Special Earth Day Webinar .Progress and Inequality in the 21st Century. Andrew Mazzone, President of the Henry George School & Scott Baker, President of Common Ground-NYC and author of .America is Not Broke!
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I was asked to be a co-host for a Webinar discussion by president of the Henry George School of Social Sciences in New York City, Andrew Mazzone on April 22, 2015. We discussed the views of Thomas Piketty, Yanis Varoufakis and Henry George on the economic issues of today. The Webinar lasted 2 hours and can be seen here:Mazzone had asked me to join him as a follow-up both to my appearance with him on the first of his increasingly popular Smart Talks with economists, in which we both interviewed Yanis Varoufakis when he was just a well-known economist in the Fall of 2013, and to his own later follow-up with Varoufakis on Piketty. You can see the first interview with all three of us here: From the Henry George School: Debating Economics
And a sub-portion of the hour plus long video was highlighted when I wrote a follow-up after Varoufakis became Greek Finance Minister, wherein I had discussed with him the possibility of Greece issuing endogenous debt-free Sovereign Money, and then written a brief Mazzone/Baker plan for fixing Greece's economy.
The Mazzone/Baker Plan:
- Issue drachmas for local consumption and spending. The amount should be enough to meet the 30% Output Gap, but not enough to cause too much inflation; the problem now, of course, is rampant deflation caused by too little money in circulation.
- Agree to pay off the debt over 100 years, 1/100th per year. In reality, this will be the basis for negotiation, but it is a concrete one, something that has not been offered so far.
- Use the devalued currency to encourage cheap tourism to Greece and exports. Tourism growth estimates vary considerably but 16.7% is a good mid-range calculation in 2014, and tourism remains Greece's main economic engine, supporting 53 job categories.
- Tax the large landowners with a Land Value Tax. It turns out that the Greek Orthodox Church is the country's second largest land owner, after the government, but actually, this is imprecise, because in Greece, the church is part of the government, and its priests also collect a salary from government and the church owns stock in publicly traded companies like the Bank of Greece.
As preparation for the Webinar I re-watched the follow-up
interview Mazzone had with Varoufakis in which he discussed the recent
economics best-seller from Dr. Thomas Piketty: "Capital
in the 21 Century," just before Varoufakis was appointed Greece's Finance
Minister. Though Varoufakis is
probably, and understandably, too busy to have joined us for this Webinar on
Thomas Piketty, Mazzone and I met to discuss his views, our own interpretation
of Piketty's important work, and also to put it in contrast to the solutions
offered by Henry George, especially in his 1879 best-selling opus, Progress and
Poverty (see video above), while interacting with the students. Mazzone's second interview with
Varoufakis, discussing Piketty, can be found on the school's website, here: Smart
Talk with Andrew Mazzone and Dr. Yanis Varoufakis.
Varoufakis also wrote a review in 2014 of Thomas Piketty's book, in which he said:
The commercial and discursive triumph of Thomas Piketty's Capital in the 21st Century symbolises this turning point in the public's mood both in the United States and in Europe. Capitalism is, suddenly, portrayed as the purveyor of intolerable inequality which destabilises liberal democracy and, in the limit, begets chaos. Dissident economists, who spent long years arguing in isolation against the trickle-down fantasy, are naturally tempted to welcome Professor Piketty's publishing phenomenon.
The sudden resurgence of the fundamental truth that the best predictor of socio-economic success is the success of one's parents, in contrast to the inanities of human capital models, is undoubtedly uplifting. Similarly with the air of disillusionment with mainstream economics' toleration of increasing inequality evident throughout Professor Piketty's book. And yet, despite the soothing effect of Professor Piketty's anti-inequality narrative, this paper will be arguing that Capital in the 21st Century constitutes a disservice to the cause of pragmatic egalitarianism.
Underpinning this controversial, and seemingly harsh, verdict, is the judgment that the book's:
- Chief theoretical thesis requires several indefensible axioms to animate and mobilize three economic 'laws' of which the first is a tautology (SB - Piketty himself admits this in his early pages), the second is based on an heroic assumption, and the third is a triviality
- Economic method employs the logically incoherent tricks that have allowed mainstream economic theory to disguise grand theoretical failure as relevant, scientific modeling
- Vast data confuses rather than enlightens the reader, as a direct result of the poor theory underpinning its interpretation
- Policy recommendations soothe our ears but, in the end, empower those who are eager to impose policies that will further boost inequality
- Political philosophy invites a future retort from the neoliberal camp that will prove devastating to those who will allow themselves to be lured by this book's arguments, philosophy and method.
Varoufakis' complete 18-page paper, which has some moderately involved math regarding Piketty's 3 main formulas, may be found here: http://www.paecon.net/PAEReview/issue69/Varoufakis69.pdf
Varoufakis details one of the most damaging charges against Piketty In both his writing and in interviews: that Piketty conflates too many things into Capital that shouldn't be there. There is more about this in the Piketty -- Varoufakis -- George Notes below, and in the later category (George, as in Henry George), many Georgists, whether formal economists or not (like me) almost immediately noted that Piketty's failure to disaggregate returns on non-capital Land is a major failing in his analysis, actually fatal to his opening 'Law' (Separately, Georgist professor Mason Gaffney writes in his own critique that this 'Law' does not even rise to the level of hypothesis, let alone theory, or 'Law'). But even beyond that, there is another area involving labor which both Piketty and Varoufakis overlook as a major contributor to wealth, albeit for a limited historical period, Varoufakis by omission, and Piketty by commission because it is Piketty that "folds in" slave labor from America during 1770-1860. He uses U.S. Census data to include the value of slaves during this critical period in our then-young country's history, concluding that in 1860, according to the last census before the Civil War that would end slavery, that slaves constituted 40% of the wealth in the South.
This is a big asterisk then, and while it shows Piketty's consistency, it also shows how willing he is to include virtually anything that is considered, however hideously, as Capital, in his calculations. This genuflection to a legal definition of capital over an economic one should give us serious pause when considering what other factors might be mislabeled "Capital."
What else has Piketty included as capital that shouldn't be? Land.
In a thorough critique of Piketty, "A note on Piketty and diminishing returns to capital" by Matthew Rognlie, the 26-year old MIT student argues that Piketty's return to capital is entirely due to Land appreciation, not capital, which in any case, loses its value faster than ever in today's rapidly changing technological environment (he cites the Apple iPod as one simple but instructive example). This is in sharp contrast to Piketty, who argues technological achievement is one of the things that gives modern "capitalists" greater returns on their investments than Laborers can get through wages.