am I going mad or is it totally strange and not normal for the president to be asking the general population to send him birthday cards
But doesn’t that make him “hip”?
Also “organizer in chief” is just such an odd term that implies some delusions of grandeur
After having given some preliminary bearings, Piketty is ready to flesh out his analysis. He will begin by looking at wage inequality around the world. This chapter is entitled “two worlds” because essentially, there seem to be two different trends going on. While many mainland European countries and Japan are seeing income inequality decrease, there seems to be a U shaped curve in inequality for Anglo-Saxon descended countries, similar to the U shaped curve in the capital/income ratio. This is what Piketty will look at. Because his trends are actually quite striking, I will not attempt a critique at these. Somebody better versed in the data might take issue, but I do not have the intellectual tools to do so. Instead, I will highlight what sparse important theoretical points he makes in this chapter.
The first one that jumps out at me is the following.
Generally speaking, very high incomes from capital usually correspond to fortunes so large that it is hard to imagine that they could have been amassed with savings from labor income alone…There is every reason to believe that inheritance plays a major role.
However, we should not take Piketty’s lack of imagination as evidence of the strong role of inheritance. While it is true that the high levels of wealth achieved by billionaires are probably not a result of strict wage income alone, it would be a false dichotomy to therefore conclude that their wealth must be due to inheritance. One only has to look at someone like Bill Gates to see that capital gains from entrepreneurial ventures are at least a third way where huge fortunes can be created without relying on inheritance or wages.
A little further down the page, Piketty is trying to explain how much of the decrease in inequality has been the shocks of the two World Wars. The historical correlation seems quite undeniable, so I will assume that Piketty is correct. However, he makes an interesting admission here.
This is hardly surprising in view of the extreme concentration of capital in the hands of “the 1 percent,” who in addition often held riskier assets.
I highlight this not because it is of any particular value to the issues of income inequality at hand, but because it has implications for his theory. Piketty’s contention throughout the rest of the book is that wealth at the top automatically generates itself at a high rate of return. However, here, he is admitting that this is not the case. When he says risk here, he is actually talking about both parametric or measurable risk and uncertainty (when the future is completely unknown). Therefore, even if possession of wealth at the top means that incomes are high, the fact that it is “riskier” means that it is also easier for the rich to lose it all. This would spell disaster for Piketty’s rich get richer worldview.
After looking at decreasing inequality inequality, Piketty points to a different trend where inequality is rising in America. To be sure, this sort of trend is non negligible and deserves some careful study, but as I will show in the coming chapter, what little theory Piketty presents is an unsatisfactory explanation of the trend.
In the middle of his discussion of the US, he asks whether inequalities are destabilizing. Here is his ultimate answer.
It is hard to imagine an economy and society that can continue functioning indefinitely with such extreme divergence between social groups.
Again, the argument is essentially an appeal to our limited imaginations, but beyond that, the argument is also a circular one. To demonstrate, let me rephrase his argument a little. He starts by asking the question of if inequality leads to instability. He answers this question by stating that an unequal society can probably not function properly, that is, it will probably be unstable, hence, inequality probably leads to instability. Hopefully, I do not have to explain any further and it is obvious that he has not said anything of value about the relationship between equality and stability in the above quotation.
Piketty then attempts to discredit a popular explanation of inequality, namely that some inequality can be explained away simply by the fact that older people will tend to have higher incomes than those just starting off. However, as usual, his arguments are indirect and strange.
The familiar mobility is powerful, so powerful that it is often impossible to verify. But in the US case, government allow us to measure the evolution of wage inequality with mobility taken into account: we can compute average wages at the individual level over long periods of time…And what we find is that the increase in wage inequality is identical in all cases, no matter what reference period we choose. In other words, workers at McDonald’s or in Detroit’s auto plants do not spend a year of their lives as top managers of large US firms, any more than professors at the University of Chicago or middle managers from California do.
What this data would show, however, is only that at least some of the rise in inequality is genuinely independent of any age effect. The fact that inequality exists within age groups does not, however, necessarily imply that inequalities between generations does not exist and it certainly tells us nothing about the magnitude of any age effects that might be present. Because we are not presented any actual data, we cannot determine whether age related factors or other factors are more significant in magnitude, but it would not be that hard to gather the data necessary. If Piketty was able to control for age, he should be able to get data about the average incomes of different age demographics. If this is the case, he could simply look at what inequality might exist between age groups and see if the inequalities are significant or negligible. Furthermore, his characterization of the opposing view is a complete strawman. Nobody is arguing that a factory worker will work a year as a top manager. That’s obviously stupid. Instead, the argument is simply saying that as people gain experience in their careers, their salaries will also tend to grow, therefore, some of the inequality that exists might be explained by differences between age groups alone, which is a much more reasonable statement.
In the next chapter, Piketty attempts labor economics through an inequality lens, which means that there will be many points of disagreement, so hopefully, I will have a lot more to say.
Located in Costa Mesa, California, Newlight Technologies is forming plastic out of thin air. Literally.
"We would be breathing this right now," said Mark Herrema, Newlight’s CEO.
Herrema sees both sides of the climate change debate.
"You’ve got people on one side who say, if we enact carbon legislation it’s going to cost the economy, and they’re not wrong," Herrema said. "On the other side, we have people who say this is a huge problem and we need to do something about it, and they’re not wrong, either. The problem is they haven’t been able to find something that works for both sides."
The 32-year-old may have found that “something.” He’s figured out how to make plastic out of destructive carbon emissions that would otherwise heat the atmosphere, rather than with fossil fuels such as oil. Most importantly, he figured out a way to do it cheaper. It’s something he has been working on for 11 years since he started the company with his friend Kenton Kimmel in his parents’ garage.
"We’re not the first people to have the idea of turning greenhouse gas into plastic," Herrera said. "The thing that was missing was that no one had figured out how to do it cost-effectively."
Here’s how it works: Carbon emissions are captured from farms, landfills, and energy facilities and are fed into a 50-foot-tall reactor at Newlight’s plant. A bundle of enzymes strips out the carbon and oxygen and rearranges them into a substance they call air carbon.
The product is then melted down and cooled inside tubes and sliced into little plastic pellets that can be molded into anything.
Herrema calls it “a disruptive technology that’s gonna change the world.”
Interesting to see where this goes. Cool sounding concept!
Ronald Coase, The Market for Goods and the Market for Ideas
Quick witted as ever, I see
THIS IS BEAUTIFUL
"on the boooooolovarrrd of brooookennnn dreeeemmsss"
(Source: sheshitsinsilence)Played 1403325 times.
I’m thinking of doing a post on Knightian uncertainty and its relation to search theory and the more I think about search theory the less sense it makes. How does it make sense for someone to know the distribution of opportunities without knowing anything about the individual opportunities…
My current thinking about judgement is that a true optimization problem must include every variable, which is impossible as a result of bounded rationality, so instead, agents have to select only a few variables to look at, so uncertainty arises (not to say that this is the only way it can arise, but at the very least, it is one way) when people try to challenge the existing order and attempt to solve a different optimization problem by introducing different variables.
I’ll try to make a post where I express this more formally.
If anyone needs any more evidence that Stefan Molyneux is a complete psycho
That was painful to listen to
Not only is there a sinister propaganda campaign by economists (academia is fiercely right-wing after all), but according to you the exploitation theory is “true by definition”. In other words, it’s a self-referrential tautology! Nice, I’m glad we cleared that up.
I fell as if calling out his exploitation theory as self-referential tautology might be too nuanced an argument for this guy to understand.
Edit: I read his response. He did not see the nuance in why a self-referential tautology cannot by itself be an argument.
i know its supposed to be like social list but did anyone think this through
organize the things you love, like the economy
collaborate in the workplace
share lists, photos, and the means of production
If this company ever uses SEO to get itself to the top of Google searches, that will pretty much be the ultimate irony.
As Piketty spends most of this chapter outlining what he will say in future chapters, I will try to be brief today as there is little argument yet.
Opening off part three of his massive tome, Piketty states:
In Part Two I examined the dynamics of both the capital/income ratio at the country level and the overall split of national income between capital and labor, but I did not look directly at income or wealth inequality at the individual level. (italics mine)
That would seem to imply that in the next section, he will look from an individual perspective. Unfortunately, he does no such thing. Instead, he looks at artificially constructed deciles and centiles to find patterns in these numbers. While this may seem a bit nit-picky, in Piketty’s case, it is not. Piketty’s r > g theory depends on a crucial assumption about wealth dynamics observed in rich persons. More specifically, it requires that those who start out wealthy can automatically always multiply that wealth. It is not enough to show that the wealthiest decile’s share of the wealth is growing. Piketty must show that a large majority of the people who start out in that top decile remain in the top decile throughout the period of analysis in for his theory to be fully corroborated by the data. This data is never presented.
Next, while he is talking about differences in inequality of income vs. inequality of capital, he slips out a crucial normative judgement that underpins the rest of his work.
Inequalities with respect to labor usually seem mild, moderate, and almost reasonable (to the extent that inequality can be reasonable-this point should not be overstated)
The implication is that Piketty assumes that there is some optimal level of inequality that policy should bring society towards and the current levels are too high. Of course, it is okay to make normative statements like this in certain contexts, but since Piketty has already professed himself to studying just the facts, he must be much more careful about what he says. It is not enough for Piketty to establish that inequality exists and that it can be quite big. The purpose of his book is to try to convince his readers that inequality is too high. However, he sets out to do this without ever attempting any objective definition of what “too” high is. His entire argument might boil down to “inequality seems to be rising and I think that’s a bad thing”, which then boils down to little more than ideology.
Another peculiar line appears as he is talking about the implications of his data.
We can therefore try to determine whether “the 1 percent” had more power under Louis XVI or under George Bush and Barack Obama.
Here again, we can see where Piketty’s sometimes imprecise use of vocabulary allows him to make his data more normative charged than it should be. In reality, we can only see if the “1 percent” has a higher or lower share of the wealth under the respective regimes. However, while wealth may be correlated to power, it is a stretch to equate the two. In particular, even if wealth distributions look very similar under the two, the dynamics of wealth and how it is created and destroyed may be very different. This is a crucial component that no data of the form Piketty collects can tell us.
Afterwards, he tells us of the “major innovation” of the 20th century, which is the “patrimonial” or propertied middle class. He states:
Basically, all the middle class managed to get its hands on was a few crumbs
Again, this sort of language is unjustifiably emotionally charged. The idea of crumbs draws an emotional reaction because crumbs are clearly not enough to survive on. However, the so called “crumbs” that many middle class people enjoy today provide for quite a comfortable lifestyle (if comfort is what you desire). Again, I am not trying to argue against impassioned rhetoric as is used here is wrong in general, but for Piketty, the supposed scientist, this sort of pandering to emotions should be kept to a minimum.
Since this chapter contains little real content and is more of an introduction, I have kept my review quite short. Tomorrow, we can begin dissecting the meat of Piketty’s arguments about inequality.
The most dangerous phrase in the language is, “we’ve always done it this way.”
"Come on, let’s mix it up!" The heart surgeon says.
"B-but we’ve always done it this way!" The other replies, "this is how you replace a heart valve."
"That’s the most dangerous phrase in the human language!" The first surgeon replies haughtily as he inputs a fruit loop into the patient’s heart. "This will be his valve. He will be a fruit loop in a world of Cheerios."
(taken from this post on the experiments of Harry Harlow)
This is serious business, because this is a large part of how sexism, racism, homophobia, rape culture, ethnocentrism, etc. continue to happen.
That bullshit heart surgery example doesn’t even make sense though, does that person think that we’re still doing heart surgery the exact same way we’ve always done heart surgery? As if medicine isn’t constantly changing and updating? Wow it’s almost like people are finding excuses to not have to think critically about the world!
You mean we don’t still take people’s brains out and rub them in salt to dispel the devil and cure headaches? I’m pretty sure that’s established medieval protocol, wouldn’t want to mix things up.
I think there is a great deal of nuance missing here. The heart surgery example shows that in certain contexts, “we’ve always done it this way” might be a sensible thing to say. That’s not to say that there are not many cases where this is a dangerous line of reasoning. It’s just to say that the underlying merits of the argument based on its context should be examined before calling it the “most dangerous phrase in the language”
As always, graphs and figures referenced can be found here
In chapter 2, Piketty studied the growth side of his r > g inequality. After 3 chapters of build up, chapter 6 is set out to answer questions about r.
Hence the central question is the following: How is the rate on capital determined?
He starts by looking at some long run trends about the share of income that goes to capital and labor respectively. After presenting Figures 6.1 of Britain and 6.2 of France, Piketty attempts to find patterns.
We find that the general evolution of capital’s share of income, α, is described by the same U-shaped curve as the capital.income ratio, β, although the depth of the U is less pronounced.
In fact, the depth of the U shape he is looking for is so much less pronounced that I cannot even see the shape without being a little imaginative. It is true that there is a slight trend up from about 1970-2000, but then again, between 2000 to 2010, there’s a slight trend down. In other words, the U shape that Piketty is trying to correlate is a huge stretch.
This data is actually a good demonstration of why Piketty’s α = r x β tautology can be misleading. As I have discussed earlier, β is highly related to r. This is easier to see if we regard r not as some rate of return but as a discount factor, which is the standard view in economic theory. The numerator of β, the capital stock, is measured by adding up the market value of the various items of capital. In equilibrium, the value of any particular item of capital is equal to the value of all future products of said item of capital discounted for time. The higher r is, the more the value of the product of capital is discounted, or in other words, r tends to move in the opposite direction as the value of the capital stock (barring market “imperfections”), so it will in general move in the opposite direction as β. As a result, even if β swings drastically, the change in α might be minute because of a balancing change in r.
After this look at the data, Piketty comes to a very important section. Finally, he is going to describe how the “r” in r > g is calculated.
At this stage it is important to point out that the capital shares and average rates of return indicated in Figures 6.1-6.4 were calculated by adding the various amounts of income from capital included in national accounts regardless of legal classification…and then dividing this total by national income…or by the national capital stock.
This calculation suffers from the serious deficiency that it fails to account for capital depreciation. Piketty looks at the income from capital, but often, these incomes are calculated gross of any expenses from depreciation. We live in a world where all physical objects deteriorate at some rate, and therefore, resources must be invested into reversing this process. As a mere accounting quirk, depreciation considerations are usually not listed as part of income calculations, which means that they do not show up in Piketty’s data. However, since depreciation does reflect a real cost to using capital, it should factor into his calculation about the return on capital. As it turns out, and as Larry Summers argues, the removal of depreciation from the calculation of r was enough so that while in Piketty’s data, r > g seems to be an empirical fact for much of history, in the real world, r < g seems to be more the norm. With this one admission, Piketty’s entire theoretical work definitively crumbles. r > g cannot explain divergent wealth because r > g was never an empirical reality. However, despite refuting Piketty’s central thesis here, there are many more issues that need to be resolved. We therefore continue.
Piketty continues on with a confused discussion about marginal productivity theory as it relates to capital.
According to the simplest economic models, assuming “pure and perfect” competition in both capital and labor markets, the rate of return on capital should be exactly equal to the “marginal productivity” of capital.
Unfortunately, cause and effect are quite problematic in terms of causality. In the broadest sense, rate of return can be thought of as the annual marginal product of capital divided by the market value of that capital, or r = MP / P, where P is price. Under perfect competition, r is just data about the market from the perspective of the individual and MP is the objective productive capacity of the capital (assuming that market valuation of whatever that capital is producing is constant). Therefore, it is likely that MP does not explain r, rather, MP and r together explain the value of capital. Instead of critiquing marginal productivity theory in this way, Piketty opts for the more trite critique which is simply that
marginal productivity of capital is defined independently of the institutions and rules
This critique is misplaced, as most theorists are quite explicit about their assumptions, namely that marginal productivity theory assumes a competitive market whose capital markets are in equilibrium.
Piketty then stumbles through the notion that “too much capital kills the return on capital”. To demonstrate why this might be the case he argues:
For example, if each agricultural worker already has thousands of hectares to farm, it is likely that the extra yield of an additional hectare of land will be limited.
This is his anecdotal way of saying that there are likely to be decreasing returns to scale. Of course, this argument is perfectly justified when analyzing any particular item of capital like land. However, this same analysis is completely inappropriate when applied to capital as a heterogeneous category. In the aggregate, it is possible to simply find new types of capital when old types have become superabundant and have lost their value. If land is too abundant and does not produce high returns, then investment will shift to other things such as factories. When factories themselves become abundant, perhaps retail stores become more fruitful investments. Piketty’s analysis falters when one looks at capital in a broader sense.
Coming back to figures 6.1 and 6.2, Piketty argues that even though labor now takes almost 80% of the income when it used to take less than 70%, we should be cautious because “we do not have sufficient perspective at this point in history to reach an adequate judgement about the very long-run evolution of capital’s share of the income,” This assertion taken on its own might be convincing, but taken with his other use of data, I am doubtful about Piketty’s intellectual consistency. For Piketty, looking at data series in Britain and France from 1700-present was sufficient to find the long run trends he was looking for. His data about the capital labor split, however, runs from 1770-present. Although 70 years of data might not be a trivial amount by any stretch of the imagination, it is small enough relative to the total period of data being analyzed that one must wonder if it is enough to justify concluding “long run trends” in one case and “insufficient perspective” in the other. Without a good answer myself, I will simply leave this question to the good judgement of my readers.
Before I finish for today, there is one more section that merits a few moments of analysis, namely, his discussion of the Two Cambridges Debate. In particular, one line stands out.
In my view, the virulence-and at times sterility-of the Cambridge capital controversy was due in part to the fact that participants on both sides lacked the historical data needed to clarify the terms of the debate.
This judgement is strange in the light of the fact that the debate was a purely technical/theoretical one. American Keynesians attempted to aggregate the quantity of capital into one variable K. To calculate K, they proposed adding up the market values of all capital, and then wrote out that production is a function of L (labor) and K. Income to capital was defined as the quantity of capital times the return to capital (If this sounds familiar, that’s because this statement is if we took α = r x β and multiplied it by total income. In other words, the Cambridge, England critique is relevant to Piketty’s own work). The English Keynesians, however, showed that K changes value depending on r, the normal rate of profit (although defined as it is, r is actually usually called the rate of interest). Because K is highly dependent on the value of r, causality with respect to capitalist income is indeterminate in the American Keynesian’s system. The causality in question is a purely mathematical one and is independent of the data. Piketty’s statements therefore betray a lack of understanding of the theory. It makes it seem as if Piketty’s embracing of the data has little to do with any principle and more to do with his inability or unwillingness to fully appreciate the theory. It is true that data plays a large role in testing the validity of a theory but no amount of data changes the mathematical fact that 1 + 1 = 2. In other words, theory has its limits that require the use of data to resolve, but the data has its own limits as well. Until Piketty can realize this, he will remain a data collector, not an empiricist.
I can’t really think of any neoclassical that comes to mind who thinks Hayek was only relevant for his micro work since I don’t think any of Hayeks best known work can be thought of as micro. Most neoclassicals, I think, see his most important work is The Use of Knowledge in Society, which is very obviously about macro. He is explicitly talking about knowledge in society as a whole, so there is clearly a macro theory being proposed, but yeah, I agree that the so called knowledge problem has many macro implications
I’ve been a non-conformist for as long as I can remember. “All the other kids love sports” never seemed like a good reason why I should feel - or pretend to feel - the same way. “None of the other adults are wearing shorts and flip-flops” never seemed like a good reason why I should make myself uncomfortable. It wasn’t mere elitism on my part. “All the other Princeton economists take general equilibrium models seriously” was no more compelling to me than “All the other teens want their own car.”
Non-conformism at my intensity rarely allows real-world success. Doing well almost always has a big social element; going solo gets you nowhere. Yet by conventional standards, I’ve succeeded. I have a dream job for life and enough money that I don’t think about money. How did I pull it off?
Some of it’s luck - especially the luck of being in the right place at the right time to meet the right people. (Thank you, Tyler Cowen). But in hindsight, I also played my cards fairly well. If you’re a non-conformist who hopes to succeed in our conformist world, my favorite strategies will probably work well for you, too. In no particular order:
1. Don’t be an absolutist non-conformist. Conforming in small ways often gives you the opportunity to non-conform in big ways. Being deferential to your boss, for example, opens up a world of possibilities.
2. Don’t proselytize the conformists. Most of them will leave you alone if you leave them alone. Monitor your behavior: Are you trying to change them more often than they try to change you? Then stop. Saving time is much more helpful than making enemies.
3. In modern societies, most demands for conformity are based on empty threats. But not all. So pay close attention to societal sanctions for others’ deviant behavior. Let the impulsive non-conformists be your guinea pigs.
4. During childhood, educational institutions’ threats are by far the most real. While “This is going on your permanent record” is usually an empty threat, “Do as we say or you will suffer at the next educational level” is not. Vivid anecdotes about billionaire dropouts aside, the modern labor market remains extremely credentialist, and there’s no reason to think this will change anytime soon.
5. A non-conformist attitude toward education is dangerous because academic status is painfully linear and cumulative. To go to college, you must finish high school; to finish high school, you have to finish all the 12th-grade requirements; to finish the 12th-grade requirements, you have to finish all the 11th-grade requirements; and so on.
6. Fortunately, the content of modern education is neither linear nor cumulative. You can safely forget most of what you didn’t feel like learning right after the final exam.
7. Although teachers and students urge you to conform across the board, good grades in hard classes are virtually the only thing with long-run consequences. You can live with C’s in P.E. Or ugly nicknames. Or exclusion from the cool kids’ clique.
8. Educational success hardly guarantees career success. But educational credentials open a lot of doors - including most of the doors to non-conformist-friendly careers in academia, science, and yes, bureaucracies.
9. Most bureaucrats are deeply conformist, but bureaucratic (lack of) incentives are great for non-conformists. Think job security.
10. Social intelligence can be improved. For non-conformists, the marginal benefit of doing so is especially big.
11. Treat your family fairly, but remember that relatives - especially older relatives - are the lords of empty threats. Despite all their criticism, they probably love you too much to do more than nag you.
12. When faced with demands for conformity, silently ask, “What will happen to me if I refuse?” Train yourself to ponder subtle and indirect repercussions, but learn to dismiss most such ponderings as paranoia. Modern societies are huge, anonymous, and forgetful.
13. Most workplaces are not democracies. This is very good news, because as a non-conformist you’ll probably never be popular. You can however make yourself invaluable to key superiors, who will in turn protect and promote you.
14. Spend the first year of any job convincing your employer he was right to hire you, and he’ll spend your remaining years on the job convincing you not to leave. This advice is almost equally useful for conformists, by the way.
15. Despite everything, the world has more greatness than you can savor in a lifetime. And in the modern world, finding greatness is remarkably easy. Stop complaining, stop feeling sorry for yourself, and suck the marrow out of life.
16. Hiring your non-conformist friends is a great way to make your life better… but only if they follow these rules, too!