Sunday, May 25, 2014

Piketty, Capitalism, and the new fight. . .

I have never had much time for the so-called "neo-conservative" agenda. I am old enough to remember when Milton Friedman entered into mainstream culture and I always found the arguments ridiculous. I don't think it takes much brain-power to understand that eliminating taxes on the rich and on corporations is not going to create jobs or enrich the general population. And in a context of increasing globalization I actually think the argument is less convincing. But thanks to a gradual corporate strangle-hold on the media the voodoo economics of the new right gradually became the default position of most of the political spectrum. It has only been the drastic and obvious increase in social/economic/political inequality that has really woken up many people to the real results of the new-right agenda. Then with the global economic recession of 2008 and the massive increase in the wealth of the richest while the majority were suffering badly, the real economic issues began to enter into mainstream discourse.

Now we have a new economic poster-boy in the face of Thomas Piketty, author of the meticulously researched Capital in the Twenty-first Century.  I think Piketty is a game-changer and here's why. Economists and activists have been warning for decades of the dangers of the new-right agenda. Many thoughtful commentators have pointed out that trickle down doesn't work (and let's face it, in the final analysis that is all the new-right agenda amounts to; make sure that the rich and the corporations have lots of money and the rest of us will get some), and many have even used analysis and statistics to demonstrate that income inequality is growing, innovation is slowing, and capitalism and democracy are suffering as a result. But Piketty is the first major, post-recession high-level economist to demonstrate through meticulous research with analyses decades of capitalist development, that inequality is an inevitable result of new-right policies and that inequality will significantly and rapidly increase unless capitalism enacts certain necessary reforms. From what I understand, what Piketty's argument partly rests on is a fairly simple formula that can be expressed this way - capital returns increase faster than economic development. Therefore as returns on capital increase exponentially, the more capital someone has the more they make and the less able they are to spend it and the less incentive they have to use it for development. This is by no means a revolutionary idea and in fact Karl Marx himself understood this when he talked about the concept referred to as the "relative impoverishment of the workers." Marx observed the same phenomenon and said that one of the results would be that the majority would become increasingly impoverished in relation to those holding the capital. And it did happen for a long time. But Marx, understandably, did not anticipate progressive taxation and huge state investments in education, two of the primary methods of decreasing relative impoverishment (or in today's parlance - inequality). And for a long time, it looked as though, at least at a national level, the force or tendency toward relative impoverishment, or inequality, would be mitigative by these two primary processes of state intervention. Then the new-right changed all that, and as they took control of the media they began to espouse this low-taxation, pro-corporate agenda. And because inequality had receded so significantly, many people had essentially forgotten the lessons of the socialists and social democrats (and, of course Marx) and the rich were once again able to begin to construct an oligarchy around their wealth and power. The reason that Piketty might be a game changer is that he is the first economist to gain a high, international profile in the post-recession era who has once again outlined how this process of oligarchy building takes place and how it is the direct result of less-progressive taxation, and decreases in state investment in education and other benchmark measures of quality of life and equality.

One need not be a Marxist, by any means, to understand the process of relative impoverishment, and creeping inequality. In fact, an increasing number of Capitalists are taking the problems seriously, including people at the World Bank (hardly a bastion of left-wing ideology). Because just like those who built the New Deal in the US, many capitalist are smart enough to understand that the building of a new capitalist oligarchy is a threat to capitalism itself.

Because of globalization, capitalist reforms will be more difficult in our era than they were in the past. This is because of the very simple fact that the rich can move their wealth so easily and that corporations can play nations off each other in what becomes a race to the bottom. But realization and understanding of a problem is the first step toward its solution. And I would contend that if those in power don't want another era of revolution and/or fascism, they will begin to see the need for a change.

In the election that is going on in Ontario at the moment we can see a microcosm of the cultural debate that is swirling around us. And for the first time in as long as I can remember people across the political spectrum are questioning the rightwing orthodoxy. When the Conservatives say that they will gut the public service and lower taxes for the rich and for corporation and that wealth will just "naturally" trickle down to the rest of the people, fewer and fewer believe them. After all, we have been lowering corporate and wealth taxes for forty nearly forty years now and the good jobs have been disappearing at the same rate. The relative wealth of the majority has been sliding for decades and the rich have been getting shockingly richer. Meanwhile even supposedly rightwing economic advisory groups have been beginning to point out that infrastructure investment is becoming painfully necessary, state investment in jobs wields much greater returns than "tax breaks," and income inequality is becoming a serious problem.

Make no mistake, this fight will take a long time. But I believe that Piketty has helped to open up a new front on what sub-commander Marcos called the Fourth World War.


Owen Gray said...

The strength of Piketty's analysis is his long view, Kirby. The Right now has quite a track record -- and it is appalling.

The Mound of Sound said...

Hi, Kirby. You might want to take a look at this:

Scotian said...

An interesting blog post and I thank you for it. I will have to make a point to get my hands on this book for a good read through. The underlying points and arguments you make in this post are lets face it nothing new to anyone who actually has a thinking brain and is not blinded by simplistic economic idiocy as defined by the insane right (or sad to say the extreme left, both wings to my mind are seriously delusional in this area) over the past few decades. There was a time when the term voodoo economics was used to describe trickle-down theory by the right against its own fringe, which also underscores just how much the situation has changed over the decades.

The smart capitalist understands that there needs to be a certain amount of regulation, a certain amount of redistribution, a certain amount of public sector investment and infrastructure development for long term sustainability of their own interests and wealth. The short term maximize all profit today and to hell with tomorrow thinking that has become so powerful is as much a threat to most capitalists as it is to the rest of us. The few it is not a threat to directly will in the end breed conditions so extreme that they were get a taste of the modern version of the calls for their heads as has happened in history time and time again when wealth and power becomes too centralized and imbalanced.

I've always been someone that believes in the mixed approach, because in certain respects capitalism really is a very useful tool for open/free societies, but it like all powerful tools needs to have safety protocols involved. Conversely allowing governments too much control/involvement over economics also has shown itself to end up in stagnation, which is why a dynamic mixed structure appears to be the best result. This is why folks like Warren Buffet have been going out of their way to try and stop the insanity before it brings ruin to them, because they recognize this reality.

We really need to return to thinking this way, both in Canada and more broadly. Hopefully this book and author/economist you cite will help in that. Good post!

Kirby Evans said...

Thanks for that link Mound.

The Mound of Sound said...

Scotian, Henry Ford, odious man that he was, knew that fundamental to mass production was the establishment of a mass market. To this end he paid his workers considerably above average wages, enough that they could afford to buy his automobiles. It was a strategy that helped transform America into an industrial giant.

As patrician Republican Kevin Phillips observes in his 2005 book, American Theocracy, with America's transition from a manufacturing economy to a FIRE(finance, insurance, real estate)economy that began during the Reagan era. A web of tax breaks and legislative enactments made investment returns far more lucrative than manufacturing profits and so industry, and the middle class jobs associated with it, were offshored. In the process, America did what every other once-dominant economy before it had done - it used its capital to grow its successor's economy in order to reap short-term wealth. Phillips traces how FIRE economies are brittle and, unlike robust manufacturing economies, often cannot rebound from recession.

A good companion book to Piketty's "Capital" (which I'm churning through at the moment) is Joe Stiglitz "The Price of Inequality" in which he chronicles how today's inequality has almost nothing to do with merit or genuine market forces and, in fact, results from legislative enactments such as tax breaks and deferrals, destructive trade policies, unwarranted grants and subsidies. In this way the American government has legislated the greatest unearned transfer of wealth in America's history - out of the middle class and directly into the bank accounts of the super rich.

Kirby Evans said...

Thanks again Mound. I have heard about the Stiglitz book, the body of work is growing. I wonder where the "tipping point" is?

The Mound of Sound said...

I don't have any answers, Kirby, but I suspect it will build gradually as seems to be happening now. The link I left to the Salon article is an interview with Pulitzer-winning journalist Johnston who foresees a violent resolution as almost inevitable. That's the sort of thing that usually ushers in a period of darkness.

Chris Hedges is also of the view that we may be headed for an outcome we will regret unless we get the Occupy idea revived and working.

Having studied the history of revolution, the expected result rarely is achieved. Well-intentioned groups may spark revolutions but, once they're on the verge of success, hard men often step in and take over.

Ron Waller said...

People should keep in mind it takes time for change. There will be no revolution. It took 30 years for the pendulum to swing this far right — and destroy the economy in the process. It will take time for it to swing back to the left.

But in order for this to happen we need a change in leadership. Over the past 30 years, the neo-con parties have brought in destructive tax cuts, which have caused huge deficits. But instead of undoing the damage, the "liberal" parties have cemented the destructive policies in place. This 'starve the beast' process has to stop or the pendulum will keep swinging further right.

The NDP is the only party that has the guts to cancel failed tax cuts for the rich. If there is any hope, it lies in their moderate, progressive centrism.

Kirby Evans said...

WHile I would generally agree with you Ron, I think perhaps history is not with that analysis. It seems that in most cases when a ruling class has become entrenched in wealth and power the way the global-rich have become, gradualism and centrism have very seldom taken hold. Rather, it seems that the ruling-class under these circumstances just further entrenches itself until they bring on violence. And it is often (perhaps usually) a disaster but it keeps happening anyway.

One other point, as I have said before on your site, I think that the NDP has become far too moderate until they have lost their way. But I guess time will tell.

The Mound of Sound said...

Well that's a relief. We have it straight from the boastfully self-proclaimed "non-partisan" Waller that there will be no revolution, just a tranquil reversion to the good old days. Sure, right.

A dedicated Dipper pitchman if there ever was one, Waller imagines a world two or three decades hence that must resemble the world pre-Reagan. It's just a matter of canceling failed tax cuts for the rich.

The world Waller imagines doesn't exist and hasn't for a good long time. Corporatism and the ruling oligarchy it inevitably spawns has taken hold.

Canada has ascended to the status of a petro-state, something Waller's cherished NDP embrace.

When the BC Liberals introduced a carbon tax, it was Waller's very NDP who railed against it. It wasn't until professor Andrew Weaver ran for the Greens in Oak Bay that the BC Dippers somewhat awkwardly turned all environmental before promptly scuttling what should have been their election victory.

In an ideologically shackled mind, such as his, clogged with simplistic notions it must be all too easy to see redemption and other magical wonders in the NDP. Fortunately most people can see straight through them.

Ron Waller said...

Mound you really need to chill.

I am a non-partisan swing voter. I've voted for/supported Chretien, Layton, Dion, Ignatieff, McGuinty, Horwath, etc.

I was a big Justin Trudeau supporter until he dumped ranked ballot voting and revealed himself to be a huge tarsands supporter. Trudeau also vows to cement in place Harper's $44-billion/yr in 'starve the beast' tax cuts.

Obviously 30 years of continuous tax cuts for the rich are having their toll. Canada ranks #23 OECD in social spending. Our Gini index is climbing. We have a $125B infrastructure deficit.

The only way to undo the damage is to cancel the failed tax cuts. They didn't create jobs or boost GDP & productivity growth. In fact, GDP & productivity growth have plummeted.

The NDP is now the progressive-centrist party. The Liberals are the red Tory Brian Mulroney Party. And the cons keep going further right. The NDP is the only party that can stop the inevitable train wreck.

The only ideological parties are the Liberals and Cons. They both embrace the free-market ideology that caused all our economic problems — including the 2008 financial meltdown we have yet to recover from.

The NDP is the only party that supports tax fairness. Piketty is all about reversing failed tax cuts.

The NDP supports carbon pricing. Your implying they are opposed to it is false.

To really go green we need big government spending instead of the pay-as-you-go conservative crap that the ON Liberals have foisted on the province. They gouge the little guy and dole out big corporate tax cuts to the rich. That isn't progressive. It isn't liberal.

The NDP are now where Peterson, Turner and Trudeau Sr. were — back when the economy was functioning.

I believe in the centrist Keynesian economic system. Whatever party is headed in that direction gets my vote.

Scotian said...

Ron Waller:

Nice in theory, but watching the federal NDP in action for the past few decades shows me that since the rise of Layton onwards that this is not the NDP of old, that it is not the NDP one could trust, and that they are more than comfortable with letting everything go to hell so long as their own narrow power interests get served.

As well, your comfortable belief in the pendulum swinging back over time is nice yet a massive assumption, but history does not actually tend to show that is what happens once the power and wealth starts to get this unbalanced in societies. No, what tends to happen instead are crisis after crisis which tends to spark off violent actions by those on the bottom, and violent overreaction by those with the wealth/power in fear of losing it. One of the few times that was kept relatively blood free was the first American gilded age and the depression decade that followed its collapse, and there was quite a lot of suffering and low level bloodshed during that period before the and during the rise of the "New Deal" policies that so changed things.

Sorry Ron Waller, I have to say that I am more in agreement with MoS than you on this one. Not to mention that you are assuming that the NDP are somehow less corruptible than the other parties once they gain actual power, but given their actions over the past decade in their quest to gain it I would argue to you that they have already proven they are as corruptible and untrustworthy as any other. I would also point out that the Harper CPC is unlike anything from prior parties and governments and to equate any of the other parties to them in terms of corruption and untrustworthiness is not a fair nor honest comparison.

It was after all the federal NDP who could have prevented this runaway nightmare in the first place, but supposedly because Martin did not give them enough on medicare they felt this result was better. Tell me again how the progressive agenda in this nation was better served by having Harper in power in either minority or majority versus the NDP gaining at least something out of a weakened minority Lib government again? THAT tells the rel truth about the NDP, not yours nice little theory.