Thomas Piketty shows the conflict between economics and morals?

A continuous background theme in Thomas Piketty’s Capital in the Twenty-First Century is that citizens in democracies are stupid and/or ill-informed, which is why they don’t vote to use the government’s power to take away more income and wealth from rich people. In Piketty’s view, the Honda drivers out there need to read his book to see that others are driving BMWs and Mercedes SUVs to shopping sprees at designer boutiques then returning home to their massive McMansions/estates. If they had access to his data they would see that what is rightfully theirs has been unfairly collected by a rich person and they would try to get it back.

I’m wondering, though, if Piketty isn’t seeing a difference in data availability and IQ, but rather a difference in morals. A PhD economist generally takes an amoral view of the world. More money is good. Less money is bad. But the average citizen does not have a PhD in economics or the corresponding amoral outlook. Thus Milton Friedman and more than 500 less famous economists signed a letter back in 2005 calling for legalization of marijuana, an idea that most voters did not support at the time. To an economist, the drug war is an obvious pure waste from a dollars and cents point of view. But apparently drug prohibition has some value to voters, as evidenced by the electoral success of politicians who take a “tough on drugs” stance. I personally don’t want to pay for the imprisonment of stoners. However, if my neighbor does want to pay for that (through his or her tax dollars) and votes accordingly, I don’t think it follows that my neighbor is therefore stupid or misinformed as to the cost of imprisoning stoners.

Could it be that Piketty’s “tax the rich” plan reveals the same conflict? An ancient human idea is that it is immoral to take things away from other people and that it is immoral to covet things that rich people own. Exodus 20:1-17 and Deuteronomy 5:4-21 instruct Jews and Christians as follows: “Thou shalt not covet the neighbor’s McMansion”; “Thou shalt not covet the neighbor’s 4K Samsung”; “Thou shalt not steal”. The Buddha said “Steal not, neither do ye rob; but help everybody to be master of the fruits of his labor”. A Buddhism expert lists “Avoid stealing — taking what is not yours to take” as the #2 moral precept (reference).

In our pilot community we recently came up against this. A man earning $75,000 per year was splitting up from his wife of 10 years, one of the superstar executives whose compensation Piketty decries (and I as a shareholder also don’t like the practice!). The divorce mediator and judge advised him that he could tap this woman for years of alimony payments that far exceeded his income, but he replied “I don’t want it. She worked for it. She works all of the time. She earned it. I didn’t. I am comfortable on what I earn. I don’t need to take something that belongs to someone else.” He was reminded that under Massachusetts law he was absolutely entitled to take a few million dollars out of this woman, but he continued to turn it down due to the conflict with his personal morals.

If an 18-year-old girl got pregnant after a one-night encounter with a drunken medical specialist, law firm partner, finance industry executive, or management consultant, her profits from child support in most states would exceed the median after-tax household income in that state. Yet more women pursue college degrees and work for a living than decide to turn their bodies and children into cash.

By reference to Balzac, Piketty points out that it makes more sense to pursue wealth through marriage to an heir than to work. And Piketty might say that our pilot friend is an idiot and that the 18-year-old girls who study boring subjects in college or take jobs that aren’t enjoyable simply aren’t aware of the profit opportunity in having children in the U.S.

Piketty mostly agrees with Balzac that “Behind every great fortune there is a great crime”. Steve Jobs earned his fortune honestly (previous posting) in Piketty’s view, but many rich people got there because they appointed their golfing buddies to the board of a public company or because they established a monopoly. If we adopt Piketty’s facts and assume that 50 percent of rich people are justly rich and 50 percent of rich people are unjustly rich, it comes down to personal morals as to what the correct course of action would be. If we think it is more important to take money away from the unjustly rich then we can establish a wealth tax on anyone with money. If we think it is more important to adhere to the teachings of the Buddha and the Hebrew Bible then we let some monopolists get away so that we don’t steal from those who became wealthy from hard work and/or saving rather than spending. Piketty says that anyone who prefers Choice #2 is an idiot and/or doesn’t have enough data. But maybe people picking Choice #2 simply adhere to a moral code to which Piketty does not subscribe.

10 thoughts on “Thomas Piketty shows the conflict between economics and morals?

  1. To paraphrase Thatcher, the problem with socialism is that eventually you run out of other people’s money. Once you have expropriated the “ill gotten” wealth of all the rich people, what next? I think the Soviet Union, N. Korea, Cuba, etc. have pretty much proven that this is a one time only, dead end strategy. In 1917, this might have sounded like a plan, but in 2014? You have to be an idiot to think that this will lead to anything good for your society in the long run. Already London is something like the 6th largest French city because of all the educated and entrepreneurial French people who have fled there.

  2. PS I don’t think it is a difference in morals between economists and voters but rather the fundamental difference between economic science and political science. If I am an individual voting with my own dollars, I only have so many of them, so I have to choose between buying guns and buying butter (or some combination of each that fits within the total amount of money that I can access). But if I am a voter, nothing prevents me from voting for the politician who promises more guns AND more butter, even if it is really impossible (or lower taxes AND more government spending, etc.) What is “impossible” is not really clear cut in the way that your bank balance is (at least in the short run). This is the fundamental difference between economics and politics – voters are not constrained to vote in a rational way. Supposedly, voters can hold politicians accountable for overpromising in the long run (at the next election) but this a much weaker mechanism than when you start bouncing checks – in the latter case, the stuff starts hitting the fan in a matter of days, not years .

  3. Phil,

    I’ve been enjoying your commentary about the Piketty book. I don’t know if you’ve seen it, but I ran across this Economist article today, which points to questions that have been raised about the data on which the book was based:

  4. Matt: I have seen people picking at Piketty (my own coinage!). I don’t think that the criticisms go to Piketty’s central ideas, however. Piketty is not that worried about the current level of inequality but anxious to forestall a future runaway in inequality that will happen inevitably due to some assumptions that he makes (I list these in ).

    Also, anecdotal evidence tends to support Piketty. The world is much richer than it was when I grew up in the 1960s and 1970s. Parents don’t tell kids to finish food because of children starving in India or China. At the same time, economic conditions and tax rates in a lot of different countries make it easier for some people to build up staggering fortunes at a breathtaking pace (check out John Paulson, for example, who went from generic New York money industry employee in 2007 to being worth $13 billion today, thanks to betting that most investors were fools for buying American subprime mortgages). If you measure by the ratio of starving/not-starving the world has become more equal. Piketty thinks that we should be more interested in cash in the bank though, so he chooses a bank balance measure of inequality and it seems plausible that inequality has in fact grown by this measure. You can argue that Piketty is choosing the wrong thing to measure but if you look at the Zillow prices of houses in the Hamptons or you stand off the end of Runway 24 at Teterboro and watch the Gulfstreams depart one after another, I think you’d have to agree with him that there are lot of rich people.

    But even if you agree that there are a lot of rich people you can still argue about what to do. You could thank them for investing/saving their money instead of blowing it all on McMansions, imported SUVs, and (imported) home theaters like most of us apparently would. You could try to tax them down to middle class status and distribute the money to ordinary folks who are yearning to blow it all on McMansions, imported SUVs, and 4K home theaters. You could sit in Paris and judge billionaires as worthy (Steve Jobs) or unworthy (John Paulson) and come up with a customized confiscation program to take money away from the unworthy.

  5. In the 1960’s, the highest paid executive in the US (the head of GM) made $1 million (cue Austin Powers music). I remember it as being a much more middle class country. The great mansions of the 19th and early 20th century had mostly been turned into convents, schools, etc. and most of the “rich” lived in homes that were very modest by today’s standards. The rich were less rich partly as a result of very high income tax rates in the upper brackets. The poor were less (relatively) poor because labor was in demand and unions were able to exact real wage increases that allowed ordinary working people to approximate a middle class lifestyle (a house in the suburbs and a car).

    Real wages for the average working zhlub have stagnated since the ’70s while the top tax rates have fallen and deregulation has allowed the creation of new (mostly non-productive) financial schemes that have enriched many. What happened? I would say it is a combination of many things – the end of cheap oil. The recovery of other war damaged economies (e.g. Japan and Germany) which made the US less competitive on world markets and resulting in the loss of high paying unionized industrial jobs. The rise in immigration and the increased participation in the workforce by women and minorities (even if these things were net positives, they nevertheless made labor less scarce and therefore less valuable).

    Personally, I don’t care that there are more rich people. Rich people employ lots of other people (not just gardeners but pilots and lawyers, etc.) so they are not all bad and I don’t envy their wealth as long as it is not the result of outright criminality. But it does concern me that the middle class has been hollowed out. Confiscating the wealth of the rich will not help that and will even hurt in the long run. French style nostrums like the 35 hours work week and mandatory labor contracts that make it difficult to fire people also seem to hurt more than they help. What would really help? Things that would reduce the supply of labor and make the US more like it was in 1964 (but these would be very politically incorrect): sending undocumented immigrants back to their country of origin. Encouraging women (or men) to stay home and raise their kids rather than pursue a career. Allowing employers to force retirement at 65. Etc. Not exactly what people want to hear. Confiscating the wealth of the “rich” (defined as anyone who is richer than you are) is much more appealing.

  6. There are a couple of issues here. The first is your assumption that America doesn’t have higher taxes on the wealthy because the population doesn’t consider very high tax rates to be ethical. If you look at opinion polls, however, you’ll see that government policies don’t reflect what the people want in many areas. The government is much more reponsive to the concerns of the wealthy than the population as a whole. To put it more simply, Piketty taxes don’t exist in America because the rich call the shots in Washington.

    We can also consider how popular belief in “thou shall not steal” applies to these issues. For example, there are those who say that all taxes are theft because they involve governments taking money from people without their explicit consent. If you could conduct a poll on the issue, I think that only a very small portion of the American people would say that all taxes are immoral.

    Take the somewhat controversial issue of “redistribution”, which involves taxing some people to provide cash or benefits to other people. If you did a poll on things like Medicaid or food stamps, you’d probably find that a majority thinks that America needs to have a safety net to prevent its citizens from slipping into extreme poverty.

    So what might it be about Piketty’s suggestions that the American people would find to be immoral? Perhaps they grudgingly approve of progressive taxation for the purposes of maintaing a safety net, but not simply to reduce inequality beyond that. It’s possible that a majority might say that, but there probably hasn’t any polling to discern that.

  7. >So what might it be about Piketty’s suggestions that the American people would find to be immoral?

    In real life there are no bright lines – it’s like what Justice Stewart said about pornography- I know it when I see it. A tax rate of 35 or even 50 percent might be perceived as fair and 75 or 90% taxes are perceived as immoral, punitive and confiscatory. At some point you aren’t really seeking (or getting) revenue anymore – you are really telling people that they are “too rich” and shouldn’t be making any more. BTW, when the US did have 70% marginal rates, these were rarely paid – people spent the money on tax lawyers and tax shelters in order to structure around the rates.

  8. I don’t think he believes that Honda drivers haven’t noticed McMansion owners’ lifestyle. The point as I understant it is that:

    1/ they’re falsely lead to believe that requesting higher contributions from wealthy people would be much more harmful to society than it actually would;

    2/ it’s morally justified to ask higher contributions from wealthy people.

    A key disagreement between libertarians and most other political inclinations, if I understand correctly, is that the former believe that “property” is a natural right, with a natural, objective definition. Others consider that property is, partially or completely, arbitrarily defined by each society in order to organize itself. Whether/how you can own an idea, a human being, land, dangerous items, an inalienable debt etc. is to be decided by society. How much of your wealth you need to contribute, to benefit from the highways, schools, civil peace, affluent customers and other collective services that made it possible to build up your wealth is also a social convention, to be agreed upon.

    Notice that in Nature, there’s no such thing as “property”, because there’s no such thing as “theft”. You’re only the “owner” of whatever you can effectively prevent others from taking, generally through violence or threats of violence. In no other organization than states, is there a system where a weak individual can accumulate exclusive rights on more wealth than he can effectively secure, then have a strong state protect it on his behalf through violence threats (carried on by the police or the army, depending on the threat under consideration).

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