Well, yes, but

Perhaps it’s Piketty’s mild manner that disconcerts; or perhaps it’s the matter-of-fact way that he points out that the most prosperous period in US history – 1950-70 – coincided with a top marginal rate of inheritance tax of 80% and of income tax that was even higher.

No one actually paid it. Which does sorta argue the other way, doesn’t it?

As societies distribute income, wealth and education more widely, so they become more prosperous.

OK, fun theory. So, we’ll have to measure the distribution of the output of that education then, won’t we? The human capital that results? And what is it that is not included in any of the calculations of the wealth distribution? Human capital…..

Evidence on these postwar regimes confirms that very high marginal tax rates are both reasonable and effective. But they had a lurking weakness, which Piketty views as fatal: they accommodated highly unequal access to education. Not only is educational equality the biggest factor in economic development (more so than property rights, he argues), the sharp division between graduates and non-graduates produced political schisms that, by the 1990s, had left the working class electorally homeless.

So, yes, human capital is important then. Better start measuring the distribution then, yes?

19 thoughts on “Well, yes, but”

  1. ” the most prosperous period in US history – 1950-70 – coincided with a top marginal rate of inheritance tax of 80% and of income tax that was even higher.”

    It also coincided with a period where all its major economic competitors had spent 6+ years systematically destroying their human capital, wealth and productive capacity. Europe from the Atlantic to Eastern Europe was a pile of rubble. As was Japan. Any taxation system could have produced good numbers in that situation.

  2. Is Piketty an example of the kind of academic with his head so deep in the data that he misses the blindingly obvious? His idea in the previous book that r>g, was obviously meaningless and useless

  3. Bloke in North Dorset

    It should also be noted that the so called German miracle was based on taking what could best be described as a Thatcher model rather than the registered approach favoured by France and Britain and was very little to do with the Marshall Plan:

    Conclusion
    What looked like a miracle to many observers was really no such thing. It was expected by Ludwig Erhard and by others of the Freiburg school who understood the damage that can be done by inflation coupled with price controls and high tax rates, and the large productivity gains that can be unleashed by ending inflation, removing controls, and cutting high marginal tax rates.

    And this bit is telling and a lesson that never seems to be learned on the left:

    Journalist Edwin Hartrich tells the following story about Erhard and Clay. In July 1948, after Erhard, on his own initiative, abolished rationing of food and ended all price controls, Clay confronted him:

    Clay:“Herr Erhard, my advisers tell me what you have done is a terrible mistake. What do you say to that?”

    Erhard:“Herr General, pay no attention to them! My advisers tell me the same thing.”2

    Hartrich also tells of Erhard’s confrontation with a U.S. Army colonel the same month:

    Colonel:“How dare you relax our rationing system, when there is a widespread food shortage?”

    Erhard:“But, Herr Oberst. I have not relaxed rationing; I have abolished it! Henceforth, the only rationing ticket the people will need will be the deutschemark. And they will work hard to get these deutschemarks, just wait and see.”3

    Of course, Erhard’s prediction was on target. Decontrol of prices allowed buyers to transmit their demands to sellers, without a rationing system getting in the way, and the higher prices gave sellers an incentive to supply more.

  4. Meanwhile on this side of the pond the greatest improvement in prosperity came in 1951-64 when the government progressively reduced taxation from the levels in 1945-51 and abolished rationing.
    But that doesn’t suit Piketty’s ideological rant so he ignores it.
    The Thatcher miracle period comes second and shares the common theme of reducing marginal tax rates to encourage work.

  5. “Not only is educational equality the biggest factor in economic development”

    Is it?! Rather a surprising result! I would have expected widespread access to high quality education to be a much bigger factor. After all, an illiterate society has a very high level of equality but is highly unlikely to enjoy high economic bimic growth or development.

  6. It also seems to me that the head-long rush to invest 50% of youngsters with educational human capital has similarly caused political schisms, especially as the youngsters have discovered the majority of that human capital they’ve been invested with isn’t worth the paper it’s written on, let along the money they’ve been forced to “borrow” to pay for it.

  7. “the sharp division between graduates and non-graduates produced political schisms that, by the 1990s, had left the working class electorally homeless.”

    Which obviously you mean to be taken as a bad thing.

    Except the rise of the ‘populists’ means they are no longer politically homeless, which strangely you seen to find much worse.

  8. Dennis, On The Front Lines Fightin' Them Chlorinated Chickens

    Is Piketty an example of the kind of academic with his head so deep in the data that he misses the blindingly obvious?

    No, he is the type of academic who has already arrived at his answer before ever looking at data. The blindingly obvious is simply ignored – or misrepresented – when it does not support the preordained answer. It’s not like we haven’t seen both done by Piketty in the past.

  9. I work with actuaries like Picketty. The data is the only thing they can see, not the hypothesis underneath that they are supposed to be testing. The existence of equal opposing forces in balance, but which can become unbalanced, is something they miss. Hence some risky things they think are risk free…..

  10. @BiND

    Good, Thanks

    @john77

    Mrs Thatcher also abolished exchange and price controls (esp Books) and opened London (Big Bang)

    @Ironman

    +1

    We more or less had educational equality in UK until Grammar Schools abolished, now only the better off can afford a good education; rest have equality of poor education

  11. @ Andrew Again
    When I was an Actuary, my advantage (relative to competitors, usually non-actuaries) was that I could see both the numbers and the underlying hypothesis and point out when it was nonsense. The same was true of several of my actuarial colleagues. You seem to be particularly unlucky in encountering the small minority of actuaries who belong in marketing.

  12. @john77

    Yep. Seeing beyond what is right in front of you is something too many people can’t/won’t do

    My mother: red light ahead, she’s still on gas then at ~40 feet she hits brakes. Been trying for decades to make her look ahead

    Re: Thatcher & Churchill, it was you missed vital changes by former, latter was vital too

    Did you know France Still has Price Controls on products, mostly minimum prices for foods

  13. @ Pcar
    I didn’t miss Geoffrey Howe abolishing exchange controls; most resale price maintenance was banned by Edward Heath.
    If you go back and read my earlier post, the point was that the fastest UK growth in standard of living was 1951-64 thanks to policies exactly the opposite of Picketty’s ideas, and Mrs Thatcher’s years were second-best, streets ahead of the best Labour years .

  14. It’s all about taxing and perhaps redistributing liquid assets.

    So governments can promote unequal treatment of assets, but are not supposed to promote unequal treatment of people (who might be assets in and of themselves). Go figure.

    This is all a cover. It’s all about cash in easy to carry bags. If you have some of that, the government feels entitled to take some.

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