Monthly Archives: September 2014

Capital in the 21st Century: Chapter 8

In the eight chapter of Capital, “Two Worlds,” Piketty contrasts two major classes of the “rich.” Whereas most economic analyses depend upon the 10% as the principle category of analysis, Piketty attempts to nuance those figures, with a recognition that the 1% live radically different lives (and earn radically different incomes) than the next 9%. In fact, he will even become more specific, distinguishing the .1% (the super-rich), the small subset who still live off of income from capital.

 notes, first and foremost, a decisive un-arguable decline of income inequality in France since the Belle Epoque–a period defined by massive inherited wealth–“income inequality has greatly diminished in France since the Belle Epoque: the upper decile’s share of national income decreased from 45-50 percent on the eve of World War I to 20-35 percent today” (271). Of course, he is quick to note, this should not be taken to indicate a relative equality in the present system, but quite to the contrary, to simply highlight the startling inequality of the Belle Epoque. More interestingly, this dramatic decrease in income inequality over the 20th century can be attributed almost entirely to the loss of income from capital (the destruction of the rentier class); “if we ignore income from capital and concentrate on wage inequality, we find that the distribution remained quite stable over the long run” (272-273). Or said more directly:

“the reduction of inequality in France during the twentieth century is largely explained by the fall of the rentier and the collapse of very high incomes from capital. No generalized structural process of inequality compression (and particularly wage inequality compression) seems to have operated over the long run” (274).

This decline of the rentier has led to a compression of the composition of top incomes in the highest decile (see figures 8.3 and 8.4). Whereas in the early 20th century, much of the 1% earned a majority of its income from capital, this has now largely been reduced to the upper 1000th (the .1%). Piketty controversially describes this as the rise of a society of “super-managers” in place of the society of the rentiers. Since I have been using this series to highlight prominent critiques of Piketty, particularly those of Andrew Kliman, I should here point you to a recent article concerning this designation: “Were Top Corporate Executives Really Hogging Worker’s Wages.” This distinction in income composition leads Piketty to posit “two worlds” of the top decile: “‘the 9 percent,’ in which income from labor clearly predominates, and ‘the 1 percent,’ in which income from capital becomes progressively more important” (280). Whereas the top centile is dominated by “super-managers” and the financial sector, within the next 9% “we also find doctors, lawyers, merchants, restauranteurs, and other self-employed entrepreneurs” (280). This distinction becomes particularly important when one begins to examine the decrease in income inequality. “‘The 1 percent’ by itself accounts for roughly three-quarters of the decrease in inequality between 1914 and 1945, while ‘the 9 percent’ explains roughly one-quarter” (284).

In France, these distinctions were amplified by the historical circumstances of the two world wars, the depression, and the “chaotic” interwar period. “In each war,” for example, “the scenario was the same: in wartime, economic activity decreases, inflation increases, and real wages and purchasing power begin to fall. Wages at the bottom of the wage scale generally rise, however, and are somewhat more generously protected from inflation than those at the top” (287). This push toward equality would reemerge in May ’68, following the student and social unrest. For the next (roughly) 15 years, the minimum wage would boost, almost yearly, until the 1982-83 “turn toward austerity” (289).

The United States, Piketty suggests, presents a “more complex case” (291).

“The most striking fact is that the United States has become noticeably more inegalitarian than France (and Europe as a whole) from the turn of the twentieth century until now, even though the United States was more egalitarian at the beginning of this period… US inequality is [now] quantitatively as extreme as in old Europe in the first decade of the twentieth century.” (292-293).

To a certain extent, the final portion of the chapter is an attempt to explain this development. Most importantly, Piketty wants to connect the rise of inequality in the US to the rise of the super-managers (a class who is only now beginning to take hold in Europe). The initial (relative) “equality” at the beginning of the century can be easily understood by the limited number and power of the rentier class in the United States. This (relative) equality would continue until the neoliberal revolution of the early 1980s (and thus correspond to the “turn toward austerity” in France). Offering a tacit justification of Occupy’s rhetoric, Piketty largely attributes this rise in inequality to the 1%; “the bulk of the growth of inequality can from ‘the 1 percent,’ whose share of national income rose from 9 percent in the 1970s to about 20 percent in 2000-2010” (296).

This, then, begs the question: “is it possible that the increase of inequality in the United States helped to trigger the financial crisis of 2008?” (297). To this central question, Piketty gives a definitive… “kinda.” For Piketty, it is undeniable that considerable gaps in the social sphere due to inequality would have an economic destabilizing effect. But, he does remain somewhat modest in his claim, cautioning that “it would be altogether too much to claim that the increase of inequality in the United States was the sole or even primary cause of the financial crisis of 2008” (298).

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Life against ethics part ii: natural law and the impulse of Being

boy and tankAs I mentioned in my previous post, Why foundationalist logic fails at life, the true source of moral intuition does not lie in an ideological foundation that roots ethical rules in rational articulation. Rather, true morality springs directly from the heart of being itself. It is an impulse toward loving wholeness that demands the flourishing of all sentient beings in harmony. One feels this impulse. The calculation itself is secondary and contingent.

Western philosophers of the past have attempted to nail down morality by virtue of a given natural order–a transcendental moral law issued by heavenly mandate. Such a law would dictate the boundaries of transgression and permission, what is acceptable to the divine and what is not. But we live in a modern world that thrives after the death of God. We roam in a realm of mystery that recognizes the irrelevance of theistic intervention in light of technology, medicine, and contingent circumstance. It no longer makes sense to imagine the name of God in terms of an external force that issues punishment or reward according to whether sentient beings obey or reject a historically revealed transcendental moral order. In no longer makes sense to imagine the name of God as the name of a transcendent Judge and Law-giver.

The philosopher Saint Paul developed as a Jewish rabbi with a firm and rigorous interpretation of Torah. Upon his encounter of the followers of another rabbi named Jesus, he lashed back in anger and dictated persecution and murder. He was disturbed by this new movement that was predicated upon an interpretation of Torah as love-centered rather than oriented around a priestly cult of specific regulations. Later he had a mystical encounter on his way to persecute more of Jesus’ followers, directing him into a new level of consciousness. Eventually Paul woke up to a realization that true morality lied not in the “letter,” or dictated words of paper, but in “spirit,” meaning the very heart of life itself–the animating spirit of the Torah that also transcends Torah.

The break from natural law as an externally mediated moral order to ethics according to the impulse of being toward love and flourishing life constitutes the historical movement from Judaism to Christian consciousness. This does not mean that Christian consciousness was non-Jewish or anti-Jewish, but simply that it broke open the confines of religion and its legislated moral boundaries. Once the Spirit broke free, it could not be contained or controlled in the rapid expansion of Christ-consciousness, which is grace-consciousness.

The philosopher Jacques Derrida, a French Algerian Jew who knew what it meant to be marginalized and oppressed, entered the European scene to make a Pauline move: the Spirit of Justice and Love harbored by his Torah was to be set free from the constraints of Western philosophy too. Derrida argued that while the law was constructed to ensure and create justice, it had inevitably become the biggest obstacle to justice. One can see something similar in Marx’s critique of private property. While the divisions of property under law and in contract are meant to ensure that one’s property is protected, the originary act of creating property is the first act of theft. In fact, one could argue it is legalized theft. The most obvious example is when America’s European “forefathers” arrived upon these shores and stole the land from the natives already living here. The natives thought they were simply sharing and borrowing it because they did not believe in the concept of “owning land,” which they considered ludicrous.

If the law cannot ensure justice (although we need it), neither can moral calculation ensure morality. Rather morality is a fluid and uncontainable dynamic that keeps its eye on the situation–a very different reality than the blind judge of the Western legal order. It is like King Solomon when two women came before him in a dispute over a baby they both claimed was their own. Rather then applying some blind method of determination, Solomon suggested that the baby be sawn in half so that each mother would be appeased. He knew that the woman who would cry out against it, willingly allowing the other woman to take her baby, would be the true mother.

Derrida was right when he claimed that justice is incalculable. Once one begins to calculate, a violence is done to the moral impulse that is a part of the fluidity of being. Rather a better rule of thumb, if one needs one, can be found in this simple but profound statement from John Shelby Spong: “whatever diminishes life is evil, and whatever enhances life is good.”

Capital in the 21st Century: Chapter 7

The seventh chapter of Piketty’s Capital, entitled “Inequality and Concentration: Preliminary Bearings” introduces the third major division of the work: “The Structure of Inequality.” Whereas the previous section was primarily directed toward the macro-phenomenon of the capital/income split, Piketty will here shift to the “individual level” (237), and examine the role of the World Wars and subsequent Neoliberal revolution upon inequality among individual members of a nation.

The chapter begins with an obvious distinction between income from labor and inherited wealth. In another turn to literature, Piketty shows that, for the upper class of the 18th and 19th century, labor played essentially no factor in the maintenance of wealth. Rather, through rent and the like, inherited wealth bred further wealth. The promise of equality manifest in the classic image of America emerges precisely from the ostensibly meritocratic character of income from labor, rather than income from (inherited) wealth. Of course, as Piketty rightly notes, one should not overly simplify the situation and suggest that a rejection of inherited wealth would immediately result in a meritocratic/equal society. But the power of inherited wealth does mark a certain threshold of inequality paradigmatic of the pre-20th century Western world.

Dividing his analysis, Piketty attempts to separate out the modern form of this labor/inheritance distinction, the difference between income from labor and wealth (capital). As he will subsequently show, “inequality with respect to capital is always greater than inequality with respect to labor” (244). This phenomenon can be shown in the present disparity between income inequality and wealth inequality. “The upper 10 percent of the labor income distribution generally receives 25-30 percent of total labor income, whereas the top 10 percent of the capital income distribution always owns more than 50 percent of all wealth” (244). The present US income gap, for example, is roughly 35% for the upper decile and 25 percent for the lowest five deciles (lowest half of the population), while wealth distribution is 70% for the upper decile and 5% for the lowest half. As a point of comparison, relatively “equal” wealth distribution, as for example Scandinavia in the 1970’s, was approx. 30% for the top decile and 25% for the bottom half.

Of course, this distinction is not meant to undermine the concrete inequality of income. In fact, as Piketty notes, in the United States in the early 2010’s, “income from labor is about as unequally distributed as has ever been observed anywhere” (256). A frightening thought, coming from a study which includes an analysis of the French Ancien Régime. Wealth inequality, on the other hand, saw a historical decrease with the rise of the “patrimonial middle class” (260). “To go back a century in time,” Piketty writes, “to the decade 1900-1910: in all the countries of Europe, the concentration of capital was then much more extreme than it is today” (261). Nevertheless, as his data shows, the 21st century appears situated to quickly move into levels of inequality on par with pre-war levels.

Piketty marks two primary methods by which radical inequality can emerge. The first, which he titles “hyperpatrimonial society” is the classic method of wealth accumulation and transmission: inheritance. This structure dominated classically unequal societies such as the Belle Époque and the Ancien Régime in France and Britain, periods of record-breaking inequality. The second method of hyperaccumulation which Piketty marks, is the so-called “hypermeritocratic society” (although Piketty questions the truly “meritocratic” nature of such a society and wonders if “society of the supermanagers” might be more appropriate). In this second form of society, which is only recently emerged (principally in the US), “the peak of the income hierarchy is dominated by very high incomes from labor rather than by inherited wealth” (265). This form of hyperaccumulation is distinctive of the wall-street ethos, where excessive wealth is no longer tied to industrial or commercial enterprise, but more often than not, the highest income is generated within the financial sector.