Wednesday, April 30, 2014

Thomas Picketty: Chapter 1

I am just starting to read Thomas Picketty's new book, Capital in the Twenty-First Century. He doesn't take long to signal that his book is going to include a lot of bad economics.

This is  from the second paragraph in Chapter 1:
[T]he question of what share of output should go to wages and what share to profits—in other words, how should the income from production be divided between labor and capital?—has always been at the heart of distributional conflict.
First, there is no "distribution" going on at a macro level in free markets, which is implied here by Picketty. This phrasing suggests some type of central planning must go on. But, this is not the case. In a free market economy, each individual (or group of individuals, e.g. corporations) make decisions as to how much they want to allocate their funds, some funds may go to savings, that is, capital, some may be held as cash balances and some, by individuals, may go to consumption.

Second, there is no "distributional conflict." All decisions are solved at the individual micro level.

There is an implication here by Picketty that too many funds can be allocated to capital (or possibly consumption). This is absurd, especially when considering capital. The more capital in an economic region, the greater will be that regions standard of living.  There are no conflicts. I repeat, all allocation decisions in a free market occur at the individual level, which makes distributional conflicts impossible. Individuals put their money where they want it to go, no conflict, no problem.

"What the workers must learn is that the only reason why wage rates are higher in the United States is that the per head quota of capital invested is higher."-Ludwig von Mises in Planning for Freedom: Let the Market System Work


  1. "What the workers must learn is that the only reason why wage rates are higher in the United States is that the per head quota of capital invested is higher." -Ludwig von Mises

    BINGO! And this is what most people REFUSE to accept. I'm sitting here shaking my head at the idiots who are arguing for their own poverty and enslavement. People...STUDY. THINK.

    1. Bingo indeed!

      So much capital was destroyed during much of the 20th century by the world wars, the advent of communism and fascism, and the socialist experiments around the world, that many relocated their capital to the US because it was relatively safer.

      However, now that there are more global opportunities for capital than in the past and there has been such a concerted attack on capital by the likes of the Federal Reserve, it should not be surprising to see real average earnings in the US stagnate as they have over the past forty years.

      None-the-less, as Mike points out, most people refuse to accept the truth of the matter.

  2. In the Marxian / Socialist / Keynesian steady-state economic model, profit is already reduced to zero, therefore no business, and no capital. Workers should just stay home, or mark their time while pretending to work, and consequently get pretend-pay in return . . . as it was indeed done in the former soviet experiment.

    1. Soviet Union and other socialist hellholes lasted as long as they did because they did have incentives to work - but these incentives were of negative kind. The charge of being a "freeloader" could land one in jail... and so "counter-cultural" artists and performers who were refused official designation had to work as street sweepers or night watchmen to ward off militia on the crawl for "idlers" and "freeloaders". (Boris Grebensh'ikov notably titled one of his well-known songs"The generation of street sweepers").

      In the more extreme, during the military communism of pre-WWII Soviet Union the charge of freeloading could get one shot - as is the failure to perform the officially prescribed duties at work.

  3. George Bush tried to add investment accounts to social security. So instead of having 15% of your earnings over your entire life taxed away and spent by the USG you would be able to invest a portion of that in a private individual account.

    Progressives screamed that it was too risky for working people to trust their retirement funds to "Wall Street" They deemed investment in capital too risky for the average guy. Now fifteen years later the return on capital outstripped their wage earning powers (and the powers of future workers who are supposed to support the retirement). Progressives scream now, capital investment is too good a deal (aren't you glad we saved you from that fate?) we need to tax more of that return away - for fairness.

    1. "Fairness".....the cry of the pathetically envious pricks who are too LAZY to make their own money. P-A-T-H-E-T-I-C. Trying to FORCE "fairness" on people produced 150 million corpses in the 20th century. As usual, brain dead and envious idiots STILL haven't learned.

    2. George Bush, or rather his handlers, tried to bundle investment accounts into SSI so that connected cronies could skim the easy and much increased portfolio management fees into their back pockets. Their plan would have done nothing to reduce the percentage forcibly taken out of each worker's paycheck.

      Progressives were correct to be skeptical, but for the wrong reason: they mistrust Conservatives, when in fact they should mistrust any option put forward by a politician that involves allocation or distribution of confiscated monies (but obviously Progressives have no problem with confiscation in general).

      A better option would be the gradual phaseout of SSI altogether. Allow workers to keep their earnings and invest them based on their individual time preferences, using whichever investment vehicles they determine to be their best option(s).

    3. My proposal for ending SSI is quite radical, but, I believe, conceptually interesting.

      SSI was from the beginning a giant Ponzi scheme. Therefore, I suggest ending it in the same manner that a bankrupt Ponzi scheme is cleaned up. First, all contributions in and payments out are immediately stopped. Second, a trustee is appointed to calculate the positive or negative net contribution for each SSI pigeon by taking the difference between what the pigeon paid into the scheme and what they have been paid back. Next, the trustee collects what they can from those who's net contribution are negative. Finally, the trustee would distribute whatever was collected to the pigeons with a positive net contribution, on a pro-rata basis.

      Of course, net contributors would only get pennies on the dollar and there would be many who would end up destitute without the ability to force new pigeons into the scheme. However, that is part of the point. The money is gone. It has already been spent. The capital has been consumed. The pigeons were fleeced the minute the contributions were made. The only solution to these problems is voluntary philanthropy and increased levels of savings.

  4. Freddie Mac to Start Filling Trailer Park Void Buffett Laments

    Want to buy a trailer park? Freddie Mac wants to give you a loan.

    The unit of the government-owned mortgage giant that funds apartment buildings is set to begin financing manufactured-housing communities, the company said in a statement today.

    The firm is broadening its reach in the multifamily segment of the housing market as it seeks to fulfill its mandate to provide affordable options for low-income families. The McLean, Virginia-based lender will work with established companies in the industry across the U.S., said David Brickman, the head of multifamily operations at Freddie Mac.

    “It’s rounding out our ability to touch the affordable housing space,” Brickman said today in a telephone interview. “Manufactured housing is a big piece of rural affordable housing.”

    Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc., lamented the punitive rates charged to purchase factory-built homes in his 2009 annual letter to shareholders. Berkshire owns Clayton Homes Inc., a builder of manufactured housing.

    Without funding from Fannie Mae and Freddie Mac, owners of manufactured-housing complexes are forced to pass on higher debt costs to the families they serve.
    Multifamily Properties

    next stop, Nigerian shanty towns.