Waar ligt het ongelijkheidsprobleem ?

May 8, 2014 Kenneth Rogoff

CAMBRIDGE – Wanneer je Thomas Piketty’s nieuwe invloedrijke boek Capital in the Twenty-First Century leest, zou je kunnen concluderen dat de wereld niet zo‘n ongelijkheid heeft gekend sinds de dagen van roofbaronnen en koningen. Dat is raar, omdat je uit een ander uitmuntend nieuw boek, The Great Escape van Angus Deaton (dat ik onlangs heb besproken), zou kunnen concluderen dat de wereld gelijker is dan ooit te voren.

Welke zienswijze is correct? Het antwoord hangt er vanaf of je alleen naar individuele landen kijkt of naar de wereld als geheel.

Het overkoepelende feit in het boek van Deaton is dat de laatste decennia meerdere miljarden mensen in de ontwikkelingswereld, vooral in Azië, zijn ontsnapt aan zeer wanhopige niveaus van armoede. Dezelfde machine die de ongelijkheid in rijke landen heeft vergroot, heeft mondiaal voor miljarden het speelveld eerlijker gemaakt. Van veraf bekeken en als je, laten we zeggen, een Indiër het zelfde gewicht geeft als een Amerikaan of Fransman, vallen de laatste 30 jaar onder de beste in de menselijke geschiedenis wat betreft het verbeteren van het lot van de armen.

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Kenneth Rogoff

Writing for PS since 2002
207 Commentaries

Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003. He is co-author of This Time is Different: Eight Centuries of Financial Folly and author of The Curse of Cash.

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Luis R. Sanint Apr 30, 2015

The progressive tax on wealth is far easier to implement than the income tax. Piketty stresses that point. Wealth is a stock concept (accumulation at a ´point in time) an income is a flow concept (net earnings through time). Today, the pragmatic approach calls for concentrating within countries. The global view on inequality is misleading.
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Douglas Costello Jan 2, 2015

The author ignores that a global review and assessment of Inequality is effectively a generalisation of the issue and generalisations are inherently false as Piketty's country by country analysis sets out.

Intra country reports on inequality all highlight how income and wealthy inequality within their borders has risen significantly.

It seems that current orthodox economic policy is geared to ensure that the high income earners and wealthy are protected and provided options that are not available to the rest of the nations workers.

For example take the US policy of having a lower taxation rate for high income earnt via Private Equity activities, a 15% rate not available to the rest of tax payers.
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Lance Brofman Jan 1, 2015

"..Even if it was widely understood that the shift of the tax burden from the rich to the middle class was the cause of the depression, it would still be extremely difficult to remedy the situation. The enormous shift in tax policy favoring the rich has been a world-wide phenomena going on for many years. After the Socialist party candidate François Hollande won the presidential election, France enacted tax laws that gave France the most progressive tax system among the 20 largest industrial nations. However, the world-wide the tax systems have become so much less progressive in the past decades, that if the tax code that France has today were applied to France in 1969, France would have had the most regressive tax system among the 20 countries in 1969.

A major component of the shift of the tax burden from the rich onto the middle class involves the corporate income tax , whose incidence falls entirely on the owners of corporations. Corporate income taxes were 4% of GDP in 1969 and are now less than 1%. The reduction in corporate taxes has not necessarily been the result of political power on the part of corporations. Rather it was part of an international “bidding war” among countries to see who could induce corporations to move from one country to a jurisdiction to another with a lower corporate tax. Even if were politically feasible, the United States could not unilaterally reinstate the corporate income tax rates back to 1969 levels.

That it would take the cooperation of more than twenty nations to give up some of their sovereignty and agree on reinstating corporate income taxes illustrates just how difficult it would be to adopt tax policies that could overcome the cycle of overinvestment. Thus, even if the depression ends capital will soon again accumulate too rapidly. Then the productive capacity of the business sector will again outpace the ability of the household sector to absorb the increasing production. This will bring on another period of weak economic conditions and corresponding low interest rates. Alternately, we will see a Japan-like period of extended low interest rates as the current depression, as I define it lasts indefinitely..."
http://seekingalpha.com/article/1543642
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TooScaredToUse MyRealName Jan 1, 2015

This is just more of the "The poors should quit complaining! They have central heat, refrigerators and flat screen TVs. Think of the Ethiopians and be grateful!"

Putting aside that many poor renters go without their central heat or working refrigerators at the whim of the hedge fund that now effectively owns their buildings and whose manager pays a lower tax rate on his billions in take-home pay than the tenant working 3 jobs to pay his rent.

We don't need economic analysis to know when we're being exploited and dumped off the edge of an ever-more-slanted playing field.
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E Walker Jan 1, 2015

Perhaps Rogoff would explain why world inequality is the relevant criteria. Perhaps he would explain why improvements in the lives of Nepalese affects the power of the US oligarchy over the US government and the huge majority of its citizens, not to mention the rest of the world.

But that would require him to check his work against the real world, something he is not known for.

For that matter, substantially all economists ignore raw, unrestrained power. By hiding it, they support the filthy rich to the point that a disinterested observer would say that was their intent.
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Paul Hunt Jan 1, 2015

The most effective way of tackling inequality is to strip out what most economists decribe as economic rents but which is really the sustained capture of economic rents by powerful special interest groups due to the failuers of economic regulation and compeittion law enforcement. See for example the excellenet paper by Acquah, Ahearne and Collier on the IMF's role in the surveillance of donestic structural policies:
http://www.imf.org/external/np/pp/eng/2014/073014g.pdf
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Alasdair MacLean Jun 3, 2014

Upper middle class by world standards.
I read today that Seattle is increasing the minimum wage to $15 an hour. For a 160 hour month this equates to $2400 gross. This would typically mean three times -at least- the monthly salary of a University educated teacher in Africa. So the lower working class in Seattle will earn more than the middle class of Africa.
But the problem seems instead to be that he- the man from Seattle- is not earning enough compared to the top 1 per cent in the US.
Piketty has no answer but redistribution. He cannot create wealth. He just takes from one to give to another.
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philip meguire May 28, 2014

I agree with commenters who say that no tax on consumption, however progressive, addresses the gradual concentration of wealth Piketty alleges.
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SH JUN May 23, 2014

1. So you are saying that we should accept our ghetto areas in order to save the world?
2. your so-called "better ways to address rich-country inequality" are really something more probable? we had enough time and motive to try them, but we didn't, or could't, or whatever.
3. the last sentence is truly shocking... Piketty is right but still the capitalism reduced global inequality?? Is millionaire roundtable share the global inequality indicator since when?? this article is just another propaganda.
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G. A. Pakela May 19, 2014

What Piketty may be ignoring is the fact that capital accumulation is what drives economic growth and provides labor opportunities for the unskilled, who would otherwise be unemployed or underemployed. Piketty should derive his moral compass from the Gospels rather than Marx.
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ECO VIEW May 18, 2014

Most countries in the world have a consumption tax. Such a tax is unlikely to reduce the wealth gap as it constitutes a very small percentage of the income or wealth of the rich. If as Picketty's says that one main reason for rising inequality is the relatively higher earnings on capital, should we not be focusing on bringing such earnings on capital such as interest, dividends, rents, etc into the ambit if regular progressive income tax rather than attempting a wealth tax which penalises hard earned savings. To the extent wealth is not due to hard work (such as arias from inheritances and crony capitalism) the answers lie elsewhere such as inheritance taxes and transparency in policies. Excessive executive compensation in the US reflects a failure if boards and the dispersion of shareholders which requires a reform of the corporate structures. Wealth tax alone will not resolve this.
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William Wallace May 17, 2014

The author provides a rather misleading approach when he proposes that global income statistics are a better indicator.

Income distribution will vary on the mix of labor supply and demand, the resulting wages, and the level of technology in the form mostly of capital goods used in production. Sure there are favorable changes in income wherever an economy locally is still in an earlier stage of development.

But it is the advanced economies that have already passed through that stage that best illustrate what trends we can expect going forward.

This slight-of-hand is then accompanied by arguments for consumption tax, back-dooring the assumption that distortions of savings behavior is the key norm to be elevated over others.

Recent changes in EU VAT rates have led to decreased grocery sales, and early indications that people are eating less healthy food. Is this what the author wishes to propose as more equitable?

What has been missing from the neocon argument is the great need for creative destruction in order to produce innovative turnover in the economy. Income redistribution plays a key role in that, and far from being merely an instrument of charity, is essential to long-term growth.
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Michael Heller May 16, 2014

I think Ken Rogoff misspoke when he seemed to say he was “accepting Piketty’s premise that inequality matters more than growth”. If Rogoff does really accept this he has gone down in my estimation. However, the possibility that he was not careful enough in the wording points to a broader problem.

The problem I think is that people have lost the ability to see socialism when it is staring them in the face. On a day to basis they are no longer immersed in the formative literature of political economy that would enable them to immediately call a spade a spade. They would be more careful otherwise.

The goal posts have moved remarkably rapidly. How many people reading this were alive in 1987? In that year a New York Times editorial flatly said that “the right minimum wage is $0.00”. No major newspaper would be brave enough today to be as right as the NYT was in 1987. Being right is so unfair and so offensive nowadays. Many people are no longer able to recognise in the blink of an eye that Piketty Policy is socialism coming in through the back door. In my most recent blogpost I quote Joseph Schumpeter writing in 1942 -

“The best method of satisfying ourselves as to how far this process of disintegration of capitalist society has gone is to observe the extent to which its implications are being taken for granted both by the business class itself and by the large number of economists who feel themselves to be opposed to (one hundred per cent) socialism and are in the habit of denying the existence of any tendency toward it. To speak of the latter only, they accept not only unquestioningly but also approvingly: (1) the various stabilisation policies which are to prevent recessions or at least depressions, that is, a large amount of public management of business situations even if not the principle of full employment; (2) the 'desirability of greater equality of incomes', rarely defining how far short of absolute equality they are prepared to go, and in connection with this the principle of redistributive taxation; (3) a rich assortment of regulative measures, frequently rationalised by antitrust slogans, as regards prices; (4) public control, though within a wide range of variation, over the labor and the money market; (5) indefinite extension of the sphere of wants that are, now or eventually, to be satisfied by public enterprise, either gratis or on some post-office principle; and (6) of course all types of [social] security legislation…. All I wish to emphasise is the fact that we have traveled far indeed from the principles of laissez-faire capitalism and the further fact that it is possible so to develop and regulate capitalist institutions as to condition the working of private enterprise in a manner that differs but little from genuinely socialist planning.”

Give or take a word here and there, what Schumpeter said then well describes the situation in 2014. The Keynesian left which has disproportionate influence in the leading organs of the media have persuaded many easily-influenced malleable people that prolonged monetary stimulus and social spending, and delayed austerity and structural reform are nothing but rational quibbles within the safe confines of genuine capitalist policy process. Unfortunately that is mistaken. As in Schumpeter’s day, the modern devices of state economic engineering which offer security, equality, and regulatory protections from capitalism’s ups and downs signal socialism by the back door and capitalism’s road to self-destruction.

The very same Wolf Pack Keynesians are now kneeling worshipfully at the altar of Piketty Policy. There is no problem with people saying they prefer socialism to capitalism. Silly people are entitled to their viewpoint. But, please, call a spade a spade.

Even smarter people like Rogoff who say they do not support Piketty Policy use the word “brilliant” unsparingly. We are not talking about works of art on canvas. If there are basic errors in one-third or two-thirds of a book, the broad canvas of the book as a whole no longer merits being called ‘brilliant’. Remember the boy who cried Wolf.

Wealth inequality does not matter from the perspective of economics. Wealth inequality is unimportant in scientific terms and in efficiency terms. Wealth inequality is a moral issue. Leave wealth inequality to the philosophers, to the church-goers, and to the undergraduate student political societies. If economics meddles in morality it will lose even more of the little credibility it has left.

http://michaelgheller.blogspot.com
Heller Economic History Entertainments
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Ben Leet May 15, 2014

In 2008 12% , one in eight, of the world population lived in extreme poverty, less than $1 a day. I'll quote from Balkrishna C. Rao's article Alleviating Poverty in the 21st Century, Challenge Magazine, May 2014, "According to World Bank estimates for 2008 (Chen and Ravallion 2010), 801 million people in developing countries were exposed to extreme poverty that is $1 a day, and 2.47 billion people [37% or 3 in 8] lived on less than $2 a day. But nearly 3 billion people were employed globally in 2011, although, according to the ILO report, the employment0-to-population ratio on average has been decreasing, thereby pointing to rising unemployment." The 37%, 3 of 8 humans, who still live in poverty of less than $2 a day would disagree that "The same machine . . . has leveled the field globally for billions." In fact that statement could be inflammatory and insulting to anyone laboring in that condition. 30% of the world's workers, according to the article, still labor for less than $2 a day. 49% have no "job security." That's a level playing field? The race for the bottom is ignored by Rogoff, and that dynamic is healthy and alive in capital's search for low cost labor. What could be done? Shouldn't the question be raised. I like the idea of the VAT tax or consumption tax. In the same Challenge Magazine is an article advocating a VAT to "finance more such social programs as America's best route to a more equal society." Rogoff dismises too readily some viable solutions such as trade treaties with labor standards, a minimum global wage on exporting incomes, reducing the damage of sectors that extract more profit than they supply in social goods, such as finance and healthcare services and the military in the U.S. These are simple enough avenues for improvement, and the extreme inequality he does not mention, the lower-saving 50% own 1.1% of all net worth, the top one percent have more income collectively than the lower 60% of households. We have a political problem, and hiding the facts is counter-productive. Rogoff should argue harder for real wage raising policies like a full employment program, not palliatives. My blog: http://benL8.blogspot.com
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Nathan W May 15, 2014

Inequality is felt a more local levels.

National or subnational inequality should be considered as far more relevant than international inequality when considering the main risk factors associated with inequality.
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Nathan W May 15, 2014

Exiting poverty by the billions is not the same as changes in inequality.
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Andy Sandberg May 15, 2014

Quite an expected review from Mr. Rogoff. Nothing new under the right-wing sky.
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John K Fitzgerald May 14, 2014

"The same machine that has increased inequality in rich countries has leveled the playing field globally for billions." - I think "billions" here might be a stretch.
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Paul Lai May 14, 2014

China: "400 million people have seen their net incomes decline over the past decade. Absolute poverty has doubled since 2000" bit.ly/1fPrkJO
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Jose araujo May 12, 2014

"For example, a shift to a relatively flat consumption tax (with a large deductible for progressivity) would be a far simpler and more effective way to tax past wealth accumulation"

I'm honestly puzzled by the logic, a flat consumption tax would be an effective way to tax wealth....

How is that, in a world where the rich don't consume... And if we want to redistribute wealth, why not tax wealth...

Regarding the 80% tax distortion, well all taxes introduce distortion, and we would be aimed at introducing a significant distortion with a 80% tax on wealth....
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Karthik Tadepalli May 12, 2014

Mr Rogoff misses one point; capitalism has increased incomes in countries, yes, but it has also increased the cost of living to a huge extent. Which means that the poor people of today are a LOT poorer than the poor people of thirty years ago.
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Karthik Tadepalli May 12, 2014

Inequality between countries is dangerously easy to misinterpret. In the US, per capita income is $53000, and in India it is $1500. But a middle-class Indian can live a life as comfortable as a middle-class American. An Indian who earned $53000 a year would be effectively rich. Inequality is best compared within countries.
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ROBERT BAESEMANN May 11, 2014

I am lost here. When I scroll through the data on median household income and/or GDP per capita as per the CIA World Fact Book, I see a great deal of evidence that a great many people realize incomes far less than those of the upper tier in Norway or the United states. From what I read, hundreds of millions of Chinese still live in poverty. I am not going to buy Deaton's book without seeing some numbers. Deaton must at some point say how much more equal the world is now that it was in some base year?
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Zsolt Hermann May 11, 2014

It is understandable that there is a wide debate, confusion, argument about the inequality problem.
This is a seemingly economical, financial problem and thus we try to find an economical, financial solution for it.
But we are not dealing with a economical, financial problem, it is not even political.
The problem is "human", it originates from our nature, the inherent operating system we have inside us, and how we perceive the world around us.
The inherent nature in every living cell, organism is "self-preservation", caring for the "self", survival.
In nature through evolution the previously competing cells, organisms started combining into higher level organisms as they instinctively started "understanding" that by mutually complementing cooperation they can survive longer, sustain themselves better, prosper more.
Eisabet Sahtouris, an excellent evolutionary biologist explains it beautifully in great detail, how the previously competing cells instinctively evolve into mutually cooperating organisms in order to survive.
The whole of nature works and survives, evolves on this "mutual guarantee" principle. each and every part of nature instinctively feels interconnected and interdependent, thus instinctively, automatically submitting itself to this mutual system, always making calculations primarily regarding the collective and only then about the self, since it is instinctively clear that only when the collective is secure and healthy, can the individual survive and prosper. It is still an "egoistic", selfish and not altruistic calculation, by instinctively using the available conditions for optimal self-preservation.
In human beings this instinctive feeling of being part of a collective, the instinctive feeling of interconnections and inter-dependency is missing.
Thus in us the "self-preserving", "self-calculating" inner software will always drive us above others, securing our existence at the expense of others, since we do not trust the system, we do not believe that others will look after us, thus we gain, hoard way beyond our necessities to secure our "tomorrow", our future, since we perceive ourselves in a "dog eat dog" world, when we can only rely on ourselves.
The only solution for inequality, the only chance we have to build a truly fair, cooperating, harmonious and peaceful human society is by re-learning the interconnections and inter-dependency, by consciously understanding that just as any other part of nature, we depend on each other, and the success of the individual directly depends on the success of the collective. We have to rebuild the system of "mutual guarantee", mutual responsibility in humanity.
Previously this was only a philosophy, ideology, impossible to put into practice.
Today when the global, integral world reveals itself, when all our efforts and institutions built on our previous perception fail, we have an unprecedented chance to build a human system that is similar to nature's system, but contrary to the rest of the nature we have to build this consciously, by our own efforts.
Again we do not have to become altruists, we will have to do this on very clear, selfish, self-calculating way, understanding this is our only chance of long term, or even short term survival.
The new economy, new financial system, political governance has to grow out of the new human relationships.
- Edward Ponderer May 12, 2014
  
  One cannot help but continually be amused in the "What fools these mortals be!" sense -- even if all too well aware of one's own mortality (tragicomedies are still, after all, comedies). And laughing at oneself is a very power for creative problem solving.
  
  [“ ‘Haw, haw, look at us. We keep doing the same things over and over again and wonder why things don’t get better. If this wasn’t so ridiculous, it would be even funnier.’ …”
  
  “…Then he laughed and realized that he had started to change as soon as he had learned to laugh at himself and at what he had been doing wrong. He realized the fastest way to change is to laugh at your own folly—then you can let go and quickly move on.”
   -- From Spencer Johnson’s, Who Moved My Cheese?]
  
  We are marionettes trying to figure the complex of strings with no note given to the puppeteer, egoism. Inequality will exist in any system that imagines it will rule over ego with a gun, or imagine that if the reigns get some laisez-faire loosening, the horse will be happy with providing hey for the whole stable as long as it gets the most handsome portion. The true powers that be behind the party leadership and the great financial houses laugh their heads off at both Communism and Capitalism--for they will find the means for the most clever and aggressive to rule the whole under any -ism. This, with or without the "People's" or "Republic" or "Democracy" label on the title as so many $99.99 price tags saving us from spending our hundred dollar bill on an overpriced competitor's product.
  
  And a tell-tale sign of human ego beyond its insidious cleverness, and subconscious manipulative intrigue, is that if uneducated it does want what is “good” for it in healthy measure—it wants anything that anyone conceives of as good, it wants it all, and it judges how much it’s got, by how much others have. In short, the most powerful dimension of its “enjoyment” is that others don’t have—unless those others are identified with the self —this point is crucial.
  
  For the problem was never with communism or laisez-faire, it was with their exclusivity, and most particularly exclusion of the ego’s partnership. This opens up a particular new opportunity, now approaching the 1/6th point of the 21st century.
  
  Why this period is different can be expressed in one word—globalization, or perhaps by the Yin to this Yang, interdependence—the former is the boundary condition, the latter is the differential equation, and this will force the rise of a resultant new economics already discovered—behavioral economics.
  
  Mutually responsible relationship has become the key. The fact that our fates are irrevocably intertwined means that there is at last something to teach the ego that it needs to, and will want to learn. This is integral education—not competition and temporary us-vs.-them collaboration for what the individual ego gets out of it. No, rather learn that entwined fates are permanent, we are one, and therefore let all egos recognize themselves as one permanent whole—the new common enemy being death, nonexistence.
  
  This is not communism, it is not capitalism – it is family, common sense, common agreed, voluntary, unified FAMILY. It is communist in concern that all get what they need and provide all that they can. It is laissez-faire because with ego unified, it can trust to the individual to go full steam ahead for the sake of the common good, allow creativity and brilliance full authority to move ahead per its natural capabilities, to do what it love for All that it loves.
  Sound like paradise, a dream? Paradise yes, a dream—no, cold hard necessity.
  
  Its time for the ego to grow up and go to school. All it has had till now is a pre-school of untutored free play, attempts at useless moralizing save some temporary corralling value—fear plus a sense of the powerful ego of self-image. These work for a baby, not a rowdy teen growing up fast.
  
  Its sink or swim. But let’s have some faith in the human spirit when truly educated and directed—it will swim!
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Andrew Kim May 11, 2014

I feel like after reading only the opening 2 paragraphs to see the argument is already flawed. Piketty is dealing with inequality. The wealth gap between the richest vs pretty much everyone else. NOT the numbers of ppl globally who have reached incomes above poverty which he fails to define or set relative criteria for that could be used. Then we go into the unfairness of the proposals Piketty recommends for the upper middle class I understand this is all very "surface" so I'll do my best to read both books to form my own conclusions. Yet I can't seem to think that my opinions will be far different than the consensus, that yes while ppl are escaping poverty on some levels they are still severely constrained and inequality on a great scale persists
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Harland Brown May 11, 2014

This is the sort of disingenuous criticism that has largely removed all credibility from the supply siders. I certainly accept that Piketty's policy solutions can be criticized as either unrealistic or ineffective. What I cannot accept is the affirmation that the massive increase in wealth of a tiny fraction of the population at the expense of everyone else in those same societies is desirable or a mere glitch in an otherwise beneficial rise in global capitalism. In other words, if the middle classes in China and India are prospering as never before, why should we care too much about what is happening to the American middle class?
I also think that we need to look at what percentage of that new wealth is derived from creating or financing new growth opportunities (e.g., Apple), vs. managing large corporations (e.g., Viacom) vs. creating elaborate new financial instruments that are not necessarily in the best interest of society at large (e.g., Goldman Sachs) v.s. those who inherit their wealth (e.g., Daltons of Wal-Mart). I would argue that, beyond the question of inequality, the social utility of these four groups varies greatly. The policy challenge should thus be to encourage the creation of wealth that leads to an even greater creation of wealth in the broader society. But that is not an automatic outcome of the capitalist system we live in today.
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Jonathan Lam May 10, 2014

Gamesmith94134: Where Is the Inequality Problem?

Entrepreneur is the embryo to capitalism because it is competition refined; and corporate domain is not because institutionalization dwarfs government control and created dependence in consumerism. It mirrors the earlier age that king and castles expands till it meet industrialization. It went bankruptcy.
Perhaps, there is a law of nature, as thing goes up and it comes down-----gravity. Or, is it a question on how corporate evolves itself at an extreme that its expansion might jeopardize affordability and sustainability at the expense of the general public?
It may take 4 to 8 years to balance the 4 Trillions debts in the FED’s accounts at 2 % inflation. My rent went up 50 % in San Francisco; and my lunch may go at $12; utility have gone 15% more than last year. Who is the one keeping the data? Mr. Kenneth, Where do you live?
May the Buddha bless you?
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Jonathan Lam May 10, 2014

Mr. Gert van Vugt,
You make the best description on the theory on the economical growth Paradigm that the economic change seems like Malthusian’s diminishing return, and I agree. However, Mr. Roubini makes his point on the social disruption reverse itself through the diminishing demand. If we can put away the elements like the Ponzi scheme and benefactors in social caused deficiency or defects to growth. Corruption by capitalism and the dependency by socialism among societies both caused failure in the economical and societal development.
Perhaps, we focus on the circuitry on the accumulation of wealth and consumable wealth that runs the economy. It seems both the capitalism and socialism ran short and proven wrong in the economical model or social model that became self-destructive; eventually, the economy runs from diminishing demand to diminishing return, or vice versa. So, if we use the living standard as the equilibrium position to the supply line of the circuitry of wealth balanced by both of the diminishing return and diminishing demand.
How about I call my paradigm on the wealth circuitry in economical and social growth that supports and balances both accumulated wealth and consumable wealth; and it created a “Z” shaped development running both on the diminishing demand and diminishing return; which is based on the assumption, the route above the standard of living equal in length with the one below the standard of living is in agreement of its living standard to sustain a viable growth, which contains;
• The base line as the diminishing return where the societies kept peace with its populace that consumable wealth that cause economical displacement like with its negative growth or no growth; it provides entitlement or social programs with non-productive individual citizens for example, 27% of its population on welfare with add-on with subsidies to sustain a standard of living.
• The top line as the diminishing demand that ended with accumulated wealth favors of concentrated wealth owned by individuals that ended with profitless, 1% holds 27% of the global or national wealth, plus those with extra wealth is not in production yields to no growth.
• And the diagonal line that connected to both ends is the support of the price and value in the middle is the standard of living which contains the most of the productive individuals who is moving up and down the ladder of growth.
If more of the wealth accumulated than the wealth consumed, then it causes saturation of the wealth. The diminishing demand under the standard of living agreement made the demand idle because of the shortage of consumption. In the process, the standard of living will go down to meet its demand after the deflationary measure to make it consumable. In reverse, the wealth consumed is over the wealth accumulated, as it is less profitable. Then, it triggers the inflationary measures to aggregate demand to accumulate more wealth in its diminishing return mode; eventually it will balance itself again with the agreement of the standard living with a viable growth.
It is not the supply and demand. It is rather the circuitry of wealth under the spells of the lower living standard that diminishing demand is being part of the deflationary measure. If the accumulated wealth became saturated, then it means the lower living standard that made the demand finite like lesser demand in loan of dollars in ECB.
I am certain I am not being introspective; I may twist the theory a little; but the proof of the lower living standard in Europe made it plausible.
May the Buddha bless you?
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Jonathan Lam May 10, 2014

Gamesmith94134: Reason and the End of Poverty
United Nations General Assembly Open Working Group on Sustainable Development Goals has endorsed the Bank’s anti-poverty target, debate about how to achieve it has revived an old question: Will the benefits of economic growth trickle down on their own, reaching all, or will we need targeted redistributive policies?

First of all, I would call the economic growth trickle-down theory is a myth that the data proved that the inequality have reached its epidemic that even in the developed nations. In fact, many found the wages on labor went down through the economic restrain and unemployment; in some cases, the basis of living expanded and savings is shrinking, especially in the low interest rate and low development. Therefore, I hope United Nations should not be fooled by the present system or development; and compromised on the political pressure that we do need a better welfare state application to solve the problem. It is because eradicate poverty is not applicable through the political system. In order to qualify, you must prove yourself poorer is not a well logic in most of the programs in the global forum.
Perhaps, we would take India for the recent mishaps in promoting the program, more subsidies for the food and more expensive it will be, because rupees will be much cheaper “relatively” to any other currencies. This was a tragedy for India or Brazil which was fallen off the emerging market Nations, the BRICS crumbles. It was the struggle of power and powerless that the trickledown did not ring and was beyond the free market system as many suggested; because it was the proclivity of the wealthy one who would shift to the powerful one to sustain the level of comfort by undermine the market system to compensate their loss on the control of value.
Perhaps, I would take the case in India in achieving the sustainable balance; it must return to its market system that is compatible to its cost of living. In a word, affordability that is free of governmental control and subsidies. Price control in the present mode as in buy food cheaper only cut production if the price is below its cost; it is why there is a secondary cause on inflation after imported more. Many of Indian would question if its government was promoting its plantation scheme on its farmers that turned them into slaves. It was what I heard in the seed exchange program with tremendous rules and regulations that strangled the small framer and workers with its unreal pricing and high cost to keep their production valid. If only government and rubber baron can set price on what they collect, why should Indian produce if their product is not marketable?
Perhaps, there is another problem on the monetary system that inundated with foreign funds and subsidies made crisis more inevitable in turn of the rising cost to produce and less jobs is available. In the past, the micro-financing ended with a bang because it is cost more than credit cards and create shadow banking that so severe that shadow banker may dress in military or policeman kicking down your door at night to collect debt or your land. These are just information I got from hearsay from my charity workers; but If they are true only in the rural area, India should be awoke to enforce what law should applied and how the shadow banking could endanger the lives of India. Am I accusing monopoly in banking or institutionalization make the worst case in the financing system India allows? I hope not.
Perhaps, I would recommend the co-op system in the thorough sense that UN and India would promote the real market system that the small farmer or middle class can survive by enforcing law and regulations that establishes access for them. Subsidies are tools of the powerful ones that price are not how it would balance the book in the procedures of accountings; but it is how they can create the access to the marketable and allow them to function in its value system that affordability can sustain both growth and prosperity. Therefore, UN and India must open its market system in trade and initiated the legal system to enforce what value can assist whom they failed. Rupees can be earned and it is not how value is restored through its audits in the capital goods or real estate. Advancement in trade is not a valid value system since only Indian can initiate its value through its own marketable events like affordability and sustainability.
I am sorry if I would offend India for my single point of view, I would apologize, but these conditions are subjected to review, and I hope Mr. Rajan and Mr. Singh would rethink how subsidies and monetary policy are making the cracks in the value system that inflation will rise unstoppable till everything comes to a halt like recession. Seriously, I think recession would erupt through the present global financial system; and there is no escape to it. However, it is the nature of things that what goes up must come down. It is time to contemplate on what can we do to restore what a marketable system can reestablish it own sense of value that is affordable and sustainable. This is the cycle of life; even for economical growth.
Systems revive themselves even regimes and revolutions, but one will never die------humanity and population.
May the Buddha bless you?
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Jonathan Lam May 10, 2014

Mergers-----gamesmith9434

Mergers endanger the entrepreneurs through competition. Simply, they just buy them out. It is why the local mom and pop stores and local cafe closed; and they are replaced with the chained stores. Does anyone really know the price of a cup of coffee if there is no grocery store or cafe around that sells it? So, it would be the price initiated among the chains without any pressure; even there is a drought in the Blue Mountain. They would have their own blends with the beans from East Africa. The price would remain the same that you must appreciate the blend instead of the bean off the Blue Mountain when you line up to pay them. Why should they undercut the beans from East Africa? Often, it expands its own franchise from storage to production in the streamlined motion that it monopolizes the process of services based on the principle of profit return that undercut employment and out-sourcing.
One stop shopping is the way to go, from department store to grocery store; you go to Walmart and Target. All products and produces are foreign made under the brand of the company or designer’s name. They gave a range of pricing that made the local boutique or grocery more expensive; and soon the boutiques and grocery stores close for business; more designer’s items are on the rack for your desires, its prices are just like those you bought from the boutiques with lesser of a salesman since all are stock clerks working from warehouse to the floor. It is how the streamline motion eliminating services in order to gain more profits. Since there is no universal pricing or competition to threat it sales; that all goods are sold as it is at the price when you purchased it at the boutique or grocery. It was bad for employment of the boutique and the store too.
You may laugh if you miss the drinking bottle the bank offers when you open an account in the bank or gas station. It is because the bank or gas station try giving meaning or sense on how lack of competition for them or make it cheaper for you. You may not hear of the quarter percent more on you long-term deposit from the next door bank or discount at another gas station either; because it have been arranged through the corporate and no one will ever override its margin.

Many biotech and pharmacy merged and there are less company can survive under the pressure of the best R &D workers were channeled to the large one. At a price they paid for the new workers, then, much of the R&D was undercut, and more of the orphan drug becomes much expensive and less innovation is available.

Since each corporation executes in its progression mode that it need expansion to sustain its goal; more mergers are needed. Perhaps, some may make a bad decision to expand its business; at a point, it would become undefeatable. In order to maintain its monopoly, many acquire more levels of productivity from design to production, then storage to transportation to streamline its production. However, many may entrapped to revive its original skill.

In some cases like auto industry in Detroit, many turned to dealership and land for innovation instead of making the better car. I mean they failed to make a better car with efficiency that they were beaten by the Japanese model with cheaper price and use lesser gas in the late 80s. Perhaps, these progression mode and monopoly mode alike applies to IBM and Motorola too fell after its era of greatest; expansion makes them less flexible to face its nemesis; especially when its capitals turn into equity and real estate; and most of its venture fund is not their own cash but loans. You may wonder how your Apple fail to rise like many consultants said; and it came down when Samsung Galaxy sold on our market…………

Merger is just acquisition that eliminates competition; but monopoly does not mean one only in the real world. Originally, Corporate is the best strategy in its containment plan; because the data gives the best devise in judgment; however, in the process when the institutionalization comes through in its labor and resources; it brutally eliminate competition that it become the only thing and no choice for its consumer or business, even government. It made many worry as once it talked of corporate sovereigns that government may yield to cut its tax and earning of the high level management went to its extreme. It creates inequality and hyper stagflation in equity that bubbles are inevitable. In final, this is a sign of danger when you hear of Google glasses at $1500; then, you will question why the internet media is competing with Ray-Ban, or they just making too much money? After all, should you have a Google Glasses?

May the Buddha bless you?
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M K Iyer May 9, 2014

"but let us not forget that when it comes to reducing global inequality, the capitalist system has had an impressive three decades."
Interesting comment that is statistically true but does not represent the facts accurately. In an advanced society, where the populace through their efforts and technological progress have risen to a level of relative wealth, it behooves the custodians of this society to ensure that this accrued wealth is fairly utilized. Over the past three decades, the American Capitalist System has continued to utilize this platform of wealth, military might and educational prowess to globalize the poorer parts of the world and reduce global inequality. But this Capitalist system is a perversion of true capitalism - preferences, special benefits, purchase of legislative prowess, influence of the judiciary to preferential treatment - all actions that one would expect in a tyrannical, third-world or repressive non representative regimes, not in an advanced society. The fact that the US national share of income goes to an ever narrower group of people in the US essentially means the influential getting stronger and wealthier at the cost of the rest of society. How can this be a laudable outcome?
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Rick Drain May 9, 2014

1) Picketty did not say, imply, or assume that "inequality matters more than growth." That was a cheap shot.
2) Yes of course colonialism was unfair too. So was slavery, genocide, etc. That's why we _don't_ _do_ _those_ _things_ _anymore_.
So now, if we can think of a way to make capitalism more fair, we should (and eventually will) do it.
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M L May 9, 2014

Two things.

1) Colonialism was unfair. So the world stopped it. Are you actually agreeing that the solution is to end capitalism (at least as we know it)?

2) The complaint that no model is offered is exactly the reason why this book is good. Look at history, not sad attempts to pretend economics is physics, attempted by folks who would be laughed out of the room for lack of mathematical skills by theoretical physicists. You ask for an n=1 model of the last 30 years to explain divergence between returns to capital and labor. Piketty's whole argument is that you don't need to do that -- I'd add that you can also make a model that prescribes whatever policy you want fit the data. Through all of modern history the returns to capital have been significantly higher than returns to labor. Only exogenous crises, major depressions and wars, have ever changed this.
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Lord Koos May 9, 2014

Defending your class again?
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Clyde Israel May 9, 2014

I am encouraged by the several billion that have been lifted out of truly desperate levels of poverty, however, I believe they, and many more, would enjoy a substantially better quality of life if the prevailing economic system was designed not to create inequality.
Your logic is flawed.
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E Walker May 9, 2014

Rogoff has a talent for missing the obvious. The inequality problem Piketty identifies is that concentration of wealth in the hands of a few leads to concentration of political power. Of course, political and other forms of power are unknown to today's US trained economists with their childish passion for mathematics.

The rich use their power first to insure the continuation of their wealth, and second to enforce their right to make as much more as possible. They bend the political system to their will. Nothing that benefits them benefits the rest of us, yet they get their way. The Supreme Court encourages them to buy congressionals and administrators, and allows them to tie up regulatory processes with judicial rope. The President appoints them to decided how to divide up the internet, how to exploit the environment, and how to cheat borrowers and workers. Congress falls over itself to shower them with tax breaks, and uses trillions of dollars to help them recover when they wreck the economy. Academic economists flock to tell them how wonderful they are, and to tell the rest ofus that their demands are just and righteous.

It is foul and stupid to say that a consumption tax will fix this problem. Rich people don't buy stuff. They use all their extra money to add to their enormous stacks of capital. That's the problem Piketty identifies. Intellectually honest readers understand that.
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Dennis Pachernegg May 9, 2014

"In accepting Piketty’s premise that inequality matters more than growth, one needs to remember that many developing-country citizens rely on rich-country growth to help them escape poverty."

I don't understand your implicit assumption here. Why should growth and a more even distribution of capital be conflicting goals?
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Procyon Mukherjee May 9, 2014

Sorry, Mr. Rogoff, Angus Deaton's book review done by you, which is based on the premise that effectiveness of aid delivery systems have been the root cause of poverty alleviation measures in the third world, needs some careful scrutiny; this could hardly be the basis for saying that Piketty could be wrong about the world and right for the developed countries.

The discussion on taxation, may be a way forward, but it is not all that is there to be done. Wealth would continue to remain concentrated for generations to come, if the seeds that we are sowing in the opportunities that are being made available to a minuscule minority, the opportunities that allow higher forms of learning for developing those virtues that would augur well in the future, would leave a vast majority at the threshold of subsistence; a desirable outcome would be to look at the problem from this angle, how we could change the distribution of basic opportunities that makes a human being far better prepared for the future jobs and what would be the cost to the society in the short term or the long for achieving this.
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philip meguire May 9, 2014

Tax all income at the source, at a flat rate like 30%. Income is value added by firms, wages and interest paid by state & local governments and nonprofits, and government monetary benefits. Pay all legal residents of the USA $100/week. Use food stamps and section 8 money to lift every household over the poverty line. Credit FICA and Medicare taxes against flat tax liabilities. Value added by firms would include capital gains realised by firms, and would be net of all investment by firms. This tax would exempt about $17500/household member/year from ALL Federal taxes. This seeming flat tax would be a fair bit more progressive that current taxation, for nearly all household earning less than the FICA ceiling.
- philip meguire May 28, 2014
  
  The tax I propose is progressive, and is also a consumption tax because it does not tax business investment.
  
  "...the elimination of payroll taxes for low-income workers..."
  My tax does that, by exempting from all tax the first $17500/family member/year of all income, including wage income.
  
  "...a cut in deductions for high-income workers..."
  My tax abolishes all deductions for all workers.
  
  Most of all, my tax would tax all income streams underlying all forms of domestic wealth.
  
  Any payment by one branch of a multinational firm, to another branch located in a jurisdiction with a lower effective corporate income tax rate, would not be deductible. The moving of profits to low tax jurisdictions, and parking them there, simply must end.
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philip meguire May 9, 2014

According to Table L.116 in:
http://www.federalreserve.gov/releases/z1/current/annuals/a1945-1954.pdf
at yearend 1945, there were all of 9.3B of assets held in USA pension funds. Pension funds then held zero equities, because common stock was then deemed to violate the prudent man rule. The unfunded liabilities of pension funds are estimated to have been 45B. Defined contribution plans amounted to all of 0.8B. Total retirement assets were about 4% of USA GDP, and 1% of household net worth.

On 30 September 2013, according to Table L.116 in:
http://www.federalreserve.gov/releases/z1/current/z1r-4.pdf
defined benefit pension plans held $7.7 trillion of assets. Their unfunded liabilities were $3.6 trillion. Defined contribution plans held $5 trillion, IRAs $6.1 trillion, and annuities sponsored by life insurers, 2.5 trillion. Total household retirement assets amounted to $24.6 trillion. Given 125 million households in the USA, that's an average of 200K/household (that number should be at least 500K).
Total retirement assets were about 130% of 2013 GDP, and about 27% of household net worth.

It is true that that the average price of an owner occupied house declined about 35% between 2006 and 2011, and OOHs are a form of wealth that is very diffusely held. Meanwhile, the market value of equities has risen more than 100% since the March 2009 market trough, and there is no limit to the concentration of equity holding.

I have trouble believing that the above facts on pension welath are consistent with the narrative that Piketty is trying to spin, namely that wealth holding is inexorably growing more concentrated.
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john werneken May 9, 2014

"In accepting Piketty’s premise that inequality matters more than growth"...I CAN'T.
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Gunnar Eriksson May 8, 2014

A wealth tax will be needed for a sustainable future, but it probably need to be levied on the level of EU, US Federal, China etc.
It need to be entered into the WTO system so that those opting out would be subject to import duties instead.
Wealth should be valued for taxation purpose depending on how it is employed; The more gainful the less value the most speculative or idle to 100%.
The tax rate should be lenient for a start, but incrementally increased.
Income taxes could be decreased and money for investment would seek low tax values rather than today's speculation.
Local taxes should typically rely on property taxes rather than income based taxes.
The UN should be given fiscal capacity to levy a financial transaction tax to finance peacekeeping and research for priority areas like medicine water and food production and distribution
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Kirit Patel May 8, 2014

The main point is that in developed countries like the UK, the bottom half of the population have 2% to 3% of the wealth. The book empirically shows that this slows growth and then puts forward a strong economic case that we should enact policies (he doesn't claim monopoly and acknowledges the Utopian-ness of his own suggestions) that push the % of wealth owned by lower deciles higher. It has struck such a chord with the public as this is something that many people have suspected for a long time.
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Michael Heller May 8, 2014

I think it is a seriously flawed book, despite its strong foundation in data and economic history. Have just finished writing a review, if anyone is interested, both 'valid' and 'substantive' (nod to Brad Delong!). It can be found on my website.

http://michaelgheller.blogspot.com.au/
Heller Economic History Entertainments
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Velko Simeonov May 8, 2014

So I am supposed to feel good despite my constantly declining living standard (harder to find job, harder to finance school...), because some Joe in India never had it better. That is a very interesting argument :)
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Paul Daley May 8, 2014

There are many ways to establish a more progressive income tax system, but that will not address the problem of "patrimonial capitalism" as Piketty identifies it. The problem is that capitalism, as practiced over the past two centuries, has tended to encourage the accumulation of self-perpetuating stocks of wealth (and privilege and influence) in the hands of individuals that have never earned that wealth, or influence or privilege. Treating that type of problems requires measures that deal with the self-perpetuating character of wealth through taxes on capital income and capital stocks. The problem, in short, does not so much require differential taxes for different amounts of income as it does differential taxes for different types of income.

In America, at least, moving to higher taxes on capital and capital income should not be politically difficult since most Americans have little wealth and what they have (in the form of houses) is already taxed. Administratively, it should also be fairly easy since large sources of capital income are already identified in tax returns.

Internationally, taxation of wealth would eventually have to be coordinated since capital is mobile but there is no reason why our current agreements on trade and investment could not be expanded to cover the trade in capital assets, as well as the trade in goods and services.
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aepxc aepxc May 8, 2014

Capitalism had a good 50 past years during which inequality of wealth was significantly lower. Now that inequality is higher, capitalism may prove less effective at driving growth. There is likely little tradeoff between inequality and growth - while inequality is often a product of growth, it is also an impediment to growth's continuation.
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P. Foofootos May 8, 2014

Quote from Pickety's book, that foreshadows the main point of this article:

"To be sure, the very rapid growth of poor and emerging countries, especially China, may well prove to be a potent force for reducing inequalities at the global level, just as the growth of the rich countries did during the period 1945– 1975. But this process has generated deep anxiety in the emerging countries and even deeper anxiety in the rich countries. Furthermore, the impressive disequilibria observed in recent decades in the financial, oil, and real estate markets have naturally aroused doubts as to the inevitability of the "balanced growth path" "
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