Archive for inequality

George Reisman’s Monograph on Piketty’s ‘Capital in the Twenty-First Century’

Good News: George Reisman read Piketty’s Capital so you don’t have to. It seems Reisman is one of the few people who has actually read it. More good news: Reisman tells you what you need to know in a short monograph, and not in 700 pages like Piketty. The monograph is available at Amazon and at Reisman’s web site.

Thomas Piketty and Mises’s ‘The Anti-Capitalistic Mentality’

Money balanceMises Daily Friday:

In his short book The Anti-Capitalistic Mentality, first published in 1954, Ludwig von Mises explains why Piketty’s new anti-capitalist tome is popular among a certain class of people, and why much of Piketty’s book relies on a re-telling of old myths about capitalism.

Turning Piketty Right Side Up

6783Mises Daily Wednesday by George Reisman:

In his new book, Capital In the Twenty-First Century, Piketty argues that saving and capital accumulation by wealthy capitalists serves to reduce wages while doing nothing to increase production. In real life, however, capitalists constantly make investments that increase both production and wages.

The Data Is Clear: Free Markets Reduce Poverty

6781 Mises Daily Monday by D.W. MacKenzie:

It is a fact that severe poverty has disappeared in the most industrialized countries. The wealth of the first-world welfare states was made possible by those countries’ turn toward free markets in the past. Likewise, the turn toward more free markets in the developing world has reduced poverty there.

How Inflation Helps Keep the Rich Up and the Poor Down

6767 (1)Guido Hülsmann writes in today’s Mises Daily:

If there is any truth to the socialist caricature of capitalism — an economic system that exploits the poor to the benefit of the rich — then this caricature holds true for a capitalist system strangulated by inflation. The relentless influx of paper money makes the wealthy and powerful richer and more powerful than they would be if they depended exclusively on the voluntary support of their fellow citizens. And because it shields the political and economic establishment of the country from the competition emanating from the rest of society, inflation puts a brake on social mobility. The rich stay rich (longer) and the poor stay poor (longer) than they would in a free society.

How Fractional Reserves and Inflation Cause Economic Inequality

6753In today’s Mises Daily, we interviewed Andreas Marquart about his new book co-authored with Philipp Bagus:

MI: When caused by state intervention, what is the primary source of income inequality?

AM: The primary source is fiat money inflation and the artificial increase of the money supply by bank credit. The greater fiat money inflation is, the more unjust are the consequences. The early recipients of newly-created money are the winners. The later receivers of the new money are the losers. This is certainly true when prices are clearly increasing, but the same redistribution effect also exists when money creation takes place in a situation where prices for goods and services should be falling but are not. For example, in an economy where worker productivity is increasing, prices should be falling. But even if prices remain more or less constant, a gigantic redistribution through the money printing press may be under way as workers become more productive but see no benefit from it, thanks to inflation.

The Struggle Over Egalitarianism Continues

3007By Murray N. Rothbard

[Rothbard's 1991 introduction to "Freedom, Inequality, Primitivism, and the Division of Labor," which was written in 1970.]

Introduction

In the two decades since this essay was written, the major social trends I analyzed have accelerated, seemingly at an exponential rate. The flight away from socialism and central planning begun in Yugoslavia has stunningly succeeded over the entire “socialist bloc” of Eastern Europe, and there is now at least rhetorical allegiance to the idea of privatization and a free-market economy. More and more, Marxism has become confined to the academics of the United States and Western Europe, comfortably ensconced as parasites upon their capitalist economies. But even among academics, there is almost nothing left of the triumphalist Marxism of the 1930s and 40s, with their boasts of the economic efficiency and superiority of socialist central planning. Instead, even the most dedicated Marxists now pay lip service to the necessity of some sort of “market,” however restricted by government.

I. New Areas of Inequality and “Oppression”

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Peter Klein on Power Trading Radio

John O’Donnell interviews Dr. Peter Klein of Mises.org on the critique of the popular new book “Capital in the 21stCentury” by Thomas Piketty. The topics include income inequality cause and effect, role of Fed intervention in capital markets, malinvestment in boom/bust cycles with anemic price discovery and the 99% vs the 1% myth. They also discuss why boomers are working longer and the impact of youth joining the workplace.

Mises View Video: “Inequality and Capital”

Mark Thornton critiques Thomas Piketty’s recent bestseller, and explains why capitalism is not the problem, nor are taxation and redistribution of wealth the solutions.

The Mises View: “Common Sense on Inequality”

Peter Klein talks about inequality—how people are different, what determines income and wealth on the free market, why elites are so excited about Thomas Piketty’s new book on capital, and how attempts to reduce aggregate inequality through progressive taxation are fraught with difficulty.

Joseph Stiglitz on Crony Capitalism

download (2)Although Joseph Stiglitz has a reputation as one of the most prominent defenders of big government, I found much to agree with in his book, The Price of Inequality. It does appear to me that throughout the political spectrum, from left to right, there is a substantial consensus that government is the cause of many of the problems people perceive. The disagreement is over how to solve those problems.

Stiglitz sees many negative consequences from income and wealth inequality, and while I would question whether these negative consequences are as substantial as Stiglitz says, we both agree on the negative impact that government policy has in our society. Stiglitz, a critic on the political left, is in surprising agreement with David Stockman, a critic on the political right, that many of today’s economic and political problems are caused by government.

Both Stiglitz and Stockman argue that cronyism is damaging both our economic system and our democratic political system.

Criticizing the cronyism between business and government, Stiglitz (p. 59) says, “It’s one thing to win a ‘fair’ game. It’s quite another to be able to write the rules of the game–and to write them in ways that enhance one’s prospects of winning. And it’s even worse if you can choose your own referees.”

Stiglitz (p. 62) says, “It doesn’t have to be this way, but powerful interests ensure that it is.”

In a chapter titled “Why It Matters,” Stiglitz (pp. 104-105) says, “When one interest group holds too much power, it succeeds in getting policies that benefit itself, rather than policies that would benefit society as a whole. When the wealthiest use their political power to benefit excessively the corporations they control, much-needed revenues are diverted into the pockets of a few instead of benefiting society at large.”

In another chapter titled “Democracy in Peril,” Stiglitz (p. 167) says, “In this chapter we have described the construction of a political system that, though nominally based on the principle of one person one vote, has turned out to serve the interests of those at the top.” Why can’t we reform the system? Stiglitz (p. 170) says “moneyed interests have the incentives and resources to ensure that the system continues to serve their interests.”

Stiglitz has explained how the rich gain control of the political process and use it for their benefit, so the idea that more government can solve these problems that are created by government in the first place seems to be nothing more than wishful thinking. Stiglitz’s insights on the way that the 1% controls thepolitical process should lead him to the conclusion that less government means less control by the economic and political elite.

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President Obama on Inequality: Rhetoric vs. Reality

0d6092f08b456ce7b551d2dc0739960fPresident Obama has recently promoted inequality as a fundamental threat to our way of life, saying, “The combined trends of increased inequality and decreasing mobility pose a fundamental threat to the American Dream, our way of life, and what we stand for around the globe.”  You can read the rhetoric here.  Let’s look at the reality.

The president suggested policy initiatives to address these issues, so presumably, the president’s policies can make a difference.  What has he done so far?

He has presided over corporate bailouts, not only declaring the Wall Street banks too big to fail, while a multitude of small businesses did fail, his policies continue to support the banking industry through low interest rates and the payment of interest on reserves held at the Fed. Banks holding bad mortgages were bailed out while individual homeowners were evicted from their homes.

While the president does not directly determine Fed policy, Bernanke was all-in on the president’s agenda, and now the president has appointed Janet Yellen as Fed chair because she supports a continuation of those policies.

The low interest rate policy has hurt small savers, who tend to keep their savings in fixed-interest assets, but has propped up the stock market where the wealthier tend to invest.

The president’s support for extended unemployment benefits has taken away some of the incentive for people to find work, which is the best way to escape poverty.

After campaigning against them, the president worked hard to preserve the “Bush tax cuts,” with ultimately just a small increase in rates for the highest-income individuals.

Then there is Obamacare, which provides financial incentives for employers to convert full-time jobs to part-time jobs to avoid the health insurance penalties, further eroding opportunities for those at the bottom of the income scale.

What has been the effect of the president’s economic policies?  The unemployment rate remains high, at 6.7%, and long-term unemployment has spiked to its highest level in history, largely because of the extended unemployment benefits. The labor force participation rate has fallen from 66% in 2008 to below 63% today, so fewer people are even looking for the jobs that could help them escape poverty.

In 2008 13.2% of Americans fell below the official poverty line.  By 2012 the poverty rate was 15%.  The president’s policies have increased poverty.

How about the rich?  The Dow Jones Industrial Average, which hovered around 8,000 when the president took office in 2009 has more than doubled to top 16,000 today.

Despite the rhetoric, the reality is that the president’s policies have created more inequality.  They have hurt the poor, but Wall Street has done well.