Redefining the Problem of Our Time

Piketty has written a book that nobody interested in a defining issue of our era can afford to ignore.

That is from John Cassidy. Other reviewers often speak of inequality as the defining issue of our time. Brad DeLong has collected many reviews. Clearly, this book is serving as a rallying point for the cause of redistributing rather than creating wealth. Its appeal to academics is particularly strong.

If you had asked me, I would have said that the defining issue of our time is unsustainable government finance. Most major national governments have made promises that they are unlikely to keep. Our state and local governments are cutting back on services, and in a few cases going bankrupt, in order to pay pensions to former employees. The outlook for politics is grim.

And yet we are being told to focus on inequality as the defining problem of our time.

I have not yet read the Piketty book. Perhaps I will find it persuasive. But I do not understand how Larry Summers, who believes that we are in a period of secular stagnation, with an excess of capital and an equilibrium real interest rate that is negative, can give a positive review of a book that says that we have such a capital scarcity that we will see a real interest rate greater than the economic growth rate for the indefinite future.

It seems to me that the development of India and China, along with ongoing technological change, is making the gap in incomes between those countries and ours smaller, while the gap within the United States widens. I am not convinced that this represents a net increase in inequality, much less that it is the defining problem of our time. Twenty years from now, my guess is that the people who are worried about this problem, and not the problem of unsustainable government finance, will not seem particularly astute.

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9 Responses to Redefining the Problem of Our Time

  1. djf says:

    “It seems to me that the development of India and China, along with ongoing technological change, is making the gap in incomes between those countries and ours smaller, while the gap within the United States widens.”

    I haven’t read the book, either, but I think that the inequality “problem” that people like the authors have in mind is the widening gap between the rich and everyone else within the United States, which, they argue, puts “democracy” (however they define it) at risk. I’m not clear on how the obsession with reducing inequality gibes with a desire to keep on flooding the country with unskilled immigrants, but then I’ve learned not to expect logical consistency from people on the Left.

  2. F.F. Wiley says:

    I couldn’t agree more. My new favorite way to look at govt. finances is to isolate the non-defense portion of developed country budget balances. It’s not that military spending isn’t relevant, just that we know what it tells us – wartime losers default while winners usually recover without default because their budget deficits disappear (or at least primary surpluses become positive) once the fighting stops. For anyone interested, I recently put together 2 centuries of data on developed market non-defense budget balances and the picture looks even worse than I expected:

    http://www.cyniconomics.com/2014/02/06/next-crisis/

    Also, it’s interesting that your post mentions both Delong and Summers, who co-authored a fiscal policy model that’s often cited as a justification for stimulus spending. Not surprisingly, their model assumes no limit to government debt, no relationship between interest rates and the level of debt, and ignores the idea that stimulus today is generally followed by restraint (“fiscal cliffs” of some sort) at some point in the future.

  3. Jeff R. says:

    If you start with tabula rasa type assumptions about human nature, rising inequality looks like some sort of crime wave, with large business interests exploiting differences in bargaining power to claim a disproportionate share of society’s resources.

  4. Bill says:

    I recently read that the US has oil and natural gas reserves estimated to be around $128 trillion. Of course that estimate is price dependent. I used to think that budget deficits and the national debt were also important issues, but, given the $128 trillion in oil/gas reserves I am now not so sure.
    Source: http://www.instituteforenergyresearch.org/2013/01/17/federal-assets-above-and-below-ground/

  5. Andrew' says:

    Aging is the defining issue of our time.

  6. Richard Harrington says:

    I think it is two phenomenon.

    First, the liberal mind always sees government spending as the solution. I’m not an anarchist. I will agree that some government spending has a positive ROI and somethings are better handled by the government. In general though, I am skeptical. All this blathering about inequality just seems like an excuse for more government intrusion.

    Second, I think this a classic example of confusing correlation for causation. The widening “inequality” (with gratuitous scare quotes) is mostly a symptom of a decline in productivity caused largely by sweeping changes in how value is created.

    Encouraging innovation and the resulting new & improved value chains is the best answer to improving living standards.

  7. CJS says:

    Both could be a problem. But if you’re primarily writing about domestic politics of developed nations–rather than, say, international relations with developing nations–I’m pretty sure inequality is much more important context.

  8. Eric Rasmusen says:

    “It seems to me that the development of India and China, along with ongoing technological change, is making the gap in incomes between those countries and ours smaller, while the gap within the United States widens.”

    A commenter above made the good point that the first step to shifting income from capital to labor in the US is to end immigration and expel the illegals.
    A second step is to heavily tax imports. A third step is to eliminate the government deficit, so as to reduce demand for capital.

  9. jorod says:

    Real estate speculation also led to the Great Depression in the 1930s.

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