Waiting for Piketty

If I were home right now I could be at home reading Thomas Piketty's Capital in the Twenty First Century.  But I'm not at home.  So I have to wonder about the alleged argument of his book.  That capitalists make 4-5 percent on their money, but the GDP only increases 1.5 percent per year.  Therefore inequality.



Heather Wilhelm argues today that the fuss over Piketty reflects the frustration of the up-and-coming professional in a lefty city. She quotes David Brooks.

“If you are a young professional in a major city, you experience inequality firsthand,” Brooks wrote. “But the inequality you experience most acutely is not inequality down, toward the poor; it’s inequality up, toward the rich.”



Frustrated up-and-comers, he notes, mix and mingle with the wealthy, brushing elbows at cocktail parties, facing the constant indignity of having other people’s privilege shoved in their faces: “You wait in line at the post office,” he writes, “but they have staff to do it for them.”

Yes.  It must be insupportable to have to kow-tow to rich guys like Donald Sterling.



But I wonder what the Piketty thesis means.  What does it mean that capitalists are making 4-5 percent on their money?  What is the 4-5 percent compensating them for?  Is it too much or too little?  Or put it this way?  How much return on capital is economically necessary to yield 1.5 percent real GDP growth?  Return on capital is a tricky thing.  At one end it is the return on widow-and-orphan bonds, supposedly secured by bond covenants and collateral.  Those chaps don't deserve anything.  Right?  At the other end it is a reward for risk, taking a flier on an uncertain future.  How much is enough for that?



And that is to say nothing about whether we should do anything about inequality, let alone use it as a reason to give governments more money.



So I sit here and wait.  For the moment when I get to read what the New York Times calls "the big-think book of the moment."

A Word for Paul Ryan: White Women

Recently snarky BuzzFeed reporter MvKay Coppins followed Rep. Paul Ryan (R-WI) around as he worked to build outreach to blacks.



Yeah.  Whaddya know. Ryan was uncomfortable relating to black male convicts.  But when he went on to a lunch with businessmen he had all the one-liners down perfect.



I think it's wonderful that Paul Ryan, who is my idea of a worthy and principled politician, is trying to find ways of connecting to black voters.  It's not going to yield much in the way of votes for a long while, I'm afraid.



But there is something for more important out there for Paul Ryan to work on.  White women.  And I'll tell you why.



I attended a reunion at the consulting firm I used to work for up until 1996.  It was an engineering firm, and most of the folks there were practicing or retired engineers.  Salt of the earth guys, and all that.



But one thing hit me between the eyes.  I talked to some of the women there, technicians and assistants mostly, and a couple of them said they were "looking for work."



These are women in their fifties to sixties.  And they are looking for work.



Hello Obama economy.



Here is my advice to Paul Ryan and the Republican presidential contenders. Forget about the black vote for now.  Get to work on the white women vote.  Because white women are getting hammered, and I reckon they are up for grabs in 2014 and 2016.



What are these women thinking?  What do they think has gone wrong?  How can Republicans communicate the idea that government is not the solution?  How can Republicans gently shift them away from the idea that Hillary Clinton needs to be the First Woman President?



The problem is that women more than men are suckers for the liberal line in everything from the schools to the local news to the War on Women propaganda.  Women are more social; they are more conformist; they go with the program.



But we conservatives and Republicans are asking women to buck the local news, show the finger to cries of sexism, ignore their aggressive liberal women friends, and try something new and dangerous.



We are asking women to buck the collective consensus on women's victimhood that lets government take care of things.  Instead we want them to become responsible individualists and vote for small government and large people.



We want them to buck the idea that free contraception and unlimited abortion are the keys to women's liberation.



We want them to back away from government schooling, global warming, hyper-regulation of business, when all the government experts are telling women to go with the program.



How do we do that, Rep. Ryan?  That's far more important and necessary than a worthy -- and necessarily long term -- effort to find common ground with African Americans.

Telling it like it is: The Obama Purges

If we go back to the good old days of the Stalin Purges in the 1930s, what do we learn?  What made them different from just good old jailing of regime opponents?



After all, with modern police and incarceration methods, a repressive government can easily jail and disappear its opponents.  That's what the Argentine generals did to the lefty Montoneros back during their military junta days.  Argentine lefties are still complaining about it.



For Stalin, merely arresting his co-Bolshevik revolutionaries and disappearing them wasn't enough.  They had to confess.  There had to be a conspiracy against the father of his people, Comrade Stalin.  The heretics had to grovel before being tossed into the auto da fè.



So the Stalin Purges echoed the spirit of the Spanish Inquisition, another enforcer of orthodoxy.  Actually, in modern terms, the Spanish Inquisition was pretty mild.  It usually never got further than showing its victims the instruments of torture.  That was enough to get them to confess to horrible crimes and heresies.



When Barack Obama was elected as the United States First Black President many Americans thought that the long national nightmare on race was over.  We thought that the lion would lie down with the lamb and the race wars would be consigned to the dustbin of history.  We instinctively thought that the president would tell the race baiters to cool their jets.



In fact the opposite has occurred.  Whenever there is a race incident, from a black professor being stopped and frisked at his house in Cambridge, Massachusetts, or a black kid getting gunned down by a White Hispanic, or a rich sports-team owner spewing racial epithets at his mistress, the president steps in and amps up the outrage.



Now you would think that, fifty years after the end of government-sponsored racial segregation that we could draw a line under racism and say, look, there are a lot of white people that don't like black people.  But the fact is that they don't have political power.  There are laws to penalize racist acts.  Let's not get too overheated about what is in peoples' hearts and minds.



Government, after all, is not supposed to be worrying about hearts and minds, but the law.  That's what Janet Reno told us when the mood took her.



Forget government, it is religion that is supposed to worry about hearts and minds.



But our modern secular religions combine politics and religion into a single proto-totalitarian cult of the state.  Therefore in a modern secular liberal society, it does too matter what people are thinking.  And it does too matter that racist and sexist thoughts are swirling around out there.  It follows that they should be expunged, and that proper confessions should be made after people have been shown the instruments of torture.



President Obama has set a clear example to his co-religionists.  Heretics should be hunted down and publicly shamed.



With the example of their lightbringer before them, the followers of President Obama diligently search not just for criminal acts against the government of secular liberalism, but heretical thoughts against the gods of race, gender, and class.



Do they ever.



So we are justified in calling the present era the years of the Obama Purges.



President Obama and his supporters are eager to teach their ideological opponents a lesson.  Resistance is futile, they communicate in word and deed.



Maybe so.  But the problem with repression is that there are two responses.  One is to knuckle under to the new world order.  The other is to form a movement of resistance.  Some people conform; others rebel.



Which response will win out?

The Real Inequality Problem

Liberals are all worked up about inequality, and we know why.  They want more power.



Thus we can expect the argument for all liberal proposals to give liberals more power and control over the American people to be: Because inequality.



But there really is an inequality problem, writes Cathy Reisenwitz, and Republicans need to face up to it.  You can't just dismiss is as class warfare.  Otherwise the battlefield will belong to Democrats.

Googleing “income inequality” brings up a host of non-jealousy related reasons to care about it. One reason is that it hurts economic growth when the rich see their incomes rise but the poor don’t. The reason? The poor spend their extra wages, unlike the wealthy. Another reason is that income inequality hurts class mobility by making it more difficult for kids to go to college.

You can agree or disagree with those ideas, but people believe them.



I haven't read Thomas Piketty's Capitalism in the Twenty-first Century yet, so I can't comment on his idea that capitalist earn 4-5 percent on their money in perpetuity, while ordinary stiffs get back 1-2 percent because that how fast GDP growth works.  My copy arrives May 2.



But Piketty's reported solution is a laugher.  A global wealth tax?  So the Google guys will pay 1 percent of their wealth per year so politicians can spend it on programs rather than the Google guys on better software?



I don't think so.  Politicians spend money on their supporters, not on growing the economy to reduce inequality.



And really, looking at inequality without looking at the operations of government is clueless. (But then Piketty wouldn't have had the success he's had if he proposed to curb government!)



Let's enumerate a few ways in which government promotes inequality, while accepting the idea that the capitalists have an unfair advantage.

1. Social Security.  This is a government transfer program not a wealth builder.  Let's reform Social Security so that people have private accounts that they can pass on, tax-free, to their descendants.
   


2. Medicare.  This is a government transfer program that encourages seniors to consume excessive amounts of routine healthcare.  Let's reform Medicare so that people save in their working years for Medicare, and pay for routine health care in retirement out of their personal capital income.  Then they get to pass the residue on to their descendants, tax-free.
   


3. Unemployment, Workers Comp, Disability.  All these programs take money out of the hands of working people and give the monies to politicians.  Suppose people had their own personal unemployment account.  Then they could forego their right to long periods between jobs and get a new job quicker.  They would end up richer and could enjoy the capitalist income that the rich enjoy.  Then they could pass on their filthy lucre to their descendants.
   


4. Crony capitalism.  All the cool things that government does, from mass transit to renewable energy, benefits rich, well-connected supporters of politicians.  How unequal is that?

Yeah.  And so on.  So now let's just segue to Charles Murray, who is now too controversial to speak at Azusa Pacific University.  Murray has been writing the same book for 30 years.  First it was Losing Ground.  Now it's Coming Apart.  Murray makes the point, again and again, that the welfare state is really cool for the top 25 percent.  We 25% guys are educated, have cool jobs, stay married and send our kids to college.  But the further down you go, the more you are talking about government benefits and less marriage and less work and less community.



You wanna talk about inequality, you need to talk about the murrain that the liberal welfare state has sown among the poor.



But liberals don't want to talk about that, and they don't want anyone else to talk about it either.  Because inequality.

"Gross Output:" Does It Matter?

Today, Friday April 25, 2014, the federal government's Bureau of Economic Analysis produced its first report on "Gross Output" as part of its report on GDP by industry. It is a computation of the economy's output similar to Gross Domestic Product, except that it includes as output all the intermediary stages in the production of the domestic product.  You can find the data here.

Does it matter?  Economist Mark Skousen argues that it does.  In the Wall Street Journal he writes:

Why pay attention to gross output? For starters, research I published in 1990 shows it does a better job of measuring total economic activity. GDP is a useful measure of a country's standard of living and economic growth. But its focus on final output omits intermediate production and as a result creates much mischief in our understanding of how the economy works.

And, Mark writes, it corrects "the misguided Keynesian notion that consumer and government spending drive the economy rather than saving, business investment, technology and entrepreneurship."

OK, Good.  But what difference does it make to, e.g., usgovernmentspending.com?  I pulled up the first numbers from the BEA to take a look.  Right now, there are only numbers going back to 2005.  I hope that this will change.  Here's what you get.

Gross Output vs. Gross Domestic Product

Year	Gross Output $ billion	GDP $ billion	GO/GDP
2005	23517.2	13095.4	1.80
2006	24891.8	13857.9	1.80
2007	26157.2	14480.3	1.81
2008	26825.8	14720.3	1.82
2009	24655.2	14417.9	1.71
2010	26097.3	14958.3	1.74
2011	27526.9	15533.8	1.77
2012	28693.5	16244.6	1.77
2013	29667.2	16797.5	1.77

OK. That's nice. You can see that Gross Output was tooling along at 1.8 times GDP until the Great Recession, and then it retreated back to 1.71 in 2009.  By 2013 still hasn't recovered to its pre-recession relation.

So what does it look if you run a chart of federal spending over at usgovernmentspending.com?

Here's federal spending as a percent of GDP.

And here's federal spending as a percent of Gross Output.

What does it tell us?  Not much.  Maybe the Great Recession looks a little deeper with the GO numbers than the GDP numbers, but who cares?

What we really need is for the BEA to extend the data series back to 1930, like their GDP series.  You would think that  today's economy has more intermediary production than the economy of 1930.  But we can't be sure unless we get to take a look.

From "Because Exploitation" to "Because Inequality"

As I've studied Marxism over the last few years, I have found myself cudgeling my brains to figure out what the point was.

Eventually, I beat the answer out of my brain.  Marx admits that the bourgeoisie had conjured miracles of economic growth out of the ground.  But it was all going to end in tears.  Because exploitation.  The capitalists would secure a larger and larger share of the economic pie, and the proletariat would be driven to penury.  Because the capitalists would secure all the value added by labor, leaving merely a subsistence existence for the rest, including the middle class.

The point is that without the exploitation, the Marxians don't have an argument for revolution, for the seizure of political and economic power by the educated youth in the name of the working class.  So there must be exploitation, "naked, shameless, direct, brutal".

Today liberals are insisting we have a big argument about inequality.  And they are all over the moon over the new version of Capital.  It is called Capital in the Twenty-first Century by Thomas Piketty.  He argues that the income from capital is about 4-5 percent per year while the growth in the economy is only about 1.5 percent per year.  Thus wealth will concentrate in the wealthiest families without end.  As Scott Winship writes:

In other words, Piketty is suggesting that we may have entered a period in which concentrated wealth will produce a sort of inequality death spiral. With economic growth sluggish, and the returns to wealth high, owners of “capital”—land, housing, buildings, businesses, and other income-producing property—will receive a rising share of income as they re-invest their returns. 

So he is making exactly the same argument as Marx.  Marx argued for an exploitation death spiral and a progressive "immiseration" of the workers.  Therefore we should stop the rich cold with a revolution.

Piketty argues for an inequality death spiral and a progressive increase in the wealth of the 1%.  Therefore we should stop the rich cold with a global wealth tax.

There is a rather obvious conclusion to be drawn from both these theses.  Without exploitation and immiseration there was nothing for the Marxists to complain about.  Just shut up and let the railroaders make more railroads, the shipbuilders make more steamships, the Carnegies make more steel, the Rockefellers make more oil, and let the market take care of it.  Because, as it turned out, the workers eventually got to wield not spades and shovels, but powered backhoes and dragline excavators.

Without inequality and concentration of wealth there is nothing for liberals to complain about.  Just shut up and let the Googles and Facebooks and Apples get on with it.  Oh and don't forget Qualcomm.  They are the guys that developed spread-spectrum CDMA.  That's the technology that allows cellphones to work.  Back in the 1990s the settled scientists said CDMA violated the laws of physics.

Oh, and before we follow liberals into the inequality black hole maybe we should remember Nassim Nicholas Taleb and his Black Swan. On his idea, capitalists make their tidy 5 percent for years and years.  Until a Black Swan event completely wipes them out.

Or there is Stein's Law.  If something cannot go on forever, it will stop.

But one thing will go on forever.  Liberals will always need a "because" to justify their political power.

Military Socialist? Of Course It Is

Jonah Goldberg is not sure if Jacob Siegel is kidding when he applauds that the "U.S. Military is a Socialist Paradise" -- and sniggers that conservatives ought to be all confused about the institution we support being a poster boy for the "other" way of doing things, from subsidized childcare to universal health care.

But really, how little liberals know about conservatives and what we think!

Yes, of course the military is a socialist paradise.  That's because the military is all about force.  It forces its members to toe the party line, and it is the government's weapon for defending the country by force against foreign enemies.

Not to put too fine a point on it, the military is a single-purpose organization. Its job is to make war. All the members of the military are supposed to be focused upon the single purpose of preparing to make war on behalf of the United States government.

Such a single-purpose organization cannot have people going off doing things on their own account.  That is why it has to provide everything for them.  Even then, the military suffers from its Sgt. Bilkos trading on military supplies on their own account.  That's why Sgt. Bilko was so funny in the 1950s.  Everyone had run into a guy like Bilko in their time in the service.

But the military is not a poster boy for socialism.  It shows why the socialist idea cannot work outside a single-purpose organization.  The military is an engine for war.  Very good: that is what it is supposed to be.  But the trouble is that every other government program ends up being the Moral Equivalent of War.

Back in the day John Wayne starred as a civilian contractor militarized into one of The Fighting Seabees during World War II.  The Seabees built all those Pacific island airfields.  A major subplot in the movie was the difficulty of getting tough hard-nosed John Wayne to do things "the Navy Way" according to the bureaucratic book.

That's the way government does everything.  It sets up one single way to do things, usually for the convenience of the bureaucrats, and certainly to try to control the Sgt. Bilkos.  But it is ruinously expensive and ruinously unjust.

What about education?  Well, the problem is that millions of parents have millions of different ideas about how to educate a child.  But when the government does it we are all forced to send our children to government schools and our children get educated the One Way.  Originally it was the One Horace Mann Way; now it is the One Liberal Way.  So government education is irradiated with liberal initiatives like anti-racism, diversity, and positive self-esteem.  Conservatives can go pound sand.

What about health care?  There are about 170 million women in the United States and therefore about 170 million ideas on health care needs.  But Obamacare is all about reducing those ideas down to a single program.  There will be certain procedures that will be free, and certain procedures that will not be available.  And a bureaucratic committee, the Independent Payment Advisory Board, will rule over all.

The point about capitalism is that modern society is so complicated that the ukase of the local political boss and the formation of society into a single socialist collective under his control just cannot work.  What we find is that the market system, in its prices, wages, buying and selling, working and consuming, has spontaneously developed to coordinate the interaction of millions of acts and decisions of millions of individuals in the economy.

That's because a society does not have a single purpose.  It has millions of individual purposes that are facilitated and coordinated by the voluntary cooperation of millions of individuals.  Each person has her particular wants and needs that she wants to get from society.  But each person has his individual skills and abilities that he can contribute to society.

How do we coordinate needs and abilities?

It is in the nexus between needs and abilities that society happens.  In his Critique of the Gotha Program Marx confidently proclaimed:

In a higher phase of communist society, after the enslaving subordination of the individual to the division of labor, and therewith also the antithesis between mental and physical labor, has vanished; after labor has become not only a means of life but life's prime want; after the productive forces have also increased with the all-around development of the individual, and all the springs of co-operative wealth flow more abundantly -- only then then can the narrow horizon of bourgeois right be crossed in its entirety and society inscribe on its banners: From each according to his ability, to each according to his needs!

Well, yeah!  So true, Chuck old chap.  But every individual and every society is trying to do that, to convert abilities into the satisfaction of needs.  The question is what works.

The truth is that capitalism works out how to realize the Marxian slogan every day.  The whole point of Adam Smith's invisible hand is to helpfully direct each individual everyday in the best way to match ability and need.

In the military it is the commander-in-chief and under socialism it is the Forward Thinker in the educated ruling class that gets to decide what is a "need" and what is an "ability" and how the two are to be combined.

And the universal result has been death and destruction.  The military does that very well.