CAPITAL IN THE TWENTY-FIRST CENTURY: EXPLAINS INEQUALITY

"Capital in the Twenty-first Century" by Thomas Piketty was in the news enough to get my attention.  It is not the sort of a book to read when you are tired or sipping wine.  It requires alertness to fully appreciate its value.  I was not able to devote my best attention to it, but feel it is truly monumental.  There has been some criticism, but most of it seemed very self serving by those who thought the status quo was very comfortable for them.  As I finished this book I watched "Inequality for All" that had a brief reference to Thomas Piketty and reinforced the material.

One of this book's advantages over other economic classics is that Piketty had access to much more information.  His focus was on inequality.  Piketty was able to detect patterns and of course exceptions that actually illustrate economic forces.  He believes before statistics were kept that capital income (such as land rents and investments) almost always grew faster than national economic growth.  The only exceptions occurred because of major events such as wars, revolutions and Depressions.  At some point inequality will incite rebellion.  Attitudes change, but history is too often forgotten.

He uses many equations that help you understand his argument.  One key one that any reader should understand simply means the rate of return on capital is greater than the rate of national growth.  Very seldom has that rule not been true and by itself helps explain how the rich constantly get richer. at the expense of common workers.

Slavery (i.e. treating some humans as capital) contributed a great deal of wealth to southern plantation owners.  The fact that it was dehumanizing was consciously overlooked.  The role of labour is too often diminished.

Europe before 1914 was more unequal than the United States, but they both reduced inequality as a result of the shocks between 1914-1945 and progressive taxation.  After the World War II equality actually increased, but by 1980 (when Reagan was elected) started to change to a more normal status.

Inheritance is a key factor in concentrating wealth.  Many start as entrepreneurs with smart thinking and hard work, but eventually they or their heirs become rentiers, i.e. using capital to generate the majority of their income.

Some politicians dismiss inequality discussions as just envy.  The people who deserve to enjoy the riches of life got there on merit and those others just weren't smart enough or worked hard enough.  Meritocracy is an ideal, but sadly the reality leaves much to be desired.  Many of us believe that theft, luck, timing all played key roles in many fortunes.  And what merit justifies the next generations living lives of luxury with little contribution to society?  Robert Reich in his film and many columns points out just how rich the rich are, something the masses are unaware of the extent.

One of Piketty's key recommendations is a Global annual progressive tax on capital, to be sure is more an idea.  Most people would not be required  to pay anything and the top rate would be something like 5%.  Requires a lot of global co-operation.  For a few decades nations have been competing to lower their rates and individuals and companies have been taking advantage.

Another contention from the author is that wealthy people should be helping to pay down the deficit by paying more taxes instead of enriching themselves by loaning money in the form of government bonds.




Piketty and Reich are not against capitalism or innovation or entrepreneurship.  We need incentives to encourage innovation, and hard work. Education has traditionally been the key to improving individuals as well as society, yet many rich people resent taxes going to improving schools or want to control what  and how it is taught.  Health care is another area where the rich begrudge the poor getting "free" care.  Much infrastructure seems unnecessary unless profit can be made directly.  Ironically many things that benefit most people also benefit those with more money.

I believe Piketty's work deserves more consideration. Reich makes too much sense for the main stream media.  Their messages are not endorsed by the 1%, but are critical to understand if civilization is to survive.

"FAIRNESS AND FREEDOM" Book Review

When my son, Michael recently moved to New Zealand to try his luck at getting a job this book got my attention.  In some ways it is one of the more profound books I have read.  Profound might be interpreted to mean they supplied me with notions that support my already established beliefs.  Perhaps so, but  not enough people have really thought out the issues of fairness and freedom.

New Zealand and United States are both open societies with much in common.  The American author uses a comparative study of the two to analyze what he sees as a significant difference.  In United States freedom is the underlying philosophy, while in New Zealand it is fairness.  Fairness sounds namby pamby to those who feel individual freedoms are the highest value of all, but freedom, not really understood can be perceived as selfish and short sighted.  Your freedom should end somewhere away from my nose and vice versa, but freedom lovers don't always appreciate that aspect of it.

Each concept has its faults, after all human nature is not conducive to restraints of any kind.  Envy, resentment, vengefulness, pride, fear and above all selfishness are normal human traits.  Harnessing those traits is a hard task if one wants to optimize civilization.

They were both English speaking colonies.  The United States gained its independence after a bloody war whereas New Zealand took a longer more legislative transition.  Americans fought the original inhabitants, known as Indians and pretty much subdued them.  The New Zealanders fought the Maoris who were more united, at least in language.   The Maoris managed to find a more decisive role in their society.

Land seemed endless in America, whereas there was a definite limit to New Zealand.  Land reform helped to stabilize affairs in New Zealand in 1891.  There was a much higher percentage of owner occupied land in New Zealand.  New Zealand abolished provinces in 1876 whereas United States is really a union of states with federal oversight.

From the beginning Americans felt the need for personal liberty, although they justified slavery. Over time the New Zealanders developed a concern for fairness although they abused the Maoris.

In 1920 New Zealand put restrictions on gun ownership.  Americans are very vocal about their gun rights under the Second Amendment.  Violent crime and imprisonment are much more common in America.

In 1893 New Zealand became the first nation to enfranchise women.  Women were better represented in the New Zealand Parliament than in most of the world.  In 1936 New Zealand was the first nation to broadcast Parliament.

United States adopted an electoral college in order to assure the smaller states they would have disproportionate influence, but often distorts what the majority of Americans actually want.  New Zealand adopted a proportionate voting system that many people (including myself) believe is more fair and better reflects what New Zealanders want.

After World War II,  New Zealand fought against the United Nations Security Council having vetoes wishing to give more power to the General Assembly.  They always seem to fight for peaceful negotiations.  Ronald Reagan was infuriated with their refusal to accept nuclear battleships on their ports.

After a lot of historical details of both nations the author summarized his thoughts on the two title traits. Freedom can be interpreted in many ways, but essentially refers to no or minimal restrictions on what a person can do.  In reality one person's unrestricted freedom runs up against another person's freedom.  One of the best examples deals with slavery.  Slave owners were adamant that they had the right to own other humans whose freedom obviously meant nothing.  Any law is a restriction on someone's freedom, but is often to protect others.

Tea baggers seem to resent taxes, and claim that the American Revolution was fought against taxation.  In fact the actual Revolutionaries were against taxation without representation.  After the Revolution taxes were increased as it was realized money was needed to maintain a free and strong republic.

Fairness is a restraint on freedom.  One person's unlimited freedom has to cut into the freedom of another.  How do we determine what is free and fair?  The author has a good perspective well worth examining.

Rich people in the United States sometimes are heard to say that poor people are just envious of successful people.   In New Zealand and other countries envy has been a problem.  Equal opportunities do not lead to the same outcomes.  There is envy that some people with talent or who work harder achieve more.  There are many people who feel entitled, some because of wealth and others because they want to receive more than they give.  Fairness would include people rising to the top of their talent and effort.

Democracy and freedom come with responsibility.  Part of the responsibility is to vote and not claim ignorance or claim choices are fraudulent.  Americans actually have a very low voting record and yet one party seems to think there are too many people voting.  Part of the responsibility is to recognize no one got their level of success without support from a wider community.  The next generation deserves as much support as our generation was given.

By the way my son did get a job teaching and seems very pleased with living in Auckland.