Sunday, June 15, 2014

On Piketty's "Capital": A Tale of 2 "Gilded" Periods

Toward the end of Meyerson's review of Thomas Piketty's book Capital in the Twenty-First Century, Meyerson tells us that there was a wide disparity of wealth and income prior to WW I. This disparity subsided, he claims, in the mid-20th Century. "Since 1980, however," writes Meyerson, "their [the rich] fortunes have swelled again — at the expense of everyone else." (Remember that, as I noted yesterday, Piketty makes no distinction between money-makers vs. the money-appropriators—between fortunes by production and trade and fortunes by theft and political pull.)

So Piketty points to a bridge between the pre-WW I period and the post-1980 period. Why?

The period of 1980 to the present encompassed the computer revolution, which took place in the freest, least regulated sector of the economy. The computer revolution, in turn, helped ignite revolutionary progress in medicine (especially biotechnology), energy, transportation, communications, retail, and agriculture; virtually every area of the economy. The lives of the average individual is immeasurably better compared to 1980 because of  the new (and often unimaginably), better, and lower priced (in real terms) products and services, and a whole new range of occupational opportunities. 

All of this coincided with meaningful deregulation of key industries like transportation and energy begun by Jimmy Carter and a slow-down in the growth of the regulatory state that continued under Reagan and Clinton. Simultaneously, marginal income tax rates were cut sharply across the board, with the top rate moving down from 70% in 1980 to a range of 28% to 39.6% (currently, 35%). 

The pre-WW I period was also a period of great technological and thus economic progress. Andrew Bernstein correctly identifies the years between the Civil War and WW I the  "Inventive Period," with good reason. He notes many examples of the tremendous innovation that revolutionized life and lifted the general standard of living in that period, such as in steel, photography, and agriculture. The period coincided with an intellectual, cultural and political climate [that] upheld freedom, limited government, and property rights.

As in the Inventive Period, the post-1980 period coincided with the rise of mega-fortunes. Whereas a century and a half ago we got the likes of Rockefeller, Carnegie, and JP Morgan, in the last three decades we got Gates, Dell, and Jobs. 

And as with the Inventive Period, the computer era featured a period of relatively freer markets (compared to the immediately preceding years), especially in the computer sector, the spearhead of the post-1980 economic progress. The Inventive Period was much freer generally than it is today, but the computer technology sector is much freer today than the economy overall, especially when compared to healthcare, banking, and education. As Bernstein writes:

The lesson of the Inventive Period can be applied today. Political and economic freedom will lead to widespread innovation. This principle can already be seen in the computer industry, in which the relative absence of government regulation has enabled such innovators as Steve Jobs, Stephen Wozniak, Bill Gates, Michael Dell, and others to create an information revolution and to earn fortunes in the process.

The key social/political ingredient linking the Inventive Period and the computer revolution is minimal (or less) government intervention. 

Yet, how do anti-capitalists portray the Inventive Period? They denigrate it as the "Gilded Age" and its great industrialists as "robber barons." They have gotten away with that portrayal for a century. And now, they are trying to repeat the process. I have heard some refer to the recent period as an age of greed or even a "new gilded age" and its great industrialists as "new robber barons." The purpose today, as it was a century ago, is to smear capitalism and free markets, and to obliterate any connection in people's minds between capitalism and economic progress (rising living standards); and to wipe out the achievements of the greatest producers—as if they never existed—and in effect to disconnect individual ability and initiative from achievement ("You didn't build that").

Both the Inventive Period and the post-1980 computer revolution are great examples, not of gilded ages of robber barons, but of eloquent examples of the connection between productive fortune building and the well-being of average folks; of great industrialists/entrepreneurs and general economic progress; of the pro- human life power of capitalism.

Related Reading:

The Inventive Period—Andrew Bernstein

Digital Prosperity—Robert D. Atkinson and Andrew S. McKay

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