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Piketty's Big Data
by Rainer Rilling and Robert Misik
Email: marc1seed (nospam) yahoo.com
17 Nov 2014
The empirical-historical analysis of the top incomes and their wealth are at the center with Thomas Piketty's "Capital" (2014). The share of the top 10% in income was never below 60% from 1917 to 2012. A wealth tax is vital to reverse the exploding inequality. The richest 400 Americans have more wealth than 150 million.
PIKETTY’S BIG DATA
By Rainer Rilling
[This article is translated from the German in the free Rosa Luxemburg book “Oh, Gott!” (2014) www.rosalux.de. Rainer Rilling is a sociologist and senior fellow at the Institute for Social Analysis of the Rosa Luxemburg foundation.]
Unlike the left deconstruction of the distribution- and inequality question focused mostly on poverty, the empirical-historical analysis of the development of the top incomes and their wealth are in the center with Thomas Piketty’s Capital (2014). The international research group claims to have built the most comprehensive data collection on the historical income- and wealth research with the World Top Income Database (WTIP). Since the beginning of the last decade, it has published 22 country studies and 45 more are underway. The analyses refer back to tax data. From this, they draw conclusions on incomes (dividends, interests, rent etc) from capital. Other sources are cited so statements can be made about wealth development. The journal Science that devoted its May 2014 issue titled “Science of Inequality” to the “haves and have-nots” compared the WTID with the grail of the natural science data world, the Human Genome Project (HGP) decoding the human genom.
Capital repeatedly hits the mark. All the studies and empirical findings in Capital (like the data base) are openly accessible on the Internet. If the HGP and the corollary projects open up a new dimension of commodification and new capital investment possibilities, this project of large-scale economic research is a case of public science that actually ends up as politicization, not commercialization. As there is a broad debate and the beginnings of a public sociology (above all in the US) on Michael Buraway’s initiative, the WTID and Piketty’s Capital give a critical scholarly impetus for shifting political relations. Piketty himself places his text in political economy,
Capital’s big data from the last 250 years counters the habit of the rich and “their” sciences of making their wealth as invisible as possible. That is part of public political economy. Its empirical data brings a distribution-critical approach with the means of an empirical-historical analysis and also stands up to the first critical polemics (e.g. The Financial Times). For a long time, big data was hardly a field of conflict between the subordinate and the rich. This changed with Capital. “Refusing to deal with numbers rarely serves the interests of the least well-off” (Piketty 2014a, 577).
THE NEW PERSPECTIVE
From the treatment of his data, Piketty votes for a fundamental change of view on the history of inequality in capitalism. He formulates a counter-thesis to the “great fairy tale” (Piketty) of US economics about economic growth and income inequality told by the president of the American Economics Association, Simon Kuznets in 1953. According to this fairy tale, the growing inequality in the initial phase of capitalism was superseded by a perpetual era of increasing equality with the increasing industrialization. Against this, Piketty says: the expansion of income and assets inequality in capitalism is normality, not an exception. There are regions and periods of time when inequalities declined – in Europe in the period between 1914 and the beginning of the 1970s. The everyday consciousness and the leading scholarly conceptions were marked by this. The two great narratives of the “Age of Catastrophes” (up to 1945) and the following “Golden Age” (Hobsbawm) were hegemonial. Generations were marked by this integrative social narrative of capitalism’s promises of equality. However this is an exception for Piketty, not a new normality. Capitalism is a machine of growing inequality if it is not checked and ultimately stopped.
THE TURN TO WEALTH ANALYSIS
Piketty’s political motivation is coupled to a research interest that is different from the current approach of his guild. “I wanted to understand how wealth or super-wealth is working to increase the inequality gap. What I found […] is that the speed at which the inequality gap is growing is getting faster and faster. You have to ask what does this mean for ordinary people who are not billionaires and will never be billionaires. I think it means deterioration in the first instance of the economic well-being of the collective, in other words the degradation of the public sector […]. There is a fundamental belief among capitalists that capital will save the world and it just isn’t so” (Guardian 4/13/2014). Piketty, Anthony Barnes Atkinson, Gabriel Zucman, Emmanuel Saez and others diagnose a massively escalated concentration of income and wealth in the example of the US (and with the help of two dozen other countries). The share of the top ten percent in income from assets in the US was never below 60 percent between 1917 and 2012, continuously increased since 1987 and currently is at 75 percent. In Europe, it amounts to 65 percent. The share of the top one-percent rose from 25 to around 40 percent between 1978 and 2013; thus it increased more intensely. In the course of the last 30 years, more than 15 percent of US national income shifted from the bottom 90 percent of the population to the top 10%. The share of the richest (the top 0.01 percent, 16,000 households with over $100 million) in US wealth multiplied in the last 35 years (from 4 to 11 percent in 2013). The music plays there. (Boyer 2013). The wealth of the richest persons in the world grows three times as fast as the average income. The frequent reference to the rise of the middle classes in the BRIC-states or to global adjustments of the average incomes is not an argument against the enormous differences in wealth. “Theoretically in 30 to 40 years, a few rich could possess nearly all assets worldwide” (Piketty 2014b).
Piketty emphasizes the growing significance of inherited wealth. The four members of the Walton family (Wal Mart) alone take the 9th, 10th, 11th and 12th places on the Bloomberg list of the global rich and possess more inherited wealth than the lower 50 million families in the US. Inherited wealth already amounts to a third of the “Forbes 400.” In countries like France and Germany, the rise of the highest incomes and the increase of wealth through inheritance has become a key question again in the last quarter of a century. Already in 2010 inherited capital in France amounted to two-thirds of private capital. Inheritance policy and inheritance taxes becomes a central field of distribution- and justice-policy since capital from inheritances or capital under family- and clan control has become a central political actor today in a series of countries. Patrimonial capitalism casts a long shadow.
CAPITAL IS BACK R > G
What is the background of these developments? The top-medium of market radicalism – the British Economist - summarizes Piketty’s core thesis in the sentence: wealth grows faster than the whole economy. Piketty sees here “the fundamental force for divergence” (2014a, 25), a “principle destabilizing force” (ibid, 571) and even “the central contradiction of capitalism” (ibid). For a long time – in capitalism and before – the return on capital grew faster than the growth rate of income from labor and capital, that is value creation (g). Incomes and assets concentrate more and more at the top of the social pyramid. Piketty follows the widespread assumption that rising productivity through technological progress and increasing population growth is the real driving force of growth. Inequality increases with strongly growing returns on capital or declining growth (also population growth). Around half of the growth of the GDP in the last century referred back to population growth – a trend that ended for Piketty and Zucman (2014): “Capital is back because low growth is back.” The growing inequality goes back to the increase of income that flows into capital in the form of profits, rental incomes or interests seeking investment since only a small part is consumed. If the general growth rate declines, the growth of income from capital must also fall but more slowly. The income from capital is the great driver of inequality, not the movement of income from labor.
The return on capital (r), the profit rate on tangible- and financial assets, was between four and five percent a year in the last 250 to 300 years compared to the growth from all income, the GDP (g) that increased between one and two percent a year in the rich countries. Piketty (2014a, 27) concludes: “The more perfect is the capital market (in the economist’s sense), the more likely r is to be greater than g.”
What Piketty condenses to a formula (r > g) is cautiously described as a “probability” or “tendency” by his critics. In an interview (2014b), he emphasizes: “I do not claim the future cannot be different. A prediction about the coming decades is fraught with many uncertainties. Capital returns need not remain so high and economic growth can increase again and thereby reduce the inequality. But there is a risk that it will rise again and we must be aware of that.” He summarizes: “To sum up: the inequality r > g has clearly been true throughout most of human history right up to the eve of World War One and will probably be true again in the 21st century. Its truth depends however on the shocks to which capital is subject as well as on what public policies and institutions are put in place to regulate the relationship between capital and labor” (2014a, 358).
NO END OF THE GREAT DIVERGENCE?
Piketty describes the possible consequences of this development of a new great divergence as “terrifying.” A permanently lower growth rate can be expected, a clearly lower growth rate of the population of one percent (reducing the supply of workers) and a constant technological progress despite robot capitalism. A return of the time before the First World War looms if the return on capital r remains at a rate between four and five percent – thus no shocks , no catastrophes, no capital devaluation on a large scale, no environmental collapse, no political intervention toward a great transformation (and thus no squeeze!) and growth at around 1.5 percent. Piketty: »I have used the demographic and economic growth predictions [...] according to which global output will gradually decline from the current 3 percent a year to just 1.5 percent in the second half of the twenty-first century. I also assume that the savings rate will stabilize at about 10 percent in the long run. With these assumptions, the [...] global capital/income ratio will quite logically continue to rise and could approach 700 percent before the end of the twenty- first century, or approximately the level observed in Europe from the eighteenth century to the Belle Époque. In other words, by 2100, the entire planet could look like Europe at the turn of the twentieth century« (ebd., 195).
Is Richistan, a land of courtiers, toadies, flatterers and family dynasties the land of the future? Hardly. Rather a Richistan 2.0 of a gated capitalism where markets and financialization allow and demand a historically unparalleled generalization of inequality, power and subordination appears so fussy compared to the Victorian-Wilhelminish Downton-Abbey time as the British TV station presents to us so wonderfully in its soap about the decaying parallel societies of the British low nobility.
OUTBREAK, ERUPTION AND POLITICAL RADICALISM
With his demand for clear and permanent global taxation of the highest incomes and mammoth assets, Piketty is not afraid of political radicalism forced by his historical view of the disastrous future of present capitalism. Political radicalism is on the agenda more urgently than ever with and after Piketty. With new emphasis, Capital dramatizes a global problem situation that will be intensified and not solved (according to his argumentation) through the further course of things. The central moment of wealth breaks out with a great dynamic from the many axes of the conditions of inequality…. Suddenly time becomes short. Parallels to climate policy suggest themselves. The release and deregulation of the wealth machine in the neoliberal age has limits, if one believes Piketty.
The time period available for a solid contra-intervention is limited. The direction in which it must go is unavoidable. A long period of the transformation from r > g into r < g must be introduced that aims at reorganization of the wealth matrix. Intervention in distribution-, property- and power-relations is central. The field of actors demanded here goes far beyond the classical left.
A detailed German version of this text under the title “Die Ungleichheitsmaschine” was published on Telepolis (www.heise.de/tp).
LESS INEQUALITY WOULD BE GOOD FOR EVERYONE
On the German edition of Thomas Piketty’s “Capital in the 21st Century”
By Robert Misik
[This article published on October 13, 2014 in Neues Deutschland is translated abridged from the German on the Internet, http://www.misik.at.]
When a book is a big hit like Thomas Piketty’s monumental “Capital in the 21st Century,” that is mostly due to its effect on the world, not only on its quality. This book will “change economics,” so Nobel Prize winner Paul Krugman praised the work.
Summarizing Piketty’s study in a lively way, we could say: it shows that inequality grows and “injustice” increases in capitalism (and in an intensified way in the past thirty years) and secondly this contributes to a growing instability of the system.
Inequality is not necessarily identical with injustice. What form of distribution is “just” is always controversial… When lunch is distributed unequally, that can be just and needs justifications like: papa receives more because he works so hard or the child is given more because he must grow.
Unequal distribution can be regarded as “just”… Everyone lives according to his or her preferences… Market distribution is the result of a subjectless mechanism, not an allocation (no one distributes the layer cake). This is like happiness and chance. When one wins in the lotto and others do not win, that is not unjust. It would only be unjust if a minister determines who wins and who loses in the lotto. From this perspective, market results are always “just.” It could be objected the market economy is a “power economy,” not a market economy in this sense. Whoever has will be given. Whoever has economic power determines the rules of the game… More equal distribution (even if not absolutely totally equal distribution) would also be more just.
The neoclassical economic theory would protest that no one would have anything from such justice. Administrative redistribution from top to bottom makes the economy as a whole less prosperous and everyone could have less at the end. There would be less inequality but on a lower level. If that comes true, justice would be just but would prove counter-productive.
The point of Piketty’s study and the analyses of others (Krugman, Stiglitz and the “neo-Keynesian” school) is that more equality would not only be more just but also economically useful. A more egalitarian distribution stabilizes the economy, even under the conditions of a capitalist market economy. It strengthens domestic demand and leads to more stable growth so more people can make something of their lives and develop their talents (which leads to higher productivity). It increases work satisfaction and so on. Crass unequal distribution does not only lead to lower growth (and lower profit chances in the real economy). It also results in excess in wealth and indebtedness, the hunt for speculative profits and therefore makes financial crisis more likely.
But this is not the end of the song. Many sociological studies in the last years have documented that the general life satisfaction of nearly all citizens is greater in more equal societies. Very colloquially, everyone is happier in egalitarian societies. Everyone – even the rich – is unhappier in unequal societies. In his book “The Happy Society,” Richard Layard stresses “that people are not happier today than 50 years ago – even though the real average income has more than doubled in this time period.” When the wealth of a society grows – that is the per capita national income – and also the inequality, people are often more unhappy. Then a “status race” starts and we feel a great need to keep pace with others.” In their path-breaking work “Equality is Happiness,” Richard Wilkinson and Kate Pickett showed with an abundance of facts from 200 international data banks that people on average are unhappier in societies with gross inequalities. In these societies, the rich are happier than the poor but persons in every income segment are unhappier than in more egalitarian societies. Thus the richest are in no way especially happy in societies that are sharply split in rich and poor. Quite the contrary! In short, egoism is uncomfortable for the egoists. The authors rely on soft parameters like “subjective life satisfaction” and on hard quality of life parameters like life expectancy, risk of sickness, mental problems, violent criminality, obesity, teenage pregnancies, social mobility etc.
Inequality puts everyone under stress with those on the lower rungs of the social ladder paying by far the highest price. Degraded existence, the underprivileged, material privation, disturbed social relations, cultural dependence and disrespectfulness – all this is rampant in societies with crass and growing inequalities. When the winners want to make us believe inequality is functional for well-being or prosperity because it rewards achievement, they gladly ignore the costs for society. Whoever is on the bottom in society with intensified status competition feels humiliated. Degraded and dependent existence makes people mentally ill. The social state guarantee of the existential minimum can not really change much. Whoever is on the bottom is harassed daily, exposed to disrespectfulness, a target of continual sicknesses, stamped a loser and becomes a victim. This means he or she has no subject status any more and is only an object of social work management. Societies rot from within when many people are exposed to daily humiliations.