Daily Digest - July 23: It's Been a Good Year for Financial Reform

Jul 23, 2014Rachel Goldfarb

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Ignore the Naysayers: Dodd-Frank Reforms Are Finally Paying Off (TNR)

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Ignore the Naysayers: Dodd-Frank Reforms Are Finally Paying Off (TNR)

The past year has seen important successes, like higher capital requirements, writes Roosevelt Institute Fellow Mike Konczal, and the next steps for financial reform are getting clearer.

We’re Arresting Poor Mothers for Our Own Failures (The Nation)

Bryce Covert points to the policy failures of welfare reform, which requires parents to work or look for work to receive benefits but hasn't provided for child care, leading to recent high-profile arrests.

Obama to Sign Bill Improving Worker Training (Time)

In the first significant legislative reform to job training in a decade, Maya Rhodan says the Obama administration and Congress put training programs on a more forward-looking path.

SEC Is Set to Approve Money-Fund Rules (WSJ)

The new rules target institutional investors over individuals, says Andrew Ackerman, aiming to train investors to accept fluctuations and prevent panicked mass sell-offs.

TaskRabbit Redux (New Yorker)

Adrienne Raphel writes that TaskRabbit's recent relaunch makes it more clear that for all their marketing, online tools for hiring labor or transportation are about commerce, not community.

New on Next New Deal

Dr. Strangelove and the Halbig Decision

Roosevelt Institute Fellow Mike Konczal points out the fallacy in right-wing claims that there is a "doomsday machine" in the Affordable Care Act: doomsday machines only work if you tell people about them.

Full-Time Employment May Give Way to a Free Agent Economy

In his speculation on the future for the Next American Economy project, Carl Camden, CEO of Kelly Services, suggests that temporary employment firms like his will become the purveyors of social services.

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What Will the American Economy Look Like 26 Years From Today?

Jul 21, 2014Bo Cutter

Earlier this summer, the Next American Economy project brought together 30 experts from various disciplines to envision tomorrow's economic and political challenges and develop today's solutions. Find out what they had to say.

Participants in our recent convening speculated:

Earlier this summer, the Next American Economy project brought together 30 experts from various disciplines to envision tomorrow's economic and political challenges and develop today's solutions. Find out what they had to say.

Participants in our recent convening speculated:

“The post-WWII model of full-time, permanent employment proved itself the historical aberration we predicted: in 2040, only 12 percent of the American workforce is directly employed by corporate enterprises or government departments, and the average length of time spent on any one job is under six months.”

“New platforms and services will spring up to solve the problems of the micro-gig economy using distributed, peer-to-peer models of social insurance that will be hyper-local, but not based on geography. They will be based on the micro-niche identities that we build online -- accountants for bacon. Latinos who play Dungeons & Dragons. What have you.”  

“In the late '20s, the Know Everything Party assumed their final national political victories of mandating every American household be limited to three robots, one 3D printer, and own a minimum of three guns would be enough to secede and be left alone. After 15 years of explosive growth in income and wealth inequality, unimaginable to us in 2014, it all came to a head in our second Civil War, or what historians are calling the Bloodless War.”

Guided by the belief that we are on the precipice of fundamental and lasting economic change, the Next American Economy project gathered a group of 30 academics, business leaders, organizers, and technologists, and asked them to envision the long-term economic and political future of the United States. We gave our participants free rein to be bold in their speculations – to deviate from data, the conventional wisdom, or even their own expert opinions. The goal was not to predict the future, but to debate a series of critical questions: (a) Are we at an inflection point in the nature of innovation and technological change? (b) How will the rise of cities change the geography of economic activity? (c) How will economic trends alter the nature of work and employment? (d) Is the trend of widening income inequality likely to continue or stagnate?

What followed was a series of prescient, thoughtful, and often hilarious three- to four-minute speculations on topics ranging from the gig economy to the future of finance, from imminent civil war to the transformation of Google into a car company, and many more. Each speculation on its own could foster a day of debate and a sea of responses. For this reason, we will release one video speculation a day for the next three weeks, starting with David Autor’s description of economic polarization.

Our recent meeting was a first step toward our broader goal of identifying the trends likely to shape the future in order to identify the policy interventions needed to ensure the best possible outcome. The group identified key topics for further investigation and also found some areas of broad consensus.

  • 79 percent of participants believe “technological change will persist and will be big enough to disrupt business-as-usual."

  • 42 percent believe “a new paradigm of work is emerging and will change the nature of jobs for a large percentage of the population” and an additional 29 percent believe “a new paradigm has already emerged and you East Coast intellectuals are way behind the times.”

  • A total of 74 percent believe that even if an entrepreneurship booms leads to productivity growth it will not lead to job creation.

  • Nearly half (48 percent) believe that if inequality trends continue, the political backlash will be so extreme that our current system will change drastically in the next 25 years.

You can learn more about our project and find our forthcoming research on our website.

Roosevelt Institute Senior Fellow Bo Cutter is Director of the Next American Economy project. He was formerly a managing partner of Warburg Pincus, a major global private equity firm, and served as the leader of President Obama’s Office of Management and Budget (OMB) transition team. He has also served in senior roles in the White Houses of two Democratic Presidents.

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Daily Digest - July 15: Privatization Gets Marked 'Return to Sender'

Jul 15, 2014Rachel Goldfarb

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Staples, Postal Service to End Plan for Mini Post Offices in Stores (WSJ)

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Staples, Postal Service to End Plan for Mini Post Offices in Stores (WSJ)

Kris Maher, Drew Fitzgerald, and Tom Gara report on the decision to end this pilot program, which the postal workers' union and other labor groups had denounced as privatization.

  • Roosevelt Take: Roosevelt Institute Senior Fellow Richard Kirsch explains how the Postal Service and Staples plan was exacerbating the low-wage economy.

Another Week, Another Settlement (The Economist)

The Economist examines the controversy over Citigroup's $7 billion settlement announced yesterday, which continues the trend of placing blame on companies instead of individuals.

Equal Opportunity Employment Officials Take New Aim at Pregnancy Bias (NYT)

Due to an increase in pregnancy discrimination complaints, the Equal Employment Opportunity Commission has issued new enforcement guidelines, reports Steven Greenhouse.

Restaurant CEOs Make More Money in Half a Day Than Their Employees Make in a Year (MoJo)

Jaeah Lee reports on a new analysis of top restaurant CEO pay, which shows that the CEOs take home an average of 721 times the amount that minimum wage workers are paid.

When You're Poor, Money Is Expensive (The Atlantic)

Derek Thompson explains why accessing money becomes more difficult without bank accounts and credit, and says the financial tech sector could make things easier for the poor.

Labor Organizing Is a Civil Right (Blog of the Century)

The National Labor Relations Act provides only negligible penalties for firing labor organizers, so Imhotep Royster suggests extending Civil Rights Act protections to those organizers.

New on Next New Deal

In Defense of Public Service: Roosevelt Honors Commitment to Common Good

Roosevelt Institute Communications Manager Tim Price reflects on the vindication felt by the life-long public servants honored at last week's Distinguished Public Service Awards.

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Daily Digest - July 14: Local Actions Hold the Line for Labor

Jul 14, 2014Rachel Goldfarb

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Why Volkswagen Agreed to UAW Local at Its U.S. Plant (USA Today)

G. Chambers Williams III explains the decision to create a local union at the Chattanooga VW plant despite the United Auto Workers' narrow loss in a February worker vote.

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Why Volkswagen Agreed to UAW Local at Its U.S. Plant (USA Today)

G. Chambers Williams III explains the decision to create a local union at the Chattanooga VW plant despite the United Auto Workers' narrow loss in a February worker vote.

U.S. Deficit Continues to Shrink (MSNBC)

The budget deficit has reached its lowest point since 2008, reports Suzy Khimm, thanks to a recovery that has increased tax revenues and reduced demand on safety net programs.

Tracy Morgan Sues Walmart Over Deadly Crash in New Jersey (NYT)

Emma G. Fitzsimmons reports that Morgan and others injured in an accident involving an overtired Walmart truck driver are blaming the accident on the company's poor labor practices.

Here's Definitive Proof That Republicans Don't Care About the Long-Term Unemployed (TNR)

Danny Vinik asks why budget gimmicks were unacceptable for funding the Senate Democrats' extension of unemployment insurance but are fine when the House GOP uses them.

New Study: Lobbying Doesn't Help Company Profits—But It's Great For Executive Pay (MoJo)

Corporate lobbying expenditures, which measure in billions of dollars, do far more to enhance a CEO's earnings than to benefit companies as a whole, reports Alex Park.

State and Local Pensions: A Progress Report (Market Watch)

Alicia H. Munnell looks at recent shifts in local and state pensions, including both the good (increased contributions) and the worrisome (plans still hold too much of their portfolios in equities).

New on Next New Deal

Port Drivers Take on Low Wages in an Industry Built on a Lie

All Americans should support the Los Angeles port truck drivers' strike, writes Roosevelt Institute Senior Fellow Richard Kirsch, because all consumers depend on their hard work.

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Detroit's Revitalization Funds Could Re-Empower Residents, Too

Jul 9, 2014Dominic Russel

Through participatory budgeting, Detroit could bring its resident's hyper-local expertise to the revitalization process.

Through participatory budgeting, Detroit could bring its resident's hyper-local expertise to the revitalization process.

The city of Detroit is suffering. It has the highest unemployment rate of the nation’s largest cities at 23 percent, the highest poverty rate at 36.4 percent, and has been listed by Forbes as America’s most dangerous city for five years in a row. As a result of its shrinking population, the city needs $850 million worth of blight removal and cleanup. On top of this, Detroit had an estimated $18 billion in debt in 2013, which caused the state of Michigan to essentially force the city to declare bankruptcy in a desperate attempt to save it.

Detroit urgently needs funding for any revitalization efforts. One source that the city receives each year is in Community Development Block Grants (CDBG) from the federal government. The grant is one part of the funding that the federal department of Housing and Urban Development (HUD) distributes to metropolitan cities. The CDBG is the portion that must go to community development projects, including the rehabilitation of residential and non-residential buildings, the construction of public facilities and improvements, and more. CDBG budgeting also must include a mechanism for citizen participation.

Detroit’s current method for allocating CDBG funds is broken, as evidenced by both their inability to completely distribute funding and the lack of citizen involvement in the process. Each year from 2010 to 2012 the city failed to spend a portion of their CDBGs, nearly causing the federal government to recapture money and diminish future grants. Again in 2014, the city is making a last-minute amendment to their CBDG plan, reallocating $12 million to avoid a recapture. This was necessary, in part, because the city allocated funds to programs that no longer exist. The main citizen participation program is the Neighborhood Opportunity Fund (NOF), in which service organizations apply for funding from the CDBG. This process, however, is limited to organizations and leaves no outlet for individual residents. In fact, individuals have only one public hearing annually for the entire HUD program. The interests of residents are not effectively being channeled into spending. All of this adds up to a system in need of reform.

Detroit has the opportunity to use CDBGs to develop a more citizen-involved allocation process. This can be achieved by creating a participatory budgeting (PB) program, which empowers citizens to allocate a portion of their own government resources and has been recognized by the United Nations as a “best practice” for local governance. A Detroit model could be based off programs in Chicago and New York City. These programs include a series of workshops where residents brainstorm ideas and elect community representatives who turn the ideas into full proposals. Residents then vote on the proposals, and the winning projects are put into action.

In Detroit, the city’s Planning and Development Department can ensure projects conform to HUD guidelines and lead outreach. The department would target traditionally underrepresented viewpoints by aiming outreach at neighborhoods with low- and moderate-income residents, using public schools for outreach to students and parents, and locating meetings and voting stations in areas that are accessible for underrepresented groups. A PB process has the potential to engage Detroit residents and better utilize their hyper-local knowledge to allocate CDBG funding.

On the night Detroit Mayor Mike Duggan was elected in 2013 he said, “Detroit’s turnaround will not occur until everyday Detroiters are involved in this effort.” He has the opportunity to create a clear path to this community involvement for all Detroiters by using participatory budgeting to determine how to spend a portion of the city’s federal grants. Not only would this make Duggan’s dream a reality, but it would reform an antiquated allocation process that has nearly cost the city millions of dollars.

Dominic Russel, a Michigan native, is a rising sophomore at the University of Michigan and is a Summer Academy Fellow interning at the Roosevelt Institute | Campus Network as the Leadership Strategy Intern.  

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Daily Digest - July 8: Will the Stock Market Boom Be a Bust for the Economy?

Jul 8, 2014Rachel Goldfarb

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Stiglitz: I'm 'very uncomfortable' with current stock levels (CNBC)

Roosevelt Institute Chief Economist Joseph Stiglitz emphasizes the difference between a strong stock market and overall economic strength, reports Antonia Matthews.

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Stiglitz: I'm 'very uncomfortable' with current stock levels (CNBC)

Roosevelt Institute Chief Economist Joseph Stiglitz emphasizes the difference between a strong stock market and overall economic strength, reports Antonia Matthews.

Union Wins $15 Minimum Wage for L.A. Schools' Service Workers (LA Times)

Howard Blume says the school board's unanimous approval of higher wages shows the growing power of the service workers' unions in Los Angeles, where many union members are also parents.

Why the Supreme Court’s Attack on Labor Hurts Women Most (The Nation)

Michelle Chen argues that limiting home health care workers' ability to organize will prevent many others in low-wage domestic work, primarily women, from improving working conditions.

  • Roosevelt Take: Roosevelt Institute Senior Fellow Richard Kirsch looks at the challenges presented by the Harris v. Quinn ruling.

Conservatives Say Cutting Unemployment Benefits Boosted the Jobs Numbers. This Chart Says Otherwise. (TNR)

Long-term unemployment is still falling at the same slow-and-steady pace as the past few years, writes Danny Vinik, indicating no link to the end of extended unemployment benefits.

Left Pushes Regulators to Lift Curtain on CEO Pay (The Hill)

Labor unions and other interest groups fear that upcoming regulations that require companies to disclose CEO-to-median-worker pay ratios will be diluted, says Megan R. Wilson.

Democrats Can Win with Populism — If They Play it Right (WaPo)

New polling data shows that many voters associate the Republican Party with big business and the wealthy, which Aaron Blakes sees as a key strategic point for Democrats in 2014.

Three Paths to Full Employment (AJAM)

Dean Baker's suggestions include increased government spending, as in the New Deal; reducing the trade deficit; and reducing the supply of labor with policies that push employers to hire more people.

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Daily Digest - June 20: The Upside to Government Data Collection

Jun 20, 2014Rachel Goldfarb

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Chicago Is Your Big (Friendly) Brother (Bloomberg View)

Click here to subscribe to Roosevelt First, our Monday through Friday morning email featuring the Daily Digest.

Chicago Is Your Big (Friendly) Brother (Bloomberg View)

Roosevelt Institute Fellow Susan Crawford explains Chicago's new plan to collect and make public data that could improve local quality of life, like precise pollution levels.

Does He Pass the Test? (NYRB)

Timothy Geithner frames his memoir as a success story of avoiding another Great Depression, and Paul Krugman says that ignores the question of whether things could have been better.

Massachusetts Passes The Highest State Minimum Wage In The Country (ThinkProgress)

The Massachusetts legislature has passed a law raising the minimum wage to $11 an hour by 2017, and the governor is expected to sign the bill soon, Bryce Covert reports.

Detroit Pension Fund Urges 'Yes' Vote on Bankruptcy Plan (Reuters)

Karen Pierog writes that the police and firefighters' fund is urging members to approve this grand bargain, which reduces cost-of-living increases, for fear of larger cuts.

  • Roosevelt Take: Roosevelt Institute Senior Fellow Rob Johnson says that big money in politics encourages pension underfunding.

Awaiting the Supreme Court decision on Aereo (Marketplace)

Dan Gorenstein speaks to Susan Crawford, who says this case about TV broadcasting rights could have wide implications for cable television payment models.

Higher Taxes Do Not Kill Jobs (AJAM)

Job growth in 2013 was concentrated in places that raised taxes or already had high taxes. David Cay Johnston says this confirms that taxes aren't job killers.

New on Next New Deal

What the History of the World Wars Can Tell Us About the Deeper Struggles at Work in Iraq

Roosevelt Institute Senior Fellow David Woolner reflects on previous U.S. efforts to  spread democracy.

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Daily Digest - May 27: Taking Stock of Piketty's Capital

May 27, 2014Rachel Goldfarb

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Why Geithner Drives Liberals Nuts (Politico)

Ben White quotes Roosevelt Institute Fellow Mike Konczal, who says tensions over Tim Geithner's work during the financial crisis will come into play in the 2016 elections.

Click here to receive the Daily Digest via email.

Why Geithner Drives Liberals Nuts (Politico)

Ben White quotes Roosevelt Institute Fellow Mike Konczal, who says tensions over Tim Geithner's work during the financial crisis will come into play in the 2016 elections.

Thomas Piketty Accuses Financial Times of Dishonest Criticism (The Guardian)

Jennifer Rankin reports on Piketty's response, in which he maintains that his conclusions are solid even when looking at more recent data than he used in his book.

I.R.S. Bars Employers From Dumping Workers Into Health Exchanges (NYT)

Giving employees tax-free dollars to pay for insurance on the exchanges won't satisfy the Affordable Care Act's employer mandate, reports Robert Pear, and the fines are steep.

  • Roosevelt Take: Roosevelt Institute Senior Fellow Richard Kirsch suggests that employers that don't want to provide insurance should pay an additional payroll tax instead.

The Slow, Quiet Death of Extended Unemployment Benefits (MoJo)

Patrick Caldwell blames the lack of momentum on this issue on the House GOP, given that long-term unemployment is higher than it's ever been without federal emergency benefits.

New on Next New Deal

The FT Gets Piketty's Capital Argument Wrong

Roosevelt Institute Fellow Mike Konczal argues the Financial Times misses Thomas Piketty's central theme: the size and importance of capital will soon dwarf the rest of the economy.

The New Conservative Reformers Still Don't Have a Plan for Wall Street

Mike Konczal looks at a new report from conservative reformers and finds it lacking on financial reform. It doesn't address any of the current debates on issues like Too Big To Fail.

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The FT Gets Piketty's Capital Argument Wrong

May 24, 2014Mike Konczal

Chris Giles at the FT just wrote a critique of the data in Thomas Piketty's Capital. Many people will rightfully debate the empirics of what Giles has found, which he believes shows that inequality of the ownership of wealth - how much of wealth is held by the top 1% - isn't increasing, but it's important to understand how it fits into the larger argument.

Their Problem With the Theory

Giles writes: "The central theme of Prof Piketty’s work is that wealth inequalities are heading back up to levels last seen before the first world war."

This is incorrect, or at least badly stated. Piketty's central theme is not that inequality of the ownership of wealth is going to skyrocket. If you look at the text [1], he's somewhat agnostic about this, but it's not determinative. The central theme is that the 1% already owns a lot of the capital stock, and the capital stock is going to get gigantic relative to the rest of the economy.

Inequality expert Branko Milan also tweeted this point, but let's go through it and break down the theory Piketty puts forward. I used three dominos in my Boston Review writeup, and I'm adding a fourth here to make Giles' critique explicit. Let's describe Piketty's argument as four dominos falling into each other:

1. The return on capital is greater than the growth rate. The infamous "r > g" inequality. Meanwhile growth begins to slow, perhaps because of demographics.

2. The amount of capital, or private wealth, relative to the size of the economy will begin to grow rapidly as growth slows. This is the “past tends to devour the future” line. The size and role of wealth of the past will take on a greater relevance to the everyday economy.

3. If the rate of return doesn't fall, or doesn't fall that quickly, the capital share of income will increase. More of our economic pie will go to people who own capital.

4. The ownership of capital is very concentrated, historically and across a wide variety of countries. It is unlikely to fall quickly, much less spontaneously democratize itself, in response to these trends. So the income and power of capital owners will skyrocket.

So right away, rising inequality in the ownership of capital is not the necessary, major driver of the worries of the book. It isn't that the 1% will own a larger share of capital going forward. It's that the size and importance of capital is going to go big. If the 1% own a consistent amount of the capital stock, they have more income and power as the size of the capital stock increases relative to the economy, and as it takes home a larger slice. However, obviously, if inequality in wealth ownership goes up, it will make the situation worse. (It's noteworthy that these numbers Giles is analyzing aren't introduced until Chapter 10, after Piketty has gone through the growth of capital stock and the returns to capital at length in previous chapters.)

The way that Giles could put a serious dent into Piketty's theory through this analysis is by showing that inequality of wealth ownership is falling in the recent past. This is not what Giles finds. He mostly finds what Piketty finds, except in England, where it's flat instead of slightly growing in the recent past.

From the four dominos, we can also see what flaws in the data would make people believe that Piketty's argument is fundamentally unsound. Remember that Piketty has constructed data for each of these trends, not just the fourth one. Piketty and Zucman's data on private wealth and national income, for instance, is here. But to really dent the theory you need to take down one of the dominos. Most have been fighting about the third one - that either the rate of return on wealth will fall quickly, or that it is determined by institutional factors that are politically created.

But the idea that the ownership of capital will become more concentrated isn't an essential part of the theory. Though obviously if it does grow, then it's an even greater problem.

Notes on the Empirical Arguments

I'm not blown away by the criticism so far, but I hope Piketty responds to the individual issues. Especially what's going on in Britain, because this could be a good learning experience. A few quick points from me, will hopefully have more later. The two major criticisms outside Britain are:

Weighing Sweden

Giles argues that when comparing Britain, France and Sweden, Piketty should weigh by population, instead of equally. Why? Because weighing the countries equally "is questionable, as it gives every Swedish person roughly seven times the weight of every French or British person."

But weighing here, as always, depends on what you are trying to examine. I'd say the variable is the system of laws and economies that produce a consistent output among a group defined by space over time - i.e. the nation-state. And, especially if you want the variable not to be size but different economic systems, you have a collector's set of what Gøsta Esping-Andersen calls The Three Worlds of Welfare Capitalism between England (liberal), France (corporatist) and Sweden (social democratic). If none of them are producing a fall in wealth inequality, that's a remarkable fact. Weighing them by economic system makes sense. I'd be happy to be convinced otherwise, but Giles makes no such deep argument.

USA Data Missings?

Giles states that "it is not possible to say anything much about the top 10 per cent share between 1870 and 1960, as the data for the US simply does not exist." However, as Matt Bruenig points out, since Piketty's book came out there's been significant new work by Emmanuel Saez and Gabriel Zucman telling us exactly that. Check out the slides, they are awesome. Well respected work that fills in the makeshift gaps Piketty had to use to make the wealth inequality data for the United States in this period. This is a sign of a good work - subsequent work is bearing out its results.

And this new work points to wealth inequality increasing in the United States. Dramatically. Go figure.

[1] Piketty's conclusion from Chapter 10, which is when he introduces inequality in the ownership of wealth: "To sump up: the fact that wealth is noticeably less concentrated in Europe today than it was in the Belle Epoque is largely a consequence of accidentlal events...and specific institutions. If those institutions were ultimately destroyed, there would be a high risk of seeing inequalities of wealth close to those observed in the past....Nothing is certain: inequality can move in either direction....it is an illusion to think that somthing about the nature of modern growth or the laws of the market economy ensures that inequaity of wealth will decrease and harmonious stability will be achieved."

It's fair to say that this isn't the only worrisome sign he points out in the book.

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Chris Giles at the FT just wrote a critique of the data in Thomas Piketty's Capital. Many people will rightfully debate the empirics of what Giles has found, which he believes shows that inequality of the ownership of wealth - how much of wealth is held by the top 1% - isn't increasing, but it's important to understand how it fits into the larger argument.

Their Problem With the Theory

Giles writes: "The central theme of Prof Piketty’s work is that wealth inequalities are heading back up to levels last seen before the first world war."

This is incorrect, or at least badly stated. Piketty's central theme is not that inequality of the ownership of wealth is going to skyrocket. If you look at the text [1], he's somewhat agnostic about this, but it's not determinative. The central theme is that the 1% already owns a lot of the capital stock, and the capital stock is going to get gigantic relative to the rest of the economy.

Inequality expert Branko Milan also tweeted this point, but let's go through it and break down the theory Piketty puts forward. I used three dominos in my Boston Review writeup, and I'm adding a fourth here to make Giles' critique explicit. Let's describe Piketty's argument as four dominos falling into each other:

1. The return on capital is greater than the growth rate. The infamous "r > g" inequality. Meanwhile growth begins to slow, perhaps because of demographics.

2. The amount of capital, or private wealth, relative to the size of the economy will begin to grow rapidly as growth slows. This is the “past tends to devour the future” line. The size and role of wealth of the past will take on a greater relevance to the everyday economy.

3. If the rate of return doesn't fall, or doesn't fall that quickly, the capital share of income will increase. More of our economic pie will go to people who own capital.

4. The ownership of capital is very concentrated, historically and across a wide variety of countries. It is unlikely to fall quickly, much less spontaneously democratize itself, in response to these trends. So the income and power of capital owners will skyrocket.

So right away, rising inequality in the ownership of capital is not the necessary, major driver of the worries of the book. It isn't that the 1% will own a larger share of capital going forward. It's that the size and importance of capital is going to go big. If the 1% own a consistent amount of the capital stock, they have more income and power as the size of the capital stock increases relative to the economy, and as it takes home a larger slice. However, obviously, if inequality in wealth ownership goes up, it will make the situation worse. (It's noteworthy that these numbers Giles is analyzing aren't introduced until Chapter 10, after Piketty has gone through the growth of capital stock and the returns to capital at length in previous chapters.)

The way that Giles could put a serious dent into Piketty's theory through this analysis is by showing that inequality of wealth ownership is falling in the recent past. This is not what Giles finds. He mostly finds what Piketty finds, except in England, where it's flat instead of slightly growing in the recent past.

From the four dominos, we can also see what flaws in the data would make people believe that Piketty's argument is fundamentally unsound. Remember that Piketty has constructed data for each of these trends, not just the fourth one. Piketty and Zucman's data on private wealth and national income, for instance, is here. But to really dent the theory you need to take down one of the dominos. Most have been fighting about the third one - that either the rate of return on wealth will fall quickly, or that it is determined by institutional factors that are politically created.

But the idea that the ownership of capital will become more concentrated isn't an essential part of the theory. Though obviously if it does grow, then it's an even greater problem.

Notes on the Empirical Arguments

I'm not blown away by the criticism so far, but I hope Piketty responds to the individual issues. Especially what's going on in Britain, because this could be a good learning experience. A few quick points from me, will hopefully have more later. The two major criticisms outside Britain are:

Weighing Sweden

Giles argues that when comparing Britain, France and Sweden, Piketty should weigh by population, instead of equally. Why? Because weighing the countries equally "is questionable, as it gives every Swedish person roughly seven times the weight of every French or British person."

But weighing here, as always, depends on what you are trying to examine. I'd say the variable is the system of laws and economies that produce a consistent output among a group defined by space over time - i.e. the nation-state. And, especially if you want the variable not to be size but different economic systems, you have a collector's set of what Gøsta Esping-Andersen calls The Three Worlds of Welfare Capitalism between England (liberal), France (corporatist) and Sweden (social democratic). If none of them are producing a fall in wealth inequality, that's a remarkable fact. Weighing them by economic system makes sense. I'd be happy to be convinced otherwise, but Giles makes no such deep argument.

USA Data Missings?

Giles states that "it is not possible to say anything much about the top 10 per cent share between 1870 and 1960, as the data for the US simply does not exist." However, as Matt Bruenig points out, since Piketty's book came out there's been significant new work by Emmanuel Saez and Gabriel Zucman telling us exactly that. Check out the slides, they are awesome. Well respected work that fills in the makeshift gaps Piketty had to use to make the wealth inequality data for the United States in this period. This is a sign of a good work - subsequent work is bearing out its results.

And this new work points to wealth inequality increasing in the United States. Dramatically. Go figure.

[1] Piketty's conclusion from Chapter 10, which is when he introduces inequality in the ownership of wealth: "To sump up: the fact that wealth is noticeably less concentrated in Europe today than it was in the Belle Epoque is largely a consequence of accidentlal events...and specific institutions. If those institutions were ultimately destroyed, there would be a high risk of seeing inequalities of wealth close to those observed in the past....Nothing is certain: inequality can move in either direction....it is an illusion to think that somthing about the nature of modern growth or the laws of the market economy ensures that inequaity of wealth will decrease and harmonious stability will be achieved."

It's fair to say that this isn't the only worrisome sign he points out in the book.

Follow or contact the Rortybomb blog:

  

 

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Daily Digest - May 23: How to Pop a Housing Bubble Before It Starts

May 23, 2014Rachel Goldfarb

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There will not be a new Daily Digest on Monday, May 26, in observance of Memorial Day. The Daily Digest will return on Tuesday, May 27.

The Shared-Responsibility Mortgage Could Help Bubbleproof the Housing Market (Bloomberg Businessweek)

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There will not be a new Daily Digest on Monday, May 26, in observance of Memorial Day. The Daily Digest will return on Tuesday, May 27.

The Shared-Responsibility Mortgage Could Help Bubbleproof the Housing Market (Bloomberg Businessweek)

Peter Coy looks at Atif Mian and Amir Sufi's bold suggestion for a new, safer mortgage structure in House of Debt, which would tie the cost of loan repayment to local housing prices.

It Wasn't Household Debt That Caused the Great Recession (The Atlantic)

Heather Boushey praises House of Debt for bringing in hard data to prove that banks targeting poorer communities for bad mortgages led to the recession, not general household debt.

Cutting Off Emergency Unemployment Benefits Hasn’t Pushed People Back to Work (Five Thirty Eight)

Most unemployed workers who no longer receive benefits are still struggling to find jobs, writes Ben Casselman, and nearly a quarter have dropped out of the labor force entirely.

McDonald's CEO Insists Fast-Food Giant Pays 'Fair Wages' as Protesters Rally (The Guardian)

Dominic Rushe reports on McDonald's chief executive Don Thompson's statement as protests against the company's pay practices continued outside its annual shareholder meeting.

Paul Ryan Now Wants to Solve Poverty with 'Love' and 'Eye to Eye' Contact. Don't Let Him. (The Week)

Elizabeth Stoker argues that Ryan's tough-love strategy of cutting aid programs won't actually help the poor, and that a truly loving approach would maintain government's obligation to all citizens.

A Progressive Alternative to Obamacare (MSNBC)

Geoffrey Cawley reports on Vermont's plan to implement single-payer health care as soon as 2017. This would be a step beyond the Affordable Care Act, though there are logistical hurdles.

Financial Crisis, Over and Already Forgotten (NYT)

Attacks on the Financial Stability Oversight Council demonstrate how quickly Washington has forgotten the source of the Great Recession, says Floyd Norris.

  • Roosevelt Take: "An Unfinished Mission," a report from the Roosevelt Institute and Americans for Financial Reform, lays out suggestions for the next phase of fixing the financial sector.

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