Wednesday, May 21, 2014

Piketty: Anti-Piketty

The "social state" in in a bit of a jam in the aftermath of the Crash of 2008, because public debt in the rich countries is sitting at about 100 percent of national income, according to Thomas Piketty in Capital in the Twenty-First Century.  The best way to pitch out of the jam is to assess the rich 15-20% of their wealth and pay off the debt.  No problem because private wealth is about six to seven times national income.

So Piketty's #1 bestselling book is not really about capital in the 21st century.  It is about getting the project of the global educated ruling class out of the ditch.  Because if the governments have to cut back on benefits, a policy called "austerity," then the poor would pay for the follies of their rulers, and that would never do.

Let's rehearse Piketty's argument backwards, from the goal of his argument back to his premise.  Because, like most things in this world, it is the end that justifies the means.

  1. A progressive tax on capital is the right way to reduce or eliminate rich country public debt.
  2. The heavy public debt is the fault of capitalism run amok in the 2000s and wise government policy to prevent another Great Depression.
  3. Something must be done else the "social state" won't be able to deliver education, health care and pensions.
  4. The richest capitalists can afford it because the capital/income ratio is over 6 in the developed countries.
  5. Tapping the rich is a good idea because wealth inequality is spiraling out of control.
  6. Wealth inequality is spiralling out of control because r > g (r = rate of return on capital greater than g = rate of economic growth) and the rich save a chunk of their income.
  7. So a progressive tax on capital would be a good thing, because inequality.
  8. But first we need a "financial cadaster" of all private wealth so governments know who owns what.
There is in Thomas Piketty an almost sweet naivete that assumes the modern educated class's right to rule, that assumes the moral authority of the authoritarian welfare state, that elides the fundamental fact of government, that government is force.  If there's a problem, such as poverty and ignorance in 1900, then the solution is to force everyone to contribute to a government program of education, health care, and pensions.  If there's a problem of sky-high public debt in 2014, then the solution is to force everyone to pay down the debt.  But first we need to know exactly what everyone owns so we know where to go and get it.

Why is this?  Because the only thing government does is force, government is forever looking for a project that requires force.  Thus everything it does turns into a war.  So the solution to the public debt crisis is a war on wealth.

Let's go down the list of Piketty's assumptions and deal with them one by one.

The large public debt. If you ask me there is only one reason for a government to get into debt: to fight a war.  For government to get itself so indebted in peacetime is a failure of leadership.  What if there were a real war?  What would we do then?

The crash of 2008. Piketty says that governments did a good job in the recent panic.  I say they flunked.  First of all, if central banks are supposed to be "lenders of last resort" then how come Lehman Brothers was allowed to fail?  Second, the same thing happened in the 1929 crash only the bureaucratic bunglers at the central banks were even worse.  That's because it was the political hacks' first try at a big panic since the creation of the Federal Reserve and they whiffed it.  Third, the cause of the crash was not Wall Street speculation or government regulation but US government policy that hosed cheap mortgage money at overleveraged sub-prime borrowers.  Imagine: after the music stopped there were trillions of mortgage debt on which: a) many borrowers couldn't pay and b) the collateral couldn't pay off the loan.

The social state is not social.  It is compulsory.  It is force.  I would say that the education of little children should not be conducted under the color of government force.  I would say that health care should not be parceled out under the color of government force, except basic public health questions like sanitation and clean water and quarantine and vaccination that keep our cities safe.  I would say that people should save for their own pensions, because the intergenerational solidarity of people saving so that they can create jobs for the next generation is higher and nobler than the intergenerational solidarity of the welfare state in which seniors vote to tax the next generation and force them to pay for their parents' pensions.

Wealth inequality.  Piketty believes in the Marxian fallacy that wealth increases by saving and accumulation. E.g., r > g. No it doesn't.  Wealth comes from innovation and surprise.  A guy invents a steam engine; pretty soon poor people can afford to cross the oceans in steamships.  A bunch of guys develop horizontal drilling and hydraulic fracturing for oil and gas wells.  Pretty soon they have transformed the global energy equation.  But when people don't innovate you get the world from 0-1500 AD.  No innovation.  No wealth "accumulation." No growth.  Stagnation.  The way you get rich in that world is by conquering other peoples' land, enjoying the lamentation of their women, and putting the peasants to work.

Financial cadaster. Thomas Piketty, like many in the ruling class, is disturbed that capital can flow to where it's most welcome, and he hates the tax competition between nations that has led to a race to the bottom.  The solution for him and his pals in the global ruling class is to create a financial cadaaster, a government database of all personal wealth: who owns it and where it's located.  Only then, he argues, will policy-makers have the tools to respond to crises like the Crash of 2008 and the Greece sovereign debt issue and the Cyprus bank meltdown.  But this is nothing new.  Governments have always wanted to make their subjects "legible."  It makes them easier to tax, to control, and to conscript.  And it gives the ruling class the tools it needs to paint an aesthetically pleasing state-scape.  See Seeing Like a State: How Certain Schemes to Improve the Human Condition Have Failed by James C. Scott.

Thomas Piketty's book has been received in certain liberal and lefty circles as a gift from the gods. Here at last is a cogent argument for the fight against inequality.  And so it is, if you want to go to war over inequality.

But the brighter lights on the left know that there is a problem with all this:  Domination.  If the only response to every problem is to call for new measures of political domination, then you must be missing something.  Horkheimer and Adorno realized this in Dialectic of Enlightenment.  They wrote:
What men want to learn from nature is how to use it in order wholly to dominate it and other men.  That is the only aim.
The problem with everything on the left from Marx to Piketty is that they cannot think of any response to domination except counter-domination.  But there is another way.  It has been developed, of all things, by a lefty, J├╝rgen Habermas.  His solution to the problem of domination is to balance domination with communication.  He imagines two worlds, systems world and life-world.  Systems world is the age-old battle against the world for food and shelter. Life-world is the social world of human-to-human communication and cooperation.  The beginning of a shared life-world is language, of which Wittgenstein said: there is no private language.

When I look at the world using Habermas's ideas, I see that the "social state" of Thomas Piketty is not social, because it is a bureaucratic hierarchical state of command and control.  It is the compulsion state.

There has to be a better idea.  There is. Start here: The Crisis of the Administrative State.


Part One: Income and Capital

Income and Output | End of Growth

Part Two: The Dynamics of the Capital/Income Ratio

Changes in Capital | New World Capital and Slavery

Capital/income Ratio in the Long Run | Capital's Share of Income

Part Three: The Structure of Inequality

Inequality and Its Concentration | Two Worlds: France and the US

Inequality of Labor Income | Inequality of Capital Ownership

Merit and Inheritance in the Long Run

Global Inequality of Wealth in the 21st Century

Part Four: Regulating Capital in the Twenty-First Century

A Social State for the 21st Century | Rethinking the Progressive Income Tax

A Global Tax on Capital | The Question of the Public Debt

Conclusion: Anti-Piketty

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