
Summers on Piketty - marojejian
http://www.democracyjournal.org/32/the-inequality-puzzle.php?page=all
======
nopinsight
The impact of technology on inequality is already quite pronounced in a number
of occupations. For example, many after-school teachers in Asia are now
outcompeted by star teachers enhanced by video and computer-aided teaching
platform.

> For example, I suspect we will soon see the rise of educator superstars who
> command audiences of hundreds of thousands for their Internet courses and
> earn sums way above the traditional dreams of academics.

This is already happening in Asia. A South Korean tutor makes $4 million a
year. A tutor in Thailand built and owned an 18-story tutoring center in a
downtown area.

[1]
[http://www.forbes.com/sites/jamesmarshallcrotty/2013/08/11/s...](http://www.forbes.com/sites/jamesmarshallcrotty/2013/08/11/south-
korean-tutor-makes-4-million-a-year-can-you/) [2]
[http://image.soidb.com/bangkok/zm/105100922_01.jpg](http://image.soidb.com/bangkok/zm/105100922_01.jpg)

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acr25
Ah, I remember summers on Piketty. The fresh seafood, the smores, the
fireworks. Ferry horns in the distance. And, oh yeah, the global wealth tax.

------
bsbechtel
Does anyone think his solution of a global wealth tax will actually help
lessen inequality? This solution seems simplistic and naive to me, and puts
those at the bottom of the ladder at the mercy of these 'global wealth tax
collectors' instead of the wealthy. I don't see much difference in these two,
other than one group is at the mercy of market demands, and the other is
supposedly at the mercy of a democratic populace. Correct me if I'm wrong, but
he didn't write anything about actually empowering those at the bottom of the
economic ladder, did he? Where are those solutions being offered up?

~~~
nugget
Read Tyler Cowan's critique of Piketty which was just published today. My
favorite bit is near the end, where Cowan reinforces that by Piketty's own
admission, the proposed wealth tax would shift up to 75% of national income to
the Government: ''Therein lies the most fundamental problem with Piketty’s
policy proposals: the best parts of his book argue that, left unchecked,
capital and capitalists inevitably accrue too much power -- and yet Piketty
seems to believe that governments and politicians are somehow exempt from the
same dynamic.''

I took a class from a famous economics professor who had emigrated from the
former Soviet Union after its collapse. He made the point one day that there
have always been rich and poor - and always will be. In America, the
predominant distinction is capital wealth - dollars. In the USSR, it was
political power; if you had political power, you had private planes, villas,
and servants. At the end of the day, the inequality is always present.

Link: [http://www.foreignaffairs.com/articles/141218/tyler-
cowen/ca...](http://www.foreignaffairs.com/articles/141218/tyler-
cowen/capital-punishment)

~~~
panarky
> there have always been rich and poor - and always will be

Yes, and Jesus said[1] "ye have the poor always with you."

Likewise, there will always be crime, and disease, and suffering.

But do you agree that extreme inequality is a bad outcome? That putting more
and more wealth and power into the hands of fewer and fewer monopolists and
oligopolists is toxic to democracy and freedom?

If so, then working to reduce extreme inequality is a noble cause just like
reducing crime, disease and suffering is worthwhile.

Even if these maladies will always be with us.

[1]
[http://biblehub.com/kjv/matthew/26.htm#6](http://biblehub.com/kjv/matthew/26.htm#6)

~~~
nugget
Let's say I live in a 1000 sq ft house and everyone else in my town lives in a
500 sq ft house; there is a certain level of inequality. Years pass, the
economy rumbles on, we invent new products and more efficient services, and
now I live in a 5000 sq ft mcmansion, and everybody else lives in 1000 sq ft
houses.

Inequality has increased, but the net standard of living has increased as
well. Objectively, everyone is better off. Of course, some people may feel
poorer because now they see the mcmansion on the hill and wonder why they
don't live in that level of luxury (which didn't even exist before).

Most economists seem to credit capitalism with the extreme advancements in
quality of life, even for the poorest citizens, in first world economies.
Sometimes the problem isn't inequality but envy and jealousy - I believe the
Bible speaks to these two emotions as well.

~~~
shiven
_... now I live in a 5000 sq ft mcmansion, and everybody else lives in 1000 sq
ft houses._

So what did you do so special that you get a 5-fold increase in your living
area and what did others do so wrong that they got a 2-fold increase only?

 _Sometimes the problem isn 't inequality but envy and jealousy - I believe
the Bible speaks to these two emotions as well._

The part that grinds on the human psyche is just a plain old sense of fairness
and justice. Why muddy it up with religion?

~~~
timtas
If I experience a 2-fold increase, and it's "grinding on my psyche" that that
someone else got a 5-fold increase, you can bet it's because someone with
something to gain is whispering discontent into my ear.

~~~
shiven
Or, I see the ever-widening gap with my own eyes? Not requiring the use of my
ears at all.

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carsongross
The elephant in the room, of course, is Mr. Summer's object of desire, the
Fed.

Until the Fed is dealt with and the financial sector is subject to true market
forces, it will continue to dominate the economy and produce destructive
malinvestment.

~~~
panarky
This seems to be the prevailing ideology, that all would be solved if only we
could achieve perfectly free markets, stripped of regulation, politics and
government influence.

This is a thought-terminating cliché[1] that either ends rational argument or
results in an evidence-free opinion war.

Naturally, ideology trumped argument here again, as a thread about inequality
gets hijacked by utopian economic balderdash.

[1]
[https://en.wikipedia.org/wiki/Thought_Reform_and_the_Psychol...](https://en.wikipedia.org/wiki/Thought_Reform_and_the_Psychology_of_Totalism)

~~~
carsongross
You are projecting: I don't think we need perfectly free markets.

I do think, however, that the Fed is the primary engine of economic inequality
and malinvestment, via a fairly straight forward mechanism: early receivership
of newly created money and allowing "too big to fail" banks to keep upside
while the public pays for the downside.

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elchief
Larry's opinion is irrelevant. If you call yourself an Economist, and missed
the bubble+collapse, you should resign, and stop talking.

"Summers oversaw passage of the Gramm-Leach-Bliley Act, which repealed Glass-
Steagall, permitted the previously illegal merger that created Citigroup, and
allowed further consolidation in the financial sector. He also successfully
fought attempts by Brooksley Born, chair of the Commodity Futures Trading
Commission in the Clinton administration, to regulate the financial
derivatives that would cause so much damage in the housing bubble and the 2008
economic crisis. He then oversaw passage of the Commodity Futures
Modernization Act, which banned all regulation of derivatives, including
exempting them from state antigambling laws."

...

"Rajan warned that this bonus culture rewarded bankers for actions that could
destroy their own institutions, or even the entire system, and that this could
generate a "full-blown financial crisis" and a "catastrophic meltdown."

When Rajan finished speaking, Summers rose up from the audience and attacked
him, calling him a "Luddite," dismissing his concerns, and warning that
increased regulation would reduce the productivity of the financial sector."

~~~
anigbrowl
I also disagree with Summers over these things, but lack of foresight in some
areas doesn't invalidate his opinions on everything else. Take it with a pinch
of salt, by all means, but he's not an idiot.

~~~
elchief
Would you go to a "good boat design" talk by the designer of the Titanic?

------
selmnoo
> So why has the labor income of the top 1 percent risen so sharply relative
> to the income of everyone else? No one really knows.

Really? Isn't this what the bigger half of the book is about? It's because of
rentier/patrimonial-capitalism, opportunity not being equally distributed in
the system, etc.

~~~
alexeisadeski3
Rentier/patrimonialic income is not labor income.

~~~
anigbrowl
It's not, but you're going to pay your fund manager a lot more than your
gardener even if both exert similar amounts of effort and skill (I picked fund
managers because they're notorious for charging a lot of fees despite their
inability to consistently outperform markets).

Or to take another example, suppose you're a lawyer. You'll be able to bill a
lot more money to rich clients than you will to poor disenfranchised ones,
even though the complexity and challenge of your legal work might be
identical. This is partly because people usually assume other people are all
utility maximizers; eg within the narrower cohort of criminal defense lawyers,
public defenders are generally considered to be inferior lawyers because it is
assumed that if they were sufficiently good, they would go into private
practice and make more money.

~~~
alexeisadeski3
Neither lawyers nor fund managers are rentiers.

~~~
anigbrowl
You missed the point. I'm saying rentiers bid up pricing in those professions,
affecting them indirectly. In the US, for example, there's a very clear
bimodal distribution in legal income between graduating lawyers who go to work
for large firms and who mostly do corporate law, and the others who don't. The
former pays more than triple the latter, so guess where most of the talent
goes.

[http://www.nalp.org/salarycurve_classof2011](http://www.nalp.org/salarycurve_classof2011)

------
timtas
A good analysis of Piketty by some real economists:
[https://www.youtube.com/watch?v=aL90pISm7Y8](https://www.youtube.com/watch?v=aL90pISm7Y8)

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alexeisadeski3
At a time when taxes are obscenely high - at least in the US - the discussion
should be of massive cuts, not new taxes. Alas, I am not optimistic. People
have suffered for _generations_ under horrific conditions. No reason it can't
happen here.

Or to be more precise: No reason it can't happen here again. Don't forget
slavery and Native Americans.

EDIT: Moved this from a sub post to here:

A lot of people are evidently misinformed about the state of US taxation.
Since several have responded to my previous post with similar statements, I'll
just take the top post and address the whole issue in one go.

1\. _The US has low tax rates relative to the rest of the world_

For low earners, yes. For high earners no.

Re low earners: Federal income tax is low, SS contributions are moderate, but
- and this is key - sales taxes (VAT) are extremely low, excise taxes on fuel
are extremely low, and import duties are generally extremely low. Car
registration, government fees, etc are all generally moderate to extremely
low.

Re high earners:

a) Income taxes are _extremely_ high. See
[http://en.wikipedia.org/wiki/List_of_countries_by_tax_rates](http://en.wikipedia.org/wiki/List_of_countries_by_tax_rates)
, sort by "Individual (max)", and note that only France, Belgium, Sweden, and
Aruba are higher.

b) Corporate tax is _extremely_ high. Note that many will correctly state that
some corporations are able to avoid some of the corporate tax. This is true,
though overstated if you only follow what the NYT reports. For domestic US
corporations doing business only in the US, their _effective_ corporate rate
will range between 35% and 45%, depending on their state.

e) Estate taxes. We pay 50% of our net worth upon death on all assets
transferred to our descendants. A truly morally repugnant tax, this one.
Passing on our advantages and earnings to our children is a great joy to many
people.

d) Tax enforcement is insanely strict. Prison sentences and hefty fines await
those who transgress.

e) We can't leave: American citizens pay tax to the US government even if they
reside elsewhere. If we give up our citizenship, we must pay the US government
between 30 and 40% of our net worth. The US is the only OECD nation to do
this.

2\. _US taxes are lowest they 've been since XX!"

This is true for low and middle earners, whose current tax rates are very low.
Not true for high earners. The US tax code is the most progressive in the
OECD.

The last tax reform was under Reagan. He traded high tax rates with lots of
loopholes for moderate tax rates with few loopholes. Since then, the few
loopholes have largely been closed (with exceptions, such as the popular
_middle class* home interest deduction) whilst rates have risen substantially.

See the wiki link above: top US income tax rates are the fifth highest in the
world.

3\. _Overall US taxation is low!_

As detailed above, the US taxation regime is the most progressive in the OECD.
But taxation is still not low. At 34% of GDP[1], it's higher than Canada and
only 5 points lower than the UK. 11 points less than France.

[1]
[http://www.usgovernmentrevenue.com/total](http://www.usgovernmentrevenue.com/total)

~~~
jonhinson
At what rate do taxes cross the threshold of being obscenely high?

~~~
tormeh
Well, American taxes are rather typical. A bit on the low side, but not much.
What is atypical is the very low return American citizens see on that tax.
Some of that is just because of high defense spending but the rest is a
product of a completely inane government. One could argue that given the rate
of return, American taxes are quite high.

~~~
alexeisadeski3
American taxes are far from typical: The poor and middle classes pay far less
than in Europe, for example. Whilst the rich pay more.

Note the lack of high regressive taxes such as VAT, excise, and import taxes
in the US.

~~~
tormeh
I meant in sum. You have a point, but those aren't really regressive taxes so
much as flat taxes.

~~~
alexeisadeski3
The poor spend a larger share of their income on items covered by VATs and
excise and import duties than do rich people. Conversely, rich people save and
invest a larger portion of their income. Point being that Europeans, who "see
more from the taxes they pay," are really just paying themselves.

~~~
tormeh
Don't most states have VAT? And are there really no import duties in the US?
Why would the US need free trade deals then?

Well, I'm pretty sure that there's more redistribution in northern Europe than
in the US. Sure, there's a lot of "paying yourself" going on, but that's
hardly everything. Anyway, my point is that in most industrialized countries
the mechanisms by which you pay yourself are much more efficient than in the
US.

~~~
dragonwriter
> Don't most states have VAT?

No, but many have sales taxes (which are not the same thing as a VAT, though
they serve a similar purpose; VAT's are collected at each step in the supply
chain, sales taxes only on sale to consumers.)

