Monday, August 25, 2014

John Mills — Is Piketty right, is growing inequality inevitable?

Reducing inequality is a complex task and will required a broad mix of reducing unemployment, increasing manufacturing jobs, lowering debt and cracking down on tax avoidance.
Open Democracy
Is Piketty right, is growing inequality inevitable?
John Mills | economist, entrepreneur and the Chairman and majority shareholder of JML (John Mills Ltd), an import-export and distribution company


Dan Kervick said...

Piketty doesn't say rising inequality is inevitable. In fact, he concludes the body of his book with 100 pages of discussion of policies to challenge inequality. Why do people keep repeating these things?

Unknown said...

As a point of logic.

It's generally accepted, is it not, that rising socio-economic inequality is not a phenomena of nature?

Therefore, hardly inevitable.

Rather it is product of humankind's constructed policies.

Then again, I am rarely characterized as logical.

Magpie said...

"Why do people keep repeating these things?"

Maybe they believe, but fail to express it, that Piketty's recommendations will be ignored.

Alternatively, they may believe that Piketty overestimates the power of his measures.

But I suppose it could be many other things, including garden variety stupidity.

At least, the author of that piece seems aware that there are recommendations.

James said...


That sounds right to me, the attempt to pass it off as natural is absurd. Poverty is always and everywhere a government choice.

Tom Hickey said...

The basic assumption of classical liberalism is that a market state, in which government only protects property rights and ensures security results in the most efficient and effective socio-economic system possible as an equilibrium state, given the tastes of the population and the technology and endowments available, based on natural forces that behave according to laws discoverable by introspection.

Of course, that's BS on the evidence since assumes that methodological individualism is grounded in ontological individualism, which it ignores the basics of sociology — that societies are complex adaptive systems subject to the effects of culture, class, institutions, power, etc., so that societies and their economies are affected by many factors that classical liberalism excludes by assumption.

Since classical liberalism favors special interests in an environment of interest politics, the conclusion is that classical liberalism and neoliberalism are special pleading aka propaganda.

Ryan Harris said...

"Dan Kervick said...
Piketty doesn't say rising inequality is inevitable"

No, he says,
“The second conclusion, which is the heart of the book, is that the dynamics of wealth distribution reveal powerful mechanisms pushing alternately toward convergence and divergence. Furthermore, there is no natural, spontaneous process to prevent destabilizing, inegalitarian forces from prevailing permanently."

Which is of course saying that rising inequality isn't inevitable in the same way that pulling a man through the eye of a sewing needle isn't impossible. Just takes alot of work, is very difficult and has many challenges. But he TOTALLY doesn't say inevitable. LOL.

Tom Hickey said...

What he is saying is that the fundamental assumption of marginalism — general equilibrium — is wrong on the evidence. There is no tendency to equilibrium at optimal distribution based on assumed laws regulating market forces. And he is doing in terms of a conventionally recognizable model and a published data base as evidence.

Basically what Keynes claimed to show and neoclassical economics denies.

Dan Kervick said...

Sorry Ryan, but I think you are missing the point. All he is saying is that there is no natural and sponatneous process that will prevent the forces from inequality from domianting the future.

But that leaves the wide open possibility that deliberate, political processes can thwart inequality. And indeed, the last 100 pages of the book are all about what kinds of political interventions might work. They include more progressive income taxes, taxes on wealth itself and new insttitutional innovations for the democratic control of capital.

These kinds of interventions clearly aren't natural and sponatneous forces of economic nature. They don't result from private enterprise and market exchange just being allowed to do their thing. They aren't a case of capitalism "self-correcting". They instead require deliberate political intervention into and interference with the institutions of a capitalist market economies.

But they are hardly fantasies that can only be accomplished with as much difficulty as passing through the eye of a needle. Many of these political institutions already exist in some countries, and even the US once had much more egalitarian tax codes. This is all definitely do-able.

Dan Kervick said...

Tom, it's not primarily about marginalism. It's not a question of whether the allocation of resources will be economically efficient, but whether the allocations of wealth and income will be very unequal or less so. Piketty is almost entirely focused on distributional economics.

Tom Hickey said...

Yes, but he is talking in terms of a model that neoclassical economists will deign to respond to, even if they disagree with his conclusions — instead of just ignoring him like that have Godley and Lavoie for instance because they don't recognize SFC macro modeling.

In my estimation, this garnering of mainstream attention is the chief contribution of Picketty. He is not saying much that others didn't say long before, and probably better — a guy named Marx comes to mind. But he is saying it in a way that the mainstream feels threatened enough to respond. The result has been that the conversation has changed.

Marginalism assume that allocation of resources under the operation of economic "laws" is not only maximally efficient and effective, but also the optimal level of distribution, so either inequality cannot exist or if some inequality exists it is the result of forces operating iaw economic laws of nature and cannot be improved upon without reducing the efficiency and effectiveness of the overall system, resulting in sub-optimal performance (read lower growth per capita, for example) in the long run even though inequality might be lessened for a time by political intervention in markets.

If PIketty were not seriously challenging conventional thinking, conventional "experts" would not be responding to him any more than they are responding to other heterodox economists.

Notice that other than Giles, the attack on the data has been rather muted. The attack is in terms of his assumptions — usually mischaracterized— and his prescription of a global wealth tax that even Piketty thinks is unfeasible politically.

Dan Kervick said...

No, no. It's not just re-baked Marx. Piketty has several important criticisms of Marx, including the big headline one: that the pre-tax rate of return to capital has proven extraordinarily resilient over time and is not doomed to collpase. Piketty is not preaching some doctrine of historically pre-determined "laws" and capitalistic "crisis". The only "laws" in Piketty are a couple of accounting laws, and the rest consists in the identification of various interacting forces and prevailing historical tendencies that can produce any of a number of outcomes, depending on political contingencies and the inherent unpredictability of the future. The predictions he makes are all conjectural extrapolations from observed tendencies.

There is definitely Marxist influence in Pietty, but also influence from Ricardo, Smith, Malthus and Kuznets. And the whole tradition of national accounting econometrics. And Balzac and Jane Austin are probably much bigger influeces than any of those economists.

Also, the mainstream model that he is supposedly using really only makes a brief appearance in Chapter 6, and in the paper he co-wrote with Zucman. For the most part, those portions of his discussion have led people wildly astray, and led them to ignore about 80% of the book.

OK, I give up for now. It's really mind-boggling the degree of distortion that comes up in connection with this book. I'm flabbergasted. Everybody seems determined to squash it into whatever pre-existing mental framework they already possess. And yet it's an extremely clearly-written book.

The problem facing Piketty is that almost all economics in the Anglo-American world these days is highly determininistic, ideological and rationalistic, and based on the incessant repetition of a small number priori doctrines from which large conclusions are deduced logically. There is empirical research, but it is only used to supply parameter values to the rationalistic models; it is not used as the fundamental basis for adducing the main regularities themselves.

Tom Hickey said...

Or course, you realize that this (faux) criticism of Marx is from neoclassical economists that don't actually read him or if they do, read him from their own angle, just like they read Piketty from their angle, and everything else, too. Nor do they read Smith or Ricardo closely either, or they would know that neither of them support their assumptions as they represent them as doing, or at least imply it.

Tom Hickey said...

The Laws of Motion of the Capitalist Mode of Production
Tuesday 30 December 2003, by Ernest Mandel

Magpie said...

Dan Kervick,

I find this discussion puzzling, rather ironic and even a bit disappointing.

Dan Kervick says: "The only 'laws' in Piketty are a couple of accounting laws"

I beg to differ. Piketty himself characterizes his first and second laws in quite different terms:

"It is important to realize that the law alpha = r × beta [i.e. first law] is actually a pure accounting identity, valid at all times in all places, by construction. ... By contrast, the law beta = s / g [i.e. second law] is the result of a dynamic process: it represents a state of equilibrium toward which an economy will tend if the savings rate is s and the growth rate g, but that equilibrium state is never perfectly realized in practice."

Piketty, Thomas (2014-03-10). Capital in the Twenty-First Century (pp. 168-169). Harvard University Press. Kindle Edition.

Dan Kervick says: "Piketty is not preaching some doctrine of historically pre-determined 'laws' and capitalistic 'crisis'."

I fully agree with you in that Piketty isn's preaching historically predetermined laws of crisis. In fact, he provides a list of factors that could change the outcome:

"First, this is an asymptotic law, meaning that it is valid only in the long run". (p. 168)

"Finally, the law beta = s / g is valid only if asset prices evolve on average in the same way as consumer prices. If the price of real estate or stocks rises faster than other prices, then the ratio beta between the market value of national capital and the annual flow of national income can again be quite high without the addition of any new savings. In the short run , variations (capital gains or losses) of relative asset prices." (p. 169)


What I find incredibly ironic is that in this (and we are in agreement on what Piketty did!!!!) Piketty is doing EXACTLY THE SAME THING Marx did.

Let's compare: (1) both men state a extremely long-run "law" (Marx's "the tendency of the rate of profit to fall" and Piketty's "2nd Law"); (2) both men specify a series of circumstances that could interfere in the development of the "law" (I mentioned a few days ago Marx's "Counteracting Influences", Capital Vol. III Part III, chapter 14; above I transcribed Piketty's verbatim).

Ah, but Piketty "is not preaching some doctrine of historically pre-determined 'laws' and capitalistic 'crisis'."

By implication, Marx is.

Does it sound like a double standard?

Peter Pan said...

They'll be responding to Piketty for the next 50 years, if we let them.