Dean Baker on Piketty’s Capital: Or, How FDR Proved Marx Wrong
Thomas Piketty’s important new book, Capital in the Twenty-First Century, predicts a bleak future of increasing concentrations of financial assets in few hands, stagnant wages and labor share of income, and declining returns to capital — secular stagnation. He enunciates and demonstrates the part of Marx that Marx got exactly right.
But Dean Baker points out where Marx got it wrong, and where an optimist can hope that Piketty’s got it wrong. By changing our institutions, laws, and regulations — the rules of the capitalist game — we can head off that seemingly inevitable downward spiral. Dean gives several examples of institutional changes that could prevent or even reverse it, from patent laws to cable monopolies to financial-transaction taxes.
Which prompts me to finish this post, started long ago, and to point to Steve Randy Waldman’s eloquent rejoinder to the pessimistic view. Steve ingested this contrary view with his mother’s milk:
I remember pride in my businessman father’s voice when he explained to me that this [pessimistic view] was wrong. Marx had underestimated the ingenuity and flexibility of capitalist societies, and particularly of the United States during the New Deal. Government intervened to solve Marx’s collective action problem, enabling capitalists secure their enlightened self-interest by keeping a distribution of prosperity sufficiently broad that the predicted collapse could be avoided. … To my father, American capitalism’s adaptability and ingenuity had proved Marx definitively wrong, in the best possible way — by producing a stable society that served the vast majority of its citizens, while countries whose politicians had followed Marx’s prescriptions grew into monsters.
So Marx was wrong both ways — economically and politically — even while he was right. The capitalist tendency to concentrate financial assets at everyone’s expense is inevitable — unless we as a society decide to do something(s) about it.
You’ll find this very same thinking elsewhere, for instance in this line from Joseph Stiglitz’s review of Robert Skidelsky’s Keynes: The Return of the Master.
Keynes’s great contribution was to save capitalism from the capitalists
And in this 2001 article from The Hoover Digest:
This is a clear, cogent, and coherent story, but one I rarely hear from the left. I’d like to suggest that progressives should be moving this rather moving narrative to the front of the rhetorical bookshelf.
Now if someone could just convince Obama to go all FDR on us…
Cross-posted at Asymptosis.
The comment was probably like wishing to hit the lottery, but the difference is that FDR could go all FDR and Obama has never been able to go all FDR.
Different Congressional makeups; different Senate rules; etc.
I wish also though…………….
“The capitalist tendency to concentrate financial assets at everyone’s expense is inevitable.”
It’s not a zero-sum game. Capitalists create wealth. For example, take the invention and production of the microwave oven. How much is that worth? How much did it improve society? How much should the inventor get? How much should the investor get? How much should the cog, who just follows instructions to assist building it, get (he may be in China)? How much should management get for mass producing it at lower costs and higher efficiencies? How much should high-skilled workers get, to improve the good?
So, today, the consumer can buy a more durable and much lighter microwave oven, with more functions, for $50 (something that didn’t even exist before). What’s that worth?
$50
Obama is a lost cause , I think. Bernie Sanders might do the trick , but we’d need to mobilize a huge bottom-up movement for progressive policies in order to have any chance of getting him elected in ’16.
Piketty’s book is the sort of thing that could crystalize such a movement , if the progressive left would get organized and hammer home the message , simply and repeatedly , over the next two years. The message is intuitive , powerful , and , most importantly , true – the rich have stolen much of the nation’s prosperity that once was widely shared , and they’re dead-set to get it all , if we don’t stop them.
That was the message that FDR promoted , and that Piketty’s work illustrates. Piketty says the solution is the same one used by FDR – tax the crap out of the incomes and wealth of the rich. Simple and direct. Identify the problem , then solve it.
Baker , on the other hand , thinks Piketty – and FDR too , I suppose – missed the mark. He wants to rally the troops with cries of ” Reform the patent system ! We need Indian generic drugs ! Institute a financial transaction tax , like the UK ( that egalitarian paradise ) has had for 300 years ! Rise up , progressives , and for God’s sake , get immersed in the institutional minutae ! ”
Yeah , that’ll work.
Baker’s right about one thing though. We do have a terminal case of “loser liberalism” in this country.
Why do people ignore how our government works?
I can certainly understand the discussions of which policies would help to get us to a better place(whatever place that is depends on the individual), vut why does political reality never enter the discussion?
“When F.D.R. took over the Presidency in 1933, the Democrats controlled 64 percent of the Senate seats and 73 percent (!) of the House seats, counting independents who were sympathetic to the party. And those numbers only increased over the next couple of midterms — during their peak during 1937-38, the Demorats actually controlled about 80 percent (!) of the seats in both chambers. Obama, by contrast, came into his term with 59 percent majorities in both chambers. That’s not much to complain about by the standards of recent Presidencies, but is nevertheless a long way from where F.D.R. stood during his first two terms, or for that matter where L.B.J.’s numbers were during the 1965-66 period, when the bulk of the Great Society programs were implemented.
F.D.R. and L.B.J. might have been great cleanup hitters — and you’ll get no argument from me that Obama’s aptitude at shepherding his agenda through Congress has been mixed, at best. But they basically spent the first several years of their Presidencies playing in the Congressional equivalent of Coors Field. Considering how dramatic the impact of the loss of just one Senate seat has been on both the perception and the reality of Obama’s agenda, that needs to be kept in mind when drawing the comparison.”
http://www.fivethirtyeight.com/2010/03/obamas-no-fdr-nor-does-he-have-fdrs.html
Another immense difference in my opinion(one that cannot be measured) is that FDR had the bully pulpit that no longer exists. It has been wiped out by technology.
All the comments on political constraints are of course well-taken. (I knew I shouldn’t have distracted folks with that last sentence…)
But my point is that O has been so bad at even trying to claim an FDR-level bully pulpit, and that has hurt him and us politically.
You’ve never heard Obama say “They are unanimous in their hate for me–and I welcome their hatred.” Or anything close.
I’m just saying that kind of tough rhetoric would have put him, us, and other Democrats in a much stronger position politically; we would have won more seats if he’d gone all FDR that way.
Though of course I could be completely wrong.
EMichael’s points should be well taken. It’s a theme that I’ve played myself in the past. Nothing happens until the voting public gets the reality of their complacent and/or irrational voting behavior. Those who do vote, often vote against their own economic self interest in favor of their emotional tie to their perception of threats to their social ideals. Nothing changes until the change is essential to the individuals’ survival, and is recognized as so. And even then the changes don’t take place unless a substantial majority of the people take some action, even if the action is only to vote their own economic self interest. The political class can be bought, but the voters cannot be swayed if they feel the pain of neglect. That pain may be growing, but it is still too far from sufficient to provoke self awareness and self preservation.
Steve,
I do not think you are completely wrong at all, I think you overate the effect of such rhetoric.
When FDR spoke it was national; when his opponents spoke it was regional. When Obama speaks it is national; when his opponents speak it is national.
Over 60% of Republicans still think WMDs were found in Iraq.
Exactly what rhetoric is going to change that?
Steve:
I would welcome an Obama to go on record with such talk as time would support his stance on many things of a political and economic nature. He is not the fighter FDR was and he still wallows in the arena of the centrist appealing to the commons sense of opposing viewpoint. Low and behold there is no common sense to be had with those whose only objective is to take him down in any manner they can without regard as to what they do to the country overall. Some of us would welcome the fight.
Marx, and Piketty are right and Baker is wrong.
1) Marx absolutely understood that the bourgeoise would capture government
2) FDR didn’t fix much, especially not in say Japan and Italy. The massive destruction of capital, fixed, social and political left an opening for social democracies and Fordist modes of production.
3) Marx understood well the welfare state and mixed or regulated economies…see Gotha Critique. It could delay crisis, collapse and revolution but could not prevent it.
4) Piketty seems to understand Capitalism better than Baker. The problem is not political, but historical, material, and technological. The “organic composition of capital” ratio to “variable capital” will rise to crisis levels under every political system short of socialism.
5) Forget Marx. Start 100 years after Marx, his followers and descendants Current reading:Christian Marazzi, Capital and Language 2005. “What is needed is anti-economic Time” Time that wastes and destroys Capital. See Sandwichman.
…
But none of this matters. We don’t have fifty years. We are going to fry.
Well, I suspect Mcmanus is right.
but FDR didn’t win because he was a leftist. he won… changed the rules… because he was a genius.
that doesn’t mean i agree with everything he did, but “genius” is the right word.
The NEXT POTUS, Jeb or some bagger, Sarah maybe, will bring on Sandwichman’s dream more so than Obama&Codpiece have. Printing money at light speed to pay QE is a good start. QE didn’t produce jobs, even the paper pushers are laying people off as is the govt. Many people could go out and pick fruit for a living but to do that one can’t very well live downtown. Perhaps a war? Isn’t THAT what brought FDR’s economy around? First with Lend Lease and then MIC when the war itself got going. The WPA programs were a good start to build up the nation and everyone’s pocketbook but the war overran them.
Look at history, once the FEAR that war creates is over, then The Rich want and will stop paying high TAXES. When Hannibal ad portas they’ll PAY every last cent if they think their ass is on the line.
Obama&The Dems wont do that, but Jeb or Sarah will. Codpiece&Deadeye tried their level best to destroy the world’s economy, THAT’S why Obama got in office, but he too is corrupted by big money just like the rest of The Democratic Party. The Republicans ARE big money so unless The 99% throw somebody in office its just going to get worse, IMHO.
” For example, take the invention and production of the microwave oven. How much is that worth?”
$2.00
Percy Spencer, the inventor of the microwave, received a gratuity of $2.00 for it. It wasn’t really capitalist incentives that drove this particular invention.
http://www.nndb.com/people/766/000165271/
We can get into more complicated accounts, drawing from some paper sources Spencer desired to keep intact the magnetron unit at Raytheon rather than having it drawn down, but now we’re getting to the point where we have to start carefully defining how we are using the terms “market,” “capitalist,” and “incentive.” To drill down a little further, we need to confront the fact that exactly how our market system is implemented in large part determines how the income arising from innovation is distributed. We can rather easily observe historical and comparative data to say that this is currently unusually skewed towards stockholders (which I don’t really consider investors for mature companies that have not had a stock issue in decades, there are a number of companies that could have easily bought themselves back through retained earnings years ago, in what sense are current stockholders investors in these cases?), and managers.
Given this, there are good reasons to question whether this particular distribution of rewards is what we want, or if we want to reconsider our market institutions to shift more power and reward back to groups like employees, inventors, etc. This keeps us well within market institutions but they are worthy questions to consider.
Tzimiskes
I lost track of you after talking to you and could not quite remember where you were. I think it was over a year ago and quite possibly before my gall bladder removal (the truck ran over me) and then my open heart surgery (then the truck backed up over me) three months later (December). 2012 was a bad year for me near the end; but, I am still here. I think Dan will probably talk to you. You can get in touch with me at Hotmail and the same moniker.
Bill
Mike,
You might consider a new keyboard, your shift key is sticking and your return key does not seem to work.
If I did THAT then I would no longer be Capslock Mike.
Curiously, was not ANYTHING controversial enough in what I wrote enough to comment on other than something for
the Keyboard Police.
Mike –
Well, I for one didn’t read it. Proper formatting, including lots of appropriate white space, enhances readability, and that will help get your message out.
Whatever it is.
JzB