Thinking through Thomas Piketty

A review here.

High elasticity of substitution is necessary to make r remain relatively stable in the face of an increase in the K/Y
ratio. The extreme example is a society where the entire output is produced by robots. The returns will go entirely
to the owners of robots and factoral income distribution would be 100% capital, 0% labor. Piketty (Chapter 6, p.
343) mentions this possibility. Generally speaking, Piketty tends to believe (Chapter 6, p. 350) that the “volume
effects” (increase in K in this case) tend, in the long-run, to dominate the “price effects” (decrease in r).

That cannot actually happen.

Well, it can, if we measure income as the amount of money you get. But that’s not a useful definition of income: what is a useful definition is what you can consume. And if the robots are producing everything then everyone gets to consume great gobs of stuff: because there’s great gobs of stuff to consume. Thus incomes are high: even if you don#t own a robot.

This is good too:

Even if we disregard these problems, Piketty’s calculations refer mostly to market income, that
is income before government transfers and taxes. It is quite possible that an increased concentration of
market income (such as Piketty and Saez report for the United States) is not accompanied by increased
concentration of disposable income if taxes and transfers have become more redistributive. 19 It could
even happen that disposable income inequality declines. It did not happen in the case of the United
States, as we know from the detailed work by Burkhauser et al. (2012) who have compared non-topcoded
US household surveys with Piketty’s results. 20 But such a divergent movement cannot be
excluded in principle.

And there’s a philosophic problem I have with the basic thesis. Piketty is taking it as read that a world in which people do not have to work is a bad one. Therefore he is describing what must be done to make sure that no one can indeed not work for a living.

Myself I’d describe a world free from the curse of the drinking classes as a rather good one. Take it to the extreme: the robots do everything, there’s vast amounts of gubbins for all to consume and, umm, what’s wrong with this vision of being free of Adam’s Curse?

I think we’d find pretty much anywhere in Europe that disposable income inequality (or consumption inequality) is nowhere near Victorian levels. Simply because we do have redistribution.

31 comments on “Thinking through Thomas Piketty

  1. “Take it to the extreme: the robots do everything, there’s vast amounts of gubbins for all to consume and, umm, what’s wrong with this vision of being free of Adam’s Curse?”

    And we all pursue our leisure pursuits? Blimey, does FaceBook, Blogger & Twitter have enough server capacity?

  2. Seems to be a good economic rule, as soon as you read the word “calculation” when applied to economics you’re reading complete bollocks.
    Take this example.
    “a society where the entire output is produced by robots. The returns will go entirely
    to the owners of robots and factoral income distribution would be 100% capital, 0% labor”

    So what will be the market price of your output, Mr Piketty? If there’s no labour earning money to pay for it? What are you measuring in? As you’ve stated your robot factories are indeed producing, what’s happening to it? Piling up on the loading dock? The market price of the output is the same as the labour input. Zero. There’s zero return on capital. If you insert zero into any of your calculations the product’s either zero or infinity.

    He’s describing a free goods, societal step change. Ian Banks’ ‘Culture’. Money has vanished. None of his calculations are relevant. Least of all, worries about redistribution. Best guess is you have a world where people work purely for the pleasure of doing it, so the cost of labour is in the minus numbers.

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  4. He’s describing a free goods, societal step change. Ian Banks’ ‘Culture’. Money has vanished.

    And, even in the Culture, people find things to do. “Player of Games”, explorer, Special Circumstances, lots of sex etc.

  5. “Income inequality” is a heinous phrase, a perversion of the language.

    Labor is a commodity; income is a function of the marketplace. There should be no expectation of incomes being equal. Income equality is not a desirable outcome.

  6. If I invented a do it all robot and captured all industry and sources of income in the world.Surely it would be impossible for me to have all the money in the world and everyone else being really poor, because who would buy things from me?

  7. A society in which all the returns went to robot owners would actually be impossible. What would happen, of course, is that robots would become idle. What on earth is the point of producing all that gubbins if no-one will buy it? Free goods are all very well, but they don’t give the owners of capital the returns they expect. Unless of course we start devising different measures of wealth. Facebook likes, maybe?

    Having said that, there’s nothing whatsoever wrong with work being optional. It’s high time the Puritan work ethic was quietly buried. Preferably with a stake through its heart.

    I wrote about this a while ago….. http://www.pieria.co.uk/articles/the_wastefulness_of_automation

  8. I always like reading blog posts I entirely agree with. Nothing to nitpick in the comments. Nothing to say really. Since i like commenting, this isn’t a Good Thing, so on second thoughts I don’t like blog posts I entirely agree with at all. Stop it Tim, you’re depriving me of essential displacement activity.

    I will add that I do sympathise with those who follow a Piketty type analysis and don’t grasp Tim’s rebuttal. In a work ethic economy (as Frances mentions) it’s really hard to grasp this extreme end point case of zero labour, the “robot economy”. So they tend to see is as a catastrophe, rather than a utopia.

  9. Frances, one way to think around this “robot owners” problem; in which the robots are the property of capitalists and they thus monopolise the robots’ ouptut, and thus people have nothing to trade for that output etc, is to remember that (a) robots are free too and (b) robots can make more robots.

  10. JuliaM,

    And we all pursue our leisure pursuits? Blimey, does FaceBook, Blogger & Twitter have enough server capacity?

    Intel have declared Moore’s Law alive and well, storage keeps on falling in price.

    Plus those companies have enormous data centres. Microsoft’s centre near Dublin is the size of 4 football pitches, like the Facebook one in Oregon.

  11. Frances: If only we had an example of a successful economy based on giving away things that you’ve created at very little marginal cost.

    By the way Tim, your invoice for my blog post subscription hasn’t arrived yet this month.

  12. Daft hypothesis. Someone has to design what the robots make, unless you have AI, in which case someone has to build that and do enhancements and bugfixes (you can meta that, but there’s always someone at the end of the line). And there are a ton of someones for the simplest objects – see I Pencil. Then there’s raw materials. OK, robots dig them out, but someone has to find them and invent new ones when they get too expensive. One could go on ad infinitum, but the grappa needs topping up (and no robot could produce grappa).

  13. Ian B – “In a work ethic economy (as Frances mentions) it’s really hard to grasp this extreme end point case of zero labour, the “robot economy”. So they tend to see is as a catastrophe, rather than a utopia.”

    Philosophically, economically, you may be right. But sociologically, I am not so sure. Well, actually that is not true. I am very sure. We have done this experiment. We have given a lot of people a lot of money, and a free house, so they could have all they could possibly want. They have not produced a new Athens with philosophers walking along the stoa while the slaves do all the work. They have given us Baby P.

    The evidence is overwhelming that work is good for people. And it would be a disaster if robots took it all over. (Not that they will. They will just take much of the work over and the rest of us will continue to find niches where robots can’t go.)

    In fact I am willing to bet everyone here is not merely the product of a lifetime in the workplace, they are the child of at least one adult who was the product of a life time in a work place. Those with plenty of leisure time could be commenting here but they are busy experiencing psychosis either because of or despite the skunk they are smoking.

  14. Well, SMFS, for most of history we all did without work, and for even more of history 50% of the population- women- did without it, and many still do. Then there are aristocrats, the independently wealthy, the retired, etc. So that’s all a pretty good sign. We can’t really draw a general lesson from the residuum.

    Any such economy/society is not yet on the cards. Not in our lifetimes. The point of this blog post is really that we should not fear automation or the reduction of labour for a given output. The mistake is to think that automation reduces employment, when it actually just increases output. The robot economy is an extreme thought experiment that shows that in that imaginary extreme, you do not face an economic crisis; instead you get unlimited output. People tend to involuntarily think that output is fixed, so if labour/unit is halved, half the workforce is unemployed. Whereas instead, output is doubled for the same labour (which is of course redeployed as necessary; we may not want double of many products, so that labour redeploys to new sectors).

    What we might do in a workless economy, is hard to guess; whether we will spend our time becoming philosophers and artists, or all end up as blobs on sofas watching our fellow blobs fuck éach other on the internet, we cannot know. Probably some of the former, and some of the latter.

  15. Ian B – “Well, SMFS, for most of history we all did without work, and for even more of history 50% of the population- women- did without it, and many still do. Then there are aristocrats, the independently wealthy, the retired, etc. So that’s all a pretty good sign. We can’t really draw a general lesson from the residuum.”

    I find it odd you think most of us did without work. Given 80 or 90 percent of us were peasants who had to work long long hours without break most of the year. I agree that some did not work. Women who stopped having children are not well known for the good outcomes they get. They would prove my rule I think – in countries where upper class women were kept in doors and not allowed to work they have a sterling reputation for nastiness and plotting. They just did not control the purse strings so they escaped the worst of it. Aristocrats? Surely they prove my point exactly. The Bullingdon Club is what we want for the future?

    “Any such economy/society is not yet on the cards. Not in our lifetimes. The point of this blog post is really that we should not fear automation or the reduction of labour for a given output.”

    I agree. A farmer with machines is much more productive and the other 78 percent of the human population has found other work. There will always be other work I think.

    “What we might do in a workless economy, is hard to guess; whether we will spend our time becoming philosophers and artists, or all end up as blobs on sofas watching our fellow blobs fuck éach other on the internet, we cannot know. Probably some of the former, and some of the latter.”

    But we can be pretty sure. We will be doing the latter. Except we and our descendents won’t be around to do it. Rather the degenerate descendents of immigrants will caper in the ruins of our civilisation and 80 percent of them will be peasants once more. So it ain’t going to happen.

  16. He’s describing a free goods, societal step change. Ian Banks’ ‘Culture’.

    Of course, as entertaining as Banks’ ‘Culture’ is, it’s a load of commie bollocks.

    The future is not giant robot factories, but small-scale manufacture on the greatx100-grandchildren of today’s 3D printers. Which doesn’t require much in the way of labour, but still requires raw materials, which are still scarce, and will still go to the most productive users unless governments can force them to be distributed in a non-optimal manner.

  17. I agree with Nick, er SMFS. The Devil makes work for idle hands, and Hans (see wars passim). It could get very messy.

  18. “Of course, as entertaining as Banks’ ‘Culture’ is, it’s a load of commie bollocks.”
    Written (overratedly so) by a commie, Quelle surprise!
    But a society with free goods is probably communist. It’s certainly not market/capitalist because the problem market/capitalism addresses no longer exists.

  19. But a society with free goods is probably communist. It’s certainly not market/capitalist because the problem market/capitalism addresses no longer exists.

    Cool. I’ll have my own aircraft carrier, six hundred private jets, a thousand Ferraris, the Isle of Wight… and Mars.

    The reality is there’s no such thing as ‘a society with free goods’, because demand will rapidly increase to exceed supply. Banks’ ‘post-scarcity’ society is based on the laughable belief that no-one would demand the entire galaxy to turn into a super-hyper-mega-computer.

    Sure, at the low end, products that don’t require much energy or resources to produce would probably be too cheap to bother charging for. But that would be a tiny subset of the products available to a society with the kind of technology Banks’ writes about.

    For example, in the real world, a trip on an interstellar spacecraft would require about as much energy as the sun emits in a few seconds. Even if you have the resources to build billions of them so we can all have one, you don’t have the energy to use them.

  20. With due regard to the deceased Mr Banks, he did observe, correctly, that in a “free stuff” society there’s little reason to want your own aircraft with 600 private jets aboard because; To do what with? In the same way, us wealthy moderns don’t have much urge to own 600 sheep. We get a leg of lamb from Tesco. 600 spring lambs would set you back less than an Audi TT. But you can’t pull women with them, these days.

  21. It’s not communist, and it’s not capitalist, because (in this extreme hypothetical) there is no need for an economy. Both communism and capitalism are means of allocating/trading/whatever production.

    And-

    The Devil makes work for idle hands, and Hans (see wars passim). It could get very messy.

    No, wars tend to be caused by envy of other peoples’ stuff, and wanting to get one’s distinctly not idle hands on it.

  22. A fine example of the narrowness of modern debate.Nobody hear of the Douglas Scheme of Social Credit, very influential in the 20’s and 30’s.?Everybody gets paid an unearned income called a National Dividend sufficient to buy the entire product of the national economy comprising factories full of robots working at full capacity. Douglas said if people wanted to play golf all day that could easily be arranged.As Orwell, a Douglasite ,noticed in “1984 “modern politics is a matter of keeping everybody’s noses to the grindstone else they become ungovernable.
    You lot should read a lot more.

  23. bloke in spain – “But a society with free goods is probably communist. It’s certainly not market/capitalist because the problem market/capitalism addresses no longer exists.”

    Why does the problem go away? Markets are still needed to distribute stuff and reach a compromise between needs and wants. Rationing in other words. Even if some stuff becomes absurdly cheap, people will still want other stuff. The problem is still there. Only one person can have the Mona Lisa hanging on their wall – and copies do not count to most people. Only one person can marry Kelly Brooks. At a time. Scarsity will never go away.

    bloke in spain – “With due regard to the deceased Mr Banks, he did observe, correctly, that in a “free stuff” society there’s little reason to want your own aircraft with 600 private jets aboard because; To do what with?”

    To play with. You can’t say supply is unlimited, but by the way, demand will be. Because it probably won’t. The mission to Mars or to Alpha Centauri is a good example. If it cost nothing, you don’t think a couple of anoracks would want to do it? Personally I would love to see a pyramid rise above the Kentish countryside. Bigger than the one in Egypt. Do local tourism no end of good. What happens when everyone wants to be buried in one?

    “In the same way, us wealthy moderns don’t have much urge to own 600 sheep. We get a leg of lamb from Tesco. 600 spring lambs would set you back less than an Audi TT. But you can’t pull women with them, these days.”

    I know people with good Upper Middle Class jobs who also own sheep. Maybe not the full six hundred, but hobby farming is not a minor pastime. Even in the UK. It would be more popular if it was all free.

    DBC Reed – “Nobody hear of the Douglas Scheme of Social Credit, very influential in the 20′s and 30′s.?Everybody gets paid an unearned income called a National Dividend sufficient to buy the entire product of the national economy comprising factories full of robots working at full capacity.”

    That would be nice. If we had factories full of robots. We don’t. This is not an example of the narrowness of the debate. It is a sign of your provincialism. Yes, we have all heard these sorts of debates. We have had them here. They are sufficiently well known that Milton Friedman, of all people, came up with his own version – a rather nice negative income tax. Which has been debated here before. A lot.

    In passing, anyone see this lovely little gem:

    http://www.rollingstone.com/politics/news/five-economic-reforms-millennials-should-be-fighting-for-20140103

  24. @SMFS
    Yes I’ve seen Myerson’s proposals which include two which Tim himself agrees with: Citizen’s Income and LVT.
    Public Banking (North Dakota style) attracts a lot of support across the political spectrum: the Public Banking Institute in the US appears to be non political.
    Two out of three ain’t bad.
    Such is the poverty of debate nowadays and the constriction of the available vocabulary that Myerson’s proposals appear revolutionary, although the majority of them are old.

  25. “Well, SMFS, for most of history we all did without work, and for even more of history 50% of the population- women- did without it, and many still do.”

    Jesus, IanB, what planet are you on? Women did without PAYMENT for work. They didn’t do without work. Far from it.

  26. And one further thing, IanB. Robots may be able to produce more robots. In fact robots may be able to produce any damn thing. But exactly what goods are they going to consume? Who is going to create demand in this economy? If no-one has the means to purchase the goods the robots create, their price will be zero. In which case the owners of the robots will stop producing them. An economy in which production is done by robots needs robust redistributive mechanisms to support demand. Otherwise everything stops. Or we give up capitalism, of course.

  27. Further to the above, the Washington Post printed an article by Dylan Matthews called Five Conservative Reforms re-casting LVT Public banking etc. as essentially conservative. His reception among left wingers and right wingers was the mirror image of the reception Myerson got.
    Ezra Klein followed up in the same paper with” The depressing psychological theory…” which explained an experiment in which Republicans approved lavish welfare proposals if they thought they came from their side and Democrats approved really stingy ones vice versa.
    Hat tip to derekrss

  28. Frances Coppola – “And one further thing, IanB. Robots may be able to produce more robots. In fact robots may be able to produce any damn thing. But exactly what goods are they going to consume? Who is going to create demand in this economy? If no-one has the means to purchase the goods the robots create, their price will be zero. In which case the owners of the robots will stop producing them. An economy in which production is done by robots needs robust redistributive mechanisms to support demand. Otherwise everything stops. Or we give up capitalism, of course.”

    I don’t know. If I were an evil robot-owning overlord, and God knows I am working at it every minute of the day, I might use my evil minions to set up a self-replicating robot facilty on Mars. And then use my robots to build an entire modern industrial civilisation there. So that there is something on Mars worth going to see.

    I could do that with my evil robot fabs, and leave the majority of the world’s population in abject poverty surely?

    Incidentally, in one of the worst science fiction book series ever written, Kim Stanley Robinson’s Red Mars manages to combine robots that produce everything the human race could possibly want for free, and abject Third World poverty. I would have thought he was both scientifically and economically illterate but maybe I am wrong.

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