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Thomas Piketty and Inequality

I haven’t read this book, but judging from the blog reviews, it seems that is central point is that if the return on capital is higher than economic growth, then the owners of capital should become richer over time.

However, it seems that there are certain problems with this thesis. Firstly, an economy has an optimal capital stock, and thus can carry only a finite amount of wealth into the future. Attempts to save beyond this simply drive the return on capital negative. In the long run then, the capital stock approaches the optimal, and the return on savings should approach zero. Given the epic lack of capital in EM, we are still some 50-100 years from that, at least. On the other hand, we can comfort ourselves with the thought that even if Piketty is correct now, he won’t be correct forever.

If we think that the inequality in capital ownership is a problem, there is a simple solution. Simply have world governments buy up large quantities of the capital stock, say half of the stock and bond markets over a few decades. By reducing the supply of capital, savers, and by extension the wealthy, would have to compete for a smaller and smaller share of the optimal capital stock.

In the short term, this will drive up the price, but in the long run it limits the supply of available savings vehicles, and exposes the wealthy to inflation by giving them the choice between holding cash, or buying capital at such prices that returns are bound to be negative.

Of course, it seems that this would not be a politically acceptable move. For one thing, people seem to believe in the divine right of savers to reasonable returns. Of course, no one seems to equate the very wealthy with `hard working’ savers, but economically they are largely identical. To make it politically acceptable, the government would have to provide bonds at a reasonable rate of return. This could be managed, simply start selling bonds directly to savers at some limit such that no one person can own more than, say $500,000.  This is not very different from the UK’s pensioner bonds.

Driving down inequality by having the government buy up the capital stock. Its just the modern repackaging of Marxist ideas, but the difference is that we could do it now, without the terrible side effects. Just buy ETF’s and the government can be a silent partner in the world’s stock and bond markets. No interference in workings of capitalism, just lots more capital.

The Importance of Charity in a Market Economy.

Ever since I first read “I pencil”, I have been somewhat in awe of market economies. The ability of price signals to transmit demand along supply chains containing millions of individuals is akin to magic. The market appears almost limitless in its ability to reshape the contours of labour and capital in order to produce goods that we never even knew that we wanted. It is the ultimate democracy: every £ of spending is one vote, directing research and development, production, and marketing.

Just as, in the case of a pencil, it is impossible to derive precise causal links between buying a pencil and the production forecasts of saw-makers, so it is not possible to see how our consumption drives the research and development which produces new products. Nevertheless, the link is real.

Thus, when you buy clothes, you are voting for the development of new clothes. When you buy clothes based on how they look rather than how they last, you are driving research into sartorial elegance over the production of hard wearing fabrics. As consumers, we hold ultimate responsibility for the make up of the market. If we stopped demanding the latest fashions, we could instead direct that energy and talent into Medical research, or ending poverty.  I, for one, have every faith that the market can make huge strides towards improving some of our most intractable social problems. All it takes is demand. Sadly, often those most affected are those with no voice. If you are poor, your problems are invisible to the Market. So who will speak on their behalf?

Thus we come at last to the point. When you make a charitable donation, you are voting for a solution to that problem. So vote for an End to Cancer, or an End to Homelessness, or for the Elimination of Poverty. Vote to end Child Trafficking, or the Sexual Exploitation of Vulnerable Women. Together, we can reshape our economy, and build a better world. All it takes is a little charity.


Charitable giving in the UK by adults is currently less than 0.5% of GDP.

 Civil Society, Mob Justice, and Mozilla

“There are many humorous things in the world; among them, the white man’s notion that he is less savage than the other savages.” – Mark Twain.

Although I rather suspect that if he lived today he might have written: “There are many humorous things in the world; among them, the progressive’s notion that he is less bigoted than the other bigots.”

One of the more depressing things about getting older, is watching the same sad stories played out again and again in civil discourse. I have watched the world’s central banks avoid the mistakes of their fathers only to repeat the mistakes of their grandfathers. Now we are watching the rise of a muscular secular ideology that does not tolerate dissent. This has played out before in European and American history. It starts with small measures making life harder, in the hope that they will abandon their dissent. As it gets worse, eventually people take up arms. The GunPowder Plot is the most famous example from English History. There are others. Worst, perhaps,  in the bloody pogroms of the `enlightened` French revolution when the Committee for Public Safety ordering the complete extermination of the population of the Vendee(*), a principality of France. The army was ordered to kill every man woman and child “thinking only of the glory of the Republic that was to rise”. More recently the IRA and Basque campaigns for independence, abandoned the path of tolerating their political opponents. And lets not forget Joe McCarthy.  These end when a nation is sick of the bloodshed and persecution, and decides it can instead tolerate their `irreconcilable differences`. Like the long standing British aphorisms about never talking about religion or politics with strangers, we instead get a strong consensus in favour of tolerance that lasts for a few generations. Then up rises a new ideology convinced that the world would be better if only they could only stamp out the last few misguided and ignorant opponents clinging to their outdated and outmoded beliefs. Then the persecution starts. This cycle is so old that the author of the book of Ecclesiastes is already weary of it three thousand years ago:

What has been is what will be,
and what has been done is what will be done,
and there is nothing new under the sun.

There is no remembrance of former things,
nor will there be any remembrance
of later things yet to be among those who come after.

-Ecclesiastes Ch 1;


The new Scandal du Jour is Brendan Eichgreen, forced to step down as Mozilla Firefox. Now I don’t know much about Brendan, and I know even less about prop 8, though I gather its ads were widely condemned even among my conservative friends. A company belongs to its shareholders, and if they believe that Brendan’s donations will harm Mozilla’s long term future, they are free to fire him.

No, what is really despicable about this, the the prevalence of the formulation “Eichgreen believes X, therefore he is an evil person”. Its childish, and bizarre, and yet it comes back again and again, because people prefer a simple falsehood to a complicated truth. Thus he is labelled a bigoted homophobe for opposing gay marriage, despite an absence of any evidence that it ever affected his hiring decisions or even his friendships. You can be a good person, and an opponent of gay marriage. You can even be a good person and a racist. The bar for being a good leader is even lower. Many of humanity’s greatest leaders were despicable human beings. Humans behaviour is a messy pile of contradictions. Opponents of gay marriage have gay friends. Some opponents of gay marriage are gay. They are not some hoard of fanatics hiding out in a bunker plotting world domination.

The attraction of these simple truths are that they let us rationalise our behaviour in a way that makes the majority into the “good guys”. I must be a good guy, because I am not one of the evil people who believes X.

To all those people who claim that they can’t or won’t work with someone because of their political views, I say Grow Up. Tolerance is exactly about having civil relationships with people you disagree with, dislike, or even hate. If the statistics are to be believed, virtually every group of twenty men will contain a rapist. Virtually every large office will contain at least one man with a conviction for murder or rape or assault. Are they next to be hounded out? In most countries it is illegal to discriminate for employment based on past convictions. Is working with someone who donated money to a mainstream political campaign worse than working with a convicted felon? Everyone with a large friendship group will know someone who routinely cheats on their partner. Cheating on our partner is a fairly reprehensible act, shall we orchestrate a campaign against those people? Maybe just put adulterer on their ID badges so that we can all feel morally superior together.

And worse, those who are gloating over their success at the ousting of a CEO for his views are calling it progress. Newsflash, there isn’t any progress in morality. A hundred years from now humans will be the same broken fallible and largely despicable creatures that we are now, just the same as we were 100 years ago. Don’t worry, there will still be a minority to demonise. Perhaps it will be the Cyborgs, or the trans-humanists, or the naturals who refuse technological enhancements to cognition. Believable fiction has been written about all three. There will always be people who are different, and humans will continue to behave in this type of bizarre tribalism. And it sickens me. In the UK, devout Catholics used to be discriminated against for being treasonous papists. Now its because they oppose gay marriage and abortion. This is progress? Just remember, you who are gloating, that it will eventually be you in the stocks. Your children will grow up and call your views, old fashioned, immoral, and outdated. Its no coincidence that this has happened in Tech, one of the few industries controlled and staffed mainly by young people. Too young, perhaps, to have watched this cycle play out.

Lets take a look at a very incomplete group the list of groups who have been discriminated against in the last century by my ‘liberal democracy’ (the UK)  :

  • Catholics – in the UK up to WW2 and abating slowly thereafter. It was illegal to be catholic in the UK as recently as 1853.
  • Christians and those of faith generally – E.g. this man who was refused employment because his atheist colleagues didn’t want to work with a Christian:
  • Pretty much any ethnic Minority – Most recently against Afro-Caribbean in the 1980’s race riots, and to a lesser extent vs Eastern Europeans and Gypsies in the present.
  • Pro-Lifers – In what amounts to a systematic campaign of intimidation, the NHS has taken large numbers of doctors and nurses to court over refusing  to participate in abortions. Few people can survive the years of legal fees needed to fight these decisions, especially since it usually happens after losing ones job. Also in the private sphere, e.g. Google banned pro-life ads while allowing pro-choice ads.
  • Pro-Choicers – While picketing hospitals and abortion clinics is an absolutely legitimate form of protest, when it moves to harassing the families of doctors, and picketing their houses, it has move into harassment.
  • Communists & Marxists – The political climate of the cold war was strikingly prejudiced against those judged to have socialist leanings.
  • Feminists – Being fired for being a feminist sympathiser was normal during the inter war period.
  • The poor.
  • The long term unemployed. 

I wonder whose next? Perhaps it will be those who oppose a basic income. I can easily see that becoming a `basic human right’ in the next decade, and we can all deride opponents whose actions “caused real and material harm” by opposing it.

Finally, since this is mainly a blog about economics, I will leave you with some thoughts from Milton Friedman in Capitalism and Freedom (paraphrased):

One of the great things about capitalism is the way that it evens the playing field. When I buy my bread I don’t care if the farmer was an African or an american, white or black, straight or gay. I care about the quality, and I care about the price. Any company or country which systematically discriminates against people of a certain belief is putting itself at a competitive disadvantage, and will be out competed by those companies which can hire rejected talent for less as a result. The market itself opposes discrimination.

Mozilla has rejected the person it judged most qualified for the role, it is a worse company as a result.


(*) There is much controversy over this in French History, where they have long tried to downplay the bloody history of the revolution. I quote below from the orders given to French columns, sourced from Micheal Burleigh’s book “Earthly Powers” pg 99.

kill the bandits instead of burning the farms, get the runaways and the cowards punished and totally crush this horrible Vendee…Plan with general Turreau the most assured means to exterminate all in this race of bandits.