Capital in the Twenty-First Century


Piketty’s Capital in the Twenty-First Century is that rare phenomenon, an economics tome that flies off the shelves.

” . . . . .

The gist of Piketty’s book is simple. Returns to capital are rising faster than economies are growing. The wealthy are getting wealthier while everybody else is struggling. Inequality will widen to the point where it becomes unsustainable – both politically and economically – unless action is taken to redistribute income and wealth. Piketty favours a graduated wealth tax and 80% income tax for those on the highest salaries.

Lord (Adair) Turner, the former chairman of the Financial Services Authority, says Capital is “a remarkable piece of work”. Turner, who has name-checked Piketty in his recent lectures, added: “He is saying that we have a set of tendencies at work to which the offset has to be a degree of redistribution. I completely agree with him.”

Krugman, writing in the New York Review of Books, says Piketty’s work will “change both the way we think about society and the way we do economics”.

. . . . “

Reforming France?

Thirty-six year old Economics Minister Emmanuel Macron has been tasked by French President Hollande with reforming the country. But it won’t be easy. Socialists view him with suspicion and the party’s left wing is already preparing for battle.

. . . . .

The minister for economics, industry and information technology unfurled his far-reaching vision for a reinvigorated France. He spoke of the common welfare, which needed to once again take precedence over individual interests. And he underscored his exposition with a quote from the Socialist reformer Jean Jaurès from the year 1887.

. . . .

What IAN VERRENDER says in the Drum about the Economy under Whitlam

Think Whitlam ruined our economy? Think again

Posted Mon at 8:30amMon 27 Oct 2014, 8:30am

What is never recognised is the Australian economy under Gough Whitlam outperformed its peers, most of which floundered during one of the most turbulent periods of modern economic history, writes Ian Verrender.

Time. It tends to blunt the edges, soften the memories and, for most of us, perhaps even heal some old wounds.

The generous and genuine outpouring of admiration and emotion following Gough’s second Dismissal last week, much of it from unexpected quarters and old political adversaries, touched on an element of the national psyche that illustrates everything that is good about Australia.

As expected, not everyone could bring themselves to be magnanimous, to acknowledge the achievements, to recognise the profound impact of a man who forever removed us from a cloistered, claustrophobic and conformist era for which some conservatives still pine.

But as Winston Churchill once observed: “You have enemies? Good. That means you have stood up for something in your life.”

The achievements of the nation’s 21st prime minister were thrust to the fore all week; universal healthcare, education, law reform, women’s rights and indigenous rights on the domestic front, on the global stage, his recognition of China.

But if there is one vulnerability, one chink in the Whitlam legacy and legend – apart from the shambolic ill-discipline within cabinet – it is in his government’s handling of the economy.

And so began the venomous sniping, within hours of his passing, from a joyless handful forever confined to the shadows and whose anger and bitterness festers and feeds upon itself.

The conventional wisdom is that, from an economic perspective, the Whitlam government was an unmitigated disaster.

Certainly, the raw numbers bear that out. And there is plenty of evidence to support the notion that the new government believed economic management was a secondary consideration to its social agenda.

What is never recognised, however, is that the Australian economy under Whitlam outperformed its peers, most of which floundered during one of the most turbulent periods of modern economic history.

Former treasury secretary John Stone left no doubt about his sentiments – if doubt existed – in his Australian Financial Review piece last Thursday.

As Stone tells it, the economy only grew “superficially” between 1972 and 1975. Given the National Accounts do not record a measure of “superficial growth”, presumably Stone means the economy did not experience a recession.

On every other measure, however, Stone claims the economy was in crisis. Private investment in dwelling and non-dwelling construction slumped, wages growth was out of control, peaking at 30.5 per cent in 1974-75, there was a rapid expansion of the public service and personal income tax grew 34.3 per cent in 1973-74.

Interest rates rose alarmingly, Stone recalls, while inflation peaked at 16.7 per cent in 1974-75. Investor confidence evaporated, he argues, with the All Ordinaries Index “tumbling 39 per cent between June 1972 and June 1975”.

It is a damning assessment on any measure, given particular credence by his position at the time front and centre of the action.

Except … there are a vast number of monumental omissions in Stone’s piece, which a cynic may deduce was specifically designed to give the impression that the economic malaise of the time was a purely Australian experience, that we alone were on the slide due to the incompetence of the incumbent government.

As Stone rightly points out, Australia did not go into recession. What he fails to mention is that America did. So did the UK. And they were no ordinary recessions.

Both our northern hemisphere allies endured long and painful slumps, the chaotic fallout from which reverberated through the global economy, including Australia.

Not only that, inflation ran wild in both the northern hemisphere economic superpowers and throughout the developed world. It was a global recession that marked the dramatic end of the post-war boom.

This was the time of rampant stagflation, a rare phenomenon in economics where inflation and unemployment rise simultaneously. It’s a nightmare scenario for policymakers. Raise rates to dampen inflation and you exacerbate unemployment. Try to fix the jobs crisis and you fuel inflation.

There were a number of factors behind the global recession.

The Bretton-Woods financial system – instituted after the war that tied the US dollar to the price of gold – collapsed in the early ’70s, itself enough to engineer a significant slump in global activity. This followed attacks on the currency as the US ran up a constant series of balance of payments deficits.

The sudden collapse of the system and the immediate devaluation of the US dollar, which from then on became a fiat currency valued against other currencies, created havoc on trade and current account balances throughout the developed world.

Add to this that the Arab world had formed the Organisation of Petroleum Exporting Countries and in 1973 deliberately squeezed supplies.

The price of oil quadrupled between October 1973 and the following January. That’s correct, energy prices rose 400 per cent in four months, sending shockwaves through developed world economies, underscoring the dramatic price rises that, in turn, fed through to wage demands.

Between 1973 and 1975, the Whitlam era, inflation in the UK grew from 7.4 per cent to 24.89 per cent – vastly higher than anything experienced in Australia.

Great Britain was wracked by industrial disputes. Miners walked off the job, coal supplies dwindled. So dire was the energy situation, UK prime minister Edward Heath instituted the three day week as commercial electricity users were restricted. Food queues formed.

America, meanwhile, endured its worst recession since the Great Depression between November 1973 and March 1975. While the unemployment spike was relatively short-lived inflation soared from a relatively modest 3.65 per cent in early 1973 to a 12.34 per cent peak at the end of 1974 before tapering off during 1975.

Stone’s contention that the collapse in Australian share prices was an indictment of Australia’s economic management may hold some merit. But again, we weren’t alone. In fact the Australian decline in share prices was modest compared with those on Wall Street and London.

Described as the seventh worst crash on record, between January 1973 and December 1974, Wall Street lost 45.1 per cent of its value. In London, meanwhile, the FT 30 declined a massive 73 per cent.

Gough Whitlam’s first two treasurers, Frank Crean and Jim Cairns, were widely criticised for their performances. Cairns, especially, appeared to be distracted by assets of another kind, and spending during his reign blew out spectacularly.

But Bill Hayden’s budget, delivered shortly before The Dismissal, had many in the Opposition worried. It was a responsible document designed to bring inflation and unemployment under control.

Whitlam is not the first to be lashed by Stone. He quit as treasury secretary days before Paul Keating’s 1984 budget and Peter Costello was lambasted for introducing the GST.

A close ally and informal advisor to Joh Bjelke-Petersen, Stone railed against Asian immigration and eventually joined the National Party, a party that until recent times strongly espoused protectionism.

Despite Stone’s towering intellect and formidable qualifications, perhaps Whitlam’s greatest mistake on the economy was to not recognise the failings of one of his senior bureaucrats, an insular man who, four decades after the events, still fails to grasp the impact the global economic upheaval had on Australia.

Ian Verrender is the ABC’s business editor. View his full profile here.

Topics: government-and-politics, business-economics-and-finance, budget

The Budget, Housing and the State of Economics

I received the following as an email already on the 26th of May. I am a bit late in thinking about publishing it. But it might still interest some bloggers in Australia who are interested in Earthsharing & Prosper’s insights on budget, housing and the state of economics

I ask myself, why are capital gains ignored in the budget?

MAY 2014

The state of economics

Welcome to the second Evolving Economics enews, combining the Earthsharing and Prosper Australia news lists. This knowledge is important in an age of entitlements, where welfare is demonised and unearned incomes (a.k.a. capital gains) are ignored. Take a quick look at these budget costs:

Jobseekers – $10bn p.a
Family Tax Benefits – $19bn
National Disability Insurance – $17bn
Medicare – $20bn
Imputed rents (unrealised capital gains) – $484bn in residential real estate alone.

So why tax students, the poor and the productive when so much revenue potential exists in economic rents?

With much talk about the ‘1996 Howard Costello tough budget’, we are reminded of the change since. In 1996, First Home Owners borrowed just $95,000 on average. Today that has more than tripled to $303,000. Wages have only increased by $214%, compared to 319% in housing (read land) costs.

This federal budget will cost the poorest 20% of the population, the lowest quintile, $2.9 billion over four years. However the wealthiest 20%, those earning $88,000 or more, will pay just $1.78 billion – 40% less.

It is time the public spoke up on the record capital gains occurring in housing, mining and other natural monopolies. That is our specialty here on the Evolving Economics enews. We hope you find this information of use and can join us to maintain this knowledge base, continuing to push governments towards a refined economic system that encourages productive activity over speculative largess. See our recent press releases.

Essays by Mason Gaffney discussed in his Website

Solving the “Unsolvable”

Such dismal dilemmas economists pose for us these days! We’re told that to attract business we must lower taxes, shut the libraries and starve the schools; to prevent inflation we must have millions of people unemployed; to make jobs we must chew up land and pollute the world; to motivate workers we must have unequal wealth; to raise productivity we must fire people. Mason Gaffney has devoted his career to demonstrating the viability of reconciliation and synthesis in economic policy. In these 21 wide-ranging essays, he shows how we can find “win-win-win” solutions to many of society’s seemingly “unsolvable” problems.

“One of the most important but underappreciated ideas in economics is the Henry George principle of taxing the economic rent of land, and more generally, natural resources. This wonderful set of essays, written over a long and productive scholarly career, should be compulsory reading. An inveterate optimist, Mason Gaffney makes an excellent case that, by applying the Henry George principle, we can reduce inequality, and raise ample public revenues to be directed at any one of a multitude of society’s ills. Gaffney also offers plausible solutions to problems of urban renewal and finance, environmental protection, the cycle of boom and bust, and conflict generated by rent-seeking multinational corporations.” — JOSEPH STIGLITZ

“A crisp cocktail of geography, history and economics, chilled by crackling-clear prose. In these sparkling essays on rent, land and taxes, Mason Gaffney gives us Henry George in his time and for our own.” — JAMES GALBRAITH

Mason Gaffney is a national treasure. He boldly treads where few other economists even dare to peek: at the extraction of rent from the many by the few. Such rent extraction is now massive and threatens to destroy our democracy. To those who wonder how to stop it, my advice is simple: read Gaffney.—PETER BARNES

Why was Henry George not successful?

Neo-classical Economics as a Stratagem
against Henry George
Mason Gaffney
eoclassical economics is the idiom of most economic discourse
today. It is the paradigm that bends the twigs of young minds. Then
it confines the florescence of older ones, like chicken-wire shaping
a topiary. It took form about a hundred years ago, when Henry George and
his reform proposals were a clear and present political danger and challenge
to the landed and intellectual establishments of the world. Few people
realize to what degree the founders ofNeo-classical economics changed the
discipline for the express purpose of deflecting George and frustrating
future students seeking to follow his arguments. The strategem was
semantic: to destroy the very words in which he expressed himself. Simon
Patten expounded it succinctly. “Nothing pleases a …single taxer better
than … to use the well-known economic theories … [therefore] economic
doctrine must be recast” (Patten, 1908: 219; Collier, 1979: 270).’
George believed economists were recasting the discipline to refute him.
He states so, as though in the third person, in his posthumously published
book, The Science ofPoliticalEconomy(George, 1898:200-209). George’s
self-importance was immodest, it is true. However, immodesty may be
objectivity, as many great talents from Frank Lloyd Wright to Muhammed
Ali and Frank Sinatra have displayed. George had good reasons, which we
are to demonstrate. George’s view may even strike some as paranoid. That
was this writer’s first impression, many years ago. I have changed my view,
however, after learning more about the period, the literature, and later

To read on please follow this link:

Click to access K1Neo-classical_Stratagem.CV.pdf


I, Uta, am very interested in finding out why there is so much resistance to applying the ideas that Henry George promoted in the 19th century.

The above publication seems to be giving some interesting links.