What other topics will the course cover as it unfolds? It’s all still TBD. But, again, you’re invited to help shape the syllabus. Bigger picture suggestions are being sought here.
The distribution of wealth is one of today’s most widely discussed and controversial issues. But what do we really know about its evolution over the long term? Do the dynamics of private capital accumulation inevitably lead to the concentration of wealth in ever fewer hands, as Karl Marx believed in the nineteenth century? Or do the balancing forces of growth, competition, and technological progress lead in later stages of development to reduced inequality and greater harmony among the classes, as Simon Kuznets thought in the twentieth century? What do we really know about how wealth and income have evolved since the eighteenth century, and what lessons can we derive from that knowledge for the century now under way?
Capital (which by Piketty’s definition is pretty much the same thing as wealth) has tended over time to grow faster than the overall economy. Income from capital is invariably much less evenly distributed than labor income. Together these amount to a powerful force for increasing inequality. Piketty doesn’t take things as far as Marx, who saw capital’s growth eventually strangling the economy and bringing on its own collapse, and he’s witheringly disdainful of Marx’s data-collection techniques. But his real beef is with the mainstream economic teachings that more capital and lower taxes on capital bring faster growth and higher wages, and that economic dynamism will automatically keep inequality at bay. Over the two-plus centuries for which good records exist, the only major decline in capital’s economic share and in economic inequality was the result of World Wars I and II, which destroyed lots of capital and brought much higher taxes in the U.S. and Europe. This period of capital destruction was followed by a spectacular run of economic growth. Now, after decades of peace, slowing growth, and declining tax rates, capital and inequality are on the rise all over the developed world, and it’s not clear what if anything will alter that trajectory in the decades to come.
On this side of the Atlantic, wealth and income were less concentrated in the 19th century than in Europe. After a spike in top incomes that topped out in the late 1920s, the income distribution flattened out here again, albeit in less dramatic fashion than in Europe. Since the 1970s, though, the U.S. has seen a sharp and unparalleled increase in the percentage of income going to the top 1% and especially 0.1%. This has not been driven by the capital and inheritance dynamics at the heart of Piketty’s story. He attributes it instead to the rise of what he calls “supermanagers.” Piketty cites recent research that shows managers and financial professionals making up 60% of the top 0.1% of the income distribution in the U.S., and proposes that their skyrocketing pay is mainly the product of sharp declines in top marginal tax rates that made it worth managers’ while to bargain harder for raises. This isn’t the only explanation available, and Piketty’s discussion of U.S. inequality doesn’t carry the same historical authority as other parts of the book. But it surely is interesting that, as he and several co-authors report in a new article in the American Economic Journal: Economic Policy, the rise in the top-percentile income share in 13 countries was almost perfectly correlated with declines in top marginal tax rates in those countries. It’s also interesting that this huge rise in relative income inequality has brought no discernible economic benefit. Yes, the U.S. economy has grown a bit faster than those of other developed economies, but that’s purely because of population growth. Per-capita economic growth has been almost identical in the U.S. and Western Europe since 1980, and because of the skew towards the top here, U.S. median income has actually lost ground relative to other nations.
But why let HBR give you insight into Piketty’s thinking when Piketty can do it himself. Below we have a talk he gave at the Economic Policy Institute earlier this month. He starts speaking at the 5:30 mark.
And finally Paul Krugman’s review in the New York Review of Books — “We’re in a New Gilded Age” — is worth a read.
Do Milton Friedman and John Kenneth Galbraith debate in that great economics department in the sky? Both men died in 2006, after remarkably long and distinguished careers as two of the most widely read economists of the 20th century, yet I can only with great difficulty imagine them ever agreeing. Friedman, founder of the free market-oriented University of Chicago “school” of economics, scrutinized the world’s economies and found that a only minimum of government intervention makes for a maximum of freedom. The Canadian-born Galbraith, who served on Harvard’s faculty as well as under four U.S. Presidents, saw things differently, believing in the necessity of a strong state to ensure stability, efficiency, and equality. Both spent a great deal of time and energy communicating directly with the public, not just with popular books and commentaries on economic issues of the day, but with television programs too. You can watch Galbraith’s The Age ofUncertainty, which first aired on the BBC in 1977, above. Friedman’s “response” Free to Choose, broadcast on PBS in 1980, appears below.
The fifteen-episode Age of Uncertainty and the ten-episode Free to Choose both come down to the teachings of their star economists; you might think of them as extended lectures, with quite different conclusions, on the causes and effects of capitalism. But both expand upon this base of content with rich imagery, from a variety of creative visualizations (up to and including historical dramatization) of Galbraith’s words to Friedman’s travels far and wide, from his money-driven birthplace of New York City to the “haven for people who sought to make the most of their own abilities” of Hong Kong in search of real examples of the free market in action. The styles of dress may look dated, but the production value holds up, and the economic issues discussed have only grown more relevant with time. Whether you believe the government should keep a helping hand on the economy or keep its grubby mitts off it, both series have a wealth, as it were, of entertainment and education in store for you. As bitterly as Galbraithian statists and Friedmanite libertarians may argue, surely they can agree on the enjoyability of quality television.
“Everyone has questions about the economy. I started looking for the answers in economics. I found enough insights to get me interested, but I couldn’t seem to make the insights add up. I went back to the original sources, the great economists, and started to see a big picture. And while the whole picture was complicated, no one part of it was all that hard to understand. I could see that all this information made a story. But I couldn’t find a book that told the story in an accessible way. So I decided to write one, in the most accessible form I knew: comics.”
The book covers two (plus) centuries of economic history. It starts with the Physiocrats, Adam Smith and theoretical development of capitalism, and then steams ahead into the 19th century, covering the Industrial Revolution, the rise of big business and big finance. Next comes the action packed 20th century: the Great Depression, the New Deal, the threat from Communism during the Cold War, the tax reforms of the Reagan era, and eventually the crash of 2008 and Occupy Wall Street. Along the way, Goodwin and the illustrator Dan E. Burr demystify the economic theories of figures like Ricardo, Marx, Malthus, Keynes, Friedman and Hayek — all in a substantive but approachable way.
As with most treatments of modern economics, the book starts with Adam Smith. To get a feel for Goodwin’s approach, you can dive into the first chapter of Economix, which grapples with Smith’s theories about the free market, division of labor and the Invisible Hand. Economix can be purchased online here.
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Back in 2010, we presented an animated video where Slavoj Žižek, our favorite Slovenian theorist, identified a new trend in modern capitalism. Nowadays, marketers have found a crafty way to rework Max Weber’s Protestant Ethic. They tell us we can achieve personal redemption not through hard work and amassing savings, but by consuming the right products. When you buy eco-friendly products, fair trade goods, or products that yield some kind of charitable dividend, you don’t have to think twice about the cost of your consumerism. Not when you’ve done some good and earned yourself some good capitalist karma.
This line of thinking returns in Žižek’s new film The Pervert’s Guide to Ideology, where, once again, he focuses on one of the world’s most effective marketing operations, Starbucks. This, after having seemingly imbibed a “Venti” or “Trenta” portion of the product.
To drill deeper into Zizek’s thoughts on this subject, see his 30-minute lecture “First as Tragedy, Then as Farce.” For more clips from his new film, see our recent posts:
This morning, the Nobel Prize in Economic Science went to three American professors — Eugene F. Fama (U. Chicago), Lars Peter Hansen (U. Chicago) and Robert J. Shiller (Yale) — “for their empirical analysis of asset prices.” In his own way, each economist has demonstrated that “stock and bond prices move unpredictably in the short term but with greater predictability over longer periods,” and that markets are “moved by a mix of rational calculus and human behavior,” writes The New York Times.
Of the three economists, Robert Shiller is perhaps the most household name. In March 2000, Shiller published Irrational Exuberance, a book that warned that the long-running bull market was a bubble, that stock prices were being driven by human psychology, not real values. Weeks later, the market cracked and people began to pay attention to what Shiller had to say. Fast forward a few years, and Shiller released a second edition of the same book, this time arguing that the housing market was the latest and greatest bubble. We all know how that prediction played out.
Shiller’s thinking about the financial markets isn’t a mystery. It’s all on display in his Yale course simply called Financial Markets. Available for free on YouTube, iTunes Video, and Yale’s web site, the 23 lecture-course provides an introduction to “behavioral finance principles” necessary to understand the functioning of the securities, insurance, and banking industries. Recorded in 2011, the course is otherwise listed in the Economics section of our collection of 1200 Free Online Courses. You can watch all of the lectures above, starting with Lecture 1. By following these links, you can find the course syllabus, an outline of the weekly sessions, and a book list.
Personal Note: About 10 years ago, I worked with Prof. Shiller on developing an online course. Two things I recall about him. First, he struck me as being a very down-to-earth and unassuming guy. A pleasure to work with. Second, we had some time to kill one day, and so I asked him (circa 2005) whether it was crazy to buy a house. I mean, I had the guru sitting in front of me, in a chatty mood. What did I get? Bupkis: “You know, it just depends…” It wasn’t a bullish sign. So I took it to mean “Stay on the sidelines, kid.” In 2007, it seemed like sound advice.
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Here’s an update to our original 2011 post: The social theorist and geographer David Harvey has produced a free online course where he gives a close reading of Karl Marx’s Capital (1867). Often considered to be Marx’s masterpiece, Capital is where he elaborated a critique of capitalism and laid the groundwork for an ideology that took the 20th century by storm. Harvey has taught courses on Capital for over 40 years, both in universities (Johns Hopkins and CUNY) and in the community as well. Now his 26 lecture course is freely available on the web. You can watch the first lecture above. (It’s preceded by an introductory, six-minute interview.) The rest of the lectures can be accessed via Harvey’s web site, YouTube, iTunes, and the Economics section of our collection of Free Online Courses.
Marking a new phase of the project, Professor Harvey is now looking for volunteers to help translate his lectures into 36 languages. If you speak English and languages like Urdu, Arabic or Italian (just to list a few), you can start helping with translations here.
Also note that Harvey published A Companion to Marx’s Capitalin 2010. It’s something you’ll want read along with the lectures.
Mike Rugnetta, the fast-talking host of PBS’s Idea Channel, theorizes that the 20-year-old film is a great, possibly inadvertent commentary on the dangers of global market capitalism. His merry spoiler-packed video touches on such phenomena as risky investments, the subprime mortgage crisis, and the havoc that can be wreaked by a disgruntled employee. He hales both Richard Attenborough’s park owner character and Director Spielberg as egotistical madmen chasing monstrous profits. His kitchen sink approach inevitably leads to appearances by both Barney and Slovenian philosopher and cultural critic Slavoj Žižek.
Rugnetta is quick (of course) to point out that he could come up with similar hypotheses for such comparatively fresh releases as World War Z (wage slavery), Iron Man (glory be to the world-saving entrepreneur), and Pacific Rim (the global market will unite us all)… but why, when Jurassic Park’s got enduring, market-tested crowd-pleasers?
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