More on Piketty

The splash of Piketty's thoughts on the evil of wealth, or income inequality, has led to many commentators saying one thing or another. Now in comes Summers with his thoughts. (I had written an analysis of Piketty and Francis that may be used as an alternate view.)

He begins with statements like the following:

This should not be surprising. At a moment when our politics seem to be defined by a surly middle class and the President has made inequality his central economic issue, how could a book documenting the pervasive and increasing concentration of wealth and income among the top 1, .1, and .01 percent of households not attract great attention? Especially when it exudes erudition from each of its nearly 700 pages, drips with literary references, and goes on to propose easily understood laws of capitalism that suggest that the trend toward greater concentration is inherent in the market system and will persist absent the adoption of radical new tax policies.

What surly middle class is he talking about? Yes the current President still acts as a community rabble rouser but that should be no surprise. But erudition. How many time do we need to be reminded of Balzac! I get the point. But if one were truly erudite then one would understand that Balzac in context was protesting his own social ills. Why not the mad man Dickens. But alas in the US we do not have dynasties, except attempts at in in politics. In my opinion the book is a gross bore with multiple repetitions of the same thing.

He does make a significant point:

A brief look at the Forbes 400 list also provides only limited support for Piketty’s ideas that fortunes are patiently accumulated through reinvestment. When Forbes compared its list of the wealthiest Americans in 1982 and 2012, it found that less than one tenth of the 1982 list was still on the list in 2012, despite the fact that a significant majority of members of the 1982 list would have qualified for the 2012 list if they had accumulated wealth at a real rate of even 4 percent a year. They did not, given pressures to spend, donate, or misinvest their wealth. In a similar vein, the data also indicate, contra Piketty, that the share of the Forbes 400 who inherited their wealth is in sharp decline.

Namely we do not have old style multi century European wealth. We have American entrepreneurial wealth. High risk and high return.

He then states:

Hanging over this subject is a last issue. Why is inequality so great a concern? Is it because of the adverse consequences of great fortunes or because of the hope that middle-class incomes could grow again? If, as I believe, envy is a much less important reason for concern than lost opportunity, great emphasis should shift to policies that promote bottom-up growth. At a moment when secular stagnation is a real risk, such policies may include substantially increased public investment and better training for young people and retraining for displaced workers, as well as measures to reduce barriers to private investment in spheres like energy production, where substantial job creation is possible.

That is the question I always start with. Why? Why should we worry about this issue? 

The he states near the end:

Look at Kennedy airport. It is an embarrassment as an entry point to the leading city in the leading country in the world. The wealthiest, by flying privately, largely escape its depredations. Fixing it would employ substantial numbers of people who work with their hands and provide a significant stimulus to employment and growth. As I’ve written previously, if a moment when the United States can borrow at lower than 3 percent in a currency we print ourselves, and when the unemployment rate for construction workers hovers above 10 percent, is not the right moment to do it, when will that moment come?

Has have ever been to Penn Station? It makes Mumbai look like a palace. The answer is Politics! The Port Authority often has control and its management is filled with in my opinion pure political hacks. Bridges rust, tolls explode, and salaries increase. Look at Kennedy, look at Penn Station, look at Port Authority Bus Station and you see what happens with politicians emptying the pockets of the taxpayers with agencies reportable to no one! Give them more money, then it ends in the pockets of the Unions. This is a no win game.