Hartwich on Piketty

June 7th, 2014 at 4:00 pm by David Farrar

writes in the NBR:

This year’s global publishing sensation has been Capital in the 21st Century, a tome on the alleged rise of inequality in developed countries. 

Written by French economist , it argues that over long periods of time, capitalist societies had become more polarised. He claims the cause of this growing gap between the rich and the poor is the rate of return on capital exceeding the rate of economic growth. To correct this development, Piketty then proposes targeted state intervention of a redistributionist nature.

After an initially glowing international reception of the book, led by economists such as Paul Krugman and Joseph Stiglitz, a Financial Times investigation into Piketty’s data sources revealed some serious flaws in his argument. 

Chris Giles, the FT’s economics editor, concluded Piketty’s spreadsheets were riddled with “transcription errors from the original sources and incorrect formulas. It also appears that some of the data are cherry-picked or constructed without an original source.” 

Having corrected for these errors, Giles concluded, Piketty’s central thesis of rising wealth inequality collapses.

It’s like the Spirit Level – they try and pick the data to fit the thesis.

The FT was not the first publication to point out the data issues in Piketty’s work. Last September, economist and historian Nicolas Baverez already pointed out in Le Point magazine there were serious doubts about the data used in the original French edition of Capital. 

You don’t like my data, I’ll just invent it!

Regardless of these methodological questions, there are a few things that are odd about Piketty’s approach. His analysis of a widening gap between rich and poor in developed, capitalist countries (if it holds) may be interesting but it ignores a much more important development. 

While there may be growing inequality within countries, on a global scale we are observing the very opposite between countries.

To understand this development, it is instructive to consider a few figures. In 1980, China’s per capita GDP was 1.5% of US per capita GDP. By 2012, this had risen to 10.5%. 

The increase in South Korea was even stronger over the same period: from 13.2% in 1980 to 39.1% in 2012. Meanwhile, Malaysia made the journey from 14.3% to 20.1%; Peru from 9.5% to 13.1% and Botswana from 8.4% to 14.0%. 

How did North Korea go? They have almost no income inequality.

By embracing globalisation, these formerly less developed countries have thus played catch-up with the developed West. The more economically liberal they have become, the faster and stronger was their convergence. 

Sadly, the same cannot be said for other countries, mostly in Africa, that did not make the transition toward liberal, open economies and have remained poor as a result. However, the convergence – especially of Asian countries – is a remarkable success story.

It is instructive to consider Piketty’s claims in this context. Even if he were right about economic polarisation happening within developed nations, he would have to concede that globally inequality is diminishing between those countries adopting the capitalist model. 

The evidence is beyond dispute.

As countries move toward a free market system, their productivity improves, their incomes shoot up and incidentally they also improve on most other measures such as education, health and life expectancy. 

On this global scale, the spread of free market capitalism is a gigantic development programme. It produces results that decades of government aid could not deliver. And it is closing the gap between the world’s rich and poor.

Indeed.

As developing countries become more free market, developed countries’ response cannot be to become more regulated and redistributionist. Yet this is what Piketty recommends. 

If implemented, such policies would only render developed nations less competitive against their newly developed challengers. This in turn would exacerbate the problem he seeks to address.

Whoever cares about (global) inequality should support capitalism, not fight it. 

Well said.

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44 Responses to “Hartwich on Piketty”

  1. Manolo (14,179 comments) says:

    The same Piketty adored by the Left and elevated to superstar status.
    The comrades at The sub-Standard, led by the effeminate Lynn Prentice, are already practicing fellatio on Thomas.

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  2. mikenmild (12,446 comments) says:

    ‘Even if he were right about economic polarisation happening within developed nations, he would have to concede that globally inequality is diminishing between those countries adopting the capitalist model.’
    But that’s not what he is arguing, is it?

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  3. Johnboy (17,051 comments) says:

    Shit I better get in early here so I can get a higher score,….. even though I’ve never heard of the bloke! :)

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  4. Danyl Mclauchlan (941 comments) says:

    His analysis of a widening gap between rich and poor in developed, capitalist countries (if it holds) may be interesting but it ignores a much more important development.

    While there may be growing inequality within countries, on a global scale we are observing the very opposite between countries.

    Piketty talks about the inequality gap between countries in the early part of the introduction to his book, and then again in more detail within the body of the text. Turns out that was a very useful thing for him to do because it helps identify when clowns like Hartwich critique the book without even having made it through the introductory chapter.

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  5. Scott1 (592 comments) says:

    My thoughts on this are

    1) I suggest that countries like China and South Korea etc out competing the West is mostly not the result of income disparity reduction forces – it is simply a result of the rich in Asia out competing the rich in the west and the poor in those countries getting a better trickle down as a result. So the effects are independent and may well persist when those asian countries are richer.

    2) I think there is a force for growing inequality within countries that is persistent. It is driven not (or at least not largely) by liberalization per se but by the development of technology and the ability to spread the work of the geniuses over a larger set of customers in a wider area, that obviously makes him more money – it also reduces opportunities for the guy who would have done that job to a lower standard if not for the genius’s presence.

    BUT it depends on how you measure inequality – this method measures it by $. But there is a more important measure in terms of living standards. Today even a homeless person in NZ can afford clothes and food of a much higher standard than
    rich people would have a few hundred years ago. It is possible that as in the past this effect will overwhelm the other effect.

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  6. mjw (401 comments) says:

    In a complex debate like this, it is rather dangerous to accept a partisan critique at face value. Here are some other views.

    From the Economist:

    “All told, Mr Piketty is guilty of sloppiness (certainly in his notation), and perhaps of some errors. But there is little evidence, so far, to support the serious charge of cherry-picking statistics. Nor have his findings that wealth concentration is, once again, rising been fatally undermined.”

    From the New York Times:

    “If we had to summarize the consensus that has emerged on L’Affaire Piketty, it goes something like this. Mr. Giles raised worthwhile issues about Mr. Piketty’s methods that are fair to debate. But Mr. Piketty’s response also makes clear that Mr. Giles’s approach has flaws of its own and shows less inequality in Britain than there actually is. Indeed, Mr. Giles’s results point to a world at odds not just with Mr. Piketty’s data, but also with that by other scholars and with the intuition of anyone who has seen what townhouses in the Mayfair neighborhood of London are selling for these days. That doesn’t mean Mr. Giles is wrong — the whole point of academic research is to gain something more solid than intuition — but the idea that the whole of Mr. Piketty’s argument rests on a few shaky assumptions seems unfair to the Frenchman.”

    So while Piketty may not be perfect, his fundamental thesis has not been successfully rebutted.

    Sorry about that dpf.

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  7. Other_Andy (2,676 comments) says:

    Piketty makes a straw-man and proceeds to beat it to death.
    (One of the left’s favourite games, making sh!t up.)

    He makes a fatal error by saying capitalism and the free market are causing rising inequality.
    However, Piketty’s data does not come from capitalist economies, because no country in the world has capitalism.

    Yet Another Reason Why Thomas Piketty Is Wrong.
    http://www.forbes.com/sites/timworstall/2014/06/05/yet-another-reason-why-thomas-piketty-is-wrong/

    Thomas Piketty Pens Communist Manifesto for 21st Century
    http://www.forbes.com/sites/keithweiner/2014/05/31/thomas-piketty-pens-communist-manifesto-for-21st-century/

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  8. mikenmild (12,446 comments) says:

    forbes.com eh? Probably Austrian nutjobs.

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  9. gump (1,685 comments) says:

    It’s hard to tell if the problems with the data are due to incompetence or malice.

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  10. Sector 7g (242 comments) says:

    Forget equality. This is purely about income. Nothing more.

    The input equals the output.

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  11. ShawnLH (6,707 comments) says:

    “forbes.com eh? Probably Austrian nutjobs.”

    Wow, the power of your rigorous argument here is impressive. Love the detailed analysis.

    Forbes is not known for Austrian economics though I would love to see a serious defense of your claim that Austrian economists are nutjobs.

    I won’t hold my breath.

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  12. odysseus (26 comments) says:

    Oh dear, every time DPF cites silliness like hartwich and strays into economics it is an embarassment. Mjw summarises it above, and is backed by Krugman, DeLong etc .

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  13. mikenmild (12,446 comments) says:

    forbes.com is well known for hosting any kind of nutjob blog.

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  14. Ed Snack (1,941 comments) says:

    Funny and funnier, mike mild wants to label Forbes as right wing nutjobs then cites Krugman. Hey, isn’t he the guy who pointed out how wonderful a job the Veterans Affairs were doing with Vets health ? Shame about all the deaths while on secret waiting lists AND the paying of millions in bonuses to bureaucrats at the same time. Yes, that utterly shameless partisan hack.

    And the NYT and the Economist, oh so well known non partisan sources.

    Unfortunately Picketty has bee shown to be fabricating and cherry picking data, his response was sheer bluster and ad-hom. Fraudulent behaviour, no wonder he is so liked by the left as he represents that which they hold inmost esteem, the successful hood winking of people in the name of their ideology.

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  15. Ross12 (1,488 comments) says:

    OMG ” and is backed by Krugman,” says it all !! It must be rubbish.

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  16. mikenmild (12,446 comments) says:

    But I didn’t cite Krugman. I just pointed out that blogs on forbes.com do not have any reputation as reliable sources (to put it mildly). Oh, and Piketty has not been shown to be fabricating data. If he were, it would doubtless be pointed out.

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  17. Other_Andy (2,676 comments) says:

    “Funny and funnier, mike mild wants to label Forbes as right wing nutjobs.”

    Not funny, just very predictable.

    Mikenmild labels everybody who opposes policies that increase government growth and taxes and shows that these policies are detrimental to peoples economical and social wellbeing as nutjobs.

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  18. wat dabney (3,850 comments) says:

    “I learned a lot from reading Piketty’s book. Specifically, I learned how many self-styled progressives today are willing to sacrifice the standard of living of billions of poor people, in order to prevent a few people from becoming really rich.

    http://rare.us/story/thomas-piketty-wants-to-keep-billions-of-people-poor-to-stop-a-few-from-becoming-rich/

    Besides which, Piketty is in the position of global warming alarmists: advocating a clever theory to explain something which demonstrably isn’t actually happening.

    income inequality among individual American income earners has been essentially flat during for more than 50 years since 1961

    http://www.aei-ideas.org/2014/06/sorry-krugman-piketty-and-stiglitz-income-inequality-for-individual-americans-has-been-flat-for-more-than-50-years/

    Piketty is advancing a position which is statistically false and morally bankrupt.

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  19. Johnboy (17,051 comments) says:

    milkey supports a Catholic dominated HOBM too Other_Andy but poses here as a pseudo lefty.

    We all know he has no credibility at all! :)

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  20. mikenmild (12,446 comments) says:

    HOB and Wainui both winners today, Johnboy.

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  21. Ross12 (1,488 comments) says:

    If you are referring to my post Mikenmild @5.55 –I was actually quoting odysseus

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  22. mikenmild (12,446 comments) says:

    No Ross, it was Ed Snack who said I was citing Krugman.

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  23. JC (951 comments) says:

    The man advocates transferring wealth to the poor to reduce inequality. Yet in the last 50 years there’s been the most massive transfers ever in virtually every developed country and according to the man inequality has increased?

    Its reasonable to suggest that transferring wealth is *not* the answer beyond a certain point.. indeed the welfare state may well be the cause of inequality because it reduces or removes responsible life choices from a significant number of people.

    JC

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  24. slijmbal (1,236 comments) says:

    Can anyone explain how inequality rather than unequal access to opportunity or no access to a reasonable level of life ala health, education etc has suddenly became a bad thing?

    I’m part way through reading Pikkety’s book (it’s pretty massive) and also took the time to read his blog. Pretty bluntly, inequality is seen as a bad thing. In this case inequality is seen as wealth/income disparity.

    By definition, inequality means richer people live longer (actually, not a lot more nowadays), have better health (actually, not a lot more nowadays), are better educated (actually, not a lot more nowadays) etc. In terms of life outcomes it seems to me that many of the most important outcomes are much more equal than they were. His figures implicitly paint the 50s as a better time in terms of inequality than more recent times. News to all the people I grew up with in Liverpool – who could finally get degrees whose parents never could.

    However, the causes of inequality – success and saving are thus also seen as bad by implication. Both of these are consequences of capitalism, which even most socialist diehards admit mean we all have Sky TV, eat too much and have a standard of living beyond the dreams of royalty even 100 years ago.

    The whole campaign against inequality appears to be mega-socialism in disguise and punishing success. Remove reward and people like me stop working 60+ hours a week and taking large financial risks to build a business and will stop employing people.

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  25. somewhatthoughtful (472 comments) says:

    The intellectual rigour and honesty of the right is always breathtaking to observe.

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  26. Tom Jackson (2,553 comments) says:

    Giles critique was already discredited before you posted, DPF. He relies on self reporting for the UK results, whereas Piketty relied on tax returns, the latter usually being more accurate.

    As usual you and Hartwich are late to the party.

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  27. Tom Jackson (2,553 comments) says:

    However, the causes of inequality – success and saving are thus also seen as bad by implication. Both of these are consequences of capitalism, which even most socialist diehards admit mean we all have Sky TV, eat too much and have a standard of living beyond the dreams of royalty even 100 years ago.

    You’ve completely misunderstood the book.

    His point is that success and all that shit doesn’t have that much to do with inequality. He has shown that under normal circumstances, the rate of return on capital exceeds the economic growth rate. In other words, the more capital you own, the more wealth will accrue to you no matter what you do. The result is a rentier society like that described in 19th century novels, where the easiest way to get rich is to marry into the property owning class.

    This is why Hartwich and the other losers are pissing their pants about Piketty, because he’s shown that the best way to get rich is not to work hard or to invent useful things, but to already be rich, and that the longer things go on, the balance will keep moving towards already being rich.

    We lived through odd times in the 20th century in which revolutions and world wars obliterated the wealth of the rich. People took that to be normal, but Piketty has proven that it was an aberration.

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  28. Tom Jackson (2,553 comments) says:

    Short version: Piketty has shown that capitalism has a tendency to produce an small overclass who own almost all the wealth in society and that their ability to retain this position or get into it generally has nothing to do with productivity or merit.

    In other words, capitalism is inherently unfair no matter what generally accepted metric you use to determine how people deserve wealth.

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  29. JC (951 comments) says:

    slijmbal,

    I grew up back in 50s NZ and one of my abiding memories (and source of lolly money) was the phone in our garage.

    Each morning there on the bench by the phone was always some pennies, a sixpence or three and the occasional shillings because the neighbours knew about the phone and came in to use it at night and leave some dough for the use.. not that many people had a phone in the second most prosperous nation in what would become the OECD.

    And if a pregnant mum had a craving for peanuts and icecream then the Dad got out the bike and pedaled the mile or two down to the corner shop.. no car or a much too important or temperamental beast to risk outside the Sunday drive or to the footy.

    Compare all that with the poor today and there’s simply no doubt that our “equality” back then was really a much wider shared adversity rather than the much more limited adversity of today where being poor means one phone, a couple of cells, a colour TV, a battered Corolla with ten times the safety, comfort, accessories and efficiency of the old Golden Holden and a house twice the size of richer people in the UK and Europe.. on just about every metric being poor in NZ (and the US) means not poverty but a baseline below which no Kiwi need fall into genuine hardship.

    Rugby’s on, must go.

    JC

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  30. Tom Jackson (2,553 comments) says:

    on just about every metric being poor in NZ (and the US) means not poverty but a baseline below which no Kiwi need fall into genuine hardship.

    Just think of how well off not only poor, but middle class people would be, if the fruits of growth had been shared the way they were in the 50s-70s.

    Unless you are extremely rich, the fact is that other people have taken most of the benefit of your hard work, no matter how hard you worked.

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  31. Tom Jackson (2,553 comments) says:

    As usual, the fucking retards here have no clue and haven’t even read the fucking book they’re talking about.

    Stupid cunts.

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  32. slijmbal (1,236 comments) says:

    @TomJ

    says “You’ve completely misunderstood the book.”

    utter bollocks

    and “In other words, the more capital you own, the more wealth will accrue to you no matter what you do. ”

    is straight out out of the Marxist philosophy of capital is theft and is further nonsense – you do actually have to look after capital to make it gain value.

    accrued capital is a result of success nowadays from you or your forebears and no I did not misunderstand the book as I haven’t finished reading it but I’ve not misunderstood the message he presents into the Interweb and the book, so far mimics his public message. Have you read the book?

    Inequality is a requirement for progress – the real issue is what do we do with those that don’t succeed i.e. the welfare state

    I presume you are marxist or similar by your utterings?

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  33. swan (665 comments) says:

    “Short version: Piketty has shown that capitalism has a tendency to produce an small overclass who own almost all the wealth in society and that their ability to retain this position or get into it generally has nothing to do with productivity or merit.”

    Except he hasn’t shown that at all Tom. He has a model of growth that doesn’t actually say anything about inequality unless you make (rash) assumptions about savings.

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  34. CharlieBrown (1,054 comments) says:

    Tom – “Short version: Piketty has shown that capitalism has a tendency to produce an small overclass who own almost all the wealth in society and that their ability to retain this position or get into it generally has nothing to do with productivity or merit.

    In other words, capitalism is inherently unfair no matter what generally accepted metric you use to determine how people deserve wealth.”

    Thats the story of life, not capitalism. Show me any society where things are fair? Was the USSR? Is South Korea? Are tin pot african countries? Is Germany? Is Singapore? Was Ancient Rome? Was Ancient Greace?

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  35. jawnbc (99 comments) says:

    So guess both The Economist and the BBC’s More or Less exonerating Piketty counts for nothing?

    *yawn*

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  36. jcuknz (689 comments) says:

    So many red herrings trying to justify the attack on a common sense and sensible point of view ….Yawn or LOL :)

    I found the book, or at least the executive summary of it, not to be an attack on capitalism but rather to ensure the bad aspect of capitalism was corrected … that the excessive accumulation of wealth by those that have it is bad …. it has nothing to do with the 99.9% of population but rather the progressing dominence of the 0.01% which is obsene. It was the state of the ‘western’ countries in 1914 and the world wars and depression of the 30’s corrected matters but has been getting worse post WWII.

    The trouble is that people are forever throwing the baby out with the bathwater and any comment about a bad aspect is taken as a condemnation of the whole … a sadly very common situation. It is a shame that DPF has fallen into that trap.

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  37. RightNow (7,015 comments) says:

    Another book about first world problems. Yawn.

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  38. tom hunter (5,134 comments) says:

    Giles critique was already discredited before you posted, DPF. He relies on self reporting for the UK results, whereas Piketty relied on tax returns, the latter usually being more accurate.

    Is that so, because Pikkety’s tax returns source itself notes that:

    [The data] is not a suitable data source for estimating total wealth in the UK, or wealth inequality across the whole of the wealth population; the Wealth and Asset survey is more suitable for those purposes”.

    Perhaps that’s why he chose not to look at estate tax records for the USA but the same type of surveys he rejected in the UK.

    As usual you and Hartwich are late to the party.

    And as usual you’re here making the same hand-waving, unargued assertions and trolling for as many negative clicks as you can get. I see you’ve had some success but you’ll have more if you revert to your favoured tweenie mode and start using derp and other such words.

    Everybody hates tweenies.

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  39. Yoza (1,927 comments) says:

    The entire point of the economic ‘reforms’ of the eighties, Rogernomics/Thatcherism/Reaganism/Neoliberalism, was to concentrate a greater portion of global capital into private hands. Guess what? It was a raging success, a very small percentage of the populations of developed countries got extraordinarily wealthy, their functionaries in the business class shared in the spoils and a form of debt peonage was the new norm for a vast swathe of the planet’s workers.

    For the last thirty years we have had endless publications churning out propaganda celebrating the massive accumulations of capital by that tiny elite, they even developed clichés to sneer at those critiquing the disparity – you were not pointing to an unsustainable socially unjust economic disaster, you were practising the ‘politics of envy’.

    Now, Piketty produces data reinforcing the paradigm the wealthy and their barnacles have been gloating about for the last thirty years and they are jumping all over him. What Piketty has pointed out is not controversial, we know the owners of the greatest concentrations of capital may as well live on another planet if we compare their influence and control with that of everyone else. The reason Piketty is being attacked so vociferously is the richest people are beginning to understand the gig is up, their ‘happy ever after’ is facing an increasing challenge from those on which it is founded. The longer they hold out the more sudden and violent will be the inevitable economic adjustment.

    Piketty isn’t wrong, he is just unnerving for the powerful few.

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  40. tom hunter (5,134 comments) says:

    Piketty isn’t wrong, he is just unnerving for the powerful few.

    Chuckle….

    Now recall the 1999 comedy Galaxy Quest, which parodied the original Star Trek television series and the way its fervent fans sometimes fail to distinguish fantasy from reality. In the film, the Trekkers, I mean Questers, include a race of aliens who have no concept of fiction. They kidnap the cast of the canceled Galaxy Quest TV series, believing them to be actual space explorers. Suddenly the washed-up thespians are living their TV roles, commanding a starship and battling a second, evil group of aliens. At one point, the Captain Kirk–like character tells a teenage fan that the sci-fi show is, well, real after all. “Oh my God!” the fan yells. “I knew it. I knew it! I knew it!”

    Thanks to Piketty, the Left is now having a Galaxy Quest moment. All that stuff their Marxist economics professors taught them about the “inherent contradictions” of capitalism and about history’s being on the side of the planners — all the theories that the apparent victory of market capitalism in the last decades of the 20th century seemed to invalidate — well, it’s all true after all. In their progressive hearts, they always knew it, knew it, knew it! The era of big government is back! Let the redistribution commence!

    I look forward to a the year 2050, where Bill Gate’s kids will be worth $US200 billion in 2014 dollars.

    Idiot.

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  41. stephieboy (3,535 comments) says:

    “Whoever cares about (global) inequality should support capitalism, not fight it. ”

    I agree DPF but not the deluded unbridled Austrian School and Libertarian kind with its various sects and denominations.

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  42. jcuknz (689 comments) says:

    Inequality is a requirement for progress

    Do not disagree with that but excessive inequality is the problem with tax avoidance by large companies and reports of wealthy people paying much less than the less well off. It seems that the wealthier you are the less contribution do you make to making society work. Spare me the self satisfied comments of rightists who think I am talking about their efforts becuase I am sure that nobody on this blog comes in the income bracket being discussed and are simply struggling to get into it and dead scared somebody will upset the applecart they are clambing towards in their dissatisfaction with where they are in our society.

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  43. jcuknz (689 comments) says:

    Tom H ‘I look forward to a the year 2050, where Bill Gate’s kids will be worth $US200 billion in 2014 dollars’

    I suspect that Thomas Piketty would not have a problem with that so long as the 5<7% of their annual income was being paid…. the trick is not to impede endeavour but to ensure everybody in need is cared for. If the BG Kids can amass such a wealth while paying their agreed share of governmental cost that is no problem.

    Remembering that the average person is only paying around 0.5% of their income unlike today when the figure is likely thirty times that …. But Mr Piketty has little hope of the world agreeing to such a common sense taxation … more's the pity.

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  44. jcuknz (689 comments) says:

    Another interesting thing that he points out in his book is that when Income Tax was first proposed it was way-out weirdness and the ‘end of the world’ …. but it isn’t and people accept it as a fact of life even if they grumble at its level :)

    I suggest people should read the book or at least the executive summary to learn the proposals rather than the uninformed comments of people jumping on the left v. right bandwagon as above.

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