Piketty and His Critics Chapter 2 and Let’s Keep FDL Up
One of the great things about FDL for us contributors is the freedom we have to write about things that really interest us. In my case, that means I get to write about both the theory of economics and the financial and business sector’s exploitation of those ideas, from a progressive perspective.
Recently I’ve been reading Capital in the Twenty-First Century by Thomas Piketty, and a bunch of the critics. I finished my Sunday post on one such critic in draft form on my home computer, and tried to log on to the site to finish. I got the “Service Not Available” prompt. I immediately emailed Ellie Elliot, our super editor, and asked what was happening. It was a DDOS attack, she said, and we were down.
We must be doing something right if we are being attacked, but it isn’t much fun for the writers. Eventually I had to ask Elliott to post for me so I could go play with my house guests. That sucks. More important, it runs up our costs, which means we have to do a fundraiser. I hope you’ll be able to help us by chipping in on our fundraiser.
I like to think that we make a difference by criticizing the arguments of the pretend intellectuals who support the neoliberal view of the universe, namely that the rich deserve all the money they can steal. That includes one of Piketty’s critics, Kenneth Rogoff, a Harvard professor and the best known supporter of the theory that the US should practice austerity in the aftermath of the Great Crash. Rogoff and Carmen Reinhart put out a paper in January 2011 purporting to show that when national debt exceeds 90% of Gross Domestic Product, economic growth falls off a cliff. Wrong, because they screwed up data entry into their spreadsheets; wrong because they got causality in the wrong direction; and wrong because they used it to justify austerity when it flatly didn’t.
So Rogoff decides to write from his tenured perch in the Economics Department at Harvard where he proudly displays the 2011 Deutsche Bank Prize in Financial Economics, to write about Piketty’s book in an essay entitled Where Is the Inequality Problem? Rogoff argues that there is no increase in inequality worldwide, because of giant gains in other countries. So what, he says, if inequality increases in wealthy countries.
And then the sneering blow: Piketty’s book does not offer a model. Why does this matter? According to Mr. Spreadsheet, you need a model to know what policies offer the most hope for improvement.
Rogoff then tells us that either things will get better by themselves and the labor share of income will rise, or automation will put enormous downward pressure on the labor share, and the rich will become infinitely richer. See? That’s what happens when you have a model: you get the answer you want from the model you created to produce it.
But the solution is simple, my friends: a consumption tax will do the trick, says the good professor. A consumption tax will reduce the past accumulation of wealth, he says. That makes it clear he didn’t read Piketty’s book. Everyone knows the rich don’t consume all their income, they plow it back into their already grotesque piles of capital. Piketty says that is a major reason that their wealth spirals upward, especially when coupled with ridiculously low taxes on unearned income, which Piketty acknowledges, and tax evasion, which he doesn’t.
Rogoff offers more of the standard baby steps approach to systemic problems that we’ve come to expect from the do-nothing crowd. And I’m sure he also supports banning plastic bags to stop global warming.
He concludes with this amazing paragraph:
In accepting Piketty’s premise that inequality matters more than growth, one needs to remember that many developing-country citizens rely on rich-country growth to help them escape poverty. The first problem of the twenty-first century remains to help the dire poor in Africa and elsewhere. By all means, the elite 0.1% should pay much more in taxes, but let us not forget that when it comes to reducing global inequality, the capitalist system has had an impressive three decades.
Rogoff doesn’t give us a model to explain how you and your kids being unemployed or underemployed and in debt up to your eyeballs made all those Chinese and Indians richer. In his tiny brain, the economy is a zero-sum game, but somehow the filthy rich do better in every country in every era, which is how it should be so shut up shut up.
FDL gives me a place to write about the people whose bizarre ideas poison the minds of our fellow citizens; and a place to vent some of the personal hostility I feel when I see this garbage reflected in public policy. I hope you can contribute to keeping us working.