Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
The author attempts to prove that “a market economy based on private property, if left to itself, contains powerful forces” that result in increasingly, unequal distribution of income and wealth which is “potentially threatening to democratic societies and to the values of social justice on which they are based … The principal destabilizing force has to do with the fact that the private return on capital, r, can be the significantly higher for long periods of time than the rate of growth of income and output, g.” Many economists agree that with his conclusion that income or wealth inequality has been increasing and some disagree with his methodology, his data, his conclusions, or his policy proposals. One noted economist has said, “So what?” Capitalism has made possible the huge increase in the welfare of workers and the middle class. As Keynes concluded in 1920, you cannot have economic growth without income inequality.
Piketty differs from Marx who argued that the capitalist contradiction was that the rate of return tends to fall, not increase, over time. Piketty’s view is just the opposite although some have called him a Marxist because of his policy proposals. What all the critics and supporters and Marxists alike seem to lack is an understanding of the reason economies keep growing which maintains the rate of return on capital. The reason is innovation and invention. To induce invention and innovation, governments grant patents and copyrights, legal monopolies, for a limited number of years. And the monopoly rate of return is greater than the competitive rate as a rule. Failure to recognize this fact is what makes Piketty’s Capital just a political tract....
What are the prospects of the US economy short-term and long-term?
According to the Council of Economic Advisors, the US economy is growing steadily. It recently reported that "we have now seen twelve straight months of private-sector job gains above 200,000 -- the first time that has happened since 1977” and that the “GDP report for the fourth quarter of 2014 is consistent with a wide range of indicators showing further labor market strengthening.” 252,000 jobs were added in December, 2014, 257,000 in January, 2015, and 295.000 in February, 2015. The unemployment rate fell to 5.5% in February, 2015. The stock markets have risen to new highs although they are highly volatile. Real estate values have been rising. So how good is the good news? Not so good, really.
The recovery as the ordinary man in the street knows has been sluggish and the data corroborates that. As I pointed out in a recent posting to this blog, the measures taken by the Treasury and the Federal Reserve Board have made the rich richer and poor poorer. Consider the following table which shows the changes in employment and unemployment between 2008 and 2015:
As the table shows, the number employed has grown by less than one percent in the seven years of recession and recovery. The number unemployed increased 23 percent, millions are employed part-time for economic reasons beyond their control and millions more have stopped looking for jobs and are not counted in the labor force. ...
Journal of Economic Literature:
Atlantic Economic Journal: