Archive for April, 2014

The happiest photo ever published in Life?

April 13, 2014

MICHIGAN BAND

Life magazine’s great photographer, Alfred Eisenstaedt, took this photo in 1950 while on assignment to report on the University of Michigan’s nationally famous marching band.   The band’s drum major was practicing, and children playing nearby followed him.  Eisenstaedt said the action in the photo was completely spontaneous, and not staged at all.

http://life.time.com/culture/is-this-the-happiest-photo-ever-made/#1

Hat tip to http://kottke.org/

Chipotle profits by investing in employees

April 12, 2014

The Chipotle Mexican-style restaurant chain enjoys good profits and good growth, while paying its employees generously and promoting from within.

220px-Chipotle_Brandon_Its current policy began about nine years ago when founder Steve Ells and then-COO Monty Moran visited the restaurants, and notice that the one that were best-run were all managed by employees who had started as restaurant crew members and worked their way up.

They decided to make that into a system, and reward restaurant managers, not for achieving set targets of holding wages and other costs down, but for mentoring employees and training them to be managers.

Click to enlarge.

Click to enlarge.

Why do so many managers ignore the examples of Chipotle, Costco and other companies and instead grind their employees down instead of building them up?  

I am reminding of a saying Bertrand Russell once made about human nature, When people are mistaken as to what is in their interest, the course they believe to be wise is more harmful to others than the course that really is wise.

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A Senate nominee I wish I could vote for

April 12, 2014

 Shenna Bellows, the Democratic nominee for Senator from Maine, is outstanding on the most important issues of our time.  She wants to break up the big banks, bring the National Security Agency under control and end the so-called war on drugs, which has resulted in so many poor young black men going to prison for actions that are tolerated among the elite.

SBellowsphotoI thank my friend Bill Elwell, for calling her interview with Salon, the first of the links below, to my attention.  Based on that, I think she would be at least as good a Senator as Elizabeth Warren of Massachusetts, whom I admire.  Bellows hesitates to support gun control legislation, but as far as I’m concerned, that is a good thing, not a bad thing.

Having another dissenting voice in the Senate would be important, even though an overwhelming majority (in the Senate, I mean) is against her.   She has the power to raise important questions and to raise public awareness.

It is interesting how things change.  Eighty years ago, Maine and Vermont were the most conservative states in the union.  They were the only two states that opposed President Franklin D. Roosevelt’s re-election in 1936.  But now Vermont is represented by Bernie Sanders, an independent who is the Senate’s only avowed socialist, and there is a good chance that Maine will be represented by Bellows.

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Government seizes tax refunds without warning

April 12, 2014

The U.S. Treasury and Social Security Departments are intercepting federal and state tax refunds because of alleged overpayments to taxpayers’ parents decades ago.   The theory is that the children benefited from the overpayments, so they owe the money.

taxrefund0bThe intercepts mostly come without warning, and without the government providing any documentation that the money actually is owed.  The first warning the taxpayer gets that there is a problem is when the tax refund check is intercepted.

Be that as it may, there is nothing in the law that requires or authorizes Treasury or Social Security to ignore due process of law.  This is the decision of some unknown, unaccountable person hidden deep within the bureaucracy.

At the very least, taxpayers should be notified in advance as to just what the supposed overpayment was, and when and how it was made, and be given a chance to make an objection.

Experience tells me that unelected people in positions of authority in government seldom back down from mistakes.  But since nobody in Congress stands behind the original enabling legislation, there should be no problem in repealing it.  Should there?

http://www.washingtonpost.com/politics/social-security-treasury-target-hundreds-of-thousands-of–for-parents-old-debts/2014/04/10/74ac8eae-bf4d-11e3-bcec-b71ee10e9bc3_story.html

The government is following the worst practices of mortgage foreclosure servicers and bill collection agencies, in acting without warning and with lack of documentation and due diligence to make sure they’ve got the right person and the debt is really owed.

http://www.newrepublic.com/article/117213/debt-collector-malpractice-someone-elses-debt-could-ruin-your-credAit

I expanded this post somewhat a few hours after I published it.

[Update 4/15/14]

The U.S. Social Security Administration, criticized for seizing tax refund checks without notice based on debts of the taxpayers’ deceased parents, said it will stop trying to collect debts more than 10 years old.

That’s good first step. How about promising to use due process of law before trying to collect any debts? And how about observing the legal principle that children are not responsible for the debts of their parents?

http://www.washingtonpost.com/politics/social-security-stops-trying-to-collect-on-old-taxpayer-debts/2014/04/14/9355c58e-c40f-11e3-bcec-b71ee10e9bc3_story.html

Free enterprise vs. capitalism

April 12, 2014
Adam Smith

Adam Smith

I define “free enterprise” as the “system of natural liberty” advocated by Adam Smith, in which people are free to pursue their own goals in their own way, “subject only to the law of justice.”

I define “capitalism” in the same way as Karl Marx, who coined the word — a system in which political and economic power is in the hands of owners of financial assets

By these definitions, free enterprise is not necessary to capitalism, nor vice versa.  What’s necessary for capitalism is institutions that allow great concentrations of wealth, such as limited liability corporations, lending at compound interest and the power of banks to create money.  Government-protected monopolies help, too.

In the same way, capitalism is not necessary to free enterprise.  The Phoenician traders in the ancient world, who traveled from the eastern Mediterranean to Britain to buy tin, were not capitalists in the way that J.P. Morgan or John D. Rockefeller were capitalists, but they certainly had the entrepreneurial spirit.

Karl Marx

Karl Marx

Adam Smith, the great economist and philosopher, did not particularly admire capitalists.  He saw economic competition as a means to hold their power in check.

As for myself, I am not an opponent of either free enterprise nor capitalism, although I am a critic of both, especially the latter.  I think the working of the free market is a more effective way to coordinate economic activity than central planning, provided that it is, as Smith said, “subject to the law of justice” — unlike Milton Friedman and others, who thought a free market could be a substitute for the law of justice.

Likewise, I see a benefit to being able to create concentrations of wealth and use them to create new sources of wealth for the benefit of society.   American capitalists made it possible to create a U.S. steel industry, a computer industry and all the other industries.  Maybe this could have been done in some other way, but this is the way it happened. 

The problem is how to prevent mere possession of wealth from enabling its owners to monopolize the fruits of the economic system, which is what is happening now and which Marx thought was the inevitable result of capitalist ownership.

(more…)

Lies vs. BS: why BS is worse

April 11, 2014

The philosopher Harry Frankfort wrote that there is an important difference between lies and BS.

The liar knows what the truth it, but chooses to tell falsehoods.

The BSer doesn’t know or doesn’t care about the distinction between truth and falsehood.  The BSer is much more dangerous than the liar.

For me, the most scary thing about the totalitarian governments of the 20th century was that they destroyed the distinction between truth and lies.   As in George Orwell’s novel, 1984, truth was whatever Big Brother said it was.  But this also was a fatal weakness, because totalitarian rulers lose contact with reality.  

Reality continues to be whatever it is, whether you recognize it or not.  As the philosopher Ayn Rand once said (I paraphrase): It is possible to ignore reality, but it is not possible to ignore the consequences of ignoring reality.

Democracy, the free-market system and the scientific method constitute an immune system against losing touch with reality.  People won’t vote for you if you don’t serve their interests.  People won’t buy your product if it isn’t any good.  And people won’t believe your theory if your experiment doesn’t work.  All this constitutes a reality check.  But the reality check no longer seems to be working.

The disturbing thing about the George W. Bush administration is not that it was founded on lies, but that it was founded on BS.   A Bush administration official, widely believed to by Karl Rove, mocked the journalist Ron Suskind for being a member of the “reality-based community.”  The Bush administration was creating its own reality, he said.   We know how that ended.

I hoped, when I voted for Barack Obama in 2008, that there would be a return to reality, but this isn’t happening, as is shown in the three links below, the first having to do with Ukraine policy and the second two with the Obamacare fiasco.   Surrealpolitik is a good name for this.

http://www.informationclearinghouse.info/article38183.htm

http://www.correntewire.com/obamacare_clusterfuck_obama_throws_sebelius_under_the_bus_brings_in_a_rubinite

http://www.nakedcapitalism.com/2014/04/wont-believe-what-10-democrats-said-obamacare.html

Why Crimean Tatars fear Russian rule

April 11, 2014

The Crimean Tatars, the indigenous population of the Crimean peninsula, are afraid for their future under Russia’s re-annexation of the Crimean peninsula.

crimean_tatars_They enjoyed a freedom under independent Ukraine that they did not have in Tsarist or Soviet Russia, and they fear that freedom is in jeopardy.  Many protested the Russian takeover, and one of their leaders has been murdered, apparently by pro-Russian forces.

They  were the inhabitants of the Crimean peninsula before it was annexed by Russia under Catherine the Great in 1783.   They had been a semi-independent part of the Ottoman Empire, and, in Russia’s wars with Ottoman Turkey, they were regarded as disloyal.  Many fled to Turkey after the Crimean War of 1853-56, in which the British, French and Turks unsuccessfully invaded Crimea, and Turkey still has a large Ukrainian Tatar population.

During the Second World War, Crimean Tatar loyalties were divided.  Some fought for the Germans, some joined the Red Army, some fought in the partisan resistance against the German occupation.  But in 1944, Stalin ordered the deportation of the Crimean Tartars to Central Asia and Siberia without exception — women, children, old people, crippled people and veterans of the Red Army and partisan resistance.   Later they were allowed to return, but there still is a large Crimean Tatar population in Central Asia.

They now are more 12 percent of the population of Crimea, and many of them object to being reincorporated into Russia.   Their fears have a real basis, based on history and on the resurgence of Russian ethnic nationalism.

It is not realistic to hope that the Russian Federation, having re-annexed Ukraine, will give it up.  The goal of Russian statecraft, from Peter the Great and before, was to have “warm-water ports” on the Baltic and Black Seas for merchant shipping and the Russian navy.   Crimea was ruled by Russia for longer than Louisiana and Florida have been part of the United States.  No Russian government will willingly allow control of its main naval base on the Black Sea by an anti-Russian government.

The best that can be hoped for is an easing of tensions and a winding down of extreme Russian and Ukrainian nationalism, so that non-Russian and non-Ukrainian minorities can live in peace without being persecuted.  The best thing the U.S. government can do is to stop trying to use Ukraine as a proxy for an anti-Russian foreign policy

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Creatures that live in slow motion

April 11, 2014

Corals, sponges and other marine life are mobile creatures.  They build coral reefs and are important to the earth’s biosphere.  But they live at a different time scale than human beings, so we can see their movement only with the help of time lapse photography.

Click on the link below for more.

http://notes-from-dreamworlds.blogspot.com.au/2014/03/slow-life.html

William James on the curse of bigness

April 10, 2014

           

William James

William James

“I am against bigness and greatness in all their forms, and with the invisible moral forces that work from individual to individual, stealing in through the crannies of the world like so many soft rootlets, or like the capillary oozing of water, and yet rending the hardest monuments of man’s pride, if you give them time. The bigger the unit you deal with, the hollower, the more brutal, the more mendacious is the life displayed.

“So I am against all big organizations as such, national ones first and foremost, against all big successes and big results; and in favor of the eternal forces of truth which always work in the individual and immediately unsuccessful way, under-dogs always, till history comes, after they are long dead, and puts them on top.”

                                    —from an 1899 letter by WILLIAM JAMES (1842-1910), American psychologist and philosopher, author of Pragmatism, The Will to Believe, Principles of Psychology and The Varieties of Religious Experience

Hat tip for this quote to my old friend Steve Badrich.

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Neo-conservatives, neo-liberals and Ukraine

April 9, 2014

American foreign policy during the past couple of decades has been directed by two groups of people — the so-called neo-conservatives (who are not conservative) and the so-called neo-liberals (who are not liberal).  They are part of the deep state, the part of the government that is not affected by election results.

The goal of the neo-conservatives is to make the United States the dominant world military power by, among other things, keeping Russia weak and preventing China from growing strong.  They say that the only way the United States can be save is by preventing the emergence of any country with the power to threaten it.

1_hryvnia_2005_front1The goal of the neo-liberals is to free corporations and banks from the control of all governments, including the United States government, and to force nations to repay their debts to international banks at whatever cost to the well-being of the citizens.  They say this is the only path to a world that is prosperous and free.

Sometimes these groups work at cross purposes, and the Ukraine situation is a good example.

ukrainian-hryvniaAs Prof. Bill Black was written, if the U.S. government and the European Union wanted to stabilize the current Ukrainian government and detach it from Russian influence, the best way to do it would be to refinance their debt to the International Monetary Fund so that it could be repaid at low interest and in hryvnia, the Ukraine’s currency, rather than dollars or euros.

But evidently this is not on the table.   US and EU policy is to insist Ukraine accept the IMF terms, even though this means higher taxes, cuts in government services, higher prices and, most importantly, the selloff of Ukrainian national assets at bargain prices.

http://www.nakedcapitalism.com/2014/04/bill-black-ukraine-austerity-and-kamikaze-economics.html

A political platform for Americans

April 9, 2014
  1.       Form a more perfect union
  2. Establish justice.
  3. Insure domestic tranquility
  4. Provide for the common defense.
  5. Promote the general welfare.
  6. Secure the blessings of liberty for ourselves and our posterity.

Hat tip to Carol Avedon and her friend Jack.

http://avedoncarol.blogspot.com/2014/04/clip-joint.html

http://avedoncarol.blogspot.com/

Why people accept the things they do

April 9, 2014

post2experiment

I don’t know when, where or if this experiment was actually carried out, but it is a good parable of why bad customs persist.

Hat tip to Carol Avedon (who is listed on my Blogs I Like page).

http://avedoncarol.blogspot.com/

http://avedoncarol.blogspot.com/2014/04/clip-joint.html

Occupy protester faces jail for defending herself

April 8, 2014
Cecily McMillan

Cecily McMillan

Back in March 17, 2012, an Occupy Wall Street protester named Cecily McMillan was grabbed from behind by the breast by a plainclothes police officer named Grantly Bovell.   He grabbed her with such force that he left a hand-shaped bruise on her breast.  She lashed out behind her with her elbow.

This week she is on trial on charges of assaulting a police officer and faces a possible seven years in prison.

The police officer hasn’t been charged with anything.

Outrageous as this is, it is not exceptional.  Beatings and arrests of peaceful Occupy protestors were common.

The FBI, the Department of Homeland Security, many local police forces, working in concert with the Wall Street banks, treated the Occupy movement as terrorists.  I guess the government’s definition of “terrorist” is anything that terrifies the powers that be.

###

Here are links to articles giving the background of the McMillan case.

http://www.salon.com/2014/04/07/occupy_activist_assaulted_by_cop_faces_seven_years_in_prison/

http://www.theguardian.com/world/2014/apr/07/occupy-activist-seven-years-assault-cecily-mcmillan/print

Here is a link to an article giving the background of the suppression of the Occupy movement.

http://www.theguardian.com/commentisfree/2012/dec/29/fbi-coordinated-crackdown-occupy/print

And here is my view of what’s going on.

https://philebersole.wordpress.com/2013/10/08/trying-to-make-peaceful-revolution-impossible/

And here is the outcome [added 5/22/14]

http://www.commondreams.org/further/2014/05/19

Why do so many politicians seem crazy?

April 8, 2014

            “Narcissism is closely allied with demented self-confidence: hubris. In his book The Hubris Syndrome: Bush, Blair, and the Intoxication of Power, the politician and medical doctor David Owen suggests that ‘there is a pattern of hubristic behavior manifest in the behavior of some leaders, particularly political leaders, which could legitimately be deemed to constitute a medically recognized syndrome,’ which he calls the hubristic syndrome. It afflicts some political leaders, but not all. Owen believes that it derives from some sort of narcissistic personality disorder, but goes beyond that. Its consequences throughout human history have been disastrous. Owen suggests that a sprinkling of behavioral symptoms from the following list characterizes this disorder:

George W. Bush

George W. Bush

—A narcissistic propensity to see the world primarily as an arena in which they can exercise power and seek glory rather than as a place with problems that need approaching in a pragmatic and non-self-referential manner;

            —a predisposition to take actions which seem likely to cast them in a good light—i.e., in order to enhance their image;

            —a disproportionate concern with image and presentation;

            —a messianic manner of talking about what they are doing and a tendency to exaltation;

            —an identification of themselves with the state to the extent that they regard the outlook and interests of the two as identical;

            —a tendency to talk of themselves in the third person or using the royal “we”;

            —excessive confidence in their own judgment and contempt for the advice or criticism of others;

            —exaggerated self-belief, bordering on a sense of omnipotence, in what they personally can achieve;

Tony Blair

Tony Blair

            —a belief that rather than being accountable to the mundane court of colleagues or public opinion, the real court to which they answer is much greater: History or God;

            —an unshakeable belief that in that court they will be vindicated;

            —recklessness, restlessness, and impulsiveness;

            —a tendency to allow their “broad vision,” especially their conviction of the moral rectitude of a proposed course of action, to obviate the need to consider other aspects of it, such as its practicality, cost, and the possibility of unwanted outcomes;

            —a consequent type of incompetence in carrying out a policy, which could be called hubristic incompetence. This is where things go wrong precisely because too much self-confidence has led the leader not to bother worrying about the nuts and bolts of a policy. It can be allied to an incurious nature.

Owen details the way in which George W. Bush., and more especially Tony Blair, eventually checked all these sinister boxes as their period in power unfolded. Margaret Thatcher had previously become another victim, and history shows many precursors.”

—SIMON BLACKBURN, Mirror, Mirror: The Uses and Abuses of Self-Love (Princeton 2014), pages 68-69.

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There is such a thing as a right to be wrong

April 7, 2014

 purifytheworld

The proposition that “error has no rights” was once a teaching of the Roman Catholic Church.   St. Thomas Aquinas wrote that you cannot love God unless you have a correct understanding of God, and that having wrong ideas about God jeopardizes your immortal soul.  He wrote that just as counterfeiters of money should be put to death, so should people who promote counterfeit ideas about God.

Aside from the fact that I don’t believe in a merciless Deity who would condemn people to eternal torment for making a mistake, I don’t believe that there are any individuals or institutions who are infallibly right.   I am neither so arrogant that I think my opinions should be accepted without question, nor so fearful that I am afraid to submit my opinions to the test of argument and contradiction.   This applies across the board and not just to religion.

It is perfectly true that “error” has no rights.  Neither does “truth.”   Only human beings have rights.   Among those rights, under U.S. law and international human rights documents, is the right to nonviolently and lawfully advocate for their political opinions.  People in a free country ought to be able to do that safely, no matter how unpopular their opinions with the government or with the majority.

I suppose that with sufficient ingenuity, someone could think up a situation in which that principle didn’t apply.  If so, I would admit the exception only for that particular situation.  Freedom of speech, like everything else, has boundaries.  I think that people who call themselves liberals should defend and perhaps extend these boundaries, rather than look for reasons to contract them.

If you think there are opinions so hateful that anybody who holds them should be silenced or punished, who would you give the power to decide what those opinions are?   Are you absolutely sure that power would never be used against you?

Political correctness and repressive tolerance 2

April 7, 2014

quote-i-disapprove-of-what-you-say-but-will-defend-to-the-death-your-right-to-say-it-voltaire-334856

I once wrote a post in defense of political correctness.  In it I argued that the phrase “political correctness” was used by people who wanted to immunize themselves from criticism for saying things that were insulting, vulgar and bigoted.   I am politically correct in that sense.  I believe in treating people with courtesy and respect, and part of that is avoiding language they consider insulting

I think there are certain opinions of which I have a moral obligation not to allow to go uncontradicted.

I think there is such a thing as “murder language” — epithets used by Cossacks conducting pogroms against Jews, by lynch mobs stringing up black people, by homophobes who beat gay people to death — and I don’t think such language is socially acceptable

But these considerations don’t apply in the resignation of Brendan Eich, the Mozilla CEO who was unmasked as having contributed to supporters of Proposition 8, the California referendum against gay marriage, and who refused to back down from his belief that marriage is only between men and women. 

I haven’t heard any allegation that he was unfair to gay employees of Mozilla.  In fact, nobody would have known about his opinions if somebody hadn’t taken the trouble to dig it out.

I am a paleo-liberal, who came of age during the Joe McCarthy period, and I see a parallel between what happened to Brenden Eich and the blacklisting of the great Hollywood scriptwriter Dalton Trumbo for his support of Communist causes.  

Of course Eich is in a better position to retire on his millions than Trumbo had of earning a living when he was banned from working in Hollywood.  On the other hand I think Trumbo’s illusions about the Soviet Union were a much more serious mistake (to put it mildly) than Eich’s failure to keep up with received opinion about gay rights.

One thing they have in common is that they are being punished not just for their past political record, but for refusing to back down from their convictions.   Both Eich and Trumbo could have saved their careers if they had recanted, even if nobody believed their recantation was sincere.

Proposition 8 was supported by a majority of Californians.  That is a lot of people to declare ineligible for executive positions in high tech companies in Silicon Valley. 

At the time Proposition 8 was on the ballot, Barack Obama declared his belief that marriage was only between a man and a woman.  I don’t recall anybody who thought this made him ineligible for public office.  (more…)

Political correctness and repressive tolerance

April 4, 2014

cakvin&hobbes

I’ve long thought that “political correctness” was a minor problem, mainly affecting English departments in liberal arts colleges rather than the general public.  Evidently not.

http://www.theamericanconservative.com/dreher/if-brendan-eich-isnt-safe/

The inventor of JavaScript has resigned as CEO of his Silicon Valley company because of protests about him donating money to an anti-gay marriage group.

The interesting thing for me about the above article by the self-identified conservative Rod Dreher is that I can remember when his view would have represented the extreme civil libertarian position.

http://www.theatlantic.com/politics/archive/2014/04/mozillas-gay-marriage-litmus-test-violates-liberal-values/360156/

All this is a reminder that “liberal” and “left,” while they may overlap, don’t mean the same thing.

http://fredrikdeboer.com/2014/03/24/is-the-social-justice-left-really-abandoning-free-speech/

The liberal position is, “I may disagree with what you say, but I will defend to the death your right to say it.”

http://www.thenation.com/blog/179160/cancelcolbert-and-return-anti-liberal-left#

Okay, there are worse things. 

http://cluborlov.blogspot.com/2014/04/in-us-democracy-is-now-sham.html

But, as my mother frequently said to me when I was a child, two wrongs don’t make a right.

Piketty’s formula: its scope and limits

April 4, 2014

Source: Emmanuel Saez and Garbriel Zucmanhttp://www.hup.harvard.edu/features/capital-in-the-twenty-first-century-introduction.html

http://www.yjs.fi/wp-content/uploads/2013/12/Thomas-Piketty-pres..pdf  [Thomas Piketty’s Power Point presentation]

Click to access SaezZucman2014Slides.pdf

http://www.slate.com/blogs/moneybox/2014/04/02/wealth_inequality_is_it_worse_than_we_thought.html

The brilliant French economist Thomas Piketty has an economic formula which shows why, most of the time, the wealthy elite captures a larger and larger share of a nation’s income, and also why, some of the time, the rest of the nation catches up.

pikettybookcover00While my previous post about Piketty and his great book was long, I didn’t really explain his formula and how it works.

His formula, which he calls the fundamental law of capitalism, is as follows:

The capital income ratio (a) equals the rate of return on capital (r) times the national wealth (beta*),

That is, if the national wealth – every form of property that can produce an income for its owner, which is what Piketty calls capital – is six times, or 600 percent, of the nation’s annual output, and the average rate of return on capital is 2 percent, then owners of capital will receive 12 percent of the nation’s income in that year.

If a nation’s annual income is static and the owners of capital reinvest some of their income, then capital will be a larger multiple of the national income the following year, and the owners of capital will receive a larger share of national income.  If a nation’s annual income is growing, but the return on investment is a higher percentage than the growth rate, the owners of capital will get a larger share of national income the following year.

Once this is explained, it seems obviously true – at least to me.   And it seems to be a problem – at to me.   The graph above, prepared by Emmanuel Saez of the University of California (Piketty’s long-term collaborator) and Gabriel Zucman of the London School of Economics, shows how unequally wealth is distributed in the USA.  More than 1/5th of U.S. wealth is owned by 1/1000th of the population.  It is easy to see how the normal working of Piketty’s formula could cause them to suck up more and more of the nation’s income.

Thomas Piketty

Thomas Piketty

What do you do about it?   Piketty proposed graduated taxes on income, inheritance and wealth itself, sufficient to bring return on investment down to the rate of economic growth. 

I don’t see anything wrong in principle with a wealth tax.   I pay a property tax on my house.  Why shouldn’t a billionaire pay taxes on his investment portfolio?    But this is going to take a long time to bring about, even if everybody agrees.  For one thing, it will require the elimination of all the tax havens where the super-rich hide their money, which will require international agreement.  For another, increasing the government’s revenue does not necessarily benefit the public – if taxes are used to finance aggressive war, for example.

There are other possible solutions, because there are other factors in the equation.  If strong economic growth can be restarted, if the economic growth rate exceeds the return on investment rate, that would solve the problem.   Strong labor unions and minimum wage laws would increase the income share of working people and the middle class.   There are many possible approaches.

In theory, the solution could be wider ownership of capital by the public, such as by ESOPs (employee stock ownership plans) or by pension funds.  Back in the 1970s, the management analyst Peter Drucker noticed that pension funds were acquiring a bigger and bigger share on the U.S. stock market.  Eventually, he predicted, this would accomplish the Marxist dream of worker ownership of the means of production!

This didn’t happen because the corporations that controlled the pension funds didn’t allow it to happen.  But if workers controlled their pension funds, it would be a different story.  This would not be a practical reality any time soon, or perhaps ever.  The point is that tax policy is not the only means to deal with hyper-concentration of wealth.

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Why the rich will probably get richer

April 2, 2014

changingUSwealthc

CAPITAL IN THE TWENTY-FIRST CENTURY by Thomas Piketty (2013) translated by Arthur Goldhammer (2014)

Thomas Piketty of the University of Paris is the world’s foremost authority on income distribution and the super-rich. All the charts you see how income is being redistributed upward to the top 1 percent of income owners are based on work by him and his collaborators. In this new book, based on 20 years’ work, he concluded that it is not an aberration that ever-greater shares of income go to a tiny elite. Piketty said this is the natural working of a market system.

According to Piketty, the higher you go on the income scale, the larger the amount of income comes from investments rather than work. When the economic grows at a higher percentage rate than the average rate of return on investment, income becomes more widely distributed. When the average rate of return on investment is greater than the rate of economic growth, the owners of economic assets gain at the expense of everybody else.

His research is based on 200 years of data on income and wealth distribution in France, the UK, the USA and other countries, which now can be analyzed and processed with computer technology. His book would be a good supplement to David Graeber’s Debt: the First 5,000 Years, whichi is sketchy on precisely the past two centuries.

Piketty concluded that the average rate of economic growth since 1800 is about 1 percent a year for the countries he studied, and the average rate of return on investment is about 4 to 5 percent a year. Unless something happens to change one or the other figures, a wealthy elite will grow richer and richer at the expense of everyone else, until there is nothing left to invest in.

pikettybookcover00Piketty defines “capital” as anything you can own that will generate income. In the late 18th and early 19th centuries, capital (by his definition) consisted mainly of agricultural land and government bonds. Now it consists mainly of housing, industrial machinery and stocks and bonds of private corporations. Few economists would define “capital” in so broad a way, but if all you’re interested in is income distribution, it doesn’t matter what form “capital” takes.

If you read English and French novels set in the early 19th century, the characters consist mainly of members of what Piketty calls the “dominant” class, which are the 1 percent of the population who receive 30 to 60 times the average income, and the “well-to-do”, who consist of the next 9 percent. Characters in Balzac and Jane Austen seek wealth through inheritance, marriage and patronage of wealthier and more powerful people. Nobody in those novels thinks that wealth is acquired through hard work and superior talents. Piketty said there is nothing to prevent a reversion to this kind of world, although the difference between wealth and poverty wouldn’t be quite so extreme.

The reason the history of the 20th century was different, he wrote, is the great destruction of capital during the two world wars and the Great Depression. This cleared the deck for the great surge in prosperity of 1945-1975, which benefited all segments of the population. Since then, according to Piketty, the growth in income has been sucked up by the dominant and well-to-do classes.

Now I don’t think that someone born in 1900 would have thought the prosperity of 1945-1975 justified the catastrophes of 1915-1945. This points to an important limitation of Piketty’s book. It is full of fascinating information, drawn from a wide variety of sources, ranging from centuries of income and property tax records to social history, economic theory, literature and financial journalism.

Thomas Piketty

Thomas Piketty

But when you get right down to it, he deals with only one subject, the income share of the super-rich. He doesn’t have theories on how to eliminate poverty, promote economic growth, set priorities for public investment or any other important objective. This is not a criticism. It is just a description of what the book is and isn’t about.

His one subject – which is important – is the economic elite and how, short of violent revolution, to prevent from sucking up an undue share of society’s wealth and income. But as the experience of 1915-1945 shows, destroying the power of capital does not, in and of itself, make things better for everyone.

Piketty focuses on data from France and the UK because the United States is, in good and bad ways, exceptional compared to the rest of the world. During the past 200 years, the boundaries of France remained roughly the same and population grew from 30 million to 60 million. During the same period, the United States expanded from a narrow strip along the Atlantic to the Pacific coast, and its population grew from 5 million to 300 million.

Income distribution in the United States historically has been more equal than in Europe, he noted, at least for white men in the Northern states. The chief form of capital in the early United States was agricultural land, and this was very cheap compared to Europe. Early settlers and immigrants brought little wealth with them. What they created was the fruit of their labor. A great deal of the capital for building U.S. factories and railroads came from European investors. The great American hereditary fortunes did not emerge until the dawn of the 20th century.

The South was different from the North because the economic elite possessed enormous capital in the form of enslaved human beings. Piketty estimated that in the 1770-1810 period, the economic value of slaves in the South exceeded the value of all land, housing and other forms of wealth, and also exceeded the total wealth of the North. The result was a high concentration of wealth, and a large gap between rich and poor white people, which persists to this day.

Differences in earned income, while great in all countries, have seldom been as important as differences in income from wealth. The exception is the surge in corporate compensation in the United States and other English-speaking countries in the last generation. Piketty showed, by means of international comparisons, that the current size of executive compensation cannot be justified on the basis of merit or results. It is the result of executives being able to influence their own pay, and the lack of standards as to how much is enough.

The disturbing fact about investment income is that the more you have of it, the higher your rate of return. Piketty compared the returns on endowment funds of American universities, which are a public record, by size categories. The larger the fund category, the higher the percentage return, with Harvard by far outpacing all the rest.

This is because the larger the fund, the more the owner can afford to get expert investment advice, and the better able the owner is to invest small amounts in high risk, high return investments. Also, unlike an individual who has saved for retirement, the super-wealthy person or institution does not have to take out a significant percentage to live on.

The implication is that once you reach a certain level of wealth, your wealth becomes self-sustaining.  A Bill Gates or a Steve Jobs can simply coast. He not longer needs the entrepreneurial drive that brought him success in the first place. Piketty’s analysis of the Forbes 400 list indicates that inherited wealth is at least as important as entrepreneurial wealth, and he thinks Forbes vastly underestimates income from passive investments because of lack of access to tax havens.

Piketty’s solution is a tax on capital – which, remember, is by his definition any form of income-producing property – sufficient to bring the average return on investments down to the expected rate of economic growth. He pointed out that some forms of wealth, such as real estate and buildings, already are taxed. In principle, taxing stock portfolios is no different.

Since the average rate of return is greater for greater wealth, his proposed tax would be graduated, with a zero or 0.1 percent rate for fortunes below 1 million euros and perhaps rising as high as 2 percent above 5 million. These don’t seem high, but they are high compared to expected rates of return. He also favors continuation of the graduated income tax and inheritance taxes. His purpose is not to prevent people from getting rich. It is to prevent the rich as a group from getting richer at a faster rate than the economy is growing.

The revenue from the wealth tax should be spent in reducing government debt, which Piketty sees as a transfer of income from taxpayers to wealthy holders of government bonds. It is better to tax the rich than borrow from them, he said.

Piketty’s proposals require much better information about wealth and income than we have now. The first step would be for the international community to require reporting of financial information from places such as Switzerland and the Cayman Islands that act as tax havens.

The 577-page book and the 76 pages of notes are crammed with information of interest even to those who don’t accept his basic argument. It is not written in technical language, which is part of the reason it is so long; Piketty, like the late Isaac Asimov, explains everything from the groun up.  If you don’t have time to read the whole book, his core argument can be found in the Introduction or Conclusion.  Or click on some of the links below.

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This is the news for April First

April 1, 2014

Hat tip to Gin and Tacos.

And now a word from our sponsor.

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