Jeff Madrick — Inequality Is Not the Problem

The American dream should be built on expanding opportunities for the entire society, which can only come about if average real wages go up. Earning more than your parents is as much or even more a result of the rise of wages after inflation across the economy as it is a reflection of income mobility. In other words, if you are born into the bottom quintile but real wages rise, you will likely exceed your parents’ income even if you remain in that quintile....

The New York Times just published calculations based on the detailed data collected by the Luxembourg Income Study that show middle class incomes in America are now lower than in some other nations. And Sawhill shows that out of every three adults who were children in 1968, one is earning less than his or her parents did. That latter number is troublingly big, and since the Great Recession it has probably risen.

What we now know is that we can’t rely on income mobility to solve these problems. Because there has been growth, if modest compared to earlier times, about two out of three children are doing better than their parents. But many of them are not doing much better—about half of this group remain in the same quintile they were born into. Indeed, rising income inequality also makes it harder to move from one quintile to another: the rungs on the ladder are farther apart....

Yet for all this, the problem of inequality is an inadequate description of the situation. Inequality has traditionally meant that incomes at the top grow faster than the next category down, which in turn grow faster than the next category, and so on. All categories can grow to some extent. As has been apparent to economists for several years, however, this is no longer the case. We now have stagnating incomes for a large majority of Americans and runaway incomes at the very top—especially the top tenth of the top one percent. This is not so much “inequality” as a complete lack of growth for much of the country. And this is what the nation should focus on.

I agree that now is the time to drop the austerity meme and focus on growth, which has been lagging through this weak recovery if it can be called that yet. However, I think he then goes off the rails with this:

There is simply no escaping the central fact that the welfare of Americans depends on faster economic growth. Progressives and conservatives should agree on this.

The issue as I see it is growth measured as per capita GDP versus distributed (shared) prosperity. The capital share and labor share are out of whack. Let's focus on the reasons for it, such as managerial capitalism, managing toward stock price, tax policy, privatization, deregulation, etc., much of which can be attributed to neoliberalism as a social, political and economic ideology directing policy. No matter how much per capita GDP increases, the distributional share will not change without a change in policy since it has become abundantly clear over decades that the trend is toward increasing capital share over labor share through all possible means.

The New York Review of Books
Inequality Is Not the Problem
Jeff Madrick | editor of Challenge: The Magazine of Economic Affairs, visiting professor of humanities at The Cooper Union, and director of policy research at the Schwartz Center for Economic Policy Analysis, The New School.

Steve Keen — Why Krugman needs a new school of thought

Steve Keen goes off on Krugman's intransigence in the face of contradictory evidence, calling him an apologist for the mainstream.

No need for change, boys and girls: mainstream economics has everything under control. We missed the crisis just because we failed to observe the shenanigans in the shadow banking system. Once we realised our observational errors, we had all the necessary tools and knew what to do (oh, and what the rebels said would happen didn't anyway, so there!).

As usual, Krugman’s reasoning is neat, plausible, and wrong. The main reason that mainstream economics survived the challenge of the Global Financial Crisis is not because of its strength, but because of its irrelevance.

 Business Spectator
Why Krugman needs a new school of thought
Steve Keen

Chris Dillow — The Problem Of Distribution

In a comment here, Nuno Ornelas Martins says: "the central problem of economics is the distribution of the surplus rather than the allocation of scarce resources."

This, of course, flatly contradicts the standard view that scarcity is the problem of economics. However, in one context at least, he is right. J.W. Mason points outthat, in the US, companies have (net) long ceased to raise money from financial markets. A similar thing is true in the UK; for years, companies' retained profits have exceeded capital spending - something which the OBR expects to continue....

I am not saying here that the central problem of economics is always distribution rather than scarcity. I'm just saying that, in this context and now, it is. Most interesting facts in the social sciences are local and particular.

While the post make good points, I don't think this is quite right in its scope. This issue, like most, is much more complex that most narratives make it out to be. There is no such thing as an economy that is the subject of study of the discipline of economics. "The economy" is a conceptual construct that is built on assumptions that characterize one methodological approach among many other existing approaches and many more possible approaches.

The conventional approach that starts with the problem of scarcity rather than the distribution of a surplus defines the problem and therefore constructs the subject of study based on a set of assumptions that assume certain things as relevant and assume away other things as irrelevant. Conventional economics assumes a cycle of production, distribution, and consumption in which distribution is handled by the invisible hand of the market, which is presumed to be optimally efficient to the degree that it cannot be improved upon.

Only those institutional arrangements are appropriate that advance market efficiency or economic efficiency more broadly considered. For example, intellectual property like patents, copyright and trademarks, are considered to advance economic efficiency through creating incentive — even though they also create asymmetric market power. The corporation as a legal person capable of owing property in perpetuity is another. There are many more. The proof of their efficiency and effectiveness is in the innovation that they bring and growth they produce.

Opponents object that this disregards negative externalities that are socialized, ecological, environmental, social and political, in addition to economic. The so-called free market as a mechanism of price discovery and efficient distribution is a myth. Actual practice, such as administered pricing that now predominates, and legal and institutional arrangements that dictate winners and losers reveal that markets are not as represented.

They cannot be made free either, any more than friction can be eliminated from physical systems owing to the construction of modern society and its institutions. "Liberalization" simply increases the market power of factions in that social, political and economic asymmetry cannot be eliminated from individual relationships any more than friction can from the physical world. The idea of a market in which all participants are symmetrical in information, power, and influence is a fantasy.


Once this is recognized and acknowledged then that problem of allocating scarce resource comes to be seen in a different light, where the surplus a society creates is social rather than an aggregate of the contributions of individuals competing equally on a level playing field. Just it was a social and political issue initially about what institutional arrangements to create to produce results that are effective and efficient according to defined criteria; so too, is it a social and political issue to distribute those results in a way that takes into account that certain participants were favored in order to produce the optimal results.


The notion of redistribution is a matter of responsibility where there is a right to use private property for economic gain in addition to subsistence. Since individuals characteristically do not rise to the responsibility, it becomes necessary to undertake it institutionally.

Economically, the issue may be seen as addressing scarcity in the optimal way to achieve efficiency and effectiveness in accordance with defined criteria (norms). However, in the larger context of a society social, political, legal, institutional factors must be considered along with the economic factors.


In addition, open national economies must be considered relative to a closed world economy. Given that modern economies are interdependent, e.g. with respect to resources, and humans inhabit the same global ecology in which externalities play a fundamental role socio-economically, addressing scarcity and abundance becomes a human issue, involving human rights, and a global issue with respect to context.

Stumbling and Mumbling
The Problem Of Distribution
Chris Dillow | Investors Chronicle

Benjamin Franklin and Thomas Jefferson On Private Property

 Contributed by y in the comments:

"All Property, indeed, except the Savage's temporary Cabin, his Bow, his Matchcoat, and other little Acquisitions, absolutely necessary for his Subsistence, seems to me to be the Creature of public Convention. Hence the Public has the Right of Regulating Descents, and all other Conveyances of Property, and even of limiting the Quantity and the Uses of it. All the Property that is necessary to a Man, for the Conservation of the Individual and the Propagation of the Species, is his natural Right, which none can justly deprive him of: But all Property superfluous to such purposes is the Property of the Publick, who, by their Laws, have created it, and who may therefore by other Laws dispose of it, whenever the Welfare of the Publick shall demand such Disposition. He that does not like civil Society on these Terms, let him retire and live among Savages. He can have no right to the benefits of Society, who will not pay his Club towards the Support of it."

Benjamin Franklin, Benjamin Franklin to Robert Morris, 25 Dec. 1783

"Private Property therefore is a Creature of Society, and is subject to the Calls of that Society, whenever its Necessities shall require it, even to its last Farthing; its Contributions therefore to the public Exigencies are not to be considered as conferring a Benefit on the Publick, entitling the Contributors to the Distinctions of Honour and Power, but as the Return of an Obligation previously received, or the Payment of a just Debt."

Benjamin Franklin, Queries and Remarks respecting Alterations in the Constitution of Pennsylvania, 1789


"While it is a moot question whether the origin of any kind of property is derived from Nature at all … it is considered by those who have seriously considered the subject, that no one has, of natural right, a separate property in an acre of land … Stable ownership is the gift of social law, and is given late in the progress of society."

Thomas Jefferson, Thomas Jefferson to Isaac McPherson, 13 Aug. 1813

Brad DeLong — Is This the Worst Review of Thomas Piketty’s “Capital in the Twenty-First Century”?

What can we say? That [Allan] Meltzer has not read the book, because if he had read the book he would know that one of Piketty’s big points–r > g, remember–is that patrimonial capitalism weakens when economic growth is fast? That he is too disconnected from the world to remember that Emmanuel Saez was never on the MIT faculty? That he is too lazy to check his (faulty) memory against Emmanuel Saez’s cv? That there are many people in France who are as opposed to progressive taxation as Allan Meltzer? That France’s income-redistribution policies have not kept it from having as high median after-tax incomes with a lot more vacation time and better health care outcomes than the United States? Or that the lead with its invocation of the joint conspiracy of the mainstream media and the Obama Administration to distract attention from ObamaCare is unhinged wingnut regurgitation of mendacious talking points at its worst?

WCEG — The Equitablog
Is This the Worst Review of Thomas Piketty’s “Capital in the Twenty-First Century”?
Brad DeLon

Arthur Goldhammer — Poulos Gets Piketty—and Tocqueville—Wrong

Goldhammer hammers Poulos.

James Poulos’s critique of Thomas Piketty’s ‘Capital in the Twenty-First Century’ is a mishmash of assertion and non sequiter, argues Piketty’s translator.

The Daily Beast
Poulos Gets Piketty—and Tocqueville—Wrong
Arthur Goldhammer | translator of Alexis de Toqueville and Thomas Piketty
(h/t Mark Thoma at Economist's View)

Trashing another trashy review.

Greg Mankiw — First Thoughts on Piketty

I have been reading Thomas Piketty's "Capital in the 21st Century." It is truly an impressive work, and I am much enjoying it. I have recently organized a session at the upcoming AEA meeting (January in Boston), where David Weil, Alan Auerbach, and I will be discussing the book, followed by a response from Professor Piketty.

Let me offer a few immediate reactions.

Greg Mankiw's Blog
First Thoughts on Piketty
N. Gregory Mankiw | Chairman and Professor of Economics at Harvard University

In my best recall, this is the first time that I find myself agreeing  with Mankiw more than disagreeing. Definitely the best review on the right I have encountered so far, although it is just an overall impression to be filled in later. Most of the  response from the right has been either to ignore Piketty, or to either dismiss him or demonize him.

To his credit, Mankiw confronts the issue head on. He likes the historical analysis, questions long term economic forecasts (rightly, I believe), and forthrightly states that the issue of policy is philosophically and politically determined rather than economically, which I also view as correct.

The fundamental issue is between the view of the first Chief Justice of the Supreme Court John Jay and Abraham Lincoln. 

“No power on earth has a right to take our property from us without our consent.” ~John Jay

“Those who own the country ought to govern it. ”~John Jay (American History Central)

It is rather for us to be here dedicated to the great task remaining before us -- that from these honored dead we take increased devotion to that cause for which they gave the last full measure of devotion -- that we here highly resolve that these dead shall not have died in vain -- that this nation, under God, shall have a new birth of freedom -- and that government of the people, by the people, for the people, shall not perish from the earth. ~Abraham Lincoln, The Gettysburg Address

These are mutually exclusive principles of social and political philosophy that define the difference between the left and right. In the view of the right, distribution is exclusively an economic matter to be determined in the competitive marketplace in which all compete equally and the most meritorious reap the greatest success from their own superior qualities. In the view of the left, distribution is a social and political matter as well as an economic one, and perfect competition does not exist under capitalism in a monetary production economy that is influenced not only by market-based exchanged but also cultural and institutional factors that result in asymmetries that direct outcomes with respect to status, power, and accumulation.

Paul Craig Roberts — Privatization Is A Ramp For Corruption and Insouciance Is a Ramp for War

Devastating indictment of neoliberalism and neoconservatism by a former insider on the right that could have been written by Michael Hudson and other former insiders on the left. Oh, and he goes after Libertarians, too.

Privatization Is A Ramp For Corruption and Insouciance Is a Ramp for War
Paul Craig Roberts | former Assistant Secretary of the Treasury in the Reagan administration

Sean McElwee — Welcome to the Piketty revolution: “Capital in the 21st Century” is a game-changer (even if you never read it)

Piketty supplies us with the basis for a new narrative. In this narrative, the postwar period — in which rapid growth produced broad-based, equally shared growth — is unique, not an inevitable product of capitalism. Piketty believes this postwar lull in violent inequality to be an inevitable coalescence of population and war. I believe it was brought about by a powerful labor movement and an epochal crisis of capitalism, coupled with wartime solidarity. Either way, such equality will not come again without action (and it’s unlikely we could grow our way to equality). Money will not remove itself from politics. Power cedes nothing without demand.

Salon
Welcome to the Piketty revolution: “Capital in the 21st Century” is a game-changer (even if you never read it)
Sean McElwee

The real significance of Piketty lies in changing the dominant narrative and shifting the Overton window to the left.

Adam Lee — 10 Things I Learned About the World from Ayn Rand's Insane "Atlas Shrugged'

Review of Atlas Shrugged with a summary and main points, if you haven't read it.

AlterNet
10 Things I Learned About the World from Ayn Rand's Insane "Atlas Shrugged' 
Adam Lee

Merijn Knibbe — Outside the neoclassical realm, ‘endogenous money’ is not heterodox. A response to the ideas of Krugman

The idea of endogenous money is consistent with manuals on monetary statistics which, using the ‘quadruple accounting method’ (your debt is my asset) explain how money is measured. Here, an ECB example. The monthly press release of the ECB is in fact consistent with ‘endogenous money’ idea. ‘Quadruple accounting’ is supposed to be ‘Post Keynesian’. Help. It is just basic, plain accounting, this most basic, method of keeping track of debts. It’s not the problem of the heterodox that neoclassicals did not master this. The idea that ‘credit’ is in fact a very complicated and tangled net between ‘agents’ which does not only define the relation between these agents but also affects their ‘reputation’ and therewith the agents themselves may be somewhat disturbing to the world of freely floating neoclassical atomicons – but again, that’s not the problem of the so called ‘heterodox’.

 Real-World Economics Review Blog
Outside the neoclassical realm, ‘endogenous money’ is not heterodox. A response to the ideas of Krugman
Merijn Knibbe

Joe Conason — Now We Know: Economic Inequality Is a Malady—and Not a Cure

It has been a long, long time since Americans accepted the advice of a French intellectual about anything important, let alone the future of democracy and the economy. But the furor over Thomas Piketty’s stunning best-seller, “Capital in the 21st Century”—and especially the outraged reaction from the Republican right—suggests that this fresh import from la belle France has struck an exposed nerve.

What Piketty proves, with his massive data set and complex analytical tools, is something that many of us—including Pope Francis—have understood both intuitively and intellectually: namely, that human society, both here and globally, has long been grossly inequitable and is steadily becoming more so, to our moral detriment.

What Piketty strongly suggests is that the structures of capitalism not only regenerate worsening inequality, but now drive us toward a system of economic peonage and political autocracy.... 

He has done America and the world a profound service by demolishing an enormous shibboleth that has long stood as an obstacle to almost every attempt at economic reform, from raising the minimum wage to restoring progressive taxation: Only if we coddle the very wealthy—and protect them from taxation and regulation—can we hope to restore growth, employment and prosperity. Only if we meekly accept the revolting displays of power and consumption by the very fortunate few can we expect them to bestow any blessing, however small, on the toiling many.

If you read Piketty—whose translation into English by Arthur Goldhammer makes macroeconomics a literary pleasure—you will quickly realize that we’ve been told a big lie about this most basic social bargain. The stratospheric accumulation of rewards accruing to the top 0.01 percent of owners, at the expense of society and everyone else, is not only unnecessary to promote growth; in fact, that unfair dispensation retards growth.

Truthdig
Now We Know: Economic Inequality Is a Malady—and Not a Cure
Joe Conason | editor in chief of NationalMemo.com

Ann Pettifor — Why I disagree with Martin Wolf and Positive Money

The Financial Times is hosting a major debate on whether the private banking system should be allowed to continue creating 97% of the credit or money circulating within the economy. Martin Wolf, its respected economics commentator, supports the ‘Chicago Plan’ that effectively calls for private banks to lend out only as much as they have in “reserves”. “Banks”, writes Wolf (FT 24th April), “could only loan money actually invested by customers.” Private banks would be prevented from creating money, and instead all money would be issued by the state. The quantity issued would be decided by an independent committee as argued by amongst others, the IMF’s Kumhof and Benes and Positive Money.

Because of the finance sector’s despotic power, about which I have been very vocal, many readers would expect me to support a proposal that prevents private banks from creating money, and to enthusiastically back the nationalization of money issuance. I do not however, and want to explain why.

Prime Economics
Why I disagree with Martin Wolf and Positive Money
Ann Pettifor | Director of Policy Research in Macroeconomics (PRIME), Honorary Research Fellow at the Political Economy Research Centre at City University (CITYPERC) and a fellow of the New Economics Foundation, London

askblog — What’s Wrong With the Neoclassical Production Function

The neoclassical production function, Y = f(K,L), is a gadget other than for a very simple situation, where is it intuitive. Is it useful to use in a policy setting, or it is just a simple teaching tool that doesn't say much about the real world?

So, should we use the NPF to guide economic policy to try to achieve the best balance among growth and the distribution of income? Some possibilities:

(1) The criticisms of the aggregate NPF are not important, so that policy conclusions are still sound.

(2) Some of the criticisms are devastating, but we need some tool to guide policy, and until something better comes along our best choice is the aggregate NPF.

(3) Some criticisms are devastating, and as a result we should be very cautious and humble about making policy pronouncements based on our understanding of the NPF.

To me, (3) makes the most sense. But that is not a popular position at the moment.

askblog
What’s Wrong With the Neoclassical Production Function
Arnold Kling
(h/t Mark Thoma at Economist's View)

100% Reserve Banking

So both John Cochrane and Martin Wolf are advocating 100% reserve banking. If these two agree on anything, it’s worth taking seriously!

House of Debt
100% Reserve Banking — The History
Atif Mian And Amir Sufi

Sell also the comments.

GERARD CAPRIO ON APRIL 26, 2014 AT 4:11 PMI
A seductive idea, until you recall that (a) the entire history of banking has been a move away from this extreme; and (b) the boundary problem in finance. The implication is that as funds leave a narrow banking sector in search of higher yields, the non-bank financial sector will grow vastly larger. The likelihood is that a larger NBFI sector would be rescued — in other words, along with the funds that would migrate from the banking sector, would come the government guarantees. We were not ready to let GM or AIG fail, and the same would be the case for an AMEX that would be many times its present size. So, an attractive solution in a model, but not in the real world.

ERIC L ON APRIL 26, 2014 AT 5:43 PMI
So then where do debts come from? Loans can still be financed by selling their income streams as securities. Finance would look the way it was increasingly looking when the crisis hit. It’s not clear to me why that would be better. At least within the fractional reserve banking system there is a limit to the total allowed leverage, whereas the economy can become arbitrarily leveraged through other forms of finance. And the fact is the danger to fractional reserve depositors proved non-existent. The problems were for debtors and for non-fractional-reserve financiers. If any form of banking is to be banned, we should prohibit lending from anything other than fractional reserve banking.

The Center of the Universe
Comments on Martin Wolf’s banking article
Warren Mosler


Ralphonomics
Warren Mosler tries to criticise full reserve
Ralph Musgrave

Lynn Stuart Parramore — Clueless Young Billion-Heirs Get Royal Treatment at White House

As economist Thomas Piketty, author of a new blockbuster book on inequality, tours the East Coast warning that America will soon become a place in which inherited wealth means as much — or more — as it did in Downton Abbey Britain, the White House is wasting no time pandering to young people who have grown up in breathtaking privilege. The New York Times reported that the Prez recently invited a passel of fat kittens to an invitation-only summit to "find common ground between the public sector and the so-called next-generation philanthropists, many of whom stand to inherit billions in private wealth."

Like royal courts in time of yore, when the scions of the wealthy would preen and socialize with others of their ilk, todays oligarchs-in-training are coming to DC to see and be seen, to pay and accept tribute. In order to make things appear less crass than a simple handover of cash, these young folks are invited to indulge their ruminations about improving society — which, as you might imagine, does not involve things like a global wealth tax. Or larger inheritance taxes....

The White House has been fondly known as the "People's House." Make that people with piles of cash.

Party fundraising for the next generation.

AlterNet
Clueless Young Billion-Heirs Get Royal Treatment at White House
Lynn Stuart Parramore, AlterNet

Also by Parramore,  Why Economist Thomas Piketty Has Scared the Pants Off the American Right

Piketty is scaring the right because he is a serious researcher and a calm, disciplined observer who writes in measured tones. But for conservatives who have based the last several decades of economic discussion on mythology, this dose of reality has come at them like a chillling blast of Arctic air.

Let them have their hysteria. It's a testimony to the utter bankruptcy of their ideas.

Memo to liberals and progressives: making Piketty into a rock star isn't helping, either. Let's let the facts speak for themselves.

Dean Baker — Surge of Attention to Crusading Economist Piketty's New Book Takes Us to the Big Question of How to Reduce Inequality

This raises the obvious question of what can be done to offset this tendency toward rising inequality? Piketty's answer is that we need a global wealth tax (GWT) to redistribute from the rich to everyone else. That is a reasonable solution if we're just working out the arithmetic in this story, but don't expect many politicians to be running on the GWT platform any time soon.

If we want to counter the rise in inequality that we have seen in recent decades we are going to have to find other mechanisms for reversing this upward redistribution. Specifically, we will have to look to ways to reduce the rents earned by the wealthy. These rents stem from government interventions in the economy that have the effect of redistributing income upward. In Piketty's terminology cutting back these rents means reducing r, the rate of return on wealth.

Fortunately, we have a full bag of policy tools to accomplish precisely this task...

Now meaning to "the rent is too damn high."

AlterNet
Surge of Attention to Crusading Economist Piketty's New Book Takes Us to the Big Question of How to Reduce Inequality
Dean Baker | co-director of the Center for Economic and Policy Research (CEPR).

James Galbraith on Piketty’s Capital in 21st Century – video/interview

James Galbraith on Piketty’s Capital in 21st Century – video/interview
Yanis Varoufakis

Peter Dorman — Piketty for Dummies

You look around. Some people are rich, even very rich, and others are poor. Most are somewhere in between. It’s not equal, but you think this is how it has to be if we're going to reward talent and enterprise so that all of us can ultimately benefit.

That's the simple conceptual model of democratic capitalism that conservatives want you to believe. Piketty shows that there's more to it than this.

EconoSpeak
Piketty for Dummies
Peter Dorman | Professor of Economics at Evergreen State College

Alexander C. Kaufman — The 1-Star Amazon Reviews Of Thomas Piketty's Book Are Pretty Funny

Pretty clear that the people writing the reviews aren't even literate enough to read and understand it. The less funny thing is that the conservative media and pundits, as well as some Establishment media, have come in at about this level, too. Piketty has definately touched a nerve that is bringing out the crazy.

The Huffington Post
The 1-Star Amazon Reviews Of Thomas Piketty's Book Are Pretty Funny
Alexander C. Kaufman

Ryan Grim — Elizabeth Warren Simplifies Thomas Piketty: 'Trickle Down Doesn't Work. Never Did'

The No. 2 author on Amazon's best-seller list, Sen. Elizabeth Warren, weighed in Thursday night on the No. 1 book, identifying overlapping themes.

At a reading at the Harvard Book Store, the Massachusetts Democrat, author of A Fighting Chance, was asked about Thomas Piketty's new book, Capital in the Twenty-First Century, and specifically about its contention that trickle-down economics "definitively do not work."Warren cut in. "Can we say that part again? 'Definitely do not work,'" she repeated. "Not as in that's somebody else's opinion or this comes out of a long-held political opinion. The data don't lie on this. He's got good historical data, and boy, what it shows is trickle down doesn't work. Never did, doesn't work. Just so we're all clear on the baseline. I just saved you 1,100 pages of reading." (The book is shorter than that; Warren may have assumed the audience would also read the online technical index.)

Warren, whose own book was going to be titled Rigged but ultimately went out with a more hopeful title, said that while Piketty's book could elicit despair, she found a hopeful note in it, too.

"You can read his book and you just wanna say, 'Ugh.' Because it says over and over -- look, I'll tell you the basic theme: The rich get richer," Warren said.

The Huffington Post
Elizabeth Warren Simplifies Thomas Piketty: 'Trickle Down Doesn't Work. Never Did'
Ryan Grim

As far as neoliberals are concerned, the the rich getting richer is what capitalism is all about, and distribution is beside the point. "A rising tide lifts all boats."

This is shaping up as the major theme in the 2016 general election, and Elizabeth Warren has Pope Francis in her corner.

"Here's the hopeful part in Piketty's book: Piketty makes the point that although the data keep documenting this happening, it's not like an act of nature. It's not like gravity and you can't fix it," Warren said. "Piketty's book makes the point that how much equality there is ... is a matter of the policies you choose to follow and that, for example, progressive taxation and investment in everyone's education helps to level the playing field...."

"It is a time when we made those investments that built America's great middle class and we made those decisions -- not we in this room, but our parents, our grandparents, they made those decisions. They said, 'You put a cop on the beat so nobody steals your pension, you do that on Wall Street.' But they also said, 'You tax progressively and then you make those investments.' For those who made it big, God bless 'em, that's great, but they've gotta pay a piece of that forward so the next kid has a chance to make it big and the kid after that and the kid after that. That's what defines America."

Not a bad campaign speech.

Brad DeLong — The Daily Piketty: Some More Reviews of Piketty

Twelve reviews, some of which I have already posted.

WCEG — The Equitablog
The Daily Piketty: Some More Reviews of Piketty
Brad DeLong

Lars P. Syll — Krugman’s gadget interpretation of economics

Where does all this leave us? Well, I for one, is not the least impressed by Krugman’s gadget interpretation of economics. Krugman — still — hasn’t come up with a tenable explanation to why mainstream economics goes on as if the capital controversy has never occurred, or why he and other leading neoclassical economists — still — treat ‘capital’ as if it was a well-defined and consistent concept — which it is not, as admitted by Samuelson et consortes almost fifty years ago.

Krugman’s gadget interpretation of economicsLars P. Syll | Professor, Malmo University

Center for Public Integrity- Meet the Banking Caucus, Wall Street's secret weapon in Washington

Lawmakers help industry donors beat back tougher rules

Fantastic reporting and analysis from the Center for Public Integrity. 

Rep. Jeb Hensarling, R-Texas, the committee’s ambitious chairman, attempted to retake the discussion with what passes for a joke in the oxygen-starved air of the wood-paneled hearing room in the Rayburn House Office Building on Capitol Hill.
“Occasionally we have been accused of trying to undermine aspects of Dodd-Frank,” Hensarling said with a chuckle. “I hope we’re guilty of it.”

Tee-hee. Hensarling is absolutely disgusting: 

Hensarling’s fundraising nearly doubled in 2012, after he became the highest-ranking Republican on the committee. He hosted a fundraising ski trip in February at the St. Regis Deer Valley resort that boasts uniformed “ski valets,” a “private ski beach” and a “split-level infinity pool.” His political action committee, The Jobs, Economy and Budget (JEB) Fund, took in $87,100 that month including $5,000 each from the Consumer Bankers Association, the Capital One Financial PAC, and the National Pawnbrokers Association PAC. 

Having briefly worked in a financial regulatory agency, I can confirm that most Hill hearings related to financial services issues are an elaborate form of Kabuki theater. For the uninformed, it may appear that members have legitimate concerns and are questioning regulators in order to extract useful information from them. In reality, these hearings are largely scripted political theaters, where most members simply read off of talking points handed to them by industry lobbyists, who then sit in the gallery, with their $2000 suits and shiny tablets, to make sure the "representatives" say and do the right things. It might be funny if they weren't destroying so many peoples lives.

It should be abundantly clear that this step-by-step regulatory process is inadequate. It is too easy for industry to insert itself over and over again as each rule is being separately formulated, by agencies that vary greatly in their closeness to industry. Since regulators are government employees and are subject to salary caps, there is no way that we can be sure that they are not always thinking ahead to a private sector job, and treat their potential future employers with kid gloves.

In my mind, Warren Mosler's proposals for reforming the banking system are really the only effective option. The basic government-insured operations of banking need to be entirely cleaved off from any market-making or speculative based functions, in my opinion, and leave the rest to the private sector. The Volker Rule attempted to do this in piecemeal, Rube-Goldberg manner, but it may just turn out to be a screen door on a submarine.

Its just too hard to regulate banking conglomerates that do a little bit of everything, have an enormous market presence, and can pour millions into lobbying/PAC efforts. Its always tempting to pump the partisan pom-poms and pretend like Republicans are evil and corrupt on these issues, like they are on everything else. But the New/Clinton era Democrats are just as close to the street as any Republican. And unlike the fossil fuel industry, the financial sector gives just about evenly to Democrats and Republicans, and happily picks off Hill staff from both sides of the aisle as well. And remember, Jamie Dimon considers himself a Democrat.

Alex Berezow — Why Is Seattle Socialist Kshama Sawant Allowed To Teach Economics?

If I offer a teenager $50 to mow my lawn — and an extra $25 if he trims the bushes — then I can expect to shell out $75. I just offered my little helper a handsome incentive, and there’s a very good chance he’ll respond to it. This insight on human behavior is so basic and obvious that it is listed as one of the foundations of economics in Harvard economist Greg Mankiw’s textbook Principles of Economics.

Unfortunately, socialists never learned this lesson. In a socialist economy, incentives play little (if any) role. Therefore, as University of Michigan-Flint economist Mark J. Perry wrote, “By failing to emphasize incentives, socialism is a theory inconsistent with human nature and is therefore doomed to fail.”

Yet, shockingly, socialists can regularly be found on college campuses. Kshama Sawant, an economics teacher at Seattle Central Community College, openly endorses socialism. She also is running for Seattle City Council and, with the latest election returns, claims 49.5% of the vote. With many ballots left to count, she could still win.

How on earth can somebody who rejects basic academic knowledge be so close to winning a city council seat? Even more troublingly, how can somebody with her beliefs be allowed to teach an economics course?...

I have two questions to which I will never expect to receive a rational answer.

First, why would Seattle Central Community College allow Dr. Sawant (yes, she actually has a Ph.D. in economics) anywhere near students? And second, to the citizens of Seattle, how does one of the most educated cities in America allow themselves to get duped?

Never dawns on this fellow that the people of Seattle might know more than he does. The basis of democracy is that collective wisdom is superior to individual wisdom, as in "two heads are better than one."

Forbes
Why Is Seattle Socialist Kshama Sawant Allowed To Teach Economics?
Alex Berezow, Contributor

Matias Vernengo — Krugman on Palley's Gattopardo Economics

Matias Vernengo contra Krugman.

Naked Keynesianism
Krugman on Palley's Gattopardo Economics
Matias Vernengo | Associate Professor of Economics, University of Utah

David F. Ruccio — Capital controversy

David Ruccio calls out Paul Krugman on his minimization of the Cambridge capital controversy, too.

But the thinks that not the central issue.

But Krugman is right in arguing “you really don’t need to reject standard economics either to explain high inequality or to consider it a bad thing.” I agree. What’s interesting is that, as Piketty shows, it’s possible to analyze and criticize inequality using some of the tools of neoclassical economics. Not easy but it’s possible. Which means that neoclassical economists, for the most part, choose not to try to analyze and criticize inequality. In other words, the fact that they don’t spend much of their time—in teaching, research, and offering policy advice—in analyzing and criticizing the grotesque levels of inequality we’ve seen in recent decades is, in part, an ethical question. They could but they don’t.

And that’s perhaps an even more damaging critique of mainstream economics than the capital controversy itself.

Occasional Links & Commentary
Capital controversy
David F. Ruccio | Professor of Economics University of Notre Dame Notre Dame

Mark Thoma — Paul Krugman: The Piketty Panic

Paul Krugman:

“Capital in the Twenty-First Century,” the new book by ... Thomas Piketty, is ... serious, discourse-changing scholarship... And conservatives are terrified....

The really striking thing about the debate so far is that the right seems unable to mount any kind of substantive counterattack... Instead, the response has been all about name-calling — ...that Mr. Piketty is a Marxist...

 And The Wall Street Journal’s review, predictably, goes the whole distance, somehow segueing from Mr. Piketty’s call for progressive taxation as a way to limit the concentration of wealth ... to the evils of Stalinism.... 

Now, the fact that apologists for America’s oligarchs are evidently at a loss for coherent arguments doesn’t mean that they are on the run politically. Money still talks — indeed, thanks in part to the Roberts court, it talks louder than ever. Still, ideas matter too, shaping both how we talk about society and, eventually, what we do. And the Piketty panic shows that the right has run out of ideas.

Economist's View
Paul Krugman: The Piketty Panic
Mark Thoma

Allan H. Meltzer — The United States Of Envy

The conservative response to inequality is envy. Who woulda thunk it?

President Obama has openly encouraged envy of the top one percent of income earners. Reducing the share received by the highest earners to provide revenue for larger transfers to the lowest earners has long been a main objective of his administration. We can all expect this theme to be trumpeted loudly by the mainstream press as the mid-term election approaches: Some of us can have more, the argument goes, if we force others to have less.

Support for the alleged social benefits of setting much higher marginal tax rates on the highest incomes has now been endorsed by the International Monetary Fund, based heavily on research by two French economists named Thomas Piketty and Emanuel Saez. The two worked together on the faculty at MIT, where the current research director of the IMF, Olivier Blanchard, was a professor. Like Piketty and Saez, he is also French. France has, for many years, implemented destructive policies of income redistribution....

Voters who will hear the Obama call for envy and redistribution should ask themselves and others: Would you prefer to live in an America where the market is dynamic and opportunity abounds, or in France, where unemployment is high and tax rates are crushing? Don’t you prefer opportunity to envy?

Human Events

The United States Of Envy

Allan H. Meltzer | Distinguished Visiting Fellow at the Hoover Institution and the Allan H. Meltzer University Professor of Political Economy at the Tepper School of Business at Carnegie Mellon University

(h/t Charles Hayden)

Jedediah Purdy on Capital in the Twenty-First Century

Economics Is The Master Discipline of our time. You may not think you are interested in economics, but whatever you care about — the environment, the future of the university, race and poverty, or whether independent artists can eat — economics is interested in you.

So a new book just out, Thomas Piketty’s Capital in the Twenty-First Century, is potentially significant for all of us — especially if, as economists are saying, it’s this decade’s most important book in the field. And it matters that Piketty’s book is revolutionary. It rewrites the mission of economics, discarding claims that the discipline is a super-science of human behavior or public policy. Piketty wants to return his field to what the 19th century called “political economy”: a discipline about power, justice, and — also, but not first — wealth. The questions of political economy are political: how should we freely organize our interdependent economic lives?

Los Angeles Review of Books
Jedediah Purdy on Capital in the Twenty-First Century