Self Help

Chronicles - Thomas Piketty

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Matheus Puppe

· 23 min read

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Here is a summary of key points about Thomas Piketty:

  • Thomas Piketty is a French economist who teaches at the Paris School of Economics and the LSE.

  • He is best known for his 2014 book Capital in the Twenty-First Century, which argued that wealth inequality will continue to grow if the rate of return on capital exceeds the overall rate of economic growth.

  • This book analyzed centuries of economic data to show that capitalism naturally leads to concentration of wealth over time if left unchecked. It was a massive commercial success and injected debates about inequality into the mainstream.

  • Piketty is considered a leader in the field of economic inequality and advocates for measures like a global wealth tax to curb the increasing dominance of wealth over work.

  • In addition to his research, Piketty regularly writes newspaper columns analyzing current economic and political events, especially around issues of inequality, capitalism, and the European Union/Eurozone crisis.

  • These columns, spanning 2008-2015, offer his perspective on topics like bank bailouts, austerity policies, public debt, tax policy, and the future of the European project.

  • Overall, Piketty is known for using historical data and an interdisciplinary approach to argue that left unchecked, capitalism tends toward inequality and instability, and measures are needed to promote more balanced and inclusive economic growth.

  • The author argues that the true financial position of the Eurozone is more positive than official statistics suggest, because wealthy Europeans have an interest in hiding assets and the EU is not doing enough to deter this.

  • Europe’s political fragmentation and inability to unite make it difficult to impose necessary financial rules and tax laws on global markets. individual nation-states can no longer adequately regulate complex global financial systems.

  • The euro and ECB were designed in the 1990s with a narrow inflation-focused mandate, without consideration for their necessary role in stabilizing markets during crises. Other central banks like the Fed have shown more pragmatic crisis response.

  • While central bank money-printing prevented depression after 2008, it did not address underlying inequality issues or prevent the Eurozone’s public debt crisis starting in 2010.

  • The ECB has lent little to governments unlike other central banks, partly due to residual anti-state thinking but mainly because the eurosystem was poorly designed without a common fiscal policy.

  • Interest rate speculation on individual country debts makes orderly rebalancing of public finances impossible. Welfare state reforms are needed but cannot happen under such uncertainty.

  • The only solution is mutualizing Eurozone debt through “eurobonds” and stronger political union, with a directly elected European body having budgetary power.

  • The government interventions to bail out banks represent a continuation of past policies from the 1930s of the Federal Reserve intervening to inject liquidity and restore confidence during financial crises. However, the scale of current interventions may surpass past levels.

  • It remains to be seen if this will lead to a broader expansion of the role of government. A President Obama could strengthen the state’s role in areas like healthcare, but fiscal constraints may limit expansion.

  • Taxing excessive bank bonuses and incomes above a very high rate, as FDR did in the 1930s-40s, could help reduce incentives for risk-taking. But such policies face ideological resistance today.

  • Governments are announcing very large numbers for bank bailouts and guarantees, like €1.7 trillion in Europe, but the plans lack clarity on specifics like who gets money and under what conditions. This risks confusing the public.

  • Annual economic flows are being conflated with larger stocks of total wealth, to make bailout numbers sound more impressive. But the initial financial shocks were relatively modest compared to total wealth.

  • The debate was about whether profits or wages make up a larger share of company income (value added) in France.

  • Some data shows the shares have been stable, with wages around 67-68% and profits around 32-33% since 1987. However, inequality has exploded in France over the last 10-15 years.

  • The richest 1% saw purchasing power rise 20-40% from 1998-2005, while the bottom 90% saw just 4% growth. This level of inequality increase is comparable to trends in the US.

  • This inequality rise cannot be explained by shifts in the wage-profit split, as that has been stable.

  • Rather, inequality increased because wage structures shifted highly in favor of very high wages above €200k, while most saw wages barely rise above inflation.

  • Very high executive pay unrelated to productivity, encouraged by tax cuts, also contributed to risk-taking behavior in the financial sector and the crisis.

  • The only viable solution is higher taxes on very large incomes to address inequality, as other countries are also starting to pursue.

  • Sarkozy eventually recognized that France’s tax shield policy was one of the biggest mistakes of his term. The policy allowed corporations to avoid taxes, undercutting revenues.

  • When accounting for increased taxes on labor like payroll taxes and decreased taxes on capital like corporate profits taxes, the true capital share of national income has risen while the after-tax wage share has fallen, worsening inequality.

  • Businesses have doubled dividend payouts in 20 years but retain insufficient profits to maintain their capital stock, indicating over reliance on low taxes and financial markets.

  • The tax system needs rebalancing between taxes on labor and capital to address this issue, like subjecting corporate profits to payroll taxes. Strong international coordination will be needed for this large reform effort. The crisis may lead to movement in this direction.

  • Tax competition between countries to attract business by lowering rates has long been controversial. Ireland’s economic crisis demonstrated the risks of heavily relying on this “tax dumping” strategy to attract multinationals through extremely low corporate tax rates of 12.5%.

  • The story involves Liliane Bettencourt, the billionaire heiress to the L’Oreal fortune, and a legal dispute with her daughter Francoise over large gifts Liliane made to a friend.

  • It highlights issues around wealth, inheritance, and taxation in the 21st century as lifespans increase and returns on capital outpace income from labor. Wealth is concentrating among the elderly.

  • Tax breaks over many years on capital income and inheritance have exacerbated the trend, limiting the savings potential of those relying only on labor income.

  • The 2007 cuts to France’s estate tax contradicted campaign promises and weakened incentives for lifetime gifts, likely accelerating the aging of wealth.

  • It raises issues around freedom of testament/inheritance and balancing that with preventing exploitation of the elderly. Under French law, children have certain inheritance rights from parents that must be balanced.

  • The affair provides a window into the financial dealings and concentrated wealth of France’s elite classes at a time of economic crisis and concerns over inequality.

  • The Civil Code carefully regulates inheritance in France. Children have a legal right to a minimum inheritance share called the réserve héréditaire, regardless of the size of the estate or their relationship with their parents.

  • Parents can only freely bequeath the quotité disponible, which is 50% of the estate if there is one child, 33% with two children, and 25% with three or more children. This means billionaires must reserve substantial inheritance shares for their children.

  • Inheritances within the quotité disponible framework face much higher estate tax rates, encouraging bequests to children.

  • Some argue France should adopt a more Anglo-Saxon system with total testamentary freedom. But the Civil Code’s protections for disinherited children and exploited parents may become more important as lifespans increase.

  • At minimum, the réserve héréditaire mechanism deserves a cap, as beyond a certain wealth level the law should not force parents to make children into “rentiers” or those who live off inherited wealth and property.

  • While it is possible to win elections without a clear policy platform by capitalizing on voters’ rejection of the opposition, this approach often leads to problems governing afterward when specific policies need to be implemented.

  • The Socialist victory in France in 1997 was mainly a rejection of the opposition, even though they cobbled together some proposals like the 35-hour workweek. However, they lacked coherent plans on major issues and public support declined after 2000.

  • Barack Obama’s election victory was also partly due to rejection of the opposition, and not having fully specified health care plans may have weakened his ability to pass ambitious reforms against industry lobbying. However, complex policy changes often require gradual implementation.

  • For the French Socialists ahead of the 2012 election, betting only on continued rejection of Sarkozy may get them elected but risks an inability to govern if they lack alternative policy visions. Success requires balancing clear proposals and flexibility to adapt over time based on changing circumstances.

  • The passage discusses how bank profits in 2009, despite the economic crisis, can largely be attributed to low interest rates central banks charged banks for lending money, which the banks then lent to others at higher rates. This interest rate spread helped boost bank profits, though it raises questions about who ultimately bears the cost.

  • More political and regulatory action is needed beyond just grand speeches, like Obama’s bank reform proposal. Central banks also need autonomy from private ratings agencies to prevent future crises. Printing money, as the Fed did, may be a better solution than austerity to deal with public debt.

  • The passages reject moralizing stereotypes blaming “lazy” Greeks for their debt crisis. Historical factors like foreign ownership of Greek assets mean Greeks’ national income has always lagged domestic production. Also, a handful of traders can arbitrarily inflate borrowing costs for countries like Greece. Household morality fails to address modern capitalism’s arbitrariness. Overall fiscal and monetary reforms are needed in Europe to resolve such crises in the future.

  • Many new austerity plans across Europe caused concern they would not be enough to solve sovereign debt issues. Market fears of country defaults were becoming self-fulfilling by causing bond selloffs, raising interest rates and pushing countries closer to default.

  • The ECB remained hesitant to act as a true lender of last resort, failing to fully support Eurozone governments. A €750 billion plan was announced but amounted to only 5% of GDP, with vague commitments.

  • For a real solution, the author argues the EU needs authority over national budgets and to issue common European public debt to mutualize excess debt from the crisis. This could be financed by a European tax and supported by ECB bond purchases to lower borrowing costs.

  • Central banks played a crucial crisis response role in 2008-10 by creating liquidity to avoid cascading bankruptcies, without inflation. Their powers to create money should be fully used now by taking public debt onto ECB balance sheets at low rates, while regulating inflation, to lighten the burden on governments pursuing austerity.

  • Liliane Bettencourt is the eldest daughter of Eugène Schueller, the founder of L’Oreal, and inherited a large fortune estimated at €15 billion.

  • She owns a large stake in L’Oreal and sits on its board of directors, along with her daughter Françoise. However, they are described as rentiers (people who live off investment income) rather than active entrepreneurs.

  • Despite her large estimated fortune, Liliane pays very little in taxes due to loopholes and provisions in the French tax code. It is estimated she pays an effective tax rate of less than 1% per year on her income and wealth.

  • This is possible because the tax code uses a narrow definition of taxable income, only counting a small fraction of the dividends she receives each year rather than the total income generated by her wealth.

  • As a result, she pays very little in wealth tax and income tax, and often receives large tax rebate checks reimbursing most of what she does pay through the “tax shield” policy.

  • Critics argue this shows flaws in the tax system that effectively subsidizes large rentiers like Liliane and undermines the meritocratic ideal. It is argued the tax code should be reformed to tax large fortunes more heavily over time.

  • Germany wants banks that lent to Greece to help pay the costs of the crisis, but simply defaulting on Greek debt through an “uncontrolled haircut” is not the right approach.

  • Default would have unpredictable consequences because banks passed Greek debt around through many transactions, with complex insurance contracts. No one knows who ultimately holds the debt.

  • Distributing losses fairly is impossible, and the biggest players may avoid losses by dumping debt ahead of time.

  • A default could panic European financial markets and even cause bankruptcies, especially if other troubled countries also default.

  • Instead, the EU should impose a specific tax on European banks to help pay costs, in an orderly and controlled way. This would distribute costs fairly across the sector rather than risk an uncontrolled default leading to wider financial instability.

  • The Eurozone crisis has been badly mismanaged by Sarkozy and Merkel, who keep announcing solutions that are quickly undermined by events.

  • It was pathetic and nonsensical for Europe to ask poorer countries like China and Brazil for financial help, given Europe’s much larger GDP and household wealth.

  • Europe has the means to solve its own debt problems, if only it would act as a unified political and economic bloc rather than a “political dwarf”.

  • While less indebted than countries like the US, UK and Japan, Europe is facing a sovereign debt crisis because the ECB lacks political backing to fully play its role as lender of last resort.

  • As a result, countries like France are paying much higher interest rates than necessary, hurting rather than helping European sovereignty and security. Fundamental reforms are needed to strengthen European integration and coordination.

  • The article argues that further European integration and federalism are urgently needed to resolve the EU’s budget and debt crisis. National governments have become too interdependent for an intergovernmental approach to work.

  • It proposes creating a new directly elected “European Senate” made up of members from national parliaments’ finance and social affairs committees. This body would have authority over a potential joint European debt agency.

  • While the European Parliament could in theory hold this role, its members currently represent national interests rather than acting with financial responsibility at the European level. A Senate would be smaller and composed of those directly accountable within their own countries.

  • A precise plan for this Senate needs to be developed rapidly so it can start functioning with the countries wanting to participate. This would form the core of a federal Europe while others could join over time.

  • Contrary to perceptions, Germany may be further along in accepting the need for federalism to regulate global capitalism. France under Sarkozy has been more resistant to ceding sovereignty. A unified European solution is critical to resolve the crisis.

  • The Eurozone’s problems can only be durably resolved by establishing financial stability at the federal level in exchange for countries giving up control over their currencies. Without this, the system will ultimately collapse.

  • Creating a common Eurozone debt requires relinquishing some national budgetary powers, which France is reluctant to do due to the political consequences of deeper integration and federalism.

  • A concrete solution proposed is establishing a new Eurozone budget chamber made up of finance committee members from key countries like Germany and France. This chamber would oversee a European treasury and finance minister, forming the basis of a federal Eurozone government.

  • Contrary to claims, such a step towards federalism is technically feasible through an agreement among willing countries, though France needs to put forward specific proposals on issues like eurobonds and political union in order to make progress. Continually postponing major decisions risks destabilizing the Eurozone.

  • Germany has accumulated large trade surpluses that are unsustainable if others follow the same strategy. France has not proposed any specific plans to mutualize public debts in the Eurozone.

  • The only concrete proposal so far is the German economists’ plan to place debts above 60% of GDP into a common redemption fund, though it lacks a political mechanism.

  • A single currency with separate public debts will not work long-term. Loss of monetary sovereignty needs to be offset by mutualized debt and consistent interest rates.

  • Italy’s high debt means interest payments alone cause deficits, stifling investment. Reform is impossible under such uncertainty.

  • Fiscal and political union are needed to equitably share sacrifice. Wealth taxes are returning as private wealth soars while incomes stagnate.

  • Reforms are difficult without cooperation on financial information exchange to properly tax offshore wealth holdings.

  • The Eurozone crisis is partly due to French and German selfishness in not proposing real solutions like a fiscal parliament and mutualized debt. This fuels instability in Southern Europe.

Here is a summary of the key points of conflict described in the passage:

  • Cypriot banks invested depositors’ money in now-depreciated Greek bonds and illusory real estate investments. This leaves the banks without the deposited funds.

  • The European authorities are reluctant to bail out the Cypriot banks without getting anything in return, especially if it means bailing out wealthy Russian depositors.

  • The troika (ECB, EC, IMF) proposed taxing all bank deposits at around 6.75-9.9% to raise funds, regardless of deposit size. This angered small depositors who saw their savings taxed the same as oligarchs.

  • The tax plan lacked progressivity and exempted deposits transferred to securities, allowing wealthy to avoid the tax. It was seen as unfair.

  • Cyprus’ president may have requested taxing small deposits heavily to avoid big depositors fleeing, but the troika unanimously endorsed the flat tax plan behind closed doors.

  • There is a lack of transparency around past payments/compensation to slave owners after abolitions in the past. Some argue this issue of reparations deserves more open debate and consideration of policies like land redistribution.

So in summary, the key points of conflict centered around the unfair and opaque tax proposal on Cypriot deposits, as well as ongoing debates around potential reparations for slavery and lack of transparency regarding past payments to slave owners.

  • The author argues that relying on a return to economic growth alone will not solve many of the challenges that wealthy countries will face in the 21st century. While growth is preferable to no growth, it is unlikely to exceed 1-1.5% annually due to declining population growth and limits to productivity increases once a country reaches the technological frontier.

  • The expected future growth rate will likely be far lower than the typical 4-5% average annual return on capital (rents, dividends, interest, etc.). This inequality of r (return on capital) being greater than g (economic growth), or r > g, will lead to disproportionate concentration of wealth over time. Some signs of this are already appearing.

  • There is no natural reason for the return on capital to decrease to match the growth rate. Pursuing pure capitalist policies will exacerbate inequality. A range of policy solutions are proposed, from international tax cooperation to capital controls to sustained population growth.

  • Europe’s advantages are its wealth and social model. With political reform to make institutions less dysfunctional, Europe could help democracy regain control over capitalism rather than relying solely on economic growth.

  • The IMF is starting to advocate for more progressive taxation, including a wealth tax. While a change, the author argues we should understand the IMF’s historical promotion of undermining the welfare state and its gradual evolution in its views and recommendations.

  • The article is discussing the crisis at the French newspaper Libération, which is facing financial difficulties and proposals from major shareholder Bruno Ledoux to cut jobs and diversify into new businesses.

  • This raises the larger question of alternative models of ownership and governance for media organizations, to ensure editorial independence from shareholders seeking profit maximization.

  • Alternative models that involve more democratic and participatory control of capital by other stakeholders like workers and the public are worth exploring, as seen in some German companies.

  • Ledoux’s harsh words characterizing journalists as living off subsidies have inflamed tensions, demonstrating the “dictatorship of the all-powerful owner.”

  • In reality, media receive relatively small subsidies as part of a broader social contract where public and private sectors both contribute to and benefit from public goods and services supported collectively through taxes.

  • Rethinking the ownership model for cultural and media sectors is needed to balance private revenue/competition with independence from shareholders and sustain quality journalism as a public good. Progressive ideas around alternative governance structures are worth considering further.

The key point is that the crisis at Libération symbolizes larger debates around sustainable models of media ownership that ensure editorial independence and democratic accountability without “dictatorship of the all-powerful owner.” The article argues for exploring alternative progressive ideas.

  • The article discusses rising inequality and concentration of wealth in the US and the threat of oligarchy/plutocracy. It notes the Supreme Court decision to eliminate limits on political donations as further enabling oligarchy.

  • It argues the US will need to address inequality through things like taxing accumulated wealth annually through a progressive wealth tax, as was done in the early 20th century. International cooperation is also needed given the global nature of wealth.

  • The EU could help by developing a register of global assets/securities and including curbing tax havens in trade deals with the US. China may also need to act given its growing wealth inequality.

  • A separate article discusses the upcoming 2014 European Parliament elections, seen as a test of growing Euroskepticism. It would be the first time the winning party’s candidate could become European Commission President. Changing Europe will require reforming EU institutions beyond just electing a new Commission President though.

  • A new large-scale crisis in Ukraine has led to thousands of deaths and months of EU hesitation over sanctions against Russia, despite Russia directly invading Ukraine.

  • The author argues that as the global economy becomes more dominated by large countries like the US, smaller countries like France feel pressure to accept increasingly unacceptable contradictions to their values, like becoming a tax haven, in order to get a few billion in exports or appease large trading partners.

  • Political union in Europe is increasingly important to avoid smaller countries having to sacrifice everything, yet the EU has made little progress on this front. Deeper integration of the Eurozone with institutions like a Eurozone parliament could help drive political will and counterbalance the ECB.

  • China is attempting to implement a “plutocommunist” system in Hong Kong with controlled elections where only Beijing-approved candidates can run. This combines one-party Communist rule with an aristocratic system where only the economically powerful (business elites loyal to Beijing) have real political power.

  • The author questions if this system can be justified long-term and argues China’s model of political centralization has helped development but may not be sustainable as inequality grows. Deeper reforms may be needed.

The passage criticizes the current leadership in Europe for presenting austerity policies as the only option and being afraid of political shocks that could disrupt the status quo.

It argues that the European institutions themselves are problematic and only democratic reconstruction of Europe can enable progressive policies. Specifically, tax decisions about big companies should no longer require unanimity but a majority. Countries wanting reform should form a core group and sanction tax havens like Luxembourg.

Germany and France amnesiacly push austerity on southern Europe despite having their own debts repudiated after WWII through inflation. The new fiscal treaty was hypocritically pushed by both France and Germany for their own benefit despite shared responsibility for the crisis. A single currency requires more investment and coordination of public debts, not austerity that worsens recession. Overall leadership lacks honesty and courage to enact real solutions.

  • The article discusses the growing discontent of the working class with mainstream and center-left political parties in Europe.

  • Economically, the working class has faced difficulties from factors like deindustrialization, emerging market competition, and loss of low-skilled jobs in developed nations. Globalization has benefited those with financial and cultural capital more.

  • Politically, policies have exacerbated these trends rather than helping the most affected groups. Governments have focused more on mobile taxpayers over captive working and middle classes. Tax systems are less progressive, indirect taxes on the poor have risen, while top rates have fallen. Deregulated finance and liberalized capital flows made this worse.

  • European institutions prioritizing competition over common policies have reinforced these trends, cutting corporate tax rates in half since the 1980s. Small businesses pay higher rates than multinationals.

  • More taxes and fewer public services have made the working class feel abandoned, fueling support for far-right parties both in and out of the Eurozone.

  • Radical social and democratic reforms are needed to make European integration defensible to the working class again.

  • The essay criticizes the notion that France presents itself as a model of equality and secularism when it comes to religion. It argues reality is more complex.

  • While France emphasizes religious neutrality of the state, it still maintains significant public support for Catholic schools to a greater degree than other countries.

  • Laws banning conspicuous religious symbols in schools have disproportionately impacted Muslim students.

  • Studies show significant employment discrimination against young people of Muslim background, especially males, even when they are well educated and qualified. Discrimination is worse for those who meet all official qualifications.

  • The essay argues this is a form of hypocrisy, as France refuses to acknowledge significant job discrimination faced by young Muslims. It calls for greater awareness of this issue and publicity of studies documenting employment discrimination.

  • Overall the summary criticizes France for not living up to its proclaimed ideals of equality and secularism, especially when it comes to treatment of Muslims in the education and employment spheres.

Here are some new responses on related topics:

  • South Africa has made progress toward equality but still faces immense challenges of inequality, particularly economic inequality left over from apartheid. Realizing true equality will require bolder policies to redistribute land, wealth, and economic opportunity. International cooperation is also needed to curb capital flight and offshore tax havens that undermine domestic reform efforts.

  • While the end of apartheid established political equality, sustained economic empowerment of the black majority has been lacking. Moderate programs like BEE have had limited impact. Bolder land reform, wealth taxes, nationalization of industries may be needed to redistribute resources and opportunities on the scale required to substantially reduce inequality. But this faces strong resistance without international support.

  • Twenty years after the end of apartheid, South Africa’s “promise of equality” remains unfulfilled for most. The massive wealth gap shows the limits of political reforms alone and calls for an economic bill of rights addressing inequality of condition. Bold redistributive policies may be required but would meet strong opposition without fair cooperation from other nations to curb capital flight and tax havens undermining domestic reform. True equality demands concerted global action.

  • While universal suffrage and civil rights were achieved, South Africa now confronts the deeper challenge of moving from formal equality to substantive equality of living standards and economic opportunity. Closing the vast wealth gap will require redistributing land, natural resources, and economic power on a scale that moderate policies like BEE have failed to achieve. But bold redistributive reforms face the risk of capital flight without coordinated international action to curb tax havens and ensure a fair global economic system. Realizing the promise of equality will depend on such cooperation.

Here is a summary of the key points from the article:

  • The article argues that a military strike against ISIS is necessary but will not alone solve the roots of terrorism. The political and social conditions that breed extremism must also be addressed.

  • Much of the instability in the Middle East stems from the arbitrary borders and unequal regional order imposed by Western powers after World War I and continued Western military intervention since. This fuels resentment and justifications for extremism.

  • The concentration of oil wealth in a few Gulf monarchies has led to immense inequality in the region. The vast majority of citizens see little benefit while elite minority enrich themselves and are propped up by the West. This unequal development model sows seeds of disaster.

  • Democracy is often denied in the region when it suits Western interests. Military dictatorships are backed over democratically elected movements like the Muslim Brotherhood in Egypt. This undermines credibility on issues of democracy and social justice.

  • More resources need to go to regional development, education and integration rather than military budgets or propping up ruling families. Social and economic inequalities drive radicalization and must be addressed.

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