Free exchange
Richard Thaler wins the Nobel prize for economic sciences
The Nobel prize in economic sciences
Richard Thaler’s work demonstrates why economics is hard
The 2017 Nobel prizes
The Nobel in economics rewards a pioneer of “nudges”
The Economist asks
Richard Thaler
Nudge comes to shove
Policymakers around the world are embracing behavioural science
Free exchange
Nudge nudge, think think
Free exchange
A new anthology of essays reconsiders Thomas Piketty’s “Capital”
from The Economist
Thomas Piketty
Capital in the Twenty-First Century (2013)
– focuses on wealth and income inequality in Europe and the US since the 18th century.
– The central thesis is that inequality is not an accident but rather a feature of capitalism that can be reversed only through state intervention.
– argues that unless capitalism is reformed, the very democratic order will be threatened.
– reached number one on The New York Times bestselling hardcover nonfiction list from 18 May 2014.
– offers a possible remedy: a global tax on wealth.
The book’s central thesis is that when the rate of return on capital (r) is greater than the rate of economic growth (g) over the long term, the result is concentration of wealth, and this unequal distribution of wealth causes social and economic instability.
r > g: the rate of return on capital, r, has historically been greater than g, the growth rate of the economy.
Why does this matter?
1) the ratio of an economy’s wealth to its output tends to rise
=> which increases the relative economic power of wealth in society.
2) because the distribution of wealth is usually less equal than the distribution of income, faster growth in wealth than in GDP means a steady increase in inequality.
3) income from capital will grow as a share of income (and income from labour will fall).
So being born rich (or marrying well) becomes a surer route to success than working hard or starting a firm.
=> It is a recipe for social stagnation, and perhaps crisis.
Piketty proposes a global system of progressive wealth taxes to help reduce inequality and avoid the vast majority of wealth coming under the control of a tiny minority.
A trend towards higher inequality was reversed between 1930 and 1975 due to unique circumstances:
– the two world wars,
– the Great Depression
– a debt-fueled recession
=> destroyed much wealth owned by the elite.
=> prompted governments to undertake steps towards redistributing income (especially in the post-World War II period)
The fast, worldwide economic growth of that time
– reduced the importance of inherited wealth in the global economy.
The world today is returning towards “patrimonial capitalism”
– much of the economy is dominated by inherited wealth:
– the power of this economic class is increasing, threatening to create an oligarchy.
Piketty cites novels by
– Honoré de Balzac,
– Jane Austen
– Henry James
=> to describe the rigid class structure based on accumulated capital that existed in England and France in the early 1800s.
Piketty proposes that
– a progressive annual global wealth tax of up to 2%,
– combined with a progressive income tax reaching as high as 80%,
=> would reduce inequality,
=> “politically impossible”
Piketty predicts
– the growth rate will once again fall below the rate of return,
– the twentieth century will be an aberration in terms of inequality.
– Without tax adjustment, economic growth will be lower and inequality will be higher.
– over long periods of time, the average return on investment outpaces productivity-based income by a wide margin.
Piketty dismisses the idea that
– bursts of productivity resulting from technological advances can be relied on to return sustained economic growth;
– “a more just and rational order” to arise based on “caprices of technology,”
– return on investment can increase when technology can be substituted for people.
After Piketty: The Agenda for Economics and Inequality
edited by Heather Boushey, Bradford DeLong and Marshall Steinbaum
– a book by economists, for economists.
Piketty’s Capital lacks some points of view of:
– human capital
– technological change
– the structure of the firm
– the rise in outsourcing
– sexual inequality
– geography
Gareth Jones
– in “Capital” geographical divisions are treated as “container[s] for data”
– it should be treated as arenas with changeable boundaries within which the fight between labour and capital plays out.
Devesh Raval
– Economists think that as wealth accumulates, the return on capital should fall;
– society has less use for the hundredth factory or server than the first.
=> capitalists will seek new, profitable ways to deploy their wealth:
e.g. by investing in machines that can replace labour.
– If firms are good at using their capital to replace labour
(if the elasticity of substitution of capital for labour is greater than one)
then wealth can pile up.
If the return falls a lot as markets struggle to put capital into action,
1) r will decline towards g
2) the ratio of wealth to GDP will eventually stabilise.
=> the elasticity of substitution should be less than one == a well-behaved economy
It may not be.
Suresh Naidu
– a “domesticated Piketty”: communicates in the language of economics
– a “wild Piketty”: pays attention to social norms, political institutions and the exercise of raw power.
– r > g is not a theory to be disproved but a historical fact to be explained.
– the wealthy use their influence to shape laws and society in order to guarantee themselves a better return on their wealth.
The record of the past 40 years is suggestive.
– Top tax rates have fallen,
– financial regulation has weakened (at least before the crisis of 2007-08)
e.g. Dodd–Frank Wall Street Reform and Consumer Protection Act
– companies have found it easier to reduce their obligations to workers.
Economists often praise such moves as enhancing efficiency.
enhancement of efficiency == the wealthy seek to protect their returns at the expense of labour.
A focus on efficiency is unobjectionable in a world in which political and institutional stability can be taken for granted,
Elisabeth Jacobs
– Politics is “everywhere and nowhere” in Mr Piketty’s book
What “After Piketty” reveals
– the message lurking within all the undeveloped arguments in “Capital” about politics and ideology.
Economists should describe how capitalism works even when politics is changing.
It should be difficult but meaningful.
Apocalypse then
The lessons of violence and inequality through the ages
from The Economist
I picked up this article from the book review section of The Economist.
The book’s title is “The Great Leveler”
written by Walter Scheidel.
The main theme of this book is inequality.
In “The Great Leveler”, the author oddly welcomes the Great Depression because:
1) real wages risen; 実質賃金 < => nominal wages 名目賃金
2) the incomes of the affluent fallen
Great Depression 1929~
Great Recession 2007-08
Real wages are
– wages adjusted for inflation
– wages in terms of the amount of goods and services that can be bought.
This term is used in contrast to nominal wages or unadjusted wages.
a nominal wage is not adjusted for inflation.
If you’re paid $15.00 per hour, your nominal wage is $15.00 per hour
The author puts the discussion of increased inequality in works of Piketty, Atkinson & Milanovicinto a broad historical context
Thomas Piketty
Capital in the Twenty-First Century
It focuses on wealth and income inequality in Europe and the United States since the 18th century.
The book’s central thesis is that when the rate of return on capital (r) is greater than the rate of economic growth (g) over the long term, the result is concentration of wealth, and this unequal distribution of wealth causes social and economic instability.
r > g
Piketty proposes a global system of progressive wealth taxes to help reduce inequality and avoid the vast majority of wealth coming under the control of a tiny minority.
In The Great Leveler, the author finds that inequality is almost always high or rising because political and economic power help each other and both pass down generations
The author argues that
Large-scale levellings happens in some conditional situations.
1) epidemics;
the Black Death did when it changed the relative values of land and labour in late medieval Europe
2) the collapse of states and economic systems;
at the end of the Tang dynasty in China and the disintegration of the western Roman Empire
3) total revolution;
Russian or Chinese
4) the war of mass-mobilisation
the world wars
Violence is sometimes effective but does not lead to greater equality. Most popular unrest in history failed to equalise
Mass-mobilisation warfare was the cause of the unprecedented decrease in inequality. The deployment of national resources soaked the rich
There are some factors of Low inequality:
1) income tax (94% 1944 US);
2) property tax (77% 1941);
3) physical damage;
4) post-war inflations; decreases the value of properties of the riches
5) trade unions 労働組合
Following Max Weber, the sociologist, he thinks
democracy is a price elites pay for mass warfare
& finds it has no effect on inequality like classical Athens
democracy follows warfare
Catastrophic levellings like epidemics, revolutions & warfares will be less likely in our future anymore.
General prosperity risen.
Global inequality fallen
Attempts to ease inequality democratically through redistribution & the empowerment of labour can hardly change the trend & may prove futile (in vain, useless)
Other possibilities:
1) good, unknown transformation may come in the future, or AI may acquire its own will & change the trend
Humans need to rely on AI’s help.
We, humans, cannot help ourselves.
2) civilisational collapse might be worth paying for the Utopia.
by nuclear- or biotechnologically-mediated violence
like nuclear bombs / bioweapons
But the author doesn’t believe this possibility.
Because he concludes that, wealth may concentrate itself over time; the ability to destroy does not
The legacy of the six-day war
Why Israel needs a Palestinian state
from The Economist
1967: Six-Day War (第三次中東戦争)
Israel (Jews) beaten Arab armies.
https://en.wikipedia.org/wiki/Origins_of_the_Six-Day_War
https://en.wikipedia.org/wiki/Six-Day_War
https://ja.wikipedia.org/wiki/中東戦争
https://ja.wikipedia.org/wiki/第三次中東戦争
Israel occupied Jerusalem where Palestinians lived.
Israel planted Jewish settlements and denied Palestinians to have their own state.
Israel’s “temporary” occupation has endured for half a century.
Donald Trump visited Jerusalem on May 22nd, during his first foreign trip to secure “the ultimate deal”.
Israeli prime minister: Binyamin Netanyahu
President of Palestinian (National) Authority (PA): Mahmoud Abbas
Mr Trump has urged Israel to curb settlement-building.
Israel wants him to keep his promise to move the American embassy to Jerusalem.
Mr Trump should hold off until he is ready to recognise Palestine and open a second embassy in Jerusalem to talk to it.
The outlines of peace
– Palestinians would accept the Jewish state born from the war of 1947-48
(made up of about three-quarters of the British mandate of Palestine)
– Israel would allow the creation of a Palestinian state in the remaining lands it occupied in 1967
(about one-quarter)
– Palestinian refugees would return to their new state, not Israel.
Since the Six-Day War, Israel has been willing to swap land for peace.
(Israel returned Sinai to Egypt in 1982.)
But the conquests of East Jerusalem, the West Bank and the Gaza Strip were different.
(Early Zionist leaders accepted partition grudgingly)
Zionist: Jewish people who supports the re-establishment of a Jewish homeland in the territory defined as the historic Land of Israel (Canaan, Palestine).
In 1988 the Palestine Liberation Organisation (パレスチナ解放機構) accepted a state on part of the land, but Israeli leaders resisted the idea until 2000.
(Palestine Liberation Organisation => Palestinian National Authority)
Mr Netanyahu himself spoke of a (limited) Palestinian state only in 2009.
Extremists on both sides set out to destroy the Oslo accords of 1993, the first step to a deal.
Israel
– security has improved
– the economy is booming
– Arab states are courting Israel for intelligence on terrorists and an alliance against Iran.
Palestinians
– weak and divided
– might not be able to make a deal.
Mr Abbas
– moderate
– unpopular
– lost Gaza to his Islamist rivals, Hamas. What if Hamas also takes over the West Bank?
Hamas: a Palestinian Sunni-Islamic fundamentalist organization.
Israel
– cannot hold on to all of the “Land of Israel”, keep its predominantly Jewish identity and remain a proper democracy.
– should give up the occupied lands to save democracy
Israel and Mr Abbas’s Palestinian Authority (PA) should co-operate to maintain security.
Israel should
– let Palestinians move more freely and remove all barriers to their goods
=> a freer market would make Israel richer, too.
– let the PA expand.
– voluntarily halt all settlements, at least beyond its security barrier.
Investing is a fundamental act for all people. You are investing your money when you buy something. You are investing your time and effort to your company you are working at. I think we all need to know about investment even if you are not a professional investor. So I picked up this book to read. Warren Buffett describes this book as the best book on investing ever written.
I’m now reading:
The Intelligent Investor: The Definitive Book on Value Investing, Revised Edition
by Benjamin Graham
‘The sillier the market’s behavior, the greater the opportunity for the business-like investor. Follow Graham and you will profit from folly rather than participate in it.’
‘Ben Graham… expressed to a friend the thought that he hoped every day to do “something foolish, something creative and something generous.”‘
from the “Preface to the Fourth Edition” by Warren E. Buffett
One of Graham’s principles:
‘The market is a pendulum that forever swings between unsustainable optimism (which makes stocks too expensive) and unjustified pessimism (which makes them too cheap). The intelligent investor is a realist who sells to optimists and buys from pessimists.’
from “A Note About Benjamin Graham” by Jason Zweig
