Capital in the 21st Century by Thomas Piketty

Yes. High energy prices.

employers.

Employers.

Not necessarily, as demand is still lower in the economy than it needs to be. Inflation is extremely low. Too low. If inflation were to go about 4 or 5%, then the Fed can tighten up on interest rates.

It's worked to expand the GDP, and reduce inequality in the US and other nations. Businesses do well, and workers do well.

Pretty well in view of the small size of the stimulus and compared to the large size of the GOP economic failure.

The party mostly didn't say so. Economists did.

That hasn't been the case at all, as the conservatives saying inflation, and maybe hyperinflation, would come, yet never did. Their models, if they are using any at all, didn't take into account the economic conditions we're in, and instead only see it through their ideological lens. In normal times, your statements would be true. These aren't normal times.

Not always. As witness in the last 6 years, there's times when that rule of thumb is wrong.

Untrue, as workers who were idle are put to work. Materials and equipment are bought to build projects. And the workers of those suppliers and manufacturers are put to work. Revenues rise, and the spending pays for itself as the economy expands.

Again, economic history says you're wrong.

Yes, but he also wasn't opposed to multiple years of stimulus, if the conditions warranted. And as everyone knows, what should happen is often politically a heavy lift. Because the Democrats were afraid of the huge price tag, they balked, and went smaller than was needed. Still, as economists have pointed out, the economy would take even longer 5to recover, and deficits would be far higher, if we had not spent even a too small stimulus.

That, and it was only about 50%-60% of what we needed overall. The things it spent money on were going to take years of spending, particularly infrastructure spending.

We know that the spending is more effective than tax cuts, as it actually gets into the economy faster. While tax cuts focused on poor and middle class people is more effective than those targeted on the wealthy, the fact is that tax cuts have smaller spending multipliers than direct contracts or hiring using government dollars.

Again, because conservatives screwed the pooch by wrecking the economy, then screwed it again by yammering nonsense that stimulus doesn't work, Democrats lost their backbone to make the spending large enough and prolonged enough to get the economy back on track faster than it did. It's still better that they spent too little, as recovery is still far and away better and faster, with smaller deficits in the medium and long term, than anything Republicans have offered up. It's still Keynesian, in that the spending during downturns in economy reduces unemployment, and gets the economy growing again.

It works in real life. If it didn't, then I'd acknowledge its theory without known results. But, it has had known and has provable results, and most economists acknowledge the success of Keynesian policies. "High" taxes, would decrease investment. But we're in a low taxation nation for the developed world. Low enough, that spending is lowered by government, which winds its way through the economy and ends up back in the pockets of the wealthy.

Sure they do. When the people taking those jobs created by government spending on contracts earn a paycheck, they increase demand for goods and services. That in turn creates jobs in other sectors of the economy. The government runs a short term deficit that may be higher, but overall, as jobs are created and fewer people are receiving government help as unemployment lessens, and revenues increase at a faster rate, the government spending pays for itself. a larger economy means a smaller debt:GDP ratio.

The economic history and data say you're wrong.

There's nothing cruel or cynical about putting people to work and making the economy prosperous for more people. What is cruel is conservative attempts to sabotage the economy. Tax cuts still haven't put anyone to work since Reagan. And, as far as K-12 education goes, when the conservatives have sabotaged public education, hiding behind bull(*)(*)(*)(*) ideas like "local control" to teach things demonstrably stupid, like changing science to meet religious beliefs, or allowing schools to crumble and have far too many student:teacher ratios, then education will take a hit. We have models of effective education. And since the conservatives have pushed jobs overseas, the only way to stay out of poverty is for people to take on huge debt loads for college, and as you've pointed out, seeing a flood of graduates competing for smaller pieces of the pie.

You're confusing Keynesian capitalism with the Bolshevik experiment in Russia and the Maoist experiment in China. You're comparing sardines and oranges. And Adam Smith recognized the need for regulations in his day. Frankly, every successful capitalist society has had a) relatively high taxation on the wealthy b) relatively high social spending c) sees capitalists get much of their seed money or costs subsidized by government d) regulation on banking/finance and stock markets and more, to keep capitalists from destroying themselves by their own hand.

So, you're acknowledging that a US weak dollar is working for us, but not for say, Japan. I don't give a crap about foreign finance ministers in the least. If I was a German or Japanese finance minister, I might. I'm not. I'm an American concerned about American interests.

I'm bringing real world politics to you, and you're trying to counter it with ideology. Ideology never trumps reality and results.

 

You make repeated assertions that the history and the facts support your contentions. I'd listen if you backed up even one of your assertions. If you don't do so, I can only conclude your post is no more than partisan rhetoric. Your statements seem as familiar to me as mine must seem to you. Were this a purely speculative discussion, it would make little difference. But we're talking about the life of our country and its people, so this matters.

What I've said is grounded in both common sense and classical economics, not conservative politics. As you know, the broad public is unaware of economic ideas, and attempts to inject economics into political discourse are ignored. That's why nothing we're debating makes its way into Presidential politics. Candidates know they'd lose their audience if they tried. The danger is that political opportunists, as well as the deluded and the ignorant, can easily gain currency for false ideas that people want to believe - that employers and the government can enrich the people by spending without limit, that only the greed of a few stands between us and utopia, that the economy can indefinitely sustain most people consuming more than they produce, etc. It's obvious why millions of people wish these things were true, and how trumpeting these falsehoods helps pols get elected, but in so doing the pols work irreparable harm.

I'd like to invite you to pick just one of your many assertions in the last post and provide reputable data to back it up. I doubt you can do so. For example, I pointed out your error in asserting the US had a strong dollar policy, and your only reply was the evasion that patriotic Yankee Doodles like you were unconcerned with foreign finance ministers. I applaud your self-proclaimed patriotism, but that's beside the point of our de facto weak dollar policy. Again, I invite you to make a case for anything you said. You simply say you agree with everything the Obama Administration has done, overlooking the dismal result and the centuries-long history of progress by a capitalist America. My position is that we should do what has always worked. Your position, as I understand it, is that the Obamaites have a nifty theory, even if untried, and you won't let mere facts get in the way.

I repeat, show me facts to back up any one of your assertions.

 

The role of government is to protect the elite from competition and free markets and to steal from the poor and middle class and give to the elite. There has never been any government in any country in all of history in which this wasn't the case. Governments are created by the elite to serve the elite.

 

What follows from your position is that the form of government is irrelevant. Are you an anarchist? If not, you're inconsistent.

 

The role of government, made plain in the Constitution, is to offer equal protection of the law to all without favor.

In a democracy where political power comes from votes, ordinary people have the numbers. The populist, anti-elite, theme in US politics has been obvious at least since Andrew Jackson. If anything, it's the elite which must be protected from the greed and envy of the rest.

To repeat myself, the goal is equal protection of the law to all without favor. When Moi is ready to forget that, he sets aside the platform on which we all stand. If we live in a jungle where only power rules, what becomes of ordinary people? We must protect Bill Gates to protect ourselves.

 

We must protect Bill Gates to protect ourselves

No !

We must protect ourselves from Bill Gates
Protected from his excessive campaign donations that manipulate laws.
Protected from his descendants with Inheritance Tax on Excessive Wealth.
Wealth limited to a % of the nations economy.

Excessive concentrated wealth is damaging to the national interests. (Self evident)

Give it a listen ! Dare YOU. Not even 4 minutes.
[video=youtube;hphgHi6FD8k]https://www.youtube.com/watch?v=hphgHi6FD8k[/video]
​

Moi
Enforce the Sherman Anti Trust Act !



r > g
that's how bobov likes it

No ​

 

Mob rule is more dangerous than "concentrated wealth."

Bill Gates takes nothing from you or me. His wealth comes from what he's done for you and me.

You've shown the Long speech before. Still baloney. Because Americans gave the rich their wealth by buying from them. Hypocrisy to take back what you've freely given.

Also, Long's equality is unjust. If everyone gets the same, what happens to the link between what people do and what they get? The reason America is the richest country in history is that we let people earn money. Every other place, every other time, what people got depended on who they were, not what they earned. You may bleat about inequality, but no one has ever created more wealth. Rewarding effort is the basis of it all. If it ain't broke, don't fix it.

 

Of course I'm an anarchist. It's the only moral choice.

 

All government requires compromise between the interests of individuals and the community. If you insist that only individuals count, then all government is more or less oppressive. But human beings are social animals. We only live and thrive by the grace of others. All economies involve rule-bound social interaction. In theory, an adult could live in the wild solely by his own devices, without anything made by others - no clothes, tools, shelter, medicine, etc., except what that adult made himself. But that would be an inconceivably harsh and desperate existence. I'll set aside the obvious fact that children need adult care to survive. If people are necessarily social creatures, then their society needs rules, if only the rules imposed by practicality. So I concede that anarchy is moral, but only in theory, because it's unlivable.

 

Anarchy means "no rulers," not "no rules." Nothing that you said necessitates having a gang of violent thieves farming us as tax cattle, given just enough freedom to keep producing wealth for them to farm.

 

Good point, but how do you agree upon and enforce rules without some sort of governing body? I can't think of any society that's ever made it work, including jungle tribes studied by anthropologists. 18th century philosophers - Locke, Berkeley, Hume, Rousseau - liked to refer to Man in the "state of nature," but this state never seems to have existed.

 

If I was able to answer that question, that would be the best argument for a centralized governing body because that would mean we had the "correct" answer to how to run society. It's like asking someone in 1810, "Ok, slavery is wrong, but if we get rid of the slaves, who will pick the cotton?" If a person replied that cotton will be picked by giant horseless carriages that run on dinosaur juice, no one would believe him. We don't and can't know the best answer because a modern, stateless society hasn't ever existed, so any ideas would be pure speculation. What would happen is that all different answers would be tried on the market, and those that people preferred the most would become more widespread.

As an anarchist, I recognize that it's more important to get rid of great evil than to worry about how the cotton will be picked, or how society will run exactly. If I would speculate, I would think that on a free market, society would focus much more on preventing people from breaking rules than enforcing them. I would much rather not be raped in the first place than to be raped but see my rapist get punished. I think most people feel the same way, and the free market is good at aligning with people's preferences.

 

I agree that we don't have all the answers, and that the free market can make adjustments. But a sad fact of human life is that ordinary people are ill equipped to make decisions about basic behavior. They haven't the knowledge or temperament or ability or time. They fear the responsibility. So they prefer to be told what to do. According to the best social science, only a few people have genuine ethics; most just do as their neighbors do. That's why even democracy is really unpopular among a broad swath of the population.

More important, rules only work when most everyone knows and obeys them. A government can provide the clarity and uniformity people want, even at the cost of insensitivity to the needs of a few. Philosophers have always seen that laws are arbitrary and even capricious, but that they provided the predictability people need. Spinoza said that providing such predictability was the function of God in religion; Plato's "philosopher-kings" in his "Republic" did the same. Government and/or religion provide the illusion that we live in a controlled, safe, orderly, predictable world. Most people find that illusion necessary. It might be nice if man could stand naked but unafraid in an uncaring universe, but that has yet to happen.

 

Actually just the opposite is true. Most people are well equipped to make decisions about basic behavior. We live the vast majority of our lives outside the control of the government. The vast majority of disputes are handled voluntarily between individuals. And to say that government provides clarity and uniformity is to ignore the reality of what governments actually do, which is just the opposite. Governments say it's wrong to steal, and then they steal from everyone. Governments say it's wrong to violate each other's property rights, then they violate everyone's property rights. Governments say kidnapping is wrong, then they institute a draft and kidnap young men and force them to fight. Laws are not predictable because the government interprets them at will to satisfy whatever power lust they may have. New laws are made all the time which people have no idea about. The average American can easily commit multiple felonies in a day and not even know it. And it is governments which create the massive wars and genocides which wreak so much havoc upon the world. How can such an institution be said by anyone to make people think they live in a safe, orderly and predictable world?

Living without a government would not be standing naked in an uncaring universe. Government is not society. Doing away with government does not mean doing away with society.

 

And that is the problem with the rule of Law. The law is supposed to be a formal embodiment of the universal consensus of justice and laws that conform to this representation are universally recognized, even by miscreants who break them.

However, there are many laws that do not embody popular consensus but instead are enacted to impose some particular or peculiar vision of justice that is not universally subscribed.
Such laws are usually characterized as unjust oppressive imposition, a miscarriage of justice.

This is how rules and law become no longer the same thing.
Many people follow rules that they perceive to be just whether there is some law about them or not.
Many people ignore or rebel against laws that they perceive to be unjust.
Many people ignore justice and rules because their perception is that they only need to follow the law.
This has caused many people to just do whatever they want regardless of the law or the rules.

The biggest problem with society these days is the continuing divergence of acceptable personal behaviour from rules necessary for society to function and the primary cause of that is the gross perversion of the law and its functions for purposes other than insuring justice for all.

 

I'll note that you've not done anything but make assertions based in the fallacy of Classical and Neoclassical economics.

OK... Leaving the gold standard saw growth return, in part.
http://www.federalreserve.gov/boarddocs/speeches/2004/200403022/default.htm

Spending works better as stimulus than tax cuts:
http://www.imf.org/external/pubs/ft/wp/2009/wp09160.pdf

 

"Spending works better as stimulus than tax cuts:
http://www.imf.org/external/pubs/ft/wp/2009/wp09160.pdf"

The authors write " Fiscal expansions that rely mostly on measures to support government consumption are more effective in shortening the crisis duration than those based on public investment or income tax cuts. But these results do not hold for countries with limited fiscal space where fiscal expansions are prevented by funding constraints."

When the crisis began, the ratio of debt to GDP was 64.8% (not high); now the ratio is 101.53% (dangerously high). See http://www.tradingeconomics.com/united-states/government-debt-to-gdp So if a case could be made for spending in 2008, that same case can't be made now, according to the paper you cite. A preference for spending should not be unconditional.

Re the gold standard and GDP growth, we needn't consult Ben Bernanke, since primary data is available. Nixon took us finally and completely off the gold standard in 1973. In 1974, GDP fell by 0.5% and in 1975 GDP fell by 0.2%. (See http://useconomy.about.com/od/GDP-by-Year/a/US-GDP-History.htm) Growth returned in 1976, but obviously not as a result of leaving the gold standard three years before. Looking at a chart of real GDP growth (see http://www.multpl.com/us-real-gdp-growth-rate) the two things that leap out are that there's less variability than there used to be, and that growth has oscillated around 4% over time regardless of government policy.

 

That's not what the paper is saying. The US still has room to expand its revenues just with returning tax rates to pre-Reagan levels, and seeing the economy recover.
The debt isn't especially high when viewed in historical context. The US had higher debt:GDP ratios by the end of WWII. The UK, France and Japan have all had times in their history with debt over 225% of GDP. The UK and France both raised taxes and enacted austerity when the economy was recovered, like the US did from the 1940s until Nixon, to reduce the debt, at the same time they saw expanding economies produce more revenues.

the oil shocks happened at the time. There's no evidence ending the gold standard officially, after de facto abandoning it over 35 years previous, causing any of that. Gold standards are always a terrible idea as a form of currency in the modern world. The EU is living through a virtual gold standard with Greece, Ireland, Spain and others unable to float their own currency on an exchange against the euro.

 

While the idea of small differences in wealth and income is appealing, the question is how much we want to sacrifice to achieve that goal. Significantly weaken the incentive to be industrious and entrepreneurial by income tax? Distort the decision between spending and saving by taxing capital gains? Distort the decision of a company to keep the profits in the company or give it to the owners by dividend tax?

I'm quite unwilling to do those sacrifices (that mr. Piketty seems to favour). What I am willing to do is tax consumption of luxury goods at a higher rate than common goods and tax unearned income that comes in the form of inheritance. Of course also these taxes need to be kept reasonable.

 

All taxes distort economic activity by creating incentives for some economic activities and punishing others.
Where the current tax regime of incentives and punishments creates a situation where the incentives granted one sector of the economy generates consequences that end up punishing all other sectors, especially when those sectors are the ones that create jobs and provide income for a significant portion of the population, an imperative exists to redress this imbalance.

The US is suffering from the consequence of a 15% capital gains tax rate. At 15% it has distorted the entire economy by redirecting the national savings away from productive capital lending and investment and towards purely speculative market adventuring.

There is a lot of meritorious arguments for reducing the capital gains rate but those were made when it was 50-80%. A lot of evidence is arising that reducing the capital gains tax rate to below the income tax rate creates an economy that punishes business lending and capital investment while rewarding market speculation. This inevitably leads everyone, individuals and businesses alike to direct their excess income to the markets, where it is essentially sequestered from the larger economy, becoming unavailable for all other economic activity.

You think this is not true, that the markets shower money on the economy?
The aggregate figures for inflows and outflows of all speculative markets indicate that the markets permanently remove vast amounts of wealth from the rest of the economy and return next to nothing. On any given day the amount of money that leaves the markets is less than 0.0001% of daily trading volumes, which is between one half and one tenth of daily inflows.

Economic stagnation is often caused by too little money circulating in the economy. This is certainly the case for the US and EU these days. The central banks have pumped massive amounts of money into the "economy" but used mechanisms that placed it directly into the speculative markets, where it has stayed because capital gains taxes are too low to chase it into the wider economy.

It is a vastly unfortunate situation. Central banks massive cash injections are not working because there is no way to move the money into the wider economy due to politics preventing fiscal authorities from acting appropriately. Plus there is a lot of people who are many zealous proponents of completely wrong perspectives of how economies actually function, adopting them into their religious beliefs, making economics a matter of faith and belief regardless of reality.

 

I don't see quite how. Income is considered capital gains no matter if it's made by options (most speculative), stocks (less speculative) or by corporate bonds (least speculative, and what at least I would consider "capital lending"), right? And thus taxed at the same rate. Actually, in many cases (countries) "long-term" investing is favoured over "short-term" speculation when it comes to taxes. Can't think of any case where the opposite is true.

Again, how? I'll admit that it creates a situation where business-owners can lower their tax-rate below that of employees having the same income, by taking out money as dividends rather than wages. Is that fair or not? Well, it could be argued that entrepreuneurs are taking so much risk on them that favoured tax-treatment is justified. I, however, favour getting rid of both capital and income taxes in the long-term.

Are you referencing to the stock market by "speculative market"? If so, it's quite clear that the value of the stock market will grow. It's a aggregate of the value of large companies and these will grow if the world economy is growing, which it usually is. Bubbles are a problem, but I would argue that they are caused by a failure in central banking rather than a failure in the tax system.

Well, severe deflation (and inflation) is harmful. However, we've had low inflation during the latest stagnation (slightly too low than the central bank aims for, but I actually doubt that matters much).http://mises.org/daily/6709/Deflating-the-Deflation-Myth

 

No one who is buying and selling bonds and stocks is lending anyone anything unless they are buying original issues, which is a tiny tiny fraction of trading on those markets.

The low capital gains tax encourages business owners to take their profits as dividends instead of reinvesting the money to grow their company. Risk is relative, a Millionaire losing $100,000 on a failed business venture has risked relatively far less than the people who left a steady income elsewhere to join him and become entirely bereft when the venture fails.

Equity, bond and commodity markets do not reflect the underlying value of what is traded on them. What these markets reflect more than anything else is the amount of money in them. Price fluctuations are indicators of flows of money. Market price has almost nothing to do with the actual value of what is being traded. If it did oil would never have traded at $130 a barrel and Sears stock would never have been priced at half the value of its real estate holdings.

If the economy did not run on credit Von Mises might have a point but it does so his characterization is inaccurate at the least. In an economy highly dependent on credit and lending It is easy for deflation to go into spiral that does not return the economy to balance but pushes the economy into a state where it is unable to resume growth because so much wealth has been destroyed that there is nothing left to provide the investments and lending needed to grow the economy again.

 

That's true. However, the very existance of a market that you can easily sell those bonds or stocks in makes individuals more willing to do that original investment compared to if you had to keep bonds until maturity or stocks until the company goes bankrupt or bought up by another company.

In certain situations it makes sense to take the money out of the company. That is if the marginal return on capital from the company is less than in other investments with similar risk. The tax does not actually change this criteria, no matter how low or high it is, but knowing that individuals are hardly as rational as financial theory suggests, one might come to a different conclusion.

An example will probably enlighten: The return of capital in the company is 8% and outside it, in a company of similar risk 9%. The dividend tax is 25%. It will take about 31 years ( the natural logarithm of 4/3 divided by the natural longarithm of 1,09/1,08 ) for it to be profitable to take out the dividend and invest it in the company with the higher return on capital.

I myself try to profit from these situations when something is unreasonably cheap and am thus of course aware of their existance. However, to say that market price has nothing to do with the value of the underlying asset is an exaggeration. In most cases the price is at least somewhat reasonable. In the case of stocks for example the P/E value is usually between 10 and 20.

Well, in the link there was 100 years of history. I get the feeling that the view that deflation is very harmful is based on about 10 years of history (the Great Depression). Also curious how moderate deflation destroys wealth.

 

There is certainly nothing wrong with capital markets in their theoretical purpose of providing a liquid and transparent market for business and investors. However, when the market becomes the tail wagging the dog that purpose is subverted.

Return on capital is usually a medium to long term calculation for any business that plans on being around for any length of time. Return on capital for investors is a strictly short term calculation for most investors. Investors demand immediate growth in returns on their capital while companies need to retain and reinvest profits to insure medium and long term viability. This creates a huge problem for publicly traded companies and the landscape is littered with the wreckage of giants that had to sacrifice the long term to meet investors short term demands. GM is among the latest victims. US Steel was the biggest. If you ever see a company whose top management is Wall Street veterans watch out because they will reduce the company to nothing as they bury it in debt and sell off its assets in order to monetize its underlying value.

P/E is an idiotic short term snapshot measure of a company's supposed value and can change on a dime. Investors too lazy to do any real research think it is a smart way to justify their whimsical investment decisions. Small investors are far better off over the long term when they stick to low fee index funds for their investments.

We just had a period of moderate deflation. Median wealth in the US was reduced by a third.

 

Well, the value of a stock is typically defined as the discounted dividends. Dividends follow earnings closely, with some lag and may be a larger or smaller share of the profit depending on how much the company has profitable growth-opportunities. More mathematically: V = DIV / r-g, where V is the value of the firm, DIV is the dividend on the first year, r is the discount rate and g is the growth rate of dividends. r>g. From this we see that if the dividend yield is high (and thus P/E ratio low) the company is expected to grow at a slow rate. So using the P/E-ratio might be reasonable in trying to find relatively conservative investments in the stock market (of course one needs to look at several years, there might be a single earnings spike just that year). Numerous studies have also found higher yields on low P/E stocks, but needless to say that one needs to take into account other factors as well. And yes, index funds are more reasonable than stock-picking for most small investors.

Source, please.