What's wrong with laissez-faire anyway? Piketty's folly.

The Thanks Project ^ | 6/3/2014 | Steve Berman

[lifeofgrace]

As a boy, my brother used to keep baseball statistics.  Pages and pages of stats, all kinds of things, stuff that today you can get online.  He also kept track of the greyhounds that raced at the local dog track, again with lots of statistics.  He didn’t bet (actually he was a lead-out who was allergic to the dogs, so he didn’t do it long), but just loved working with numbers.

It is only natural that my brother got a degree in Economics.  I minored in Economics myself.

Thomas Piketty has a Ph.D. in Economics, and studied Mathematics.  I think I understand him, like I understand my brother.  It’s just like my brother’s sheets of numbers on pitchers, hitters, and fielders, or greyhound racing; except Piketty’s spreadsheets describe the behavior of the wealthy, with whom he seems to be obsessed.

In baseball, managers make decisions based on statistics, how a hitter does against a certain pitcher, a certain pitch, with men on base, with two outs, late in the game, all those are variables.  There’s a chart showing that the hitter will probably strike out and the pitcher will throw high fastballs, because that’s what they’ve done in the past.  

Statistics are living things to economists, they dance and jump and order themselves; they predict and prophecy the future.

Nobody who ever succeeded at anything, ever, did it by just following the statistics.  Statistics are dead, cold, impassive.  Statistics don’t impel performance.  Performance is something personal, whether you’re a dog or a human.  We are all created equal in the eyes of God, but we are not equal.  I was going to say unless you’re blind, you can tell we’re not equal, but that is an insult to the blind, who know better than anyone that we’re not equal (most blind people are incalculably more perceptive than the sighted).

On any given day, one dog might have more heart than another, but less innate ability to run.  Every dog has his day, and some have bad days.  Every pitcher has bad days and good days.  This is why odds-makers set odds and why long shots sometimes win.  Some people “get” discipline and focus and intelligence or athletic ability, some “get” sickness, weakness and slow-mindedness.  It’s not fair, and it’s not intended to be fair.  Overcoming the odds is one of the chief pursuits of human existence.  Han Solo said, “never tell me the odds.”

Picketty has taken cold, dead statistics, Excel spreadsheets full of them, and tried to bring life to them in his book Capital in the Twenty-First Century.  They tell him that in developed Western countries, too much wealth is concentrated in too few individuals.  He then goes further in judgment, arguing that wealth should be redistributed for more efficient capital utilization.  The result of his policies is the zombie-economy*.

For honesty’s sake, I’ll say that I haven’t read the book.  I’ve read enough reviews, praises and criticisms however, to make some educated observations.

The Financial Times reported material problems with Piketty’s data (to his credit, he made all of it public, unlike the climate change barons who made their data mysteriously vanish).  Piketty struck back at the Financial Times, dismissing its criticisms and defending his data and his calculations.  This is an argument about hundreds of years of data on wealth, from many sources, for at least 5 major western economies.

If I believe the blogs and opinions of pundits from the left and the right, the fate of humanity hinges on the accuracy of Piketty’s data and conclusions.  For the record, I believe Piketty’s historical data; I believe his statistics, and I can even go along with his calculations and factors.

Also for the record:  so what?

So what if Piketty’s numbers are right?  So what if wealth is concentrated?

The problem with wonky economists is that they believe that their statistics and predictions have actual effect on human destiny.  The sad news (for them) and good news (for humanity) is that they’re totally wrong.

Human behavior is not governed by economic models.  Cultural norms, family histories, and DNA play a larger role in our behavior than wealth distribution models.  There’s truth in “a fool and his money are soon parted”.  Fools gain and lose fortunes, and the best-hearted people are left in poverty.  Following Piketty’s wealth redistribution policies will accomplish nothing more than moving the wealth from the hands of one set of fools to another.

Capital in the twenty-first century is no different than capital in the eighteenth century, or the first century for that matter.  Capital is invested in people, and unless Professor X has something to say, people haven’t changed that much in 2,000 years.

To phrase it in Piketty’s native French:  ce qui est le problème avec le laissez-faire?  What’s wrong with laissez-faire anyway?

Adam Smith, who popularized the phrase “the invisible hand”, wrote in The Theory of Moral Sentiments, in 1759,

How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it. Of this kind is pity or compassion, the emotion we feel for the misery of others, when we either see it, or are made to conceive it in a very lively manner. That we often derive sorrow from the sorrows of others, is a matter of fact too obvious to require any instances to prove it; for this sentiment, like all the other original passions of human nature, is by no means confined to the virtuous or the humane, though they perhaps may feel it with the most exquisite sensibility. The greatest ruffian, the most hardened violator of the laws of society, is not altogether without it.

Of course, there are true sociopaths, but Smith was not talking about them.  Unfortunately, true sociopaths sometimes achieve great power, and this always leads to great tragedy.  Such human misfortune should not inform economic thought.

Smith’s argument, the opposite of Piketty’s, relies on something lost to progressive liberal thought:  Natural Law, which gives rise to Natural Rights.  These concepts are enshrined in America’s Declaration of Independence, and in the French Declaration of the Rights of Man and the Citizen.  America and France interpret the concepts differently, leading to different implementation, but these are largely cultural differences influenced by history, not a basic schism in philosophy of citizenship, property and wealth.

Workers in formerly-communist Russia or other Iron-Curtain states have a different view of wealth.  They are passive and insouciant, fatalistic about having nothing.  It doesn’t matter what “rights” are guaranteed them, they know that culturally, only the powerful and connected see wealth.  But those workers still create an economy with what they do have—their time and their labor.  An economy of scarcity, influence, knowledge, or time function no differently than commercial wealth.  Those economies are tracked by historians and anthropologists rather than wonky economists with Excel spreadsheets.

Economic fads come and go, usually driven by sweeping wonky theories.  America has experimented with some of these progressive ideas, and we are still paying for it.  Since the New Deal, we’ve inserted government more and more into what should be a natural and cultural allocation of capital.   Like controlling an airplane or a ship, the bigger you make the rudder, the harder it becomes to steer a steady course, and the more power is diverted from the engine to the steering.  America has an awfully big rudder these days.

We need to get back to Adam Smith, and let the invisible hand do the work.  Laissez-faire is the best approach for capital in the twenty-first century.  We’ve been doing a half-baked job getting America halfway to socialism.  Bringing Piketty’s zombie-economy* to life will only bring us all the way there.  It’s a much better plan to go back to basics and let human innovation, heart, and passion allocate capital, because newer isn’t always better.

———————

*By zombie-economy I am not referring to John Quiggin’s book Zombie Economics, which argues against a pure free market approach.  The zombie-economy I refer to is one in which all desire to excel and succeed is destroyed in the name of wealth equality and benchmarked performance versus inspiration and innovation.

[jonno]

Well stated. Thanks for posting this article.

[aquila48]

Bookmark

[Little Ray]

What is wrong with Laissez-Faire?
Easy.
There is loot to skim.
There are no favors to hand out.
There is no power for the ruling class.

[TBP]

Piketty is an economic illiterate.