
Piketty’s Capital: Wrong Theory/Destructive Program - duncan_bayne
http://georgereismansblog.blogspot.com/2014/07/pikettys-capital-wrong_28.html
======
api
> Over the course of several generations, the US government has taxed away
> trillions upon trillions of dollars that otherwise would have been saved and
> invested and thereby added to the capital of the American economy.

I'm going to stop right there, because that's the problem.

If capital saved by the wealthy were invested in value-creating, productive
pursuits, there would be no problem.

The problem is that investing in value creation is hard. You have to play
angel or VC, more or less. You have to understand your domains, pick your
investments, do due diligence, etc. There's also a limited number of good
investments available at any given times. The best are either oversubscribed
or very difficult to recognize and require contrarianism... and contrarianism
is not a magic bullet either. Some contrarian investments are incredible,
while others are contrarian because they're bad.

It's _so_ much easier to invest in rent-seeking and debt issuance. It takes
far less time and far less domain expertise. It also generates -- at least in
theory -- more predictable returns. (The 2008 crash occurred when multiple
classes of rentier investments suddenly became unpredictable and did things
that violated model assumptions... like millions of mortgages defaulting in
unison.)

It's easier to invest in schemes to ratchet up real estate and commodity
prices to extract rents from the rest of the economy, or to simply lend money
at interest. The former has created phenomena like real estate rising while
wages are not. The latter has created a series of credit bubbles and a system
of debt-based indentured servitude.

At some point private savings seems to become a net social ill and lead us
back to feudalism. Or at least that's what things look like today.

Everything is going up except wages (across much of the economy) because money
is flowing into rent extraction, not industrial expansion.

Where is all this investment in new productivity?

P. S.

The most unrealistic thing about Ayn Rand is her depiction of businessmen.
Characters reminiscent of her heroes are so extraordinarily rare I can name
the ones I know of on one hand. The vast majority of "captains of industry"
more closely resemble her villains: short-term pragmatic influence peddlers,
boring bean counters who harbor a vague hatred for the genuinely creative,
political wheeler-dealers, second handers, sociopathic exploiters, ...

~~~
duncan_bayne
"I'm going to stop right there, because that's the problem."

... and in consequence you're going to repeat Piketty's assertions, which are
pretty much demolished in the article you haven't bothered to read.

Also, you're wrong in your description of Rand's portrayal of businessmen as
unrealistic. The majority of businessmen in Atlas Shrugged (and, in fact, the
Fountainhead) were as you describe: looters, second-handers, rent-seekers,
statists and sociopaths. The _exceptions_ were her heroes, who were as rare in
her novels as they are in reality today.

~~~
api
Everything is going up but wages, which are flat or falling in real terms, and
almost everyone I know is laboring beneath an insurmountable mountain of debt
with no hope of ever paying it off (since wages are flat).

What's wrong with this picture?

It's oddly and ironically Soviet... like back when the USSR's crops were
failing and yet Pravda proudly trumpeted ever-increasing crop yields. Those
who looked around and asked "then why is everyone hungry?" were dubbed loons
or worse.

So no, I'm not interested in yet another Pravda piece on rising crop yields.

If investments were being made in production, wages would be rising.

I suspect you find some "believers" left around here because the tech industry
is an _exception_. It's one of the few industries where substantial
investments in new production (vs. rent seeking) are actually being made.
Salaries in tech are therefore rising, or at least keeping up with inflation.
If that's you, good for you, but you are not normal in this economy and your
experience is no gauge of overall reality.

~~~
duncan_bayne
You're right about debt, but it's orthogonal to the essay. Re. real wages:

"The result is a steady rise in the productivity of labor, which continually
increases the supply of goods produced relative to the number of workers
producing them. The effect of this is a steady fall in prices relative to
wages, a fall which occurs even in the midst of an increasing quantity of
money and volume of spending great enough to raise prices; in this case, the
rise in money wage rates outstrips the rise in prices, with the result that
prices still fall relative to wages. In other words, the effect is a
continuing rise in real wages and the average standard of living."

I encourage you to read the whole thing, and consider that paragraph in
particular when evaluating wages vs. cost of goods, especially goods that one
could simply _not_ _obtain_ in the past.

~~~
api
> The result is a steady rise in the productivity of labor, which continually
> increases the supply of goods produced relative to the number of workers
> producing them. The effect of this is a steady fall in prices relative to
> wages

Huh? Where is this fall in prices?

Okay... I see it. It's in gadgets and manufactured goods. These are all things
people get paid wages to produce. Meanwhile food, fuel, real estate, health
care, and college tuition are exploding.

You know... the things people _need._

If you were going to extract rents, that's where you'd go... the things people
need... the things with inelastic demand.

Pay people less. Extract more rent.

But Pravda says crop yields are increasing, so I guess I'm crazy.

\-- Edit: here's my reply as HN won't let me post it:

I was once a Randian myself. I feel like I know what I'm going to read.

I began to question the faith when we allowed the top tier of society to
become astronomically wealthy and the promised age of wise captains of
industry and private sector innovation didn't materialize.

Instead we got the economic la-la-land we have now where rent and property
values are mysteriously holding at unaffordable levels as wages are falling
and everyone is in debt.

Granted, we have a few lights in the wilderness. Elon Musk is probably the
closest thing to a Rand hero I can think of... but wait... none of his
enterprises would exist without government assistance. SpaceX is being built
in close cooperation with NASA and with NASA and DoD funding. Tesla would have
gone under were it not for a very risky DoE loan.

He's an exception that proves the rule, I'm afraid. He also does not espouse
Randian ideology. Honestly most of the greatest captains of industry and
genius investors I know of do not espouse Randian ideology.

I have my own peculiar views on the subject:

I think capitalism and socialism fail for the same reason. I call it the "big
dumb money problem." It occurs when the concentration of capital exceeds the
intelligence of its owner/administrator(s).

It's pretty easy to see how this happens in pure socialist systems. The
initial round of investments made by a socialist bureaucracy are often pretty
good: roads, schools, hospitals, universities, power plants, etc. But then the
problems start. Those were all the easy, obvious investments. As they pay off,
the wealth they create coupled with the increasing difficulty of the next
steps forward creates a resource allocation problem that rapidly outpaces the
collective IQ of the bureaucracy administrating everything. It makes a series
of increasingly bad investments. Eventually the whole system collapses in a
blow-off of cynicism, ending with something akin to the Russian or Chinese
mafia states. (I have a brother in law in China. It is most definitely a mafia
state.)

Capitalism in its pure sense follows the same course when too much wealth
accumulates at the top. Individual capitalists rapidly find themselves in
possession of pools of money too large for them to possibly invest
productively. They solve this by delegating the problem to a financial
industry not terribly unlike the Soviet bureaucracies of socialist states.
This industry proceeds to make a series of bad investments (since it cannot
possibly comprehend the problem domains it's investing in) and quickly becomes
gun-shy, instead retreating from innovative investments and into the realm of
rent extraction. Rent extraction works _too well_ , causing yet more and more
capital to be concentrated into fewer and thus by definition _dumber_
(relative to the problem) hands. In the end it blows off a bit differently...
instead of a post-socialist mafia state you get a post-capitalist feudal state
a bit like the universe of The Hunger Games. Everyone has to go into massive
debt and pay rent forever, and class mobility and monetary velocity collapses.
Innovation stagnates.

The optimum is probably a hybrid, a system that permits private accumulation
of capital up to the limits of the cognitive horizon of those who hold it and
redistributes the rest to achieve maximum monetary velocity. The ideal --
probably not achievable since P!=NP -- would be something in which each
individual always held an amount of money equal to their knowledge re: how to
properly spend or invest that money.

Since again P != NP and the answers are probably not computable, we will
_never_ have the optimum. Barring theoretical breakthroughs that redefine the
problem, we will have to settle for bad as opposed to more bad. So I think a
system with mild progressive taxation spent in ways that improve the lot of
the majority is probably best.

~~~
duncan_bayne
No, you're not crazy, you just haven't read the essay that is the subject of
this thread ;)

------
mullingitover
> Over the course of several generations, the US government has taxed away
> trillions upon trillions of dollars that otherwise would have been saved and
> invested and thereby added to the capital of the American economy.

Yeah, maaan. I mean, aside from giving us clean water regulations, clean air
regulations, safe air travel, excellent roads, safe streets, access to
thoroughly tested medicine, plenty of food, safety from invading armies,
construction of dams and other large-scale engineering projects, world-class
education, GPS, the internet, and putting a man on the moon, what has the
government even _done_ with all that money?

------
Zigurd
_This blog is a commentary on contemporary business, politics, economics,
society, and culture, based on the values of Reason, Rational Self-Interest,
and Laissez-Faire Capitalism. Its intellectual foundations are Ayn Rand 's
philosophy of Objectivism..._

There are seriously that many Objectivists here?

~~~
duncan_bayne
/me raises hand

Of course, we all code in Objectivist C (
[http://fdiv.net/2012/04/01/objectivist-c](http://fdiv.net/2012/04/01/objectivist-c)
) ;)

But seriously ... I'm actually surprised that there aren't _more_ Objectivists
on HN. There's a strong anti-authoritarian streak here, with an emphasis on
rationality, independence and capitalism. Take a look at the list of
objectivist virtues (
[http://wiki.objectivismonline.net/Virtues](http://wiki.objectivismonline.net/Virtues)
):

    
    
      Rationality, Honesty, Integrity, Productivity, Independence, Pride, and Justice
    

That list describes a lot of people on HN.

~~~
Zigurd
Huh, I've got enough points, maybe I should do a poll of Objectivist,
Libertarian, Anarcho-capitalist, anarchist, Republican, Democrat, Socialist,
Communist, Green, etc. self-identification. Anyone I'm leaving out?

~~~
duncan_bayne
I like it :)

That said I'm not convinced that all of the options there are actually in the
same category; some are philosophies, others are political choices based on
philosophy. E.g. I know of Objectivists who vote Republican, and Anarchists
who vote Green.

Perhaps two polls: one for philosophy, one for voting choice?

 _Edited:_ I guess you could have one poll, & people could vote in two
categories? I've never set up a poll myself so I'm not sure.

