In Douglas Adams famous non-fiction series on galactic economic history, “The Hitchhiker’s Guide to the Galaxy”, we are presented with a description of the tragedy of the planet Frogstar B.
On Frogstar B, for a time shoe production increased faster than the rate of overall economic growth. As a result, with time, shoe production became a larger and larger fraction of the economy, until finally the Shoe Event Horizon was hit, at which point nothing but shoes could be manufactured, and lacking any other goods or services, their civilization collapsed.
Thomas Piketty’s “Capital in the Twenty-First Century” describes a similar tragedy that lies inevitably in our future, the point at which the only economic activity left is investment, all money is held by a tiny minority of wealthy people, and our civilization permanently ends.
Will we be wise enough to learn from the people of Frogstar B, and place a heavy tax on capital before our doom is reached?
I hope not, because of course Douglas Adams was writing comedy, not an economic history. Sadly, Piketty appears not to be a parodist, and presents the claim, in all seriousness, that something like a Shoe Event Horizon, in this case the Investment Event Horizon, could actually happen.
Normally, I would ignore such a book, but numerous commentators (all of whom, by strange coincidence, were already enthralled by the idea of expansions state power) have responded to Piketty’s call for heavy wealth and income taxation with rapturous reviews, driving Piketty’s work to the center of much of our current political discussion.
It is therefore, sadly, our duty to seriously to consider his arguments and the effects of his proposed remedies…
It is, of course, certainly the case that for limited periods of time all sorts of industries grow faster than the overall rate for the entire economy.
Mobile phones, for example, have been produced in increasing numbers for some time now, but I see few books on the market worried about the future in which our starving children, fed only on mobile phone casings, go naked but for mobile phones glued together into crude garments.
We see little hand-wringing about this because the proposition is so patently ridiculous — even a small child could tell you that this tragedy or the Shoe Event Horizon could not happen.
People demand some product or service in increasing amounts as a share of the economy only for brief periods. Economics teaches us that every marginal unit of any good is valued less. A man with no mobile phone might want one, but a man with two might find a third uninteresting regardless of the price, and certainly no one but a mobile phone dealer will have a use for fifty. People eventually want to buy other things, and the market for mobile phones, shoes, or anything else will stop growing long before it consumes the entire economy.
Piketty, however, seems to have forgotten this.
Piketty’s argument amounts to this:
1) The rate of return on investments is higher than the growth of the entire economy.
2) Therefore, if we do nothing, wealthy people who have more money to invest will eventually own almost everything.
3) Therefore, we need high income taxes and wealth taxes to prevent people from investing too much.
We may call (2) the Investment Event Horizon, the point at which all money is held by rich people, and all economic activity consists of investing. (Piketty would doubtless call this an unfair caricature, but I don’t think it is.)
Note also that, although it is never stated, a central assumption made is that (1) will remain true without limits, regardless of how much investment capital is present in the economy.
Others have noted, correctly I think, that Piketty’s heavily touted research in his book is of poor quality — the numbers he gives are often simply incorrect — but I would like to stipulate them for a moment, because the claims he makes on their basis would be ridiculous even if they were correct.
Let us suppose that Piketty is approximately right, and that at some points in history, perhaps even for very long stretches, the rate of return on investment has been higher than the growth rate of the overall economy.
The rate of return on investment is not an arbitrary number. It is a price discovered in the market. It comes about because of a supply curve for investment capital and a demand curve for investment capital.
The supply curve is the result of a large number of people trading off their time preference for spending now versus their desire to have more things later. They could spend their money now on vacations or fancier food, or they could save it, invest it, and hopefully have more to spend tomorrow. (We say “hopefully” because all investment in a truly free market entails the risk of loss.) The higher the rate of return, the more capital will be supplied.
The demand curve results from the mass of people who want investment capital so they can grow their businesses. They know that they have factory production machines they could build, airplanes they could construct, office towers and apartment buildings to erect, and other capital goods, if only they had the money with which to do it.
At some point, the two curves cross, resulting in a price. As I noted, this is not at some arbitrary point. The more capital you have in the economy, ceteris paribus, the lower the rate of return. If a larger and larger amount of capital is chasing the same number of businesses that want investments, eventually the rate will go down.
(Indeed, the Pikettian tragedy is, on its face, ridiculous — consider simply that in this terminal state the whole economy is the liquid capital for practical purposes, and it cannot grow faster than itself.)
Looked at another way: the reason rates are generally relatively high is that there’s loads to invest in but relatively little liquid capital available — if we add capital without limit, how would high rates of return be sustained?
Indeed, a high rate of return is a way that the system conveys information to potential savers and investors, telling us that the economy could grow faster if only people invested more in capital improvements. As more investment capital appears, of course, the rate will drop.
And here we come to the central problem. In essence, Piketty is confusing a signal that we have too little capital investment for evidence that capital investment must be prevented — an astonishing inversion!
Of course, we live in a society where state policy already heavily discourages savings, which are the source of capital investment. In the United States, the Social Security Ponzi scheme absorbs 12.4% of an ordinary worker’s income, thus reducing the amount they can save by a quite significant amount, and the same system tells the worker that they will be provided for in retirement even if they don’t save, reducing the necessity for saving. The Federal Reserve is currently in the midst of an orgy of money printing (dubbed “Quantitative Easing” by their staff euphemists), the proceeds of which are used to synthetically drive down long term interest rates, which also discourages savings. (There’s much more, of course, but these are two representative policies.)
However, it is not sufficient, according to Piketty, to discourage savings in this piecemeal manner. He insists that we must make it our deliberate state policy to punish investment and raise people’s time preference — that is, to encourage the wealthy to spend now rather than investing. I wish I was being metaphorical here, but this is literally what he demands.
Say you are a high salary earner, and you are going to earn some fixed amount in salary over a lifetime regardless of the decisions you make about savings. Say that you could choose to
a) save as much of the money as you can, where it would not only earn income for you but also be employed making capital improvements that increase overall productivity, and then leave the money to your heirs,
or
b) blow the money on champagne and caviar and expensive vacations, saving only the minimum you can to avoid discomfort.
Piketty will punish you for (a) and laud you for (b) — (a) will get you subjected to the Pikettian wealth tax, (b) will not. The Pikettian wealth tax is precisely an attempt to increase time preference, to get people to blow their money now rather than invest it and have more of it later. The motive is precisely that he sees rate of return on investment as too high, and is precisely to discourage people from building up the infrastructure that makes our society wealthy.
Now let us consider the consequences of encouraging people to blow their money now instead of keeping it around for later.
It is not by accident that we are wealthier than people who lived hundreds of years ago. Over time, people have worked hard and have saved the surplus over their current needs. This allowed them to invest in capital goods, such as better and better factory equipment, transportation equipment and the like, and we have put these things to use improving labor productivity, to the point where even in the last few decades our society has become dramatically richer.
When I was a child, even middle class families darned the holes in their socks, while today, even the poorest members of society simply throw socks that develop holes away, because the ratio of the value of a sock to an hour of labor has plunged so far that it is no longer worth your time to repair them.
Piketty, however, would like to discourage the sort of steady accumulation of investments that have made everyone so much better off with time. He does not wish to punish people for being wastrels, rather he wishes to punish them for not being wastrels.
This is the most corrosive possible idea, and I cannot see how it would fail to seriously harm the world’s poor, who, having little surplus income of their own, depend on the investments made by those with the capacity to save. Without that accumulated capital, there can be no cheap clothing, no cheap food, no cheap medicine, since all these things depend critically on increasing capital accumulation, not on punishing it.
If I might be so bold, he is, in short, asking that we make the entire world look like his native France, a society where nice vacations and fine living have become a priority for working professionals over savings, and where entrepreneurship is both looked down on in society and punished by the tax code. Wealth taxes and regulation have long since caused France’s educated population to conclude that government jobs are the safest refuge, and that a month in the countryside now beats saving money that will simply be seized by the state or inflated away later.
The result in France has been decades of essentially zero economic growth there and increasing desperation for the poor — and Piketty would seemingly want the rest of the world to adopt this model, in the name of “reducing inequality”.
That’s the most compelling, comprehensive trashing of the Piketty thesis I’ve read yet, and I’ve read a fair few. Bravo!
The impending Car Event Horizon looks quite scary.
Good post.
And think what it says about our “intellectual elite” that they take this absurd French charlatan (this modern day Rousseau) seriously.
Any “argument” (no matter how demented) will be supported IF it can be used to “justify” yet more statism.
Indeed.
Attacking wealth is, in the economic aggregate, suicidal to prosperity.
Wealth-creation and capital formation are exactly and only what keeps the world from being in permanent paloelithic poverty.
Literally; every capital good is wealth creation, and every capital good wears out. Stop that process and we literally, not figuratively, end up reverting to what tools we can make by hand from found materials, and the economy that can support.
Piketty, of course, doesn’t want to stop the process, just rein it in … but that has no positive effects, just negative ones.
I love your theory, but it does break down a bit at the end when you say that we would be subject to the privations of France. France is a wealthy nation, and its long term growth rate (since say 1960) is in line with G7. Not a catastrophic outcome.
All hail the model of efficiency that is a French state controlled industry
I must add my name to the list of those saying that this is a stonking good post; a clear, witty and compelling explanation of what is wrong with Piketty’s thesis.
Just to pick up on one little point I know lots about:
Not just the middle middle class either; a frankly posh friend of mine was taught to darn at her eminent girls’ private school, with new socks specially holed for the purpose, which used to infuriate her. And that leads us to one of the motivating forces behind the adulation of Piketty: lots of lefties and green types have a somewhat understandable aesthetic horror of what they see as the waste involved in people being rich. This has to be combatted on its own level, the aesthetic-masquerading-as-moral level, as well as on the rational level, which this post does so well. One thing to point out is that people darning socks (and performing other similar make-work such as most recycling) is a waste of their one-and-only life, a thing far more valuable than any material item.
Gary, overall maybe France’s wealth looks OK. But the rising affluence has left behind the very people Piketty et al claim to care most about. Unemployment is dreadful because it’s so hard to sack anyone that employers are reluctant to take on new staff and because it is so hard to start a business or grow one.
@Natalie, yeah I know that’s all true, but its just not showing up in the data is it? GDP is good, growth is good (in a multi-decade view) gini is bang in-line with EU and better than UK.
Where does all this French wrongness show up in the numbers?
Its a general question, not just Natalie.
And there was once widespread absorption in the views of one John Kenneth Galbraith, Sr.
Different types of views to be sure but greeted as “insights.”
The lights are dimmed, the authors and actors have changed, the stage is being reset; but the curtain has not closed. The “last” act (if there is to be one) is far in the future.
Piketty can be summed up very easily:
It really does boil down to that. And nothing he says is actually new. It is just repackaged Marxism, a delivery system, nothing more. And if there is anything to commend Piketty for, it is that he really does not hide it from any one actually paying attention. And anyone who cannot grasp that is either choosing not to for tactical reasons, or they are thick as pig shit.
People like him are one of the many reasons I am not a pacifist.
With reference to Runcie Balspune’s comment about the impending Car Event Horizon, here is an article at jalopnik.com debunking the whole thing. The author’s conclusions are based on misunderstanding of the auto industry, Google Maps, and the fact that most of the photos are very old, and the storage areas have long since cleared out.
This twat has barely left Paris in nigh-on 20 years. If a Texan does that, he’s called a dumbass redneck. The Left listen to him only because he says what they want to hear, same as they listen to Pilger and Chomsky.
I agree with the commenters about France, though. Somehow, God knows how, the place works. I find the quality of life here to be higher than in the UK. It’s an absolute mystery to me how or why, but when the French get something right, they really get it right. One quick example: I drove from Paris to London last weekend and going from Autoroute 16 to the M20 was like moving from a road to a farm track. The reasons? The Autoroutes are privately operated, and users pay a toll, meaning money actually goes into the road. The M20 is paid for out of general taxation, which gets spent on diversity outreach coordinators. You can also contrast the French attitude to nuclear power with that of the British. They’re infuriating bastards, but some things here are awesome.
And yeah, I wouldn’t bother reading anything on Zero Hedge. I’ve not read much of their stuff, but this morning I read that the ruble threatens to overtake the dollar as the world’s reserve currency. I don’t think I’ve laughed so much all month,
Gary writes:
Not really true. Over recent decades, French growth has stagnated. I recognize that so have many other European countries, but that’s kind of the point, now, isn’t it?
As for your claim about Gini being “better” in France, see my other post on the silliness of ever mentioning Gini at all.
@Perry Metzger G7 is not Europe, and my reference to Gini was a response to to Natalie pointing to inequality.
But lets forget my choice of metrics, let’s go back to my core question – if France is so begotten by ills, where is it in the data? What numbers *should* I be looking at that will express the qualitative statements made here?
An excellent post indeed.
I think I get the idea: the Left will have us all spend everything we have – on champagne and caviar or anything at all (even on foreign vacations, polluting the Environment), so that we can become poor as soon as possible, and go on mending old socks. Yes, I think I do get it.
Gary writes:
Try here.
Now try comparing that to US data over the period — and bear in mind that the US is hardly a paragon of economic virtue these days, but it does better than that.
At the time that the book was written, British high streets did seem to have an enormous number of shoe shops, much as in London and the Home Counties there are lots of estate agents and everywhere seems to have a mobile phone seller of sorts. There was an element of satire in the Shoe Event Horizon but there is also a lot of satire in the Hitchhikers series that can be argued to favour liberty. The absurdity of a government for a galaxy, bureaucratic folly, eminent domain (demolishing Earth), judicial activism and so on.
Great. Hundreds of millions were slaughtered because of Marxism, Leninism, Stalinism, and Maoism. How many people are going to die thanks to Pikettyism. It sure seems to me that the left is increasingly ramping up the anger of their drones, the occupy silliness, the sudden yammering about income inequality, etc. More than once a single book has led to the deaths of tens and tens of millions of people (Das Capital and Mein Kampf for two).
Nowhere will you find a better gini coefficient than in a cemetery.
If they really want to raise people’s time preference, all they need to do is engage in runaway inflation of the money supply. All investments denominated in that money will be dropped like hot potatoes.
Of course, the present course of steadily increasing taxes and regulations until all business activity has been outlawed will work almost as well, only it will leave us with a robust but corrupt black market just like those found throughout the third world.
Gary: “….if France is so begotten by ills, where is it in the data?”
Click (right in the first paragraph).
“Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty.
This is known as “bad luck.””
Robert A. Heinlein
As the French government has increased the expenditure and tax burden since the 1950’s to date, economic growth has declined.
This is illustrious enough, I believe: http://www.devilsdictionaries.com/blog/france-welfare-state-and-the-economy
Reminds me of Stanislav Lem’s short story about the Phools. The Phools were the people of a planet where society was very stratified: owners, clergy, workers, in that order from least to most numerous. They believe that redistribution of income/wealth is an utter no-no. They invent a fully automatic factory, and that basically ends their civilization.
Of course, it’s an absurd stretch. We’re very resourceful, and we’ve long been past the point where a tiny minority of people produce the basics that everyone needs to survive, and even prosper. Clearly we can survive more automation. How much more? Or perhaps the right question is “what is the fastest rate of automation can we take with good results overall?”. Anyways, I’m an optimist.
Britain in the 1950s was a place of innovation but political stagnation prevented capitalising on the genius of the innovative class. To quote from Douglas Adams ‘death is too good for them’
In other words, Picketty is just yet another in a long line of leftists who want nothing more than to sink all (but the ruling class) into abject poverty, the better to control us. They repeatedly fail to surprise. If only they could entertain us once in a while, really entertain. Bah.
“It is just repackaged Marxism”
Not even “repackaged” – just recycled.
Marx said he knew exactly what drives history: under capitalism the rich grow richer, the poor get poorer until it all blows up in violent (proletarian) revolution – that is – the masses, being much more numerous than the rich, will seize by force the wealth. Marx said this was an inevitable process.
That’s exactly what Picketty says (as reported). So, rather than repackaged I would say it’s plagiarized.
It’s the same old meme: rob the wicked rich. No wonder that it is so popular.
@Westbourne. It is almost tautologous to say that advanced economies at the edge of the technology frontier experience slower growth. That is true of every advanced economy in the world, so it tells us almost nothing about the case for or against the French model.
French GDP growth has slowed for sure, but its growth rate is no worse than the others in G7, so I still can’t see a data point that shows where the inadequacies of its system play out to the financial detriment of its citizens (compared to other comparable economies who have avoided some of these inadequateness and so presumably have better outcomes).
I like the way our betters keep warning us to submit to new controls to prevent something that has never happened in human history- deflation of fiat money, catastrophic global climate change, event horizons- while cheerleading for things that HAVE resulted in actual disasters over and over- command economies, inflation, paying for idleness.
And, “month in the countryside now beats saving money that will simply be seized by the state or inflated away later”? Not just in France. Saving is for chumps.
GDP isn’t everything, and nor is growth. Nigeria recently declared itself the largest economy in Africa and is seeing double-digit growth, but remains and absolute, total and utter shithole on every measure except weather and availability of pineapples. Meanwhile, Estonia has a tiny economy and low growth, but is extremely pleasant.
@Tim
I’m getting tons of great advice here about what metrics not to look at. Looking forward to hearing about the metrics we should be looking at instead.
Actually, a better quote to compare from “Hitchhiker’s” is the Magrathean industry of bespoke planet creation where “a small number of people became impossibly rich, and the rest of the galaxy was reduced to a situation of abject poverty…a silence only broken by the scratching of pens writing smug treateses on the virtues of a planned economy.” Spot on! I take your point, though.
You’re probably correct as to the slower rate GDP growth being typical for advanced economies. Nevertheless, you’re missing at least two important issues:
(1) Unemployment rate. France has been doing worse that Britain, Germany, not to mention Switzerland. The fact that so many French people seek jobs in London rather than Paris speaks for itself.
(2) Public debt. France had about 30 pc debt-to-GDP ratio in the early 1990’s. Now it’s way over 90 pc and counting. Meanwhile, economic growth has halted and the labour market is just lousy.
Yes, France has been doing much worse than comparable countries save Spain or Italy.
Fair question, Gary – wish I had the answer.
Tim, you seem to be comparing (tentative) end results, possibly without considering comparative starting points?
I’m getting tons of great advice here about what metrics not to look at. Looking forward to hearing about the metrics we should be looking at instead.
We could look at:
1) How many people emigrate.
2) How many people emigrate and never return.
Those are good indicators of how satisfied people are with the state of affairs in a country, and the two metrics paint slightly different pictures.
Tim, you seem to be comparing (tentative) end results, possibly without considering comparative starting points?
I’d say both Nigeria and Estonia are works in progress: neither is where they want to be.
True, but the starting points are very different too. But yes, my point was really about ‘work in progress’, i.e. looking at processes (and general directions thereof) various countries go through, rather than at static snapshots of the situations in those countries. Not that the latter examination is not useful – it is, if one wants to know where to settle tomorrow for the next year or so. But when one is interested in what longer-term future may hold, the former is much more useful, IMO.
@Tim yeah I buy that but it a very different argument isn’t it to say “The french model creates just as much wealth, growth and (in)equality, but it pisses off 1% of people who then move to UK, although some people also move from UK to France so it cant be that catastrophic”.
Remember in the post itself we started with:
“The result in France has been decades of essentially zero economic growth there and increasing desperation for the poor — and Piketty would seemingly want the rest of the world to adopt this model, in the name of “reducing inequality”.
Just by the way, the obsession with inequality is totally misguided.
http://www.devilsdictionaries.com/blog/inequality-is-good
“Gary” says:
I stand by that claim. I think people do not understand how much better the lives of poor people are in places like the United States.
The youth unemployment rate in France is near 25%. The non-youth rate has been very high for a very long time, and is higher still if one compares fractions of the population employed in the US and France rather than simply paying attention to the fraction that claim they want work but cannot get it.
The economy has indeed been at incredibly low growth for a decade and was growing substantially slower than that of the US even for the decade before that. The suburban government housing projects have been no-go zones for the police for a while. Housing stock lived in by middle class and poor French citizens is nowhere near as nice as that lived in by US citizens.
The median income of the French is something like a third lower than that in the US, and that is hardly an insignificant difference. The French government is deeply and unsustainably in debt, borrowing to maintain the social programs that it runs that keep things even as nice as they are — with over half of the French economy in state hands, though, they are rapidly running out of wealth to tax, and eventually will end up in the Greek situation with no one left outside France to borrow from.
“Gary” persists in whining that French growth is “normal” for the G7, except that’s a sort of selective claim — it is nearly the worst in Europe, as the Economist article notes, and is far behind the US, Canada and Germany. It is true that Japan and Italy are also basket cases and are in the G7, but I don’t see why one should compare against them. Indeed, one should actually compare against freer economies such as one finds in Hong Kong and Singapore, and not against the G7 at all.
I understand the desire to persistently pretend that France is wonderful, for to do otherwise is to claim that Socialism is a failure, and some people desperately want Socialism to be a success. However, spin does not alter reality.
@Gary
Remember in the post itself we started with:
“The result in France has been decades of essentially zero economic growth there and increasing desperation for the poor — and Piketty would seemingly want the rest of the world to adopt this model, in the name of “reducing inequality”.
For sure, and the stupidity of Piketty’s suggestion is he thinks that if the rest of the world adopted French policies then the rest of the world would become like France. His problem is that he lives in a place which is decent *despite* the stupidity of their politics and extrapolated to think everywhere else would also be decent if they adopted the same policies, which is of course bollocks.
@Westbourne (and many others at home and abroad),
The ideologies which arose, thrived and spread through the 19th century and on into the mid-20th – are dead.
The wordsmiths of the West (sometimes a.k.a. “intellectuals”) seem to require some form of ideology as a mental flotation device.
Accordingly, there are efforts to find a new flotation device to replace those that have failed (as proven disasters taking down many “great thinkers” with them) led by “new thinkers” who are grasping at concepts of equality as an ideology.
Those efforts carry an almost revivalist impulse contrived of romantic and false perceptions of the human past, with overtones from some of the failed ideologies. However, those efforts will continue because of the needs for a mental flotation device, principally in academia, but elsewhere as well, and politically useful to some.
Be of good cheer; Equality as an Ideology is unlikely to endure for as long a time as those ideologies which are so sorely missed by the wordsmiths academics and politicians of our time.
London is awash with french people these days, which is rather nice as they nudge up the quality of food and wine on offer in the areas they favour & London is pretty damn good on that score already these days 😉
That’s brilliant.
So I figured out the analysis. If you go to the IMF website you can download country data from 1980.
I got the G7 data, and it tells us that, between 1980 and today, French GDP grew by 78% in constant prices. That’s good stuff, and refutes the assertion of ‘decades of stagnation’.
But..of the G7, growth of 78% is pretty poor. France ranked 5th out of the 7. And it only beat Germany to 5th place because of the costs of German integration during the 1980’s The US grew by almost double the rate of the French (151%) and UK 129%. Things like the French unemployment rate (and employment policies but I repeat myself) doubtlessly contributed.
So a more measured statement of the French model would seem to be that it does NOT kill growth and create stagnation, but it does probably cut the rate of growth in half from what was possible. Not a record to be proud of, nor one to admire or emulate, and its not an encouraging context within which to place Picketty’s work, but us talking about it in hyperbolic language does us no favours either.
The French model is a story of missed opportunity, not flatlining stagnation.
The difference between the standard of living in Mexico and the United States consists of a 1% difference in growth rates every year over about a century. This is a larger difference.
So France has continued to grow, albeit at a lower rate than the US et al. BUT state debt has risen from 30 per cent of GDP to 90. So this growth has been financed by increased debt and that is not sustainable. Ironically who has lent this money – could it be the nasty investor class?
About the only good news for the statists is that as long as innovation thrives *somewhere* that innovation will eventually be locally available cheaply. Eventually.
RRS
I am reminded of the Hitchhikers Guide when someone asks Zaphod Beeblebrox if he is dead, his reply is along the lines of: ‘Maybe I am, but I just haven’t stopped moving yet.‘.
@ Gary, if you can read some french, here is a blog that illustrates why France is in deep doodoo, and, admittedly like most countries in the euro area, only survives because the Germans are paying for it.
The state’s share of gdp is 57%. That in itself tells the story.
There is a growing movement of people, mostly self employed, trying to leave the health system.
Crony capitalism is rife.
That said, Marine Le Pen, head of the xenophobic national front, is ahead in the polls and proposes a proper socialist program. There is still a communist party. A large proportion of people think that money grows on trees and we still produce idiots like Piketty.
All in all, I’d say the country is fukced.
http://chevallier.biz/
The blog in question…
For thousands of years, people lived in equal poverty. In times of crisis, sharing things was the only way for all to survive. This attitude still exists in Aboriginal tribes here in Australia, where someone who has more is expected to share it around. In the past, having more meant you’d accidentally found a big kangaroo to kill, or lots of emus, and it made sense to share this lucky catch around, as a way of building up favours for future bad luck.
This belief in sharing might well be genetically determined, so we can expect recurring outbreaks of equality all the time.
France: What do you expect from the country that gave the world the guillotine, decimalisation of the calendar and time, the Committee of Public Safety and the massacres in the Vendee? An inauspicious history, a poisoned culture.
@monoi
Sorry I don’t do any French. That’s a deliberate choice. I hold no candle for the French way, and I’m instinctively hostile to it from a moral, political, philosophical perspective. I know full well the points you are making; what I was asking for was numbers that you might be using that says – in hard quantitative terms – “and because of all this unemployment, cronyism, statist intervention, etc, etc the impact on important metric [x] is [y]”.
The closest I have got is my own run of the numbers – because of these things, the impact of GDP rate of growth is a c.50% reduction versus a free-ish market economy. I was just kinda hoping you guys had thought it through in that kind of way beforehand and could maybe supplement that.
@Perry Metzger
I am not clever enough to make the link between Mexican GDP growth rates and the merits of the French model. All clues gratefully received.
Gary’s point seems to be that the socialist-welfarist policies practiced in France are the same ones as those of other European countries, and not that much different from those of Britain, Germany, Italy or Spain.
This is a perfectly valid point, despite the fact that France is more socialist – it has more nationalized industries, higher taxes (on the rich… only on the rich…), more regulation, more centralized power, etc.
France may be, indeed, a little more socialist that Britain or Germany, but not by that much.
Perry mentioned Mexico to illustrate how small changes in GDP growth rates can have dramatic effects on overall wealth. This isn’t difficult.
@Jordan
Thanks for that. So what I might have just learned is that compound effects can be dramatic. Except the analysis I offered already incorporated compound effects by quantifying the total % increase since 1980 at current prices. You either ignored or failed to understand that my analysis incorporated that already.
In other words, all you have added is a facetious tone to these comments, and the question remains: I said the French model probably cuts the rate of growth in half from what was possible. Perry responded by telling me about the annual differences between US and Mexico. The fact that compound is important may well be true, but does not allow us to conclude either way on the efficacy (or lack of) on French statism, cronyism or debt.
How does the impact of compound either support or refute my suggestion that the French model does NOT lead to stagnation but does halve the rate of growth?
Gary writes:
Surely you jest.
The point on Mexico was that something significantly less than halving the rate of growth (reducing it by about 1%) has led to a situation where on one side of the US/Mexico border people at the bottom decile of the population by income own cars, flat screen televisions and smart phones, and on the other side people in the bottom decile could never dream of owning their own car and don’t even have plumbing.
The difference in growth rates between France and the United States is far more stark right now — a much larger difference than the historical gap between the US and Mexico. Project forward what has happened to France by a century and imagine what life there will look like compared to life in a country with twice the growth rate.
Do you imagine that what has happened in Mexico is not stagnation? If not, why do you imagine that halving the growth rate is not stagnation? Worse, the decline in French growth has not ceased. The productive sector of the country has decamped en masse, and the people who are left are increasingly those who depend on the state for support — but who will pay the taxes to support them?
France already depends on external borrowing to sustain a state sector that encompasses the majority of the economy, and there is no obvious hope for recovery and repayment. It is only a matter of time before the country defaults, either constructively or de jure, just as has happened in Greece and other countries over the years. At that point, we can expect the usual wave of protests and riots in the streets, claiming that pensioners “must” get paid, that government workers “deserve” their paychecks, but with no one to actually earn the tax dollars necessary to generate these payments, and with no one left to rob within the country, the protests will do nothing.
@Perry
I have no opinion on Mexico and offer no challenge to you on Mexican economics. I accept Mexican stagnation if you say it is true.
But back to the subject of France, which it the country *you* raised and I responded to. I completely accept all the qualitative statements you make about France, and share your pessimism. Still no argument there. But my question/point remains unanswered: France (not Mexico) has NOT stagnated in the long run, albeit growth is half what it might be (compared to the US on a compound basis in the long run at current prices). That’s not a great story but its not the catastrophic/stagnation story you suggested either.
What metric qualitatively tells us that the French model – as well as being wrong ethically, philosophically and politically – fucks the people up economically as well? The answer involves numbers.
Back to our friend Piketty, quelle surprise, as they say. Not that we are likely to see the usual adulators willing to be confused by mere facts and numbers.
Alisa, earlier sources have made the same claim, that is, that Piketty’s data are flawed, and I alluded to that in my original posting. I thank you for providing us with yet more evidence to that effect.
As an aside, I find it interesting that Piketty chose to present such an apparently important set of conclusions in a non-peer reviewed book first rather than in a series of journal articles. Normally, in academia one first presents new and revolutionary ideas to one’s peers, allows them to examine them, and only later publishes a popularization. One wonders if Piketty was more interested in propaganda than in advancing the state of economic understanding, or perhaps understood that his hypothesis would not withstand academic scrutiny and decided to take it straight to the public instead.
Yes Perry – I had the feeling that it must have been in there, and that I missed it…
Just wanted to say: good post, and I’ve linked to it in other discussions.
… when surrounded by other First World nations pursuing (somewhat) less crazy policies who are willing to trade with you.
As an aside, I find it interesting that Piketty chose to present such an apparently important set of conclusions in a non-peer reviewed book first rather than in a series of journal articles. Normally, in academia one first presents new and revolutionary ideas to one’s peers, allows them to examine them, and only later publishes a popularization. One wonders if Piketty was more interested in propaganda than in advancing the state of economic understanding, or perhaps understood that his hypothesis would not withstand academic scrutiny and decided to take it straight to the public instead.
Good point; in other words, he wanted the glory. To make a splash, and I guess he has, although the rising controversy about his data might mean he has lost crucial credibility. That it was the Financial Times – which takes a broadly liberal/left political line – that has debunked him, is particularly pointed.