Erik Falkenstein makes a lot of important points in this commentary on Thomas Piketty (via Isegoria). The whole post is highly recommended.

To pick up on just one of Falkenstein’s arguments here, he explains:

Most importantly for [Piketty’s] case is the fact that because marginal taxes, and inheritance taxes, were so high, the rich had a much different incentive to hide income and wealth. He shows marginal income and inheritance tax rates that are the exact inverse of the capital/income ratio of figures, which is part of his argument that raising tax rates would be a good thing: it lowers inequality. Those countries that lowered the marginal tax rates the most saw the biggest increases in higher incomes (p. 509). Perhaps instead of thinking capital went down, it was just reported less to avoid confiscatory taxes? Alan Reynolds notes that many changes to the tax code in the 1980s that explain the rise in reported wealth and income irrespective of the actual change in wealth an income in that decade, and one can imagine all those loopholes and inducements two generations ago when the top tax rates were above 90% (it seems people can no better imagine their grandparents sheltering income than having sex, another generational conceit).

The much-demonized ‘neoliberal’ tax regimes introduced in the 1980s disincentivized capital income concealment. (Falkenstein makes an extended defense of this point.) In consequence, apparent inequality rose rapidly, as such revenues came out of hiding (ἀλήθεια) into public awareness / public finances. The ‘phenomenon’ is an artifact of truth-engineering, as modestly conservative governments sought to coax capital into the open, within a comparatively non-confiscatory fiscal environment.

There are some very significant lessons here, not all of which are easy to rapidly digest. To begin with, Falkenstein reveals the emblematic character of Piketty — as a thinker of the contemporary democratic spirit — who aims above all at a certain public appearance, rather than a real economic outcome. It is utterly naive to understand the ‘equality debate’ as something fundamentally concerned with a real (or super-public) situation. Such an understanding is, in fact, deeply anti-democratic. What concerns Piketty, and those flocking to his banner, is the public spectacle of inequality, as a negative factor for political legitimacy. Beyond the surface of his proposed remedies is a purely political demand that capital should retreat into hiding, in order not to embarrass the governing elites of democratic states. It is not actual inequality that is, in truth, being judged indecent, but its admission into the public square in immodest dress.

The greatest weakness of right wing economic analysis, whether Supply-side Conservative, Libertarian, or Post-Libertarian in orientation, is its incompetence at lies. This becomes important when it interferes with a realistic analysis of the Cathedral State — an expression used in the same way one might use ‘Islamic State’ and with equivalent justification. For instance, as in this case, it tends to exaggerate the dysfunctionality of Cathedral-orchestrated social arrangements by conflating them with their public presentation.

To repeat the more concrete example at stake here, a ‘high-tax’ regime is interpreted by the truth-dupe right as a regime extracting higher taxes, or at least sincerely attempting to (before the attempt is undermined by Laffer-type perverse effects). What Falkenstein’s commentary on Piketty suggests, in contrast, is that such a demand is more realistically understood as a demand for compliance with approved appearances, even if such compliance necessitates systematic ‘non-compliance’ with state tax codes as publicly expressed. Tax policy, in the widest sense, is not, then, to be conceived as primarily revenue oriented, but rather as a set of overt and covert theatrical directions, designed to produce a politically-convenient order of appearances. It is thus, in large part, a gatekeeper, controlling admissions to and banishments from the public stage. When capital disappears back under the burkqa, the ‘problem’ of gaping inequality will be miraculously solved. (In none of this is economics, in any serious sense, even remotely involved.)

This is not economics, but political-religious public ritual, designed — with cynical realism — for mass-enfranchised idiocy and its representatives. Overwhelmingly, that is what ‘political economy’ now is.

July 28, 2014admin 18 Comments »
FILED UNDER :Democracy , Political economy


18 Responses to this entry

  • Contemplationist Says:

    Now you’ve really riled up the Nazi Bolsheviks. 😉


    Posted on July 28th, 2014 at 5:51 pm Reply | Quote
  • Hurlock Says:

    Brilliant commentary. Loved it.
    Piketty is a joke, and anyone with any understanding of economics recognized him as a joke from the beginning. His data is cherry-picked, or completely fudged and his methodology is…does he even have one?
    Of course all of that doesn’t matter because “Capital in the 21st Century” was never meant to be a book about economics with actual science in it. It is a religious text, its only purpose being to confirm the already existing progressive bias by cherry-picking a few data sets. Modern economics is literally vodoo magic because you can use aggregates to “prove” virtually everything. “Political economics” already implies a corruption of economics. Notice how “political” comes before economics, already indicating a certain subordination of the latter to the earlier. Insofar as any economic science is “political” you can be pretty sure it’s all lies to satisfy an agenda.

    This article indeed makes some very important points, some of them made before in relation with Piketty’s book, but not elaborated on sufficiently.
    The point of how envy (relative status) is a stronger drive than greed is extremely important and something which already Mises realized.
    People don’t care about doing better, they care about nobody else doing better.

    But one of the more unique and most important points is this one:

    One of the great things about a market economy and corporations is that it has created a unique pre-eminence of reciprocal altruism over familiar altruism. Corporate institutions need highly developed contractual relationships among strangers, which breeds trust and a lack of corruption, a better society, while its alternative is nepotism (where markets are not strong, trust is low and clans dominate). Further, corporate competition is positive sum because of productivity growth, unlike state competition which often involves war (what’s better, a price war or a war war?).

    A lot of neoreactionaries think that the opposite is true, but they are entirely wrong.
    Some weeks ago I had a twitter rant about why individualism as it developed in western outbreeding societies is much better for overall social cohesion, lack of corruption, lack of crime and a generally more orderly society. I also argued that right now in the west tribalism is actually incentivized much more than individualism. This is what I was talking about. Market individualism (if we can call it like that) is much more better than tribal-bloodline collectivism.
    I know this because I come from a former soviet country, with a very underdeveloped market economy where collectivism is the more natural attitude. Higher corruption, higher crime rate less order. Same goes for every other country with similar characteristics.
    I should probably write a post about this some time.


    Posted on July 28th, 2014 at 6:25 pm Reply | Quote
  • Akaky Akakievich Says:

    What does this tell us about what is happening to the Chinese IQ?


    Hurlock Reply:

    The obvious solution for the chinese is to make everyone equally poor again, just like what comrade Mao tried to do.


    Contemplationist Reply:

    But but…Chairman Mao heralded WOMYNZ RIGHTZ! New China fascistzz are shaming ‘leftover women’!


    Akaky Akakievich Reply:

    As Mark E. Smith might have said:

    ‘The Chinese are thick but they struck it rich.’


    Akaky Akakievich Reply:

    And as he might have said about this blog and its followers:

    ‘Educated kids know what they’re on about.’

    Posted on July 28th, 2014 at 7:08 pm Reply | Quote
  • Lesser Bull Says:

    What I get from this line of reasoning is that one of the failure modes of leftism is being taken over by people who don’t realize its a scam, so they try to implement it better.

    This could also be a failure mode of various forms of rightism too. In fact, is there any form of government that doesn’t have self-justifying pretenses that in practice are reachable only in pretense?


    admin Reply:

    It seems a particular problem for populism or ‘demotism’ — since once public approval is assumed as the foundation of political legitimacy, the slide of the entire social system into theater becomes unstoppable.


    Lesser Bull Reply:

    Yes, probably right that demotic or populist states are the most vulnerable, which is almost all states these days, whether democratic or not. But has there ever been a state that didn’t have some kind of self-justifying myth that in practice it didn’t always live up to? I don’t know of any, but maybe there are some. though I bet that no state can live entirely without any degree of popular acceptance and especially without some degree of elite support that is based on loftier motives than just self-interest.

    I also think that its not the slide into theater that is the problem. That’s dysfunctional, but probably survivable, even sustainable. it’s the slide out of theater, when dupes get into power and either realize that the theater is theater and try to implement it for real (this is the 1960s), or else the dupes accept the theater as reality and act accordingly (maybe the late stages of the Cultural Revolution is an example). It’s the Emperor’s New Clothes, except on the one hand you have angry radicals upset that the Emperor isn’t naked in winter too and demanding the overthrow of the Emperor’s corrupt neo-liberal regime in favor of a radical authentic dictatorship that will force everyone to wear fake clothes out in the cold all winter long, and all summer too. On the other hand you have the earnest leftists who think it would be awesome for firefighters to replace their stodgy old uniforms wtih uniforms cut from the emperor’s lightweight and completely fireproof cloth.


    admin Reply:

    Yes, sorry, I slid off your point (it’s good).

    Posted on July 28th, 2014 at 7:15 pm Reply | Quote
  • Aletheia | Reaction Times Says:

    […] Source: Outside In […]

    Posted on July 28th, 2014 at 9:12 pm Reply | Quote
  • Chris B Says:

    true. political economy is nothing short of a public scam. It’s been that way since Keynes. Hell, its been that way since Marx. Hence why bohm-bawerks refutations where pointless.
    This time though, I expect them to actually raid people accounts- in the name of equality. Equality, diversity etc, all weapons.


    Posted on July 29th, 2014 at 1:55 am Reply | Quote
  • spandrell Says:

    Falkenstein is an insightful man and a good writer; but I find it hard to take seriously a man who had to read Brian Caplan to decide to have more children. His Envy>Greed idea was a great discovery, but he has yet to understand the ultimate implications of it.

    People dislike inequality at a gut level, and there’s a reason for that. It is easy to dismiss it as the remains of our primitive ancestors, but the fact is that a lot of things depend upon relative status. Among them, mating success; probably the most important thing of them all. Ask any Chinese how hard it is to find a wife today, and how easy it was during Mao’s time. That’s all the explanation you need about the appeal of communism.

    Not to defend Piketty, of course, which is a despicable liar. Nobody who works for the Socialist Party of any country should be taken seriously. But Falkenstein is trying too hard. But of course he works in the stock market.


    Handle Reply:

    Yes. Amongst men, relative income resentment (‘distributional envy’) is a kind of imperfect proxy for mate-attraction, regular sexual access, and family-formation anxiety, other other things.

    But it’s hard to imagine raising income and wealth taxes will make things much better after such a long experience of the implementation of gender egalitarian ideology. Humpty Dumpty doesn’t get put back together so easily.


    Posted on July 29th, 2014 at 11:37 am Reply | Quote
  • Kgaard Says:

    I follow global tax rates pretty closely and in very few places is there much pressure for them to go up — and globally there is more pressure for them to go down. Where tax rates are wont to rise, it’s usually Christian countries moving from flat broke to middle class — i.e. Chile, which is raising its corporate rate 5 points. Chile is a classic case of women transferring their allegiance from individual men to the state (now that the state has some coin). Perhaps not coincidentally, the women in Santiago are far less attractive (and far more tattooed) than 15 years ago.

    Japan is about to cut its corporate income tax (at least 2 points). Argentina is about to throw out the lunatic Kirchner. That place is ripe for some sort of modest move to the right. Even the US may cut its corporate income tax rate. India is gearing up for broad tax reform of a crazy system.

    Piketty’s book is pretty much flat-out retarded and is being treated as such by most normal people. I don’t think it will age well.


    Posted on July 29th, 2014 at 3:34 pm Reply | Quote
  • Lightning Round – 2014/07/30 | Free Northerner Says:

    […] Political economy has nothing to do with revenues; it’s all a public ritual. […]

    Posted on July 30th, 2014 at 5:02 am Reply | Quote
  • Blogospheroid Says:

    The pathetically low rate of land value taxation strengthens the belief that all of this is a sham.

    Imagine if you were given a revenue source like land taxation, impossible to evade, self assessed, getting more important in time with more markets becoming winner take all. And you refused to use it to the fullest. You would either be delusional or corrupt. Most countries are both.


    Posted on July 30th, 2014 at 6:19 am Reply | Quote

Leave a comment