Tuesday, April 29, 2014

Jessica Desvarieux interviews Michael Hudson — The 1% and Piketty

Video and transcript.
Now, if the 1 percent made their money–you know, they call themselves job creators as if they’re creating the prosperity, but they’re not creating the prosperity, because what they’re getting is interest and economic rent much more than profits. They’re getting rich in an exploitative way, not in a productive way that helps the economy grow and raises living standards....
You don’t want to tax people building factories and improving living standards like the one percent pretend that they do, but what you do want to tax is unearned income, economic rent, capital gains....
What Piketty does not suggest is getting rid of regressive taxes like the FICA wage withholding that everybody has to pay that’s now more than 15 percent of their paycheck. This is a regressive tax. That should be gotten rid of.

But most of all, he doesn’t talk about the whole restructuring that’s part and parcel of this neoliberal revolution to privatization. He doesn’t criticize privatization. And most of this increased wealth by the 1 percent since 1980 is all taken–a result of privatizing the public domain–public utilities, things that–100 years ago everybody expected banking to be a public utility, roads, railroads, public transport, telephone systems, broadcasting systems. Now that these are being monopolized, the rich are getting their money by monopoly rents.
Michael Hudson
The 1% and Piketty
Jessica Desvarieux interviews Michael Hudson, research professor of economics at University of Missouri, Kansas City and a research associate at the Levy Economics Institute of Bard College


Dan Kervick said...

Actually, Piketty does devote some space to the impact of the transfer of public capital into private hands in Chapter 5 of the book. Privatization is one of the three main factors he describes to explain the growth of the capital/income ratio in the rich countries since the 70s. He also notes that this trend in the rich countries was, of course, part of a larger global trend in the privatization of public capital that took place following the collapse of the former Soviet bloc.

However, remember that what Piketty is doing is documenting, and seeking to explain the main causal factors underpinning, a general trend throughout the history of modern capitalism pushing in the direction of the inequality of wealth and incomes. He argues that the trend toward the more egalitarian distributions of the mid-20th century were a short-lived exception to the general trend, due in large part to the massive capital destruction caused by the wars, and is not overly interested in recent history as a uniquely important topic of concern. His orientation is to look for deep forces within capitalism itself that generate inequality, and in that sense the story he tells is more challenging than one that puts all the blame for income inequality on some uniquely rotten political decisions taking place just over the past few decades.

The last 100 pages of the book are devoted to the regulation of capital in the 21st century. Piketty's perspective is global, but focused primarily on capitalism as it exists in the richer, developed countries. He does not get too far down into the weeds about specific taxes in specific countries, such as the FICA tax, but a central concern is that the most important tax innovations of the 20th century - the progressive income tax and the progressive estate tax - are now under threat, and that any hope of counteracting the general capitalist trend toward inequality must start with moving back toward progressive taxation, including taxes that should be considered "confiscatory". His most radical tax proposal is for a progressive global tax on capital.

But he hints at the possibility of more radical political changes resulting in greater democratic control over capital:

More generally, it is important, I think, to insist that one of the most important issues in coming years will be the development of new forms of property and democratic control of capital. The dividing line between public capital and private capital is by no means as clear as some have believed since the fall of the Berlin Wall. As noted, there are already many areas, such as education, health, culture and the media, in which the dominant forms of organization and ownership have little to do with the polar paradigms of purely private capital (modeled on the joint-stock company entirely owned by its shareholders) and purely public capital (based on a similar top-down logic in which the sovereign government decides on all investments). There are obviously many intermediate forms of organization capable of mobilizing the talent of different individuals and the information at their disposal. When it comes to organizing collective decisions, the market and the ballot box are merely two polar extremes. New forms of participation and governance remain to be invented.

Recall that the book is not designed as some kind of political screed written for the political moment, but as an enduring piece of historical and economic analysis revealing deep patterns in capitalist society. You have to think of it as analogous to a book like Keynes's General Theory. That book was written refute some common theories about the determinants of wages and employment in modern economies, and to explain how economies such as the ones we live in could get stuck in persisting conditions of large involuntary unemployment. There are all sorts of exciting political suggestions and hints in the General Theory, like the account of the "euthanasia of the rentier", but the book was not a highly polemical political tract.

Tom Hickey said...

Yes, good points, Dan.

Critics take Piketty to task for for not being the something he never set out to be. His chief contribution is to point out that captialism is flawed, not the way that Marx thought, but in the opposite way. Marx reasoned that the Achilles heel of capitalism was a falling rate of profit and Piketty shows empirically that it is a rising rate.

Pikety also contradicts Schumpeter's view that the entrepreneurial spirit of capitalism will succumb to socialism through the expansion of the welfare state. Rather the issue is rentierism replacing entrepreneurial innovation as rent-seeking provides a higher return with less risk than productive investment.

In the end, the actual issue is the share that goes to those in control relative to the rest, whatever names one chooses to put on them. It's a power dynamic inherent in the construction of the social, political and economic system. Piketty seems to be pretty clear on that from what I can gather not having yet seen the book.

Chewitup said...

Paul McCulley gave a speech in Ireland last year where he described the dichotomy of capitalism and democracy.
Democracy is one person- one vote. Capitalism is one dollar- one vote. The trick is to find the happy medium.
"New forms of participation and governance remain to be invented." I would say these forms are there if the people who choose their representatives are incentivised enough to pay attention to what is happening in front of them. To that end, Picketty's book is very helpful.

Tom Hickey said...

Yes, the difference between John Jay's view that those who own the country should govern the country (propertarian republicanism) and Lincoln's "government of the people, by the people and for the people" (popular participatory democracy).

Politically, capitalism leads to propertarianism unless it is modified by egalitarian governance, laws and institutions.

The political challenge is reconciling the trifecta of liberty, egality, and community.

This is especially true when asymmetrical status, power, and wealth create privilege, generate institutional double standards, and enable rent extraction under the guise of merit and just deserts.

Peter Pan said...

"A book without solutions" suits the ruling class just fine. Hudson nails it. Time to move beyond Piketty, folks.

Dan Kervick said...

Bob, Piketty devotes over 100 pages to the issue of how to regulate capital. So it's just not true to say there are "no solutions."

Unknown said...

I was introduced to MMT a couple of years ago and have participated in a maverick MMT LinkedIn discussion group called MMTWorld (http://linkd.in/1rGHnfp). As someone interested in systemic thinking, I agree with MMT's description of fiat money but haven’t felt that MMT deals enough with the systems dynamic of “success to the successful” due to the wealth obtained from various economic rents, interest, etc. Systems models done by various modelers at the MMTW and a larger sister LinkedIn site Systems Thinking in Action tend to agree with Steve Keen’s analyses and also predict that wealth would be concentrated, based on simple math—an issue MMT seemed to ignore. (STiA site is http://linkd.in/SbE5XrI) Therefore, I wondered what “hard-core MMTers" would think of Piketty's book, which I believe shows deals precisely with that issue and shows that the real world fits the models(!). I was disappointed in Hudson's response, but agree strongly with Dan K and Tom H. Thanks to both of you!

Peter Pan said...

Dan, the excerpts you provided describe what has existed in the past. I don't think that is a solution.
A properly functioning democracy has all the tools necessary to regulate capital. The elites know this. Economic debates serve to obscure that fact.