Thursday, May 29, 2014

Palate cleanser

More on the Piketty Fad from our favorite Spanish (or Catalan, as he prefers) economist;
I have already explained that the data provided by Piketty do not demonstrate in any way that inequalities of wealth and income increase long-term (only partly, since 1980) and much less that r> g implies the existence of dynasties that are perpetuated through inheritance of estates.
But here I would like to comment on a much more fundamental problem: Piketty never convincingly explains why economic inequalities are important and why they represent the seeds of the destruction of capitalismSometimes Piketty uses the expression, "it is clear that inequalities are socially harmful or unsustainable", and sometimes he says, "inequalities generate social unrest that will end up leading to political instability (peaceful or violent) that is going to end capitalism".  
The first is not an argument but rather an opinion. And the second is based on some kind of vague political theory. To be convincing, it needs developmentFor example, let's accept for a moment that economic inequalities generate social unrest. The question is: How does economic inequality create social unrest in France?
Is it the inequality in France? How about global inequalities? I say this because Piketty only analyzes inequalities WITHIN rich countries: within France, within the UK, within the United States. But global inequalities have plummeted since 1970 as the poorest and most populous countries worldwide have grown at a much faster rate, which has reduced inequalities between countries and has brought down the global inequalities
I myself analyzed this phenomenon called "The Great Convergencein an article in 2002 (7), a phenomenon that the same Piketty has accepted as real and true on page 15 of his book.
The very fact that the French economist is so much preoccupied about the wealth of Bill Gates and the super-rich Americans indicates that, he has in his mind, a political theory in which the wealth of the rich in other countries matter for political stability  of France.  However, if what matters is the overall inequalitythen one has to admit that the inequalities in the world not only have not increased since 1980 but have fallen significantly.
Logically, we will not know what implications the evolution of inequality has until Piketty shows us a political theory of social unrest which demonstrates inequality within a country generating political instability, and not global inequalities.
Understanding the determinants of instability or why inequalities are bad also matter in setting economic policies to solve the "problem." For example, a tax on wealth recommended by Piketty is no solution to a problem of inequality between countries. 
Moreover, this tax can end up hurting growth of poor countries and, therefore, can in the process, of that desired convergence to the richer world. 
To accelerate the convergence, and growth for the poor, the weapon needed is education: a good educational system incorporating Africa (still the world's most poor continent) into the global labor market will accelerate global growth rates and reduce still more global inequalities.
From the Spanish, we again add.

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