Tag Archives: Piketty

The California Drought and Inequality: So What’s New?

There was once water here

There was once water here

At first blush, the California Drought and Inequality are not intimately related. Yes, some class warfare has broken out around water usage and new conservation rules.   But that’s not what the title of the blog post is about.  What do the California Drought and Economic Inequality in the U.S. have in common?  The answer is: Neither are nearly as unique or exceptional, as we’re prone to think, because of our blinders and narrow perspectives.  In the great span of geologic time and economic history, each problem, in it’s own realm,  is more the norm, than the exception; more typical than unusual,  It’s important to know this, because, as the adage goes, you must know your enemy to defeat him.

On the Economic Inequality side, it is gradually sinking-in that the period of (relative) equality during the roughly 40 years after World War II, is an historical anomaly for the U.S; an exceptional era, when stars were aligned to create a large middle class that included a large swathe of the “working class.”

On the Drought side, you may be very surprised to learn that the period of explosive growth in Southern California (and the rest of the Southwest) — the 1970s, 80s, and 90s — occurred during the wettest decades in the last two millennia.  Yes, that’s 2000 years, or back to “ancient times.”  That’s not at all exaggerated. Scientists at the U. of Arizona and Columbia U. have built a remarkable hydrology data base dating back to ancient times, which says that the areas we know as California and the U,S. Southwest experienced numerous droughts in the past, more severe than the current one, lasting decades, not just a few years. Read about it and listen to a riveting discussion here.  If you want more technical (and cool) information, try this and this.

Thus, water conditions in Southern California (and most of the Southwest) over the last 15 years would have been considered normal, neither unprecedented nor dire, centuries ago. The situation today is dire” only because we built civilizations where nature may not have intended.  And the technology and ingenuity to overcome nature, may have reached its limits. The situation is real bad.  Here are some amazing photographs of today’s California Dust Bowl.  These are not shown much outside California, because the disaster is proceeding too slowly for the appetites of cable and network news.

Don’t hold your breath or bet on California pistachios while waiting for cheap Mega Desalinization, though MIT is trying hard to overcome the expense and impracticalities of using sea water for drinking and irrigation.  Stay tuned.  Another avenue of hope are the amazing Israeli desalinization efforts, to the point where Israel now has more water than it can use.

In terms of the economy, the several decades from the end of World War II, through the late 1970s, which liberals view as a model for compassionate capitalism, is glaringly atypical in American history, at least back to about 1910.  Piketty & Saez, have documented that, to the satisfaction of most mainstream economists.  You can find all of that data if you start from here.  There is some evidence that Inequality was also the general rule in the U.S. for most of the 19th century, but that is much harder to confirm.

The precise conditions making it possible for wider prosperity in the decades following WW II were never sustainable; some of the factors we don’t want repeated.  The special circumstances include the Great Depression, which ushered in New Deal regulatory, tax, and labor reforms; the economic boost from World War II, the mother of all stimulus packages; and America’s emergence from the Great War as the only intact industrial economy in the world.

The best advice to Drought warriors: Start looking at the Drought as something that doesn’t just end in a few years. The best counsel for Inequality warriors: Stop looking at Inequality as something that will correct itself as soon as job growth accelerates and labor markets tighten.

One difference between the California (Southwest) Drought and Economic Inequality is that lack of water in the Region is natural (going back at least two millennia); while Inequality (arguably) is not natural, not an inevitable result of capitalism, globalization, or human DNA. The leading academic behind the view that Inequality is man made, and can be lessened considerably, with the right policies, and to the betterment of all, is Joseph Stiglitz. He’s a capitalist of the Roosevelt variety (both Teddy and FDR). He’s not a communist.

Am sure you are asking whether human caused global warming is contributing to the Great Drought, which would mean it’s not totally natural. In fact, most mainstream climate scientists believe global warming caused by humans, is exacerbating the current Drought; making it worse than it would otherwise be. You can read about some of that here and here.

Whether or not you believe the Drought or Inequality is a return to a natural state of affairs, it appears there is more hope for rebuilding the U.S. middle class, than for preserving the California life style, as we’ve known it.  There may be other good reasons for not preserving all of it.

After the U.S. middle class has been rehabilitated, they may not be flocking in such large numbers to California, Arizona, Oklahoma, and Texas anymore.  If the Great Drought had happened sooner, the Dodgers might still be in Brooklyn.


What’s the Difference Between Piketty and Marx?

The Investor and Wage Earning Classes

The Investor and Wage Earning Classes

Before I say anything about the title or provide background, here is the thrust of today’s post, so you can decide whether or not to read the remaining 950 words:

The Right needn’t worry that Piketty has given the Left (or Center) the tools it needs to eviscerate capitalism. The Left will find that once the media blitz and the Piketty infatuation have faded, its mission to defeat Inequality remains just as daunting and frustrating as before. Which is not to say the Piketty book lacks consequence.

In the title, I am referring of course to Karl Marx, the 19th century German sociologist, economist, philosopher, and historian. In those days, the “social sciences” were vertically integrated. Marx treatises and polemical works on capitalism are still the most influential,  even though hardly anyone believes in Marxism anymore, or is willing to say so. His most sweeping and scholarly book was Das Kapital.

The other name in the title is Thomas Piketty, a living (and now, presumably wealthy) French economist, whose recent tome, Capital in the 21st Century, bears a similar title to Marx leading work. It also treats the subject with a breadth and ambition that is reminiscent of Marx. From what I can tell without having delved deep in his heart or mind, Piketty is not a Marxist.  But, Piketty and his new 700-page book, have been compared to Marx by everyone from Rush Limbaugh, to writers at The Nation, The Economist, and The National Review; the intellectual Left, Center and Right.

One can’t do much justice to a Piketty- Marx comparison in a 1000 word blog article. But having read a lot of Marx in college (taught gingerly by professors who had been traumatized by McCarthyism), and selective parts of Piketty at a Barnes and Noble coffee shop (with horrible bagels), I may be just dangerous enough to add a little value to this discussion.

As I said earlier, there is less here than meets the eye, for either Left or Right, which
is not to say the Piketty book lacks consequence. Piketty has shown his fellow economists you can be highly relevant and still held in high esteem by academicians and intellectuals. He has put the rest of his profession to shame, by boldly tackling the defining issue of our time (if you agree with the Pope and President) with rigor, logic, data, and footnotes. Most of his professional peers have spent the last sixty years assuming away reality, so that what remains is neat enough to treat mathematically. (For full disclosure, I own up to having done some of that myself).

Piketty doesn’t offer bold or workable prescriptions for reducing Inequality. But he’s shown academics how to get into the game; and its rewards. I have often said in this blog that a Nobel Prize awaits the economist who finds a sound intellectual basis for a version of Free Trade that doesn’t keep screwing workers in industrial societies. That might also bring elements of the Right and Left together. Piketty’s central argument — if you’ll excuse boiling down 700 pages to a sentence or two — is that “wealth” (property, capital, investments) grows a lot faster than wage income. That is not just an empirical assertion; Piketty offers his reasons for why that’s (practically) inevitable,    Considering the effects of compounding, ordinary wage earners are going to be marginalized over time; while the rich get richer. And its going to get worse, says Piketty.

Piketty has delighted the Left and scared the Right by (purportedly) proving that capitalism causes the rich to get richer and the poor to get even poorer. That’s an old adage and concept, but Piketty provides a logical and empirical basis for it that stands up better than what Marx gave us. (In fairness to Marx, Picketty had more centuries and societies to work with, and more research assistants with computers).

On the other hand, the causal map in Picketty’s explanation of Inequality is at a high level of theory and abstraction; thus, its of little immediate use to policy makers or citizens. If Picketty were a climate scientist, he’d be sounding alarms about global warming backed by data, and predicting catastrophe, but he’d tip toe around whether humans have much to do with it. I know that sounds absurd, and unfair. Of course humans are responsible for economic outcomes. And Piketty knows that. But he is loathe to say it. He maintains a safe distance between his theorem about wealth (inexorably) outpacing wages; and the human actions and institutions responsible for that.  Whether or not you agree with Marx, reticence about the human causes of inequality was not one of the German philosophers’ shortcomings.

Not only does Picketty avoid a serious look at proximate factors like decaying labor unions, or free trade policies that create serious competition from poor low wage countries, he hardly mentions the (possibly larger)  inequalities within his underdog class of wage earners. He skips past the special case of wage inequality and its causes, which likely include technological changes — technology and software that eliminate mid-level jobs and leave the labor market polarized between the highly educated and skilled at the top, and the mass of poorly educated and unskilled at the bottom. See Robert Solow’s observations on that here.

Marx’s punchline was basically that contradictions within capitalism would eventually cause it to fail, resulting in an egalitarian utopia.  Marx added exhortations to hasten the “inevitable” outcome. (Just in case history and the iron clad laws needed a nudge).

Piketty, by contrast, proposes a global tax on wealth, and higher income taxes on the rich, which many on the Left already find insufficiently re-distributionist; possibly even too small to register on Joe the Plumber’s radar screen.  Piketty admits his tax solution isn’t even likely to happen, though it flows logically from his findings.

So, yes, regressive tax policy is (by inference) identified in Piketty’s work as a cause of Inequality. Factors that have been staring us in the face for forty years, around Unions, Free Trade, and Technology await others’ work on the scale of Piketty. If any of them go at it with Piketty’s empiricism and rigor, a Nobel Prize awaits, unless Piketty claims it first, or the mathematicians continue to rule the Nobel Economics Committee.

Another large difference between Picketty and Marx is the latter was more sociologist than economist. Marx depicted capitalism as a set of economic arrangements made possible by political and social institutions, like religion, which (he argued) were created to support and perpetuate it.  Marx famously said that religion was the opiate of the masses. Religion to Marx was one of the social institutions used by capitalists to “pacify and subdue the masses.” That’s where the notion of “godless communism” derives. Today Marx would say  the religious right in the U.S. is a manifestation of that, and has caused millions to vote against their economic interests. Conservatives counter, that Marx was even more materialistic than capitalists, in that he couldn’t imagine people who thought religious values and practice might be more important than economic interests.  Piketty doesn’t even flirt with that kind of stuff.