Who Is Thomas Piketty And Why Has The Obama White House Rolled Out The Red Carpet For Him?

Piketty cc

He has not only been feted recently by White House advisors. He is all the rage at the Council on Foreign Relations, the International Monetary Fund, and the United Nations as well.

This 42 year economist from French academe has written a hot new book: Capital in the Twenty-First Century. A recent review describes him as the man “who exposed capitalism’s fatal flaw.”

So what is this flaw? Supposedly under capitalism the rich get steadily richer in relation to everyone else; inequality gets worse and worse. It is all baked into the cake, unavoidable.

To support this, Piketty offers some dubious and unsupported financial logic, but also what he calls “a spectacular graph” of historical data. What does the graph actually show?

The amount of U.S. income controlled by the top 10% of earners starts at about 40% in 1910, rises to about 50% before the Crash of 1929, falls thereafter, returns to about 40% in 1995, and thereafter again rises to about 50% before falling somewhat after the Crash of 2008.

Let’s think about what this really means. Relative income of the top 10% did not rise inexorably over this period. Instead it peaked at two times: just before the great crashes of 1929 and 2008. In other words, inequality rose during the great economic bubble eras and fell thereafter.

And what caused and characterized these bubble eras? They were principally caused by the U.S. Federal Reserve creating far too much new money and debt. They were characterized by an explosion of crony capitalism as some rich people exploited all the new money, both on Wall Street and through connections with the government in Washington.

We can learn a great deal about crony capitalism by studying the period between the end of WW1 and the Great Depression and also the last twenty years, but we won’t learn much about capitalism. Crony capitalism is the opposite of capitalism. It is a perversion of markets, not the result of free prices and free markets.

One can see why the White House likes Piketty. He supports their narrative that government is the cure for inequality when in reality government has been the principal cause of growing inequality.

The White House and IMF also love Piketty’s proposal, not only for high income taxes, but also for substantial wealth taxes. The IMF in particular has been beating a drum for wealth taxes as a way to restore government finances around the world and also reduce economic inequality.

Expect to hear more and more about wealth taxes. Expect to hear that they will be a “one time” event that won’t be repeated, but that will actually help economic growth by reducing economic inequality.

This is all complete nonsense. Economic growth is produced when a society saves money and invests the savings wisely. It is not quantity of investment that matters most, but quality. Government is capable neither of saving nor investing, much less investing wisely.

Nor should anyone imagine that a wealth tax program would be a “one time” event. No tax is ever a one time event. Once established, it would not only persist; it would steadily grow over the years.

Piketty should also ask himself a question. What will happen when investors have to liquidate their stocks, bonds, real estate, or other assets in order to pay the wealth tax? How will markets absorb all the selling? Who will be the buyers? And how will it help economic growth for markets and asset values to collapse under the selling pressure?

If the Obama White House, the IMF, and people like Piketty would just let the economy alone, it could recover. As it is, they keep inventing new ways to destroy it.

35 comments
Kevin Lohse
Kevin Lohse

Do you agree that it's about time the concept of debt socialisation, which goes hand-in-hand with crony capitalism, was dusted down and given an airing.  Gordon Brown's completely false reputation as an economic genius rests on a de facto nationalisation of UK  banks, thereby lumbering the UK tax payer with toxic debt while his partners in crime continued to gather wealth largely unscathed.

Richard Landry
Richard Landry

The fatal flaw of Capitalism is that it creates so much wealth that the idlers get jealous and want what the producers have. In other economic systems there isn't as much wealth and the idlers don't see much difference between their lot and the lot of producers, so they are content.

Karol Jamison
Karol Jamison

Anybody that supports the party line. Even if their logic is faulty and their arguments disingenuous.

NoZapatero
NoZapatero

His Global Wealth Tax remedy is utterly ridiculous.

Pam Mercier
Pam Mercier

Sherrie Parrie- I doubt if they have the skills to be a day worker. Besides, heaven forbid that they actually raise a sweat or a blister.

JohnnyElvis
JohnnyElvis

Free market capitalism NOW.  But, it's too late; the amount of the U.S. dependent on government has surpassed the tipping point.  The roaring 20's was due to free market capitalism.  Then, the US Government got involved.  Hawley-Smooth Tariff by a Republican who claimed a hands-off government.  Then, FDR, a Democrat, furthered the socialist government agenda with his New Deal, minimum wage, etc.  Only after FDR died, did the country rebound for a while, but with LBJ and his War on Poverty, his grabbing of S.S. to merge into the Fed budget, things got worse steadily.  Nixon took us off gold standard allowing these crooks to print money as much as they wanted. Now, look where the U.S. is.  Big government IS the problem.  Just try to start a business now....what do you run straight into: rules, regulations, fees, all meant to maintain a no-competition field for the reigning monopolies.  Our democracy is a plutocracy.  We have a fascist government.  We need a trust buster like Teddy Roosevelt to break up all the monopolies.  We need the states to regain power over the illegal, unconstitutional Federal government and go back to the decentralized united states which made our country great.  Eisenhower  warned us what the government could become if we didn't stop it.  It may be too late. The propaganda on all the mass media outlets keeps the majority of our population dumbed down.  Stefan Molyneux wrote a great piece entitled: The Handbook of Human Ownership/ A Manual for New Tax Farmers which sums up the zeitgeist in the US now.  Then, the documentary, 'We Aren't Broke, Or Are We?' really shows the fascist evil for what it truly has done to the common American people.

Evelyn L. Morey
Evelyn L. Morey

I don't know who he is, but if the obama admin welcomed him I know he is crooked and no body I want to have anything to do with

Stephen Perkins
Stephen Perkins

What's the saying? The Republicans are driving us to hell at 100 mph and the Dems do it at 60mph.

Stephen Perkins
Stephen Perkins

Look at the graph that tracks the rise of inequality. It is stable through Nixon, Ford and Carter. Then it rises significantly in Reagans term. What is interesting however is that it really takes off under Clinton. The rich continue to pull away from us under Bush of course, but I think it must be even worse now with Obama. Since Clinton, the Democratic Party has been a sham. It has abandoned its former constituency. Clinton coined the term "Corporate Democrats" and that has stuck to Obama as well. We are ruled by two parties who both serve the elite.

Stephen Perkins
Stephen Perkins

and abolished Glass-Steegall thus setting the banks loose too loot the economy, turned over the Treasury Dept. to Goldman Sachs, gave us Nafta and the right to compete with ultra cheap labour, abolished child welfare, and turned the Democratic Party into the Republican Light Party. As a liberal, I respectfully throw a shoe in his direction.

Stephen Bussey
Stephen Bussey

The problem with every counter-Piketty comment on this page is that they are completely subjective opinion and devoid of evidence, while Piketty has thoroughly made his case and backed it up with legitimate, cited facts. You people need to get your head out of the world of attribution bias.

Jeffrey Colin
Jeffrey Colin

I am neither "Liberal" nor "Conservative" and I loath Obama. I loath both major parties, and I think that people need to wake up and see that they BOTH work for the rich and corporations.

Zswaves Rubicon
Zswaves Rubicon

Some excellent points here, a must read for anyone who is serious about their investments and the time it took to produce the money it took to create those investments

Raymond Farrish
Raymond Farrish

Government is not the answer to rampant capitalism, because captured government is the result of rampant capitalism.

Stephen Perkins
Stephen Perkins

Piketty strikes at the core of capitalism. For all those who say it just has to be purified, unleashed, and set free, he says that it is doing what it has always done, what it is meant to do and we are all being enslaved in the process. His book changes everything. We are looking at dynastic families and oligarchy now and into the future. Personally, this is not freedom to me. It wasn't to Madison or Jefferson or Paine either from what I know of them. This is the true road to serfdom and we are a good bit down that road at this point.

Brian Schatz
Brian Schatz

Cecil Edward Knight, I am a liberal. I criticize Obama plenty as he is a Neoliberal Corporatist and not a liberal at all. Corporate Media is corporate, and I expect nothing but their lies of omission and their corporate slant on things all the while paying fealty to either of the two parties depending on the show or channel tuned to. Actual liberals read, listen and watch community funded media that is not commercially/corporately funded.

Brian Schatz
Brian Schatz

Nick Sorrentino, I have to know where Against Crony Capitalism stands on Capitalism as it regards to Climate Change? Where does Against Crony Capitalism stand with regard to Climate Change? This may seem unrelated to this topic, but it really isn't, and I'm curious. Thanks!

Mike Marston
Mike Marston

If you took all of the money away from the top 10% money earners and their wealth and gave if to our government, all of that money would be wasted. Our government doesn't create wealth people do. Our government doesn't create jobs people do. The biggest problem we have now in our country is a government that tries to pick winners and losers.

Gordon Promish
Gordon Promish

screencap of newsfeed supplemental associated with this post:

Roger Durham
Roger Durham

LET'S look at some numbers and Why !!! The amount of U.S. income controlled by the top 10% of earners starts at about 40% in 1910, rises to about 50% before the Crash of 1929, falls thereafter, returns to about 40% in 1995, and thereafter again rises to about 50% before falling somewhat after the Crash of 2008. Let’s think about what this really means. Relative income of the top 10% did not rise inexorably over this period. Instead it peaked at two times: just before the great crashes of 1929 and 2008. In other words, inequality rose during the great economic bubble eras and fell thereafter. And what caused and characterized these bubble eras? They were principally caused by the U.S. Federal Reserve creating far too much new money and debt. They were characterized by an explosion of crony capitalism as some rich people exploited all the new money, both on Wall Street and through connections with the government in Washington.

Travis Adams
Travis Adams

Piketty doesn't propose a high income tax. He proposes a high wealth tax, which after the LVT is the second best tax. A wealth tax doesn't discourage productivity or labor. It disincentivizes a certain level of savings. But the original income tax was designed to be more a wealth tax. Unfortunately, the wealthy have used their influence to shift the tax burden down to the middle class.

Bob Fawcett
Bob Fawcett

I got sucked into clicking on this sight because of the misleading name. This is just another anti American far right wing blog spreading a lot of conspiracy bullshit. Coo coo coo coo I'm through with you.

William Nadolski
William Nadolski

Piketty is a labor economist, not a monetary economist - how exactly would this put him out of a job? While I support against crony capitalism's mission, anti-intellectualism gets us nowhere.

Frank Villneauve
Frank Villneauve

Tom P. sounds as if he's programed to spill a awful lot of disinformation.

Jeffrey Colin
Jeffrey Colin

Economists are like Broken Condoms: people may feel better having them around, but when you're getting screwed, they're of little use.

Cecil Edward Knight
Cecil Edward Knight

Rob - have you noticed that the Lame Stream media seldom if ever criticizes BHO about anything..... Congratulations on mastering Microsoft excel.

Benjamin Stockton
Benjamin Stockton

The problem is the Waltons are poor and oppressed. They're only allowed to own 40% of America's wealth. Just 40%! If they could own 75%, we'd have paradise, complete with unicorns. Oh save us, Wealthy Elite, and bring us unicorns!

Rob McDonald
Rob McDonald

This is reality, from the numbers of the office and management and budget, GRAPHED BY ME IN MICROSOFT EXCEL! I think all criticism of the Obama administration's economic policies are put out by lying media, trying to control, rather than serve their subscribers, just as the GOP who's lying treasons they bought the media to protect try to control, rather than serve the American people to whom they swore their oath!