Piketty Dikitty Rikitty

SUBHEAD: We can't politically organize our way out of the epochal predicament of civilization.

By James Kunstler on 28 April 2014 for Kunstler.com  -

Image above: A futile as reorganizing the deckchairs on the Titanic. From (http://www.enterpriseirregulars.com/72635/old-dont-bring-problem-unless-proposed-solution-rule/).

The debate over Thomas Piketty’s new book Capital in the Twenty-First Century is as dumb as every other issue-set in the public arena these days — a product of failed mental models, historical blindness, hubris, and wishful thinking. Piketty’s central idea is that wealth will continue to accumulate and concentrate among individual rich families at ever-greater rates and therefore that nation-states should take a number of steps to prevent that from happening or at least attempt to correct it.

The first mistake of Piketty fans such as New York Times op-ed ass Paul Krugman is the assumption that the dynamic labeled “capitalism” is an ism, a belief system that you can subscribe to or drop out of, depending on your political correctitude. That’s just not true. 

So-called capitalism is more like gravity, a set of laws that apply to and describe the behavior of surplus wealth, in particular wealth generated by industrial societies, which is to say unprecedented massive wealth. The human race never saw anything quite like it before. It became both a moral embarrassment and a political inconvenience. So among the intellectual grandiosities of modern times is the idea that this massive wealth can be politically managed to produce an ideal equitable society — with no side effects.

Hence, the bold but hapless 20th century experiment with statist communism, which pretended to abolish wealth but succeeded mainly in converting wealth into industrial waste and pollution, while directing the remainder to a lawless gangster government elite that ruled an expendable mass peasantry with maximum cruelty and injustice.

In the other industrial nations, loosely called “the west,” the pretense to abolish wealth altogether never completely took, but a great deal of wealth was “socialized” for the purpose of delivering public goods. That seemed to work fairly well in post-war Europe and a bit less-well in the USA after the anomalous Eisenhower decade when industrial labor enjoyed a power moment of wage arbitrage. 

Now that system is unraveling, and for the reason that Piketty & Company largely miss: industrial economies are winding down with the decline of cheap fossil fuels.

Piketty and his fans assume that the industrial orgy will continue one way or another, in other words that some mysterious “they” will “come up with innovative new technologies” to obviate the need for fossil fuels and that the volume of wealth generated will more or less continue to increase. This notion is childish, idiotic, and wrong. 

Energy and technology are not substitutable with each other. If you run out of the former, you can’t replace it with the latter (and by “run out” I mean get it at a return of energy investment that makes sense). The techno-narcissist Jeremy Rifkins and Ray Kurzweils among us propound magical something-for-nothing workarounds for our predicament, but they are just blowing smoke up the collective fundament of a credulous ruling plutocracy. 

In fact, we’re faced with an unprecedented contraction of wealth, and a shocking loss of ability to produce new wealth. That‘s the real “game-changer,” not the delusions about shale oil and the robotic “industrial renaissance” and all the related fantasies circulating among a leadership that checked its brains at the Microsoft window.

Of course, even in a general contraction wealth will still exist, and Piketty is certainly right that it will tend to remain concentrated (where it isn’t washed away in the deluge of broken promises to pay this and that obligation). But he is quite incorrect that the general conditions we enjoy at this moment in history will continue a whole lot longer — for instance the organization of giant nation-states and their ability to control populations. 

I suppose it’s counter-intuitive in this moment of the “Deep State” with all its Orwellian overtones of electronic surveillance and omnipotence, but I’d take the less popular view that the Deep State will choke to death on the diminishing returns of technology and that nation-states in general will first degenerate into impotence and then break up into smaller units. 

What’s more, I’d propose that the whole world is apt to be going medieval, so to speak, as we contend with our energy predicament and its effects on wealth generation, banking, and all the other operations of modern capital. That is, they’ll become a lot less modern.

As all this occurs, some families and individuals will hang onto wealth, and that wealth is apt to increase, though not at the scales and volumes afforded by industrial activities. Political theorizing a la Marx or Thomas Piketty is not liable to deprive them of it, but other forces will. The most plausible framework for understanding that is the circulation of elites. This refers to the tendency in history for one ruling elite to be overturned and replaced by another group, often by violence, and then become the new ruling elite. It always happens one way or another, and even the case of the Bolsheviks in Russia during the industrial 20th century can be seen this way.

In any case, just because human affairs follow certain patterns these days, don’t assume that all these patterns will persist. I doubt that the Warren Buffets and Jamie Dimons of the world will see their wealth confiscated via some new policy of the Internal Revenue Service — e.g. the proposed “tax on wealth.” Rather, its more likely that they’ll be strung up on lampposts or dragged over three miles of pavement behind their own limousines. 

After all, the second leading delusion in our culture these days, after the wish for a something-for-nothing magic energy rescue remedy, is the idea that we can politically organize our way out of the epochal predicament of civilization that we face. Piketty just feeds that secondary delusion.

Critique of Piketty's Solution

By Charles Hugh Smith on 28 April 2014 for Of Two Minds -


[IB Publisher's note: We have removed the charets from this article. To see them click link to original article above.]

The real problem with Piketty's taxation/social welfare solution to wealth inequality is that it does nothing to change the source of systemic inequality, debt-based neofeudalism and neocolonialism.

Those of us concerned by widening wealth/income inequality have been following the work of Thomas Piketty and Emmanuel Saez for many years. I've cited their analysis many times; for example: Two Americas: The Gap Between the Top 5% and the Bottom 95% Widens (August 18, 2010).

Thomas Piketty has taken his meticulous research and turned it into a book, Capital in the Twenty-First Century, that has catalyzed the discussion of widening inequality by essentially proving that capital expands at rates far above the overall economy and wages. Since capital grows much faster than wages or the underlying economy, the gap between earned income and unearned income (rents) widens, along with the net worth of those who own capital and those who own little to no capital.

As other reviewers have noted, Piketty's book is not a theoretical critique of capitalism, it is a data-driven exploration of how present-day capitalism drives wealth inequality. Piketty's solution to widening inequality is a global wealth tax, a solution he characterizes as utopian, for getting the world's nations to eradicate tax havens is close to impossible.

I would go further and say it is impossible within the U.S., never mind the world, as the top .1% own the political machinery. Why would anyone who owns the political process agree to tax themselves?

As a result, any wealth tax will fall not on the super-wealthy with billions of dollars of unearned rentier income but on the upper-middle class who worked, saved and invested to build a nestegg. In other words, a wealth tax will fall on the same tax donkeys who are already paying the majority of income taxes.

If I have contributed anything to the wealth inequality issue, it is the proposition that we live in a neofeudal, neocolonial economy (the New Feudalism), ruled by a New Nobility. In my analysis, neofeudalism arises from these characteristics:

1. Debt is the enforcement mechanism of feudal fealty. Debtors--those with mortgages, student loans, vehicle loans, credit card balances, etc.--are obligated to fund the rentier income of their financial masters, the New Nobility. This is the essence of a feudal arrangement.

Others have different definitions of neofeudalism.

In my analysis, the rise of neofeudalism is a direct consequence of the financialization of the economy, in which essential assets (homes, for example) and processes are commoditized into financial instruments that can be sold, leveraged, pyramided and traded globally. Once an asset or process has been commoditized, it loses all connection to individuals, communities, companies or nations: it is the perfection ofrootless capital, free to be bought and sold anywhere, any time, with no connection to the real world other than a chain of claims.

2. Society and the economy are organized so only the wealthy do not need to go into debt, which is serfdom in a neofeudal arrangement. The illusion of choice is thus maintained, a sibling of the illusion of democracy in which both party candidates are in thrall to the New Nobility.

The fiendishly Orwellian brilliance of neofedualism is this: present-day serfs opt into serfdom, just as free citizens opted into the protection of feudal lords' estates as the Roman Empire crumbled around them. It was a false choice; remain free and face ruinous taxes, or choose serfdom on a lord's estate. The present economy offers an equivalent false choice for all but the most dedicated, disciplined few who reject debt by rejecting consumerism, "growth" and the endless spew of neofeudal propaganda.
  • Want a college education? You freely choose the servitude of debt.
  • Want a house? You freely choose the servitude of debt.
  • Want a new vehicle? You freely choose the servitude of debt.
  • Neocolonialism is tightly bound to neofeudalism in my model.
3. The essence of neocolonialism is the "company store," which extends credit that can never be paid off as wages are stagnant. In a neocolonial economy in which only the top Caste of Managers, Technocrats and Professionals (the top 10%) can expand their income and wealth, debt-serfs are impoverished by servicing debt. As the real (inflation-adjusted) incomes of the bottom 90% decline or stagnate, debt service consumes an increasing amount of disposable earned income.

Debt service is guaranteed in the neocolonial model. In the old colonial model, marginalized populations were recruited to work on plantations with the false promise of wages, which never quite exceed the cost of servicing debt.

This arrangement was much neater than slavery, as the marginalized need not be bought: they freely choose their servitude. Beneath this supposed free will is of course a false choice: there is no other way to earn cash income other than working on the debt-plantation.

In the old colonial model, only those ethnicities with an iron passion for saving regardless of income (for example, the Chinese, among others), were able to accumulate enough capital to escape the debt-bondage and establish small businesses.

I explain the basic structure of neofeudalism and the neocolonialism in The E.U., Neofeudalism and the Neocolonial-Financialization Model (May 24, 2012)

The problem with Piketty's solution to the intrinsic inequalities created by financialization, neofeudalism and neocolonialism is the super-wealthy might well agree to tax those beneath them, just to prop up the arrangement that benefits them so mightily. I can easily foresee a political movement, secretly funded by the New Nobility, that taxes all wealth above $1 million, but which magically excludes wealth-holders that just happen to be the top .1%.

The New Nobility might even agree to pay a modest wealth tax, which would fund millions more recipients of food stamps, Section 8 housing and other social welfare, in effect institutionalizing neofeudalism and neocolonialism by rendering the unemployed complicit in the arrangement.

If you owned $100 million, and were earning $5 million in rentier income annually, wouldn't you agree to a $1 million tax to fund social welfare programs that kept the rabble sedated with bread and circuses? It's a no-brainer.

The real problem with Piketty's taxation/social welfare solution to wealth inequality is that it does nothing to change the source of systemic inequality, debt-based neofeudalism and neocolonialism. Simply raising more taxes to fund more social welfare programs leaves the unjust, rapacious, and ultimately destabilizing Status Quo entirely intact.

I have laid out another path in my books: refuse serfdom, abandon participation in neofeudalism and neocolonialism, and build parallel systems of cooperation and wealth-building that are not debt-dependent.


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