Che Guevara Reads Piketty
Friday, 5/02/2014 09:15
Thomas Piketty doesn't seem a big fan of capitalism. But then, who is...?
On SUNDAY, we became godparents to a six-month-old girl,
writes Bill Bonner in his Diary of a Rogue Economist.
A cute little girl, with dark skin, dark eyes, dark hair...and chubby cheeks. Her mother, as near as we can tell, is a descendant of the local Diaguita tribe. The history books tell us that the Spanish tried to exterminate them...but they seem to have failed.
Up here in Argentina's Salta province, according to local tradition, landowners are often asked to be godparents to children born on their farms. Who could refuse? We're not sure what to make of this new and totally unexpected responsibility. But heck, you take things as they come...and do your best.
Meanwhile, we're dissing a book we haven't read. Paul Krugman calls Thomas Piketty's
Capital in the Twenty-First Century a blockbuster. We can't wait to get our hands on a copy, just to see if Piketty is really the blockhead he seems to be.
Already we pointed out that real capitalism is self-correcting. Piketty is worried that capitalists are making too much money. The returns from investing, he says, are outstripping the rewards to working stiffs.
Piketty expresses this as r > g...where r stands for the average annual rate of return on capital (including profits, dividends, interest, rents, royalties and other forms of income from capital) and g stands for the rate of growth of the economy.
He really shouldn't worry about it. When rates of return are high, investors pile in. Then, with too much money chasing too few good investments, the rate of return – r – falls.
Often, investment returns fall so hard investors cry out in pain. But that is just the way it works. You can't enjoy the pleasure of profits without the pain of losses from time to time.
Thomas Piketty doesn't seem like a big fan of capitalism. But then who is?
"I guess you're having your crisis of capitalism in the US," said the woman who runs a nearby welfare program. She rode up on a motorcycle (a two-hour drive) so she could help the locals improve their lives. Dressed in khakis, she is the sort of woman you could be marooned with on a desert island and not break your marriage vows. A round face...a round body...she nevertheless seemed to have a sharp edge.
"I hope you Americans are holding up okay," she said with the cheerfulness of a vegetarian in an abattoir.
For her, capitalism is a doomed creed. It is just a matter of time before it is replaced by well-meaning, correct-thinking vegetarians who make sure the chips fall where they want, not where they may.
We figured her out when we visited her headquarters and found a picture of Che Guevara on the wall. She is no fan of capitalism either.
But she is not alone. Capitalism has so few real aficionados they could all probably be rounded up and shot in an afternoon.
The poor don't like it because they think it – rather than their own bad luck or bad habits – keeps them from getting rich. The rich don't like it because it threatens to ruin them with crashes and bankruptcies. Businessmen don't like it because its process of "creative destruction" threatens to make their industries obsolete. Intellectuals don't like it because it is inherently unpredictable and uncontrollable. The media doesn't like it because it gives no press conferences and provides no "talking points" for lazy journalists. Investors don't like it because it punishes their mistakes.
And of course, professors of economics hate it more than anyone. Why? Because it refutes their claptrap ideas about how an economy works.
And so they all – rich, poor, mighty and miserable – turn to the government for succor. Why the government? Because it is the only institution that can lawfully stop capitalists from creating wealth.
Piketty's observation – that the richest have gotten much richer over the last three decades – is not wrong. It's too bad that he can't think more deeply about how it happens.
He believes when wealth is concentrated in few hands there follows a phenomenon he calls "state capture." Rich people are able to get control of the government and use it like amafioso with a baseball bat: to whack their challengers and skim the profits.
But the state is no chaste and innocent participant. It is not "captured" at all. Those with control of the police and the military are no strangers to the baseball bat; they use it regularly. In fact, they often take the rich hostage and demand as much ransom (taxes...bribes...campaign contributions...payoffs to special interests) as they can get from them.
More often, they simply connive and conspire with any group that can help them – rich and poor, labor unions, business groups, lobbyists and so forth – always subverting capitalism and undermining the public welfare.
Our old friend Jim Davidson tells the story of the "sugar daddies" who have gotten billions of US Dollars in direct and indirect subsidies over the years.
They learned their trade – bribing politicians – in Cuba before Castro took over. In the 1960s, they brought their techniques to the US. They managed to get much of the state of Florida drained at taxpayer expense, so they could plant cane and sell sugar at artificially high prices.
You have to admire "Pepe" and "Alfy" Fanjul; they know how the game is played. Alfy is so well connected, according to the Lewinsky affair report, that he had President Clinton's ear when Monica had another of the president's parts.
Crony capitalism is just a part of the way the economy is twisted and corrupted. Health care, finance and education – the biggest industries in America – have been largely captured by Washington (or vice versa).
You might say, too, that the feds acted after the crash of 2008-09 to protect the wealthy. Without their intervention the problem of inequality wouldn't exist; as much as half of their stock market wealth would have been wiped out...and probably would have stayed wiped out.
The feds might just as well have wished to spread the wealth among more voters. But the goal was not so much to make the rich richer. Instead, the feds just wanted to keep capitalism from doing its thing. Stephen Roach explains:
"The Fed's strategy [has been] to get the share markets up, get risky assets up, [and] stimulate the economy through 'wealth effects.' One problem: 'wealth effects' are for wealthy people. What about the real problem in America, which is middle-class, structurally unemployed, workers and their families? Are they benefiting from the 'wealth effect'?"
They're not?
Well, then rant about inequality...and crony capitalism. Write a bestseller. And find more ways to stop real capitalism from taking place.
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