Opinion: Miliband, Piketty and the Liberal response

milibandThree weeks ago, Miliband crossed the Rubicon and entered the heartland of Tory ideology. His support for European-style longer and more secure tenancies — and by extension capping rent increases — runs roughshod over a hitherto post-Thatcherite consensus.

Grant Shapps led the Tory riposte with a quick and ludicrous barb: Labour were proposing “Venezuelan-style rent controls”. Most people won’t know the details of Venezuela’s housing policy, but will be sure it’s unlikely to be any worse than our own.

Times have changed. We can see this clearly in that most Thatcherite of metrics: home ownership. At its height, homeownership levels climbed to 71% in 2003. Today, that number is 65% and falling. But as Daniel Knowles of The Economist points out, even this number paints too rosy a picture: only 39% of people aged 24 to 35 own their home. This figure stood at 60% just thirteen years ago. Consequently the private rented sector is larger than ever. Society is quickly setting into stratified classes and with it implications for inequality, family formation and eventually, politics.

These recent British events have a grander backdrop, painted by a Frenchman. The economist Thomas Piketty has caught the zeitgeist with his magnum opus Capital in the 21st Century, which proves that the income given over to labour falls proportionately to that given over to ‘capital’ over time, creating an ever more unequal society. This, he says, is the historical norm interrupted only by the unusual circumstances that followed the Second World War. His book has become a bestseller on Amazon and talk of dinner parties from London to San Francisco. There are a thousand reviews of his book to be read, and this is not one, but we must acknowledge the change and consider the response.

Many people, including Piketty, consider his remedy (a global wealth tax) unlikely to be implemented. As Karl Smith pointed out in the Financial Times, much of Piketty’s hard work can be improved by deconstructing what he means by ‘capital’. In neoclassical economics, the prevailing – and ailing – school of thought, all that is not labour is ‘capital’.  Yet your local plumber, who carries his capital in the back of his van, is not the beneficiary Piketty sought to describe.

Smith, and others such has Jesse Myerson, demonstrate that when Piketty talks about capital, he really means assets such as land and intellectual property. These assets cannot be reproduced, and attain their value through nature, society and the pernicious effect of monopoly. Within a framework of liberal, classical economics this would have been readily understood.

The last majority liberal government, in 1906, understood this very well. Their strident liberal platform, spearheaded by Lloyd George and Winston Churchill, sought to introduce a tax base centred on land values. They failed due to the Tory landlords’ control of the upper house, with the legacy of that political battle seen in the 1911 Parliament Act, which to this day forbids the House of Lords voting on financial legislation.

Lloyd George knew that the liberal, classical economic option of collecting the community rent, on land and intellectual property for instance, is the ultimate win-win. It provides a revenue base by which we may untax the working poor and remove many ‘dead weight’ taxes. It also encourages commerce, cheapens land, rebalances the economy and provides ample housing at no cost to the people. It is a policy environmentalists, social reformers and entrepreneurs can all support.

In recent years, our party has lost its way. Asking young and poor voters to support a tax shift from council taxes to local income taxes in 2010 was a mistake and a policy unfit for the 21st century. To renew our appeal, we must begin to champion an economy that works for all. This means making housing cheap and plentiful and so ensuing that the wealth of this nation goes to its workers and citizens, not to those that own its assets. We have at our disposal a set of policies far more radical, and robust, than Labour is prepared to offer.

Everyday more and more people, in America as well as Britain, are coming back to the liberal policy of shifting tax from work and small business and onto economic land and intellectual property.

We should immediately signal that we wish to untax low and average incomes and instead tax the land so that it yields the housing we need. Commerce and people will benefit whilst the big developers and banks will not. Let them challenge us and let us be seen to put people and commerce before vested interest.

The electorate need not have to choose between Tory landlordism and Labour interventionism. There is another way.

For both economic and political reasons, we should put natural resources into the heart of economics, thereby remedying a neoclassical mistake – Martin Wolf, chief economics commentator at the Financial Times, London

The earth belongs in usufruct to the living – Thomas Jefferson, 1789


* Toby Matthews is a member of Action for Land Taxation and Economic Reform (ALTER), an affiliated group of the Liberal Democrats. Join us here http://libdemsalter.org.uk

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  • Great post Toby. Are these idea’s still popular within the Lib Dems or are they now on the fringes? If these were Lib Dem policies I would certainly vote for them.

  • Tony Greaves 20th May '14 - 11:23am

    A lot of sense here though the taxation of wealth needs to go further than land. In the meantime we need radical measures to deal with the private rental sectors, particularly mass housing.

  • Toby

    “These recent British events have a grander backdrop, painted by a Frenchman. The economist Thomas Piketty has caught the zeitgeist with his magnum opus Capital in the 21st Century, which proves that the income given over to labour falls proportionately to that given over to ‘capital’ over time, creating an ever more unequal society”

    well catching the zeitgeist and being right are not the same thing.


    He doesn’t account for risk. Measuring return without accouting for risk would make the Lottery the best investment in the world (a hint it is not).

  • Incidentally Piketty being wrong is not an argument against LVT or vastly increasing the housing stock to bring prices back down, which are good policies. But policies have to be based upon the right understanding to give them the best chance of suceeding.

  • Matthew Huntbach 20th May '14 - 11:48am

    Toby Matthews

    These recent British events have a grander backdrop, painted by a Frenchman. The economist Thomas Piketty has caught the zeitgeist with his magnum opus Capital in the 21st Century, which proves that the income given over to labour falls proportionately to that given over to ‘capital’ over time, creating an ever more unequal society.

    I was pointing this out in the 1980s, and made a speech to the Liberal Assembly in 1986 making this point, and stating that we needed to return to the traditional Liberal policy of Land Value Taxation, otherwise the housing system would inevitably result in increasing equality.

    It ought to have been obvious back then that the give-away of council housing at cut-price costs was a one off, nice for those who benefited from it, having already benefited from being tenants in cost-price only housing, but not nice for the next generation who would thereby be denied both of these benefits. Yet this policy has been cheered on by the great and good ever since, it was considered such a wonderful policy that no-one dare criticise it, it was put as the best thing Thatcher did, no-one bothered to think through its disastrous long-term consequences which are now hitting hard.

    We are paying NOW in terms of higher tax to pay housing benefit and all the misery and social costs of unavailability of affordable housing for the electoral bribe Thatcher and the Tories made in the 1980s to win over a chunk of the traditional Labour vote.

  • Malcolm Todd 20th May '14 - 12:01pm

    I don’t know that I buy Piketty’s grand theme — the French, it seems, can’t see an event without declaring it a trend, or a trend without weaving a Grand Theory of Everything around it — but Matthew’s right about the fundamental wrongness of the council house “right to buy” and the pernicious effects of it that are still with us. To give New Labour their (paltry) due, they did cut back on the policy quite considerably, reducing both the percentage discounts and the maximum discounts; but they never dared — despite 13 years of huge parliamentary majorities — to make the case for proper social housing again or to undo the basic legislative architecture of Right to Buy, so that it was an easy matter of ministerial fiat for the present government to reverse even the slight damage limitation the Blairites had allowed.

  • Charles Rothwell 20th May '14 - 12:33pm

    One of New Labour’s (many) failings was its complete disregard of the need for new build social housing or (even better) conversion of run-down inner city/brownfield sites while presiding over the insanity which led to the total unregulated mess culminating in the worst financial crisis for a century (and which is still shaping politics today in the disillusion and despair/lack of faith in the future reflected in the support being given to extremist parties on both sides of the spectrum (but particularly the Right) by millions across Europe now. The only way the established parties (including the Liberal Democrats) are going to regain respect and support is by making a radical break with the neoclassical economic consensus which has held sway since the 1980s. A land value tax and a massive social housing programme in part funded by the proceeds from this would seem ideal components of such a break to me (and would put miles between the Liberal Democrats and both the two dinosaur parties in Britain).

  • Charles

    The lack of housing is not just a lack of social housing. We need new housing from as many sources.

    Also you have to be careful about understading what is poissible when looking for solutions beare in mind the restrictions in teh construction sector to supply for a building programme. You can’t just decide there will be a million extra homes and they appear we have to factor in the amount and the path that will get us there (then look at the constraints that block that).

    LVT would be a good policy but imagining that it will provide masses of extra revenue is very unlikley (it would need to be phased in) and matched by reducing labour and capital taxation. If you just dumped a massive extra tax on the economy you would do vast damage, but a rebalancing to land taxation would be better but there are no silver bullets.

    The intended outcome is simple, it is not easy and the barriers are complex so making sweeping assumptions about what is possible will not be effective.

  • Eddie Sammon 20th May '14 - 1:40pm

    I disagree with nearly all of this article. Saying we are going to punish people who bought land is not a policy for social justice. Why should tech billionaires be left out whilst your average landlord is targeted because he owns “land”? People say that it is because land cannot be reproduced, but neither can the work that produced facebook, because it is a product of labour and capital, just like the money used to buy land. There is nothing wrong with selling land as long as it is sold at the right price and we have estate taxes away, so a lot of it gets recycled back into the pot in the end.

    On a wider note: we need to move on from pamphlet politics and onto sensible solutions: going after landowners like criminals is not a sensible policy.


  • Eddie Sammon 20th May '14 - 1:53pm

    I was probably too harsh about “pamphlet politics”, I love deep thought and analysis, it is just all the stats in the world won’t justify punitive taxes on land and it probably wouldn’t be deliverable, or at least not sustainable.

    Best wishes

  • Eddie

    It is not about “punishing” land owners. Houses are built on land, a LVT would have to come with a reductiuon in other taxes (income for example).

    It sets the incentive to make the most productive use of the land that is held. The person whop buys a large swath of productuve land to keep their view nice can do so but will pay for teh privalidge. If they want to do so cheeper they can move to a location where land prices are cheaper and pay much less. Equally if a business is basing it self in a very expensive area when it could do so cheaper elsewhere it provides an incentive to relocate, making space for a business that would benifit more from the location.

  • There is a decent review of Piketty’s book in the Guardian http://www.theguardian.com/books/2014/apr/28/thomas-piketty-capital-surprise-bestseller.

    Toby Matthews is right to advocate Land Value Tax as a critical element of rebalancing the economy. I hope that the policy will feature prominently in our 2015 manifesto.

  • Eddie Sammon 20th May '14 - 2:25pm

    Psi, I agree buying loads of land for a nice view is not ideal, but at the end of the day it will only be a tiny minority who will be able to afford to do that and it protects the environment anyway.

  • Matthew Huntbach 20th May '14 - 2:44pm


    otherwise the housing system would inevitably result in increasing equality.

    Should have been “increasing inequality”!

  • Matthew Huntbach 20th May '14 - 2:50pm


    Toby Matthews is right to advocate Land Value Tax as a critical element of rebalancing the economy. I hope that the policy will feature prominently in our 2015 manifesto.

    Would be nice, but the little old lady in the big house is always wheeled out for us to weep over and so to get the case for LVT closed down.

    Any big new property tax needs to be met by a state guaranteed scheme which would allow said little old lady to pay the tax by equity and so NOT be forced to sell her home to pay it, which the opponents always say is what would happen.

    Sure, the heirs still lose out, but why weep for them? If they need the property, they can pay the tax, it’ll still be a lot less than those who made the mistake of not choosing the right parents would have to pay to get that housing. If they don’t need the property, it’s just a reduction in the size of the dollop of cash they get. I can save my tears for other things than that.

  • Matt (Bristol) 20th May '14 - 3:11pm

    This article makes me feel I may have had some right instincts to feel for some time that 2 income-based taxations is not a reasonable way to proceed; but as an economic illterate, I may not be the best person to argue why. I would personally prefer that taxation on land and property goes to local government and taxation on income goes to central government with minimal interference with and prescribing of local government’s sources of revenue and setting of taxation by central, so that there is clear differentiation between the two. I can dream…

  • Another aspect about the lack of housing is the price of developable land , which adds cost to the house buyer – including social landlords and add risk to the house builder. Brown field sites ought to be cheaper than green field sites by at least the cost to clear the land ready for development but too many owners feel that they want the price that green fields (with planning permission) are able to get and they hold out in the expectation that the price will rise.

  • Toby Matthews refers to the 1906 Liberal government. The Peoples Budget not only included Land Value Taxation it introduced higher rates of Income Tax for that those on high incomes, it increased death duties. Therefore the Liberal response to Piketty’s finds should be not only Land Value Taxation, but higher levels of Income Tax for those earning high salaries, higher levels of Corporation Tax, as well as higher levels of Inheritance Tax.

    From Eddie Sammon’s first post he seems not to have accepted what Piketty’s book is saying.

  • Amalric

    “From Eddie Sammon’s first post he seems not to have accepted what Piketty’s book is saying.”

    And if he hasn’t that would be the right conclusion as Piketty’s conclusions don’t stack up.

  • Matthew Huntbach

    “Sure, the heirs still lose out, but why weep for them? If they need the property, they can pay the tax, it’ll still be a lot less than those who made the mistake of not choosing the right parents would have to pay to get that housing.”

    Also if they were that concerned they could move in if it were that large to allow them to pay the tax too. The rebuttal of the argument needs to be well prepared but should not be hard.

  • @ Psi – “Piketty’s conclusions don’t stack up” I believe that Piketty concludes that the rate of return on capital is higher in relation to the rate of economic growth now than it was in the 1950’s and 1960’s and this will get worse over time and inequalities are now higher than then and will in the future get worse. Please can you state the evidence that his conclusion is wrong?

  • Paul Krugman seems quite impressed with Piketty’s work describing it as “serious, discourse-changing scholarship”

  • Matthew Huntbach 21st May '14 - 4:33pm

    Stephen W

    This misses the point that we don’t have massive housing construction because of planning permission controls. There just aren’t the spaces in urban areas in the south, and much of the rest of the land is greenbelt, again for good reasons.

    Also the argument that we just need to “build more houses” to solve the housing crisis is simplistic. Simon Jenkins points this out very nicely here in the Guardian today, though I’ve made similar comments in this forum myself many times. You will NOT solve the housing crisis by building more houses if every new house that gets built is snapped up by someone who doesn’t need it to live in as an “investment”. The problem, at least in London and the south-east, is that the people who actually need the houses will always be outbid by people who don’t. So building new houses solves nothing whatsoever. All you are doing is creating new investment vehicles, a bit like an ISA or some other such thing, only made out of bricks and mortar and taking up green land. If you really want to solve the housing crisis you must START by taking away the investment incentive for holding on to them when you don’t need them to live in, so they do end up with those who do need them to live in.

  • David Allen 21st May '14 - 4:58pm

    “The argument that we just need to “build more houses” to solve the housing crisis is simplistic.”

    It’s a bit like building more gastropubs to solve the world hunger crisis. The starving poor, of course, can’t afford the braised lamb shanks and are locked out of the market, so they continue to starve.

    Meanwhile the rich say “We need more gastropubs! Don’t you know that there are people starving out there? So we must tackle the problem urgently by means of a massive expansion in the catering trade. What we are doing is socially responsible! It should be subsidised by Government. You can depend on it, every new celebrity chef whose career we launch will be saving lives!”

  • Eddie Sammon 21st May '14 - 5:01pm

    Hi Amalric, I agree the super rich should be taxed more, but the problem with Piketty and his left wing friends is that they seem to associate pushing up the cost of small businesses with social justice. It’s too unbalanced.

  • Eddie Sammon 21st May '14 - 5:04pm

    costs, not cost. More regulation does not always mean more social justice.

  • @ Eddie Sammon – “I agree the super rich should be taxed more, but the problem with Piketty and his left wing friends is that they seem to associate pushing up the cost of small businesses with social justice”

    Then isn’t it a question of getting the level right.

    If we tax inheritances above say £10 million more and have higher corporation taxes for businesses worth more than say £100 million wouldn’t the taxes be more targeted to those with the greater wealth?

  • Eddie Sammon 21st May '14 - 8:38pm

    Amalric, yes I agree it is a question of getting the level right. I like good ideas from wherever they come from, I just don’t like populism, which ignores problems that don’t fit in line with the ideology.

  • @ Matthew Huntbach – The Guardian article you refer to is a bit simplistic and doesn’t produce any housing figures. Should the government restrict the number of rooms a person has? My answer is no. I would also be interested in knowing where all the empty houses are? However I do agree that houses should be built on brown field sites and VAT shouldn’t be less on new build than renovations. Simon Jenkins implies that we should have more people living in rented accommodation like Germany and for this I believe we would need more houses for rent to be built (such as council houses). The buying for rent people are at least providing rented accommodation.

  • Amalric

    I recommend reading Mervyn King’s book review I mentioned above.


    King’s point in brief:
    “In essence, the principal weakness of the book is that the carefully assembled data do not live up to Piketty’s rhetoric about the nature of capitalism.”

    He picks out that when you look over a long term trend (greater equality). Piketty has selectively selected dates and noticed what is, by historical standards, a relatively small movement. As Malcolm Todd notes above “the French, it seems, can’t see an event without declaring it a trend” well that is what this is.

    He has worked out his figures based upon return not accounting for risk. As I said above if you were to do this the Lottery and Casino’s are great ways to invest, I hope you understand they are not. Though it plays to the natural human tendency to ignore the down side and remember the up side (very much underpinning the current belief that property is a one way bet, something else which doesn’t hold up under historical analysis).

    Some of the conclusions that people are drawing from this book are the right policies (LVT, increased construction, I’ll return to Eddie & Matthews points in another comment later) but to justify them using biased analysis will result in moving on to solutions that are counterproductive.

    This to me appears one of those books that simply plays to some peoples prejudices and therefore generates lots of excitement. I suspect rather like the MMR research from the 1990’s long after the serious researcher have debunked the research from every possible angle it will continue to stick in the mind of politicians and the chattering classes.

    Piketty may have “caught the zeitgeist” as Toby claims but it sounds as if he has added very little beyond providing a standard around which people with predetermined prejudices can rally.

  • Matthew Huntbach 22nd May '14 - 1:30pm


    @ Matthew Huntbach – The Guardian article you refer to is a bit simplistic and doesn’t produce any housing figures

    Well yes, but so is “build more houses to solve the housing crisis” a bit simplistic. That’s my point. It gives the flavour of an argument going the other way, sure it doesn’t pretend to give fully worked out detail. I’ve never seen a “build more houses to solve the housing crisis” article give much in the way of detail either, certainly not the detail I would need to see to counter the concern about new houses being built but then not going to those who need them.

  • Matthew Huntbach 22nd May '14 - 1:33pm


    He picks out that when you look over a long term trend (greater equality). Piketty has selectively selected dates and noticed what is, by historical standards, a relatively small movement.

    Like those who push the Laffer curve etc? Has the mountain of free market stuff poured out in recent years been any less selective about the figures it uses to argue its case?

  • Matthew Huntbach

    My point is not that Anyone else’s argument is perfect just that this does not represent an argument that faces even the basic probing such as “how has he generated g or r?”

    Poor arguments are made from both sides (the R&R paper on debt impact on GDP growth for example) where analysis has been poor due to errors in data handling, faulty assumptions, confirmation bias etc. However those are normally published in papers that can then be reviewed and subsequent amendments addressed and findings retested. Rather than published in a book that has been so uncritically accept by certain quarters (though interestingly the R&R paper was for a time).

    Not wanting to get off topic, but the Laffer curve is something accepted by most people when they talk it through. A lot can be argued about what the shape is and where it peaks/what the optimal point regardless of the peak is, but most people would recognise if you set tax at 0% you get no tax and if you set tax at 100% not many people are going to be willing to take the risks of forgoing current consumption for the sake of no return in the future.

  • There is another good analyses of Piketty’s work from Will Hutton here http://www.theguardian.com/commentisfree/2014/apr/12/capitalism-isnt-working-thomas-piketty and a more detailed review from Paul Krugman here http://www.nybooks.com/articles/archives/2014/may/08/thomas-piketty-new-gilded-age/

    Hutton Says : “At the conference of the Institute of New Economic Thinking in Toronto last week, Thomas Piketty’s book Capital in the Twenty-First Century got at least one mention at every session I attended. You have to go back to the 1970s and Milton Friedman for a single economist to have had such an impact…his data is under intense scrutiny for mistakes. So far it has all held up.”

    This is serious research by a serious economist that is having a profound impact on the way we think about organising society to reflect an equitable balance of risk and reward between capital and labour and how value added is best distributed across the factors of production.

  • daft ha'p'orth 22nd May '14 - 5:33pm

    Well, as a researcher in a completely different field I agree with the observation that popular != correct.

    More significantly, could you explain what is meant by the liberal policy of shifting tax from work and small business and onto economic land and intellectual property? I see no further description of what is meant by shifting taxes onto intellectual property, but am interested: what did you have in mind in the context of the UK?

  • Psi.
    Krugman published a technical article on the econometrics a few months back http://krugman.blogs.nytimes.com/2014/03/14/notes-on-piketty-wonkish/.

    Piketty is comparing both the rate of return on capital (r) and economic growth (g) on the basis of actual historical data. He shows, r has almost always exceeded g – but there was an exceptional period in the 20th century, a period of rapid labour force growth and technological progress, when r was less than g. He asserts that the kind of society we consider normal, in which high incomes reflect personal achievement rather than inherited wealth, is in fact an aberration driven by this exceptional period.

    Mervyn Kings’s critique is that after “Adjusting for risk, average rates of return have historically been much closer to growth rates.” But, Piketty is using actual historical data that incorporates actual earned returns inclusive of risk premiums and compares this relationship to wages as a share of the economy is different historical periods. King seems to be saying that the average net return on capital after tax was less in the period 1910 to 1970 because there was less risk associated with capital investment and that before 1910 and after 1970 that risk has increased significantly and is reflected in a higher rate of return. That doesn’t make any sense to me.

    How does it sit with his comment in 2009 – “The period prior to the crisis was the most stable economic environment for generations. And, unlike most previous recessions, this crisis wasn’t preceded by an unsustainable boom in output. In the five years leading up to the crisis, overall GDP growth remained close to its long-run average and inflation differed from the 2% target on average by only 0.2.”
    percentage points.

  • For a balanced and apolitical critique of Piketty’s work, the New Yorker has a long but well argued article http://www.newyorker.com/arts/critics/books/2014/03/31/140331crbo_books_cassidy?currentPage=all.

    I think Piketty is making a useful addition to a growing body of work like the ‘Spirit Level’ in which British researchers Richard Wilkson and Katie Pickett show that among the richest countries, it’s the more unequal ones that do worse according to almost every quality of life indicator.

    They argue “The countries with the biggest gap between the rich and the poor have the highest level of whatever health and social problem it is we’re looking at. Unequal societies “have more violence, they have higher teenage birth rates, they have more obesity, they have lower levels of trust, they have lower levels of child well-being, community life is weaker and more people are in prison,”.

    The argument is that inequality actually causes all these social problems, because unequal places like the UK or USA are more socially competitive places to live in than Sweden or Japan.

  • Paul In Twickenham 22nd May '14 - 8:10pm

    @Joe Bourke – I absolutely agree with your assessment that the primary function of Piketty’s magnum opus is to inform and advance a vital debate, and the comparison with The Spirit Level is entirely apt. I am currently plowing through Capital and will reserve comment until I have had finished it except to say that the criticism from the right is remarkable primarily for how trite it is. But the fact that r>g (and currently r>>g and r>>s) is now widely known (rather like e=mc2) is a testament to the way the basic idea has leapt across the boundary from academia to popular culture. Will it change the world?Probably not. Will it inform and shape public and political opinion? Most certainly.

  • @ Psi

    The trouble with Mervyn King’s book review is that he assets his view without defining how much r (the rate of return on capital) is reduced by risk. If I invest my capital in property the risk is small, even when I invest in shares of large UK companies the risk is small. I believe that the value of shares has increased more than the rate of economic growth over the last 20 years. Then of course if I rented the property out I would have a superior rate of return, while I haven’t considered how much the shares would have earned in dividends.

    @ Joe Bourke

    Your assessment of Mervyn King’s book review makes sense to me.

  • Paul In Twickenham 23rd May '14 - 11:53pm

    Just now (11pm on Friday 23 May) there is a tweet on the right side of the LDV screen from Stephen Tall saying “Can someone tell me what to think of this Piketty thing?”.

    Stephen then retweets a reply from John Rentoul that says “His nos for Europe suggest a greater trend for inequality of wealth since 1980 (false) matching that in the US (true)”.

    So what does Piketty actually say? Well let’s consider Figure 8.1 Income inequality in France 1910-2010 which is on page 272. The graph has this caption: “Inequality of total income (labour and capital) has dropped in France during the twentieth century, while wage inequality has stayed the same”

    The graph has two data series : 1. “Share of total income decile in total income” and 2. “Share of top wage decile in total wage bill”. The first series rises from 30% to 32% between 1980-1990 and then flattens out to the present. The second series is broadly flat at about 25% since 1980 to the present day.

    This does not agree with Rentoul’s terse comment. Data for this is available at http://piketty.pse.ens.fr/capital21c

    Piketty notes that the top decile received about 25% of all wages for the entire 20th century, and the compression in income inequality across the century is entirely down to a diminished return on capital.

    I make this point because it seems to typify much of the criticism that the book has attracted – i.e. wrong.

    I would agree with Piketty’s own comment “I am only too well aware of my total inability to predict what form capital will take in 2063 or 2113” so the book’s title is a bit Mystic Meg. But the principal is sound : the instruments of capital may change but they will always be about generating returns in excess of those from labour.

  • Toby Matthews 24th May '14 - 10:51am

    Many thanks to everyone that has read my post this week and those that have left a comment. I will just quickly reply to a couple of those that left a comment.

    Sardo- I’d have to say the views in this post are largely on the fringe these days, at least with regard to influence. However, the roots of liberalism run deep, and we can see just by the comments here that many people are tuned in. We have had about 35 years of socialist consensus and about the same of a Thatcherite consensus since 1945. Neither can be said to have succeeded both economically and socially, so it is a good time to reconsider liberalism.

    Eddie Sammon- You raise some good and common criticisms, including ‘Tech billionaires’. I mentioned in the piece that “intellectual property” is, economically, akin to land. People can take an idea (which always existed and will always exist) and claim it as their own through a patent. This confers an advantage, stifles competition and can lead to great wealth. There are also ethical concerns (especially with regard to patents on human genes, which rightly belong to no one). So, I include reform of IP alongside returning the rent of land.

    Secondly, almost as an aside, it’s worth noting that although computers and technology are getting cheaper, land around Silicon Valley is not. There is some anguish in San Francisco as Google employees on high salaries are having a negative effect on communities. Were Apple and Google taxed on their land (and deprived of IP monopoly), we would see much less resistance to their effect on communities as they start paying for the city’s improvements they enjoy and lessen the burden on poorer city dwellers. Furthermore, land in the city will be used far more efficiently, and far more housing would be available for the ‘displaced’. Finally, there would be far less scope for tax avoidance.

    People with great wealth tend to have derived their wealth through monopoly of resources (such as oil), IP and land. Even banks are built on land rent from mortgages, and tax lawyers get rich by playing the current system. Much of this wealth is not attained by benefitting civilisation, but rather by siphoning off the rents that civilisation creates.

    I think Psi addressed your other concerns well. The Piketty debate is ongoing, so I won’t get involved in that!

  • And so it begins

    I haven’t got time right now to write a proper response but just to flag up others comments. I was going to say that no one is doubting the vast numerical task undertaken to collate such a mass of data but you need to understand it not simply take as gospel what a mathematical calculation seems to suggest (something Pikertty criticises other economists for). Then I stumbled across this from yesterday.

    Rather like the R&R paper which seemed to produce conclusions too strong to make sense (the arbitrary 90% figure regardless of the mass of other factors that would have to apply), Chris Giles at the FT has been looking through the data and it has issues.

    The point is, too many people seem willing to accept anything that reinforces their preconceived prejudices. You actually have to take the time to understand what is going on.

    Regardless of data errors there are far wider debates to be had than just accuracy of data (errors and how good the actually proxy is). There is what historic data tells you about the future as Greg Mankiw’s initial thought on it point out:
    There are then also what the actual impact is.

    There are more interesting debates that this touches (but doesn’t seem to bring anything new) but this isn’t the core of what he is concerned with.

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