A Prologomena to Any Future Reading of Piketty


We have remained silent on Piketty’s book, partly because our reviewer, Steve Pressman, had promised to review it for our Sept/Oct issue. Now that it’s been getting so much attention, and now that Steve finally has his hands on the book, he agreed to do some “live blogging” as he plows through it over the coming weeks. See his first post below. Meanwhile, I can recommend two recent pieces on the book:  Doug Henwood’s review in Book Forum (which he read aloud in the April 3rd episode of his excellent radio show Behind the News), and a recent episode of Christopher Lydon’s show Radio Open Source, which featured sociologist Vanessa Williamson, historian David Kaiser (see his blog post about Piketty here; hat-tip TM), and political economist Mark Blyth (who is a contributor at our sister blog Triple Crisis). Keep your eye out for more posts from Steve on Piketty soon.  –Chris Sturr

I must admit that I can’t remember anything quite like the reception of Thomas Piketty’s new book Capital in the Twenty-First Century. It seems as though everyone is reviewing it, and everyone seems to have an opinion about the book. Remarkably, most of these opinions have been extremely positive—even people who do not agree with Piketty’s conclusions.

Even more amazing is the fact that an economics book with lots of graphs and some equations has made it to the New York Times bestseller list. John Kenneth Galbraith and Milton Friedman frequently achieved this feat, but they wrote for the educated public in clear and simple language. Their bestsellers did not have pages and pages of tables and graphs. And there were no mathematical equations to scare away readers. Even more amazing, Piketty’s book is currently (5/4/14) in the #1 position on Amazon and has been at #1 (or close to #1) for several weeks.

The Piketty phenomenon therefore appears to be something of an entirely different order of magnitude than the popular work of Galbraith and Friedman. It is almost as if wonky and technical economics has become hip. Or, perhaps, Piketty’s book has hit a raw public nerve. And he has managed to achieve all this without a book title like Fifty Shades of Income Distribution.

I only recently obtained a copy of the book, and plan to read it carefully in May and then review the book for Dollars & Sense. The review is slated to appear in the September/October issue. I approach these tasks with great anticipation and some trepidation.

Reading lots of reviews before reading a book has its benefits as well as its costs. The main benefit is that I know when a book receives rave reviews in lots of places. For me, this is a signal to buy and read. I have discovered lots of wonderful books and authors this way, and have read many great books that I otherwise would have never known existed. Jami Attenberg’s recent novel, The Middlesteins, which received a splendid review on the front page of the Sunday New York Times Book Review (as well as several other places) early last year, is a good example of this. While the book was centered a bit too much on food obsessions for my tastes, the writing style as well as the characters and humor made it clear to me that Jami Attenberg was a writer with immense talent and worth paying attention to. As a result, I read her three previous novels last summer. The best of the lot (which I recommend very highly), Instant Love, is also the book that received the highest customer ratings and best reviews on Amazon (there will be a connection to this in my next post).

One downside to reading lots of reviews is that it is easy to be disappointed when a book doesn’t turn out to be as good as all the reviews claim and so doesn’t live up to your very high expectations. I felt that way with The Middlesteins to some extent.

Another downside to reading lots of reviews is that you start reading a book with a certain mindset and read the book from a certain perspective. Such blinders are hard to take off. I worry about this regarding Piketty’s new book.

Yet, the case of Piketty’s new book is a bit different from the case of The Middlesteins. When I read The Middlesteins, I did not know who Jami Attenberg was and was not familiar with her previous work. However, I have known and admired the work of Piketty for some time. One can easily crown him as the economist of Occupy Wall Street (and Occupy other places). His painstaking empirical research has shown that the top 1% (really it is the top .1%, those making nearly $2 million a year) received most of the economic gains in the US during the past several decades. At the same time, knowing his previous work and writing on income inequality a great deal, I am aware of some key data limitations and thus how one can question the conclusions drawn from the numbers. So I go into this with some biases, some preconceptions and some blinders; but I do acknowledge that they exist and will try to fight them as I grapple with a book that seems profoundly important.

Laying out all my biases, here is how I approach reading Piketty. From the many summaries in various reviews, it is seems that this book presents the lots of data to demonstrate that most of the income gains over the past several decades have gone to those at the very top of the income distribution (something that has not been questioned, although it probably should be), an explanation of why this has been the case (something that many reviews have questioned), and a set of policies to deal with rising inequality (something that most reviews have had problems with).

I am about ready to take the plunge and try to come up with my own assessment of this book. I will be blogging while I am reading. But first (in another few days) I will say a little about the many reviews that have already been written on Piketty’s book.

–Steven Pressman

Congressman Bill Foster Explains Why Middle Class Tax Cuts Lead to Economic Growth

[Bill Foster (IL-11) says it better than I could myself—Polly]

Washington, DC, Friday, April 4, 2014 – Today, Congressman Bill Foster (IL-11) spoke on the House floor against H.R. 1874, which would direct the Congressional Budget Office to selectively use dynamic scoring in its analyses of tax and budget legislation.  The selective use of so-called dynamic scoring is a misleading attempt by House Republicans to justify tax breaks for the wealthy.

Foster also spoke about the return-on-investment from to tax cuts for middle class families compared to tax cuts for the wealthy.  If you give a dollar to a middle class family, they will spend it in the local economy and spur growth, or they will use it to make a high return investment, such as paying for their children’s college. If you give that same dollar to a very wealthy individual, that individual will not change their spending habits.  Instead of circulating it in the local economy, it will be placed in lower-return investments, often offshore. The historical data is clear: tax cuts for the middle class have promoted economic growth, while Republican tax cuts for the wealthy have not.

Video of Foster’s speech is available here. Full text is below:

Mr. Chairman, I rise today in opposition to HR 1874, and to explain to my Republican colleagues why their tax policies have not worked, and will not work, to produce economic growth and jobs.

I am a scientist who spent over 20 years at Fermi National Lab conducting research, and a successful businessman before that.

A scientist proceeds on the basis of facts, and the historical facts on Republican tax policies are clear. Tax policies during the Clinton years, predicted by the Republicans to restrict economic growth, in fact generated the strongest uninterrupted period of job growth in our lifetimes: over 22 million new American jobs in 8 years.

Then, the Bush tax cuts enacted in 2001 reversed those policies, and in the following 8 years, the net number of new jobs was essentially zero, actually slightly negative.

Twenty million Americans entered the workforce during the Bush years and the Republican policies produced zero net jobs for them, opening up a jobs gap of over 20 million jobs, a jobs gap that we are still closing today.

So to the extent that there is a causal link between tax policies and job creation, the data is clear:  Republican policies have destroyed jobs, and Democratic policies have created them.

I will now attempt to explain why this is, and why the simplified macroeconomic modeling promoted by this legislation will fail to match the real world.

Generally speaking, Democratic tax breaks deliver benefits to the middle class, while Republican tax breaks deliver benefits to the very wealthy.  And, as it turns out, the very wealthy spend and invest their money very differently than the middle class.

Mr. Chairman, the macroeconomic models promoted in this legislation typically model our economy with a single aggregated consumer.  Like the Republicans, they pretend that giving an extra dollar to a billionaire is no different than giving an extra dollar to a working class family.

However, if you give an extra dollar to a middle class family, they will spend it in the local economy, increasing local economic growth; or they will invest it in some of the highest return investments available to anyone – investing in their children’s college education or perhaps buying a second car so that their spouse can get a job.

Now, if you give that same dollar to a very wealthy individual, they will not change their spending habits, because they are already spending as much as they feel like spending and this will not change. So there will be no local economic growth.

The investments of the very wealthy are also very different since they no longer have available to themselves the high-return investments available to the middle class.  The very wealthy have already spent everything they can to send their children to the finest schools. They already have seven Cadillacs in their garages.

So the marginal investments of the wealthy are intrinsically less productive, due to a basic principle of economics known as the Law of Diminishing Returns.

And since economic growth is equal to investment times return-on-investment, (sorry about the equation!), the economic growth from channeling money to the wealthy is far less than if that same relief had been given to the middle class.

Democratic, middle class policies are pro-growth policies, and Republican policies are not.

Mr. Chairman, there is also another important effect not captured by the single consumer macroeconomic models in this legislation, which is the increasing propensity for wealthy people to move their money offshore.

If you give an extra dollar to wealthy person, they will turn it over to their money manager, who looks around for high yields, and increasingly, invests that dollar overseas — perhaps increasing the net worth of the wealthy investor, but competing with and destroying American jobs.

Had that same dollar been given in tax relief to the middle class families, it would have been much more likely to stay in America.

So in the real world, Republican policies trickle down, but they trickle down to jobs in China.

And that is why the Bush tax cuts generated zero jobs in the eight years after they were enacted.

Thank you, and I yield back.

G. William (Bill) Foster
Rep. U.S. Congress – (IL-11)