycles is a political decision.

The politics of the Minsky cycle are driven by those vested groups who profit from volatility and tail risk and self-dealing, that is most of the USA managerial class and financial class.

The “exceptionalism” of the USA economy has always been in the past that it had a very large and profitable extractive component, where the “mining” of cheap to extract natural resources, be them metals, oil, water, the fertility of the land, was the main driver of very high profits.

Now the USA is all physically mined out (the “tight” oil and gas may be perhaps abundant but it is very expensive to extract), and so the USA managerial and financial elites have switched to “mining” accumulated capital, with several rounds of highly profitable asset stripping, and they drive hard the Minsky cycle to facilitate that asset stripping.

Because it is far more profitable, and far quicker at delivering those profits, than any investment in research or industry.

This is probably in part driven by the application of the BCG matrix to whole economies or regions: most of the USA economy is probably rated as “dog” by most USA elites, and the BCG precription is never to invest in a “dog” economy, but to liquidate any capital tied up in it:

https://en.wikipedia.org/wiki/Growth-share_matrix