Bombshell New Book Argues That Capitalism and Democracy Don’t Mix

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A sign for Wall Street is displayed on the side of building near the New York Stock Exchange, Monday, March 4, 2013. Uncertainty over the outcome of a budget battle in Washington pushed world stock markets lower on Monday. (AP Photo/Mark Lennihan)

A sign for Wall Street is displayed on the side of building near the New York Stock Exchange, Monday, March 4, 2013. (AP Photo/Mark Lennihan)

Few books have been met with as much anticipation at Thomas Piketty’s Capital in the 21st Century. A reviewer in the Journal of Economic Thinking declares it “one of the watershed books in economic thinking.”

Piketty, an economist at the Paris School of Economics, is well known for his work on inequality — much of what we know about American inequality is based on a database he developed with Emmanuel Saez of UC Berkeley.

The book has been available in French for several months, and the English translation, by Arthur Goldhammer, is due out in March. Its release is expected to set off a firestorm in our economic discourse.

Thomas Edsall previewed the book in Tuesday’s New York Times.

Edsall:

Thomas Piketty’s new book, “Capital in the Twenty-First Century,”described by one French newspaper as a “a political and theoretical bulldozer,” defies left and right orthodoxy by arguing that worsening inequality is an inevitable outcome of free market capitalism.

Piketty, a professor at the Paris School of Economics, does not stop there. He contends that capitalism’s inherent dynamic propels powerful forces that threaten democratic societies.

Capitalism, according to Piketty, confronts both modern and modernizing countries with a dilemma: entrepreneurs become increasingly dominant over those who own only their own labor. In Piketty’s view, while emerging economies can defeat this logic in the near term, in the long run, “when pay setters set their own pay, there’s no limit,” unless “confiscatory tax rates” are imposed.

Piketty’s book… suggests that traditional liberal government policies on spending, taxation and regulation will fail to diminish inequality. Piketty has also delivered and posted a series of lectures in French and English outlining his argument.

Conservative readers will find that Piketty’s book disputes the view that the free market, liberated from the distorting effects of government intervention, “distributes,” as Milton Friedman famously put it, “the fruits of economic progress among all people. That’s the secret of the enormous improvements in the conditions of the working person over the past two centuries.”

Piketty proposes instead that the rise in inequality reflects markets working precisely as they should: “This has nothing to do with a market imperfection: the more perfect the capital market, the higher” the rate of return on capital is in comparison to the rate of growth of the economy. The higher this ratio is, the greater inequality is.

Read the rest at The New York Times »

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  • Katie Maver

    Don’t need to read the book to come to that conclusion. You just have to look around. Although, of course, it’s great to read!

  • JJ042804

    I disagree with Picketty on some major issues. One reason for the inequality is a “rigged system. Greed is the dominating factor. And the capitalistic Economy is not working as it should. One thing I can say for certain, pure capitalism does “not” work, it is doomed right from the start. You will end up either with slavery or with another Civil War. If you want a healthy Economy, you have to mix Capitalism with Socialism and a Democratic Government to set limits to both.

  • Barbara Mullin

    Way past time for a maximum wage cap.

  • Jim Bullard

    I have long argued that the problem of economic inequality is one of perception, specifically our individual perception of the value of our contribution to whatever enterprise we are engaged in. Virtually everyone believes in their heart that their contribution to the success of the enterprise is worth more than the compensation they receive in return. The difference between the rich and the rest is that the rich are in a position to influence or outright control the share of profits that flow to themselves, They see themselves as solely responsible for the success of the enterprise thus they compensate themselves at rates commensurate with their own perception and all those below them get the leftovers. With the decline of labor unions those below have no advocates for the value of their labor.

  • Anonymous

    We live short-term pain-avoidant brain horizons, are easily manipulated by the rich & powerful who themselves ALSO live in a trance — but still know how to manipulate into tribalism, wars, dreams of utopia and endless growth, etc. And we don’t know our right relationship and dependence on Nature, being a few milleniums-old social animals with only a few years of seeing the planet from space, even. We are masters of ‘denial’ and self-justification, not of the economy or our own reality. Why else would we would continue on the utterly self-destructive path that we are on here on Planet Earth with our current technology/economies/politics? The trance (and stubborn hope, that elephant in the room) is….we will survive (not). Wake up, dear ones and toxic philosophers and economist alike — if the economy is not built on respect for LIFE somewhere at its core, we are probably whistling different tunes on the deck of the Titanic, whose hull has already split in two for much of the world.
    But for the sake of who and what I love, I too would love to go back to sleep and tinker with a dream.

  • Evergreen Libertarian

    We don’t have free markets in this nation and we have never had free markets in this nation. To suggest that we do is irresponsible.

  • Jerome Peloquin

    I wholly concur … if we change the reward system (money) we can change the behaviors of people. In the end it is the money that rules the world not governments. As Baron Rothschild said, “… give me control of a nation’s money and I care not who makes the laws.” enough said.

  • Jerome Peloquin

    You have hit the proverbial nail! The key is ownership of productive assets. The disparity between the value of labor and the value of capital is so great that the divided check (the major source of revenue for the 1%) is much, much, greater than the value of the ‘pay check.”

  • Jerome Peloquin

    Agreed … minimum wages are a hustle in the end as management simply raises prices and we all get screwed again. The only rational way to improve the quality of life for everyone is for every worker to have and equal share in true profits! It is not a popular idea but it is NOT socialism! In socialism private property is owned by the State … screw the state … People. …individual persons need to be owners so that they are not at the mercy of the employer and all stand to be raised by the rising tide of prosperity.

  • Anonymous

    I think we all want to believe that only those who deserve it should be wealthy. We just can’t agree on what it takes to “deserve” it!

    Fair and just opportunity is necessary for the American Dream. This is why regulated capitalism and a just government is necessary to create that opportunity. Some people are born into a life of wealth, some into poverty. Our morality is measured in who we are, and how we live with our circumstances not in what we have.

  • ccaffrey

    Please check out the work of economist Gar Alperowitz and the Democracy Collaborative. They are smack in the middle of the movement for “democratizing wealth and building a community-sustaining economy from the ground up”. This involves establishing co-ops and a variety of worker-owned business models, in collaboration with local “anchor” institutions (such as hospitals and universities that won’t be outsourcing jobs”, funding through local economic development councils. credit-unions, publicly owned banks, land trusts…..some very sophisitcated modeling. He was instrumental in helping the Evergreen Cooperatives in Cleveland get up and running. Sucessful businesses, such as a green laundry with contracts with hospitals and local nursing homes, and the largest hydroponic garden in the country, have transformed 4 of the poorest neighborhoods in Cleveland into hubs of economic activity. The co-operatives have also joined together and decided to contribute a portion of each co-op’s profits to start-up funds for new businesses. His latest book, “What Then Must We Do” goes into this in detail. His book got great reviews from everyone from Noam Chomsky to Daniel Ellsberg. Cooperative business models are not foreign to this country, particularly in rural areas. He also sites the work of Mondragon in Spain, the longest running network of cooperatives in the world. There’s a documentary about these two groups called Shift Change that’s available. You can also find a number of Gar’s talks online. And yes, capital start-up money is addressed. I’ve heard him twice in Austin and it is very inspiring and encouraging work. We have people with ALL sorts of skills looking for meaningful employment. A single person may not have all the skills necessary to start and run a successful business…but together we do!

  • ccaffrey

    Conversely, when a business fails, how often have you heard a business owner state that it was because he was a lousy businessman? Internalize the success, exernalize the failure.

  • John

    What is irresponsible is to deny that markets turn things that are priceless into things that are worthless. Like the Planet Earth.

  • Anonymous

    How much wealth would be amassed if the workers in an enterprise were impoverished? Henry Ford had the right idea in setting autoworkers wages at a level where they could buy the products they were manufacturing. It seems shortsighted for “Job Creators” to pay their workers poverty wages and then expect the economy to grow! Forget about “Fairness” and the labor market setting wage levels. Pay the employees enough to purchase the essentials and have money to save, invest, and use as discretionary income. I know that will never happen because the game is to keep expenses low, productivity high, and hugely reward the executives for doing so and the investor classes for providing the capital.

    The idea of “currency” is to keep the wealth flowing, not hoard it in a pond with no outlet. The human ego and competitive juices make the theory of Smith’s “Invisible Hand” naive and archaic–to the detriment of almost all of humanity.

    The plutocrats understand wielding power. No wonder their members and supporters in government shudder to think of a revival of labor unions. After all, the role of organized labor is to exert strategic force as a counterbalance to those who now are the rich and powerful and are rapidly becoming more so. There is no other alternative.

  • Anonymous

    Karl Polanyi said this in 1944. Chapter 14. Man and Market from the Great Transformation. He makes it clear that not only can’t democracy co-exist with capitalism, but neither can human institutions that bind us together into something other than or greater than mere economic life. We all have to be alone and desperate in order for this system to work out and give profits for interest payments to the bankers. It’s all been said before. We are just relearning what was already known. And, I fear what we are really going to have to experience because of our ignorance of history.

  • Anonymous

    Yes, professionals and small businesses were the first middle class. And, it was a tiny class like in most 3rd world countries today.

  • Anonymous

    It was more or less unregulated capitalism that created the plantations in the 13 colonies that were based on slavery. So, yes. Unregulated capitalism will result in slavery. That is how it started.

  • Anonymous

    Some markets are free. And, some are not. It depends who owns them and who wants to own them. The bigger the owners, the freer they are not. The real profits do not come from free markets because competition means there are no profits. So, look for profits and find regulated markets with regulations written by the big dogs and passed by their paid for politicians. No capitalist and no banker wants free markets, unless it means dismantling somebody else’s market that they want. Like in developing countries to get cheap natural resources. But, not for the ones they already own.

  • Gene Ogorodov

    In the provided graph there is an interesting correlation between active communist revolutions in major countries and a decreasing pure rate of return on capital. I am not about to suggest that Marxist-Leninism is superior to Western Liberal Democracy. (The vices of communism as seen in practice in the 20th Century are well known enough that they need not be listed here.) I will simply observe that fear is strong motivator. It is self evident that the professional classes benefited the most from the welfare state in the West, but the irony is that if they had wanted to keep their life style they should have been the first to raise the red banner rather than being the lackeys of capital.

  • Anonymous

    I think capitalism and democracy mixed very well from FDR to Reagan. We did have a “confiscatory tax” as the author, Picketty calls it, during part of that time; but it was the greatest period of expansion in history, probably. And I think the high tax caused the expansion. High taxes causes the velocity of money to increase, and velocity of money is a healthy and necessary thing.

  • Jamie Klinger

    Have you ever imagined an economy that is built on the desires of the community through democracy? Well, I’ve spent the last 16 months building it and you can help. http://www.joatu.com

  • Ronny

    The expansion you talk of was the result of America building itself as a country through infrastructure and the improvements in management and production techniques. Those two things came to an end by the 1960s.

    The capitalists then looked for larger profits through wage degradation, lower production costs, and less money flowing from business to socials pending in the form of taxes.

  • Ronny

    Nice try at denouncing Marx, Lenin, Communism and Liberalism.

  • Ronny

    Well it seems to me he is just reverberating what Marx said almost 200 years ago. Try reading the Communist Manifesto to understand this.

  • Ronny

    It seems we are in a thought loop that we can’t escape. Makes sense because we are still living in the same economic environment.

  • Ronny

    There are only two classes under capitalism. The owning class and the working class.

  • Ronny

    YOu can not have slavery and advanced capitalism. Under advanced stages of capitalism people need to be highly educated. Educated people don’t make good slaves.

    That is why the North in America ended slavery. As we see from history America advanced considerably afterwards.

  • Ronny

    Very idealistic of you…Can’t have capitalism, which means there is an owning class and a non owning class, and democracy at the same time.

  • Ronny

    So you are telling me that the USA does not have private property rights? That in America people can not own the means of production and use it to exploit labour for a profit?

    Fact is Capitalism can not work properly without government involvement in some way.

  • Ronny

    Where does human though come from??

    Thought is a product of brain function. The brain is a physical organ. All physical objects in the universe are reliant on and subject to their environment.

    We current live in the socio-economic environment of Capitalism, thus the thoughts we have are products of it.

    Change the environment and you change the thoughts.

  • Ronny

    it’s not money the rules, it’s the economy that does. If you were living under an economy like Hunting and Gathering what good would money have?

  • Ronny

    don’t hold your breath.

  • Ronny

    I think you miss the part were money is a fetish. people that fetishize money want more of it.

    Under Capitalism the means of production are private property that money can acquire. That means if you do not have money you can not acquire the means to produce food and shelter.

    The more money you have the safer you become. As decrepit as it may sound these people are just trying to protect themselves against he harshness of the environment.

  • Jerome Peloquin

    Merde! ..zut alors!

  • Don Montgomery

    As you say “velocity of money.” Not a coincidence it is called currency. It is meant to circulate through a healthy economy not stagnate at the top. As you suggest a means of returning the capital to the system must soon happen. No fear to the capitalist; our system is such that capital flies to the top.

  • Evergreen Libertarian

    Virtually anything you do requires a license from a government agency of some form or another. And if you have to get a permit you are not free. Occupational licensing is one of the most restrictive forms of control we have.

  • Jerome Peloquin

    We see the problem as one of ownership of capital being the great equalizer. If management and labor both owned the same capital, then power would be equal. The house would NOT be divided against itself. As long as we allow laissez faire capitalism to cast labor in a lesser role we will never have peace let alone democracy.

  • David Heckler

    Personally, I’ve always likened capitalism to nuclear fission. The process releases (and can be used to generate) large amounts of energy– which of course can be utilized either constructively or destructively. The critical factor is how much external control is leveraged in the reaction. If you contain the reaction within a well-shielded framework and use control rods strategically to absorb some of the reactant neutrons so the entire process doesn’t run amok (oh, yes, and properly handle the “waste” products produced), the reaction can be a blessing to a lot of people. If you fail to attend to any of these three factors, the reaction will sooner or later kill everyone in its vicinity.

    For capitalism, the external levers of government (legal regulation and taxation) and the internal levers of morality and spirituality (e.g. the fundamental priority of the pursuit of “the common good”) are the “control rods” and “containment vessels” absolutely necessary for capitalism to bless a society rather than sentence it (and its planetary homeland) to utter destruction. Unfortunately, the proponents of unbridled laissez-faire capitalism, by deifying the totally unbridled “free market” as a completely beneficent force for good, insist on inviting all of us to dwell in Chernobyl (or Hiroshima). The sheer folly of such an approach, no matter how many Nobel laureates endorse it, should be obvious…

  • Jerome Peloquin

    Yes, until labor union management began to see themselves as politicians and superior to the work force. Then labor management became corrupt and sold out the workers … and eventually became organized crime syndicates.

  • Jerome Peloquin

    Exactly it is, “OWN or BE OWNED!

  • Jerome Peloquin

    We are drawn to the reward system… ‘operant conditioning’ we do things that support our survival and prosperity Money is the big reward and so we will do almost anything for money. It is all about the money and ownership is the means to money. The rewards built into capitalism are overwhelming. It is a demonic force … god help us all.

  • Anonymous

    Yes, I agree with your extension of my comment. Btw, I disagree with a third party in our 2-party system. Progressives must take over the Dems to move to true and effective democratic capitalism.

  • Anonymous

    I really like this article. Makes sense.

  • Anonymous

    Wow. You put a lot of work in this. I will take me some time to read it all. Thank you.

  • Anonymous

    Reagan? The guy that threw out the mentally ill and wanted rayguns and thought Rambo was real?

  • Jamie Klinger

    Thanks! We’re transitioning from one site to a newer version, so right now the site is only linking to a presentation. I’d be happy to respond to any questions you may have about JoatU.

  • Anonymous

    Yes, that one. And to fran—yes the war surely helped, in my view, but the job creation and social programs would have brought it out eventually. Also, FDR’s and LBJ’s social safety net kept the 2008 recession from being far less bad than it was.

  • Anonymous

    Thank you.

  • Anonymous

    Do you cover tax filing (for dummies) with this?

  • Anonymous

    How did Reagan help?

  • Jamie Klinger

    Well, how do you pay taxes when you sell/buy something on Craigslist? It’s up to the individual to know their proper country’s tax laws and to abide by them to the fullest.

    I think it would be a good idea if people were paid in JoatU to build a global wiki for tax laws in relation to JoatU! That would be a wonderfully useful project and would help the communities better understand their personal obligations.

  • Anonymous

    I have never used Craigslist. But I do think barter can be considered taxable. So far I like your theory and am interested.

  • Anonymous

    I don’t know why most of my comments are voted down but I know that can’t be good.

  • Jamie Klinger

    Well, we have some work to do before we’re up and running, but please follow us on Facebook – joatu – and/or Twitter – joatunit – and we’ll let you know when things are up and ready to be tried out. All legal responsibilities will be on the users. Technically I think people are supposed to pay taxes when you sell something at a garage sale, on craigslist, when you make exchanges, etc etc etc.

  • Anonymous

    I didn’t say he helped. Maybe I should have said FDR on, till Reagan stopped the good mix.

  • Anonymous

    Sorry I misread your comment.

  • Anonymous

    I thought Nixon did a pretty good job for the environment and opened talks with China and Russia and called end of the Vietnam war. Apparently he was one of the few Presidents that was concerned about voters and that is what probably drove him to excessive spying. And he wasn’t good with money which cost the world jobs and loss of money. He did have a lousy congress though.

  • Ronny

    You seem to have thrown reality out the window to make your ideological argument. Capitalism is the private ownership of the means of production. That means it can only be in the hands of the owner, that being the State, conglomerate of people or a single person.

    If capital was in the hands of the citizens you would be running a Socialist economy. There would be no State but still a government of some sort.

    You conception of Marx has no basis in fact. Try reading him and reading Marx Theorists to get a proper understanding.

    By all means you can disagree with it all, but you must do so from a place of understanding.

  • Ronny

    Or throw the current economy out and built something different… But hey, if you like only two choices in life then by all means.

  • Ronny

    38th on what scale and which subjects? If you are in a Western country you are being educated under some of the most advanced forms of education humans have ever created.

  • Ronny

    Needing a license does not diminish the fact that property can be bought and owned.

    licenses are put in place to show you have achieved some form of competency and follow social norms for the greater good.

  • Anonymous

    On the other hand… Stephane Courtois, Director of Research at the Centre National de la Recherche Scientifique (CNRS) in Paris, offers the following rough breakdown of the numbers of people that communism killed:

    USSR — 20 million

    China — 65 million

    Vietnam — 1 million

    North Korea — 2 million

    Cambodia — 2 million

    Eastern Europe — 1 million

    Latin America — 150,000

    Africa — 1.7 million

    Afghanistan — 1.5 million

    Communist movements, parties not in power — 10,000

    In total, this is not far short of 100 million deaths at the hands of a single ideology. Nothing like this has ever happened before.

  • Johnny Cook

    This book should be a watershed in understanding the basics of the US economy. Untaxed wealth will only create more and more untaxed wealth. The wealthy will control everything including the government. We are fast approaching the day when we will live in an Oligarchy. The Middle Class will be a major causality. The Working Class already is.

  • Anonymous

    No one is arguing for communism. Imposing a tax on the wealthy is not communism. Stop scaring people with strawman arguments. Stop supporting oligarchs and join the side of the American people: the 99%.

  • Anonymous

    Yes, he suggests a global tax on the wealthy.