Thursday, May 1, 2014

Waiting for Piketty

If I were home right now I could be at home reading Thomas Piketty's Capital in the Twenty First Century.  But I'm not at home.  So I have to wonder about the alleged argument of his book.  That capitalists make 4-5 percent on their money, but the GDP only increases 1.5 percent per year.  Therefore inequality.

Heather Wilhelm argues today that the fuss over Piketty reflects the frustration of the up-and-coming professional in a lefty city. She quotes David Brooks.
“If you are a young professional in a major city, you experience inequality firsthand,” Brooks wrote. “But the inequality you experience most acutely is not inequality down, toward the poor; it’s inequality up, toward the rich.”

Frustrated up-and-comers, he notes, mix and mingle with the wealthy, brushing elbows at cocktail parties, facing the constant indignity of having other people’s privilege shoved in their faces: “You wait in line at the post office,” he writes, “but they have staff to do it for them.”
Yes.  It must be insupportable to have to kow-tow to rich guys like Donald Sterling.

But I wonder what the Piketty thesis means.  What does it mean that capitalists are making 4-5 percent on their money?  What is the 4-5 percent compensating them for?  Is it too much or too little?  Or put it this way?  How much return on capital is economically necessary to yield 1.5 percent real GDP growth?  Return on capital is a tricky thing.  At one end it is the return on widow-and-orphan bonds, supposedly secured by bond covenants and collateral.  Those chaps don't deserve anything.  Right?  At the other end it is a reward for risk, taking a flier on an uncertain future.  How much is enough for that?

And that is to say nothing about whether we should do anything about inequality, let alone use it as a reason to give governments more money.

So I sit here and wait.  For the moment when I get to read what the New York Times calls "the big-think book of the moment."

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