Pastor Piketty

The story is told of a country vicar in England who was famous for the quality of his Sunday sermons.  A member of his flock asked him what his secret was.  The pastor thought for a moment and said, "First I tells them what I'm going to tell them, then I tells them, and then I tells them what I've told them".

It's unlikely that Thomas Piketty has heard that little tale, but he certainly grasps the message.  I'm now well into his best-selling "Capital in the twenty-first century" -- about 9% in, according to my Kindle -- and feel entitled to offer some first impressions.  A very long introductory section spells out in great detail what the book is going to be about, even providing a chapter-by-chapter breakdown.  And when you start the first section of the book proper, Piketty basically repeats that breakdown.  Some readers may not like where the author is taking them, but he's determined to make sure that none get lost along the way.

Piketty's policy recommendations -- a global capital tax, much higher marginal rates on higher incomes -- have been well covered in the media, and I'll come back to them later.  For now, though, I want to focus on Piketty's methodology, and what it tells us about how he sees the economics profession.  Short version: he's not impressed.

The great achievement of the book, recognized even by those who find its conclusions abhorrent, is in pulling together a database on capital and income that is huge both vertically (i.e. through time) and horizontally (i.e. across countries and regions).  Piketty's starting point is a major study of US wealth carried out more than half a century ago by Simon Kuznets.  With the help of a large number of colleagues, notably in the US, France and the UK, and by drawing on some of the earliest attempts at measuring wealth, particularly in Europe, he has been able to generate comparable data going back into the 19th century across a range of countries, and to bring the global wealth-and-income story up to date.

Piketty stresses that he sees his book as being a work of history as much as economics -- and it's evident that he regrets the way that the mathematization of modern economics has driven the two disciplines apart.  He chides academic economists for focusing on mathematical approaches that have little or no grounding in the real world, while ignoring the need to have good data on how things actually work.  If economics is to be regarded as a "social science", Piketty's emphasis is definitely on the first word.  

In keeping with this, there's very little math in the book, and much of what there is deals with just two variables: r, the rate of return on capital, and g, the rate of growth in national income.  Back when I was an undergraduate, I recall being presented with a growth theory in which r and g were assumed to be equal; this was known as a "golden age". Piketty's massive database allows him to conclude that this is something that rarely happens in the real world.  He demonstrates that r will tend to exceed g, especially in periods when growth is slow, and this will inevitably lead to inequalities of wealth.  His belief that precisely this is happening today leads directly to his controversial views on the need for a wealth tax.

In the book's introduction, Piketty avers that he is anti-Communist and a lover of America.  It's tempting to wonder whether those assertions were in the original French version of the book, or have been added for the English translation.  In any event, those avowals have not protected him from being demonized on the right as some kind of second coming of Marx.  Take, for example, this denunciation in the pages of the UK's Daily Telegraph,  which describes the book's policy prescription as "horrendously flawed".

I'll let you read the article for yourself, but I'm struck by the alternative solution summarized in the sub-headline: "A much better solution is to encourage an ownership society so that all can enjoy the returns from capital".  I think that's what Karl Marx was in favour of, so that can't be what the author (Allister Heath) has in mind, can it? It gets more incoherent from there: Heath wants to liberalize planning laws, so that the price of housing goes down (in cities like London, New York and San Francisco, which gives you an idea of the narrowness of his vision), but he also wants to "normalize" interest rates, which would only serve to make housing less affordable across the board.

"Envy is back, disguised as a concern about inequality", says Heath.  Maybe so, but Pastor Piketty, doubtless cognizant of the Seven Deadly Sins, can readily retort that the politics of envy may well be less destructive than the economics of greed.

More thoughts on Piketty's book will follow as I work my way through it.  Happily, though it's a bit pedantic and repetitive here and there, it's quite a sprightly read -- surprisingly so for a translated work. 

Stuck in the middle with you (and you, and you...)

I haven't yet managed to read Thomas Piketty's improbably successful "Capital in the 21st century" -- it's languishing on my Kindle while I try to finish reading an equally weighty tome on the origins of the Great War*.  However, I've been closely following the debate that Piketty has generated, and it's led me to think a little about the meaning of "class" in modern society.

When I were a lad growing up in England, there was a fairly well-agreed system for defining the classes in society.  There was even an alphabetic code, from A to E, to summarize it.  The classifications were partly based on how much money people had, but also took account of how they got that money, as well as education and heredity.  I don't recall all the details, but "A" designated what you might call old money -- aristocrats and landed gentry.  "B" was "new money" -- the top levels of business and the professions. Further down the scale, "Cs" were salaried workers, "Ds" manual workers, and "Es" the unemployed.

The media loved to use this scale as a useful shorthand to analyze just about everything:  spending patterns, where people went on vacation, how they voted, what TV programs they watched, and so on.  The whole system fell into disuse decades ago, but of course, class distinctions still exist, and still have to be taken into account by policymakers.  The problem is, the way we look at class now is much simpler, but a lot less helpful, than the old ways were.

In North America there's one class that everyone loves to hate: the "one percent", the top income earners who are perceived to be getting ever wealthier even as the overall economy continues to struggle back from the impact of the financial crisis. And there's one class that almost everyone prefers to ignore -- the working poor and the unemployed.  Everyone else, these days, seems to be regarded as "middle class".

In the old UK alphabetic system,  that term would have been applied to the lower half of the "B" category and all of the "Cs".  Here in Canada, and as best as I can tell, also in the US, it covers most of the "Bs" and all of the "Cs" and "Ds".  That's a much larger group -- probably 80 percent of the population, surely too large to allow meaningful conclusions to be drawn about it.

Does this matter?  I think so.  Consider fiscal policy, for example.  Some politicians would like to raise taxes on the "one percent", but there's a well-founded fear that soaking the rich could backfire, given that wealth is so internationally mobile nowadays.  Higher taxes on the vast "middle class" are an option that no politician dares embrace today, thanks to the rhetoric of Republicans in the US and Conservatives in the UK and Canada.  So the only people left to hit are the poor and unemployed, and if you look at how budget deficits are being narrowed in both Canada and the UK, that's exactly who's bearing the brunt.

Among the forty or more candidates(!) for mayor of Toronto, there's a lawyer who wants to increase property taxes in order to pay for the services that the city's residents demand but never want to pay for. (Toronto's property taxes are the lowest in Ontario). As he told the Toronto Star last week, he feels that people such as himself who own million-dollar properties and have healthy incomes -- the real "middle class", if I dare say so -- should be willing to pay up for a better city.  I'd vote for him, except for the rather inconvenient fact that I don't live in Toronto.  But the fact is, he doesn't have a prayer of success.  And sadly, that's almost certainly equally true of Thomas Piketty's plan for an international tax on capital.

* "The War that ended Peace", by Margaret Macmillan. 

Biofuels are worse for the environment than gasoline

It's true, and this peer-reviewed study proves it. You would need a heart of stone not to laugh.

My SUV can only use high-grade gas, which doesn't contain ethanol.  I'm just glad to be doing my bit for the environment.

Happy Earth Day!

The first casualty

As the old saw has it, the first casualty of any war is the truth.  There may not have been much actual shooting in Ukraine, but the truth has already taken a fearsome pummelling from all sides.

When Russia seized Crimea, President Obama offered the remarkable suggestion that Vladimir Putin "seems to want to rewrite the result of World War Two".  As I recall it, and I think the history books will back me up here, that war ended with the USSR in de facto control of pretty much all of eastern Europe, including a big slice of Germany.  That "result" was comprehensively "rewritten", to use Obama's term, after 1989,  as the Warsaw Pact countries all moved to independence and the USSR itself disintegrated. It was the least bloody end of an empire in recorded history.

One element of the unwinding of the Soviet Empire in the early 1990s was a multi-party agreement on the future of Ukraine, by which Russia agreed to respect that country's territorial integrity.  The fact that Russia has violated that deal by seizing Crimea has been much commented on.  However, there has been a lot less notice paid to the fact that as an inducement for Russia to let Ukraine and the other parts of its empire go quietly, the NATO allies pledged not to admit the former Warsaw Pact countries as members. That pledge has been regularly and deliberately broken in the intervening years, as NATO has taken in not only all of the Warsaw Pact countries, but also the three Baltic states that were members of the USSR itself.

A look back through history will show that Russia has always feared encirclement.  Its only natural protection is its enormous size. When invaded from the west it has always had to retreat into its own heartland, sacrificing territory and manpower in order to shorten its own supply lines and elongate those of its adversaries. Russia's sheer size, and its almost limitless supply of cannon fodder, eventually put paid to both Napoleon Bonaparte and Adolf Hitler. Given these precedents, it was only a matter of time before Putin (or any other Russian leader) took a stand against the relentless incursion of NATO into its sphere of influence.

While the recent negotiations were taking place in Geneva, Putin was back in Moscow doing his annual media conference, a four-hour, nationally televised snoreathon.  Some commentators took note of the fact that he referred to eastern Ukraine as "Novorossiya",  New Russia.  It might almost have been more historically accurate to call it "Starirossiya" -- Old Russia. A thousand years ago, the Eastern Slavic tribes came together in a confederation that they called "Rus", but which is now usually referred to by historians as "Kievan Rus" -- because its capital was in Kiev/Kyiv.  Russians, Ukrainians and Belarusians all look to Kievan Rus as the source of their identity and nationhood.

That fact alone should have made the US and its allies cautious about taking sides here.  This dispute is like siblings bickering over their inheritance.  Best for outsiders to leave them to it.

Weather forecasts and economic forecasts

I've long thought that economic forecasting is like weather forecasting. Both rely on models, which is the same thing as saying that they rely on history repeating itself.  If events don't evolve in the way they have in the past, in the way that's built into the models, then the forecasts will turn out to be wrong.

It's a brave economist, then, who would try to combine economic and weather forecasting into one piece of work. It turns out that the head of TD Economics (my employer, many years ago) is that brave economist.  Craig Alexander and his team have just published an interesting piece on how the apparently increasing frequency of natural catastrophes will affect the Canadian economy.  You can find it here.

It's a well-balanced piece that stays well away from any kind of scaremongering about the future direction of the climate -- which, after the winter we've endured in most parts of Canada this year, is probably just as well!  The key message is that it's only prudent to plan on the basis that the more unpredictable and dangerous weather we seem to have been seeing in recent years is likely to continue: "With no sign that things are going to be getting any better, it's prudent for businesses and policymakers to start thinking of the long-term implications, and place a larger emphasis on catastrophes when making investment decisions".

That may seem obvious and even trite,  but it's a welcome change from the panic-mongering of many climate scientists.  It recognizes the fact that preventing the problems that climate change may cause will be a lot easier if economic growth is allowed to continue, rather than brought to a halt or even reversed by ill-premature measures to curb fossil fuel use.

The latest IPCC report on mitigating the impact of climate change offers up the pithy catch phrase that "it doesn't cost the earth to save the planet".  At least one guy is unimpressed with that: Bjorn Lomborg, the "sceptical environmentalist", who takes issue with just about everything in the IPCC report, arguing that the cost of trying to mitigate climate change stands to be much worse than the costs of the climate change itself.  The conclusion reached by TD Economics, at least for the specific case of Canada, is more practical and hopeful than that of either the IPCC ("we must spend whatever it takes to stop this") or Lomborg ("new technologies will save us").  Whether or not you think climate change is for real, and whether or not you think it is man made, there are still things that can be done to protect citizens and businesses from the worst.

De mortuis nil nisi bonum

The sudden death yesterday of Jim Flaherty, who was Canada's federal Finance Minister until less than a month ago, has produced a heartening display of non-partisan grief.  The House of Commons suspended its session as soon as the news appeared, and members of all parties have been effusive -- and to all appearances, heartfelt --  in their tributes.  You can get the flavour of it all at the CBC website or over at the Toronto Star, which devoted most of the main section of today's print edition to the story.  The Star is, to put it mildly, not in favour of most of the policies that Flaherty espoused -- small government, low taxes -- but was able to put that aside at least for the day.

Because here's the thing: Flaherty seems to have been a genuinely good guy.  He was ferociously partisan in Parliament, but decent and friendly in his daily life.  That's unusual in today's politics, and especially in today's Conservative government.  Prime Minister Harper is a calculating control freak, with a tolerance for dissent comparable to Vladimir Putin's.  Foreign Minister John Baird is an unreconstructed cold warrior, who seems to be channeling the awful US bully-boy John Bolton most of the time.  Flaherty genuinely stood out from the crowd.

One of the tearful tributes in the House of Commons today saw a colleague of Flaherty's reciting a piece of Irish verse that's often brought out on occasions like this -- you know, the one about "may the wind be always at your back".  I suspect that Flaherty, who was proud of his Irish roots, would have preferred this slightly less reverential one:

"May ye be in Heaven half-an-hour before the devil knows ye're dead".   

The Nasty Party/le Parti Mechant

After the Parti Quebecois lost its second referendum on sovereignty back in 1995,  party leader Jacques Parizeau stood in front of a crowd of the party faithful to deliver the customary concession speech.  It wasn't a speech he'd spent any time preparing:  most opinion polls had suggested that Quebecers would vote in favour of sovereignty, and Parizeau had a written text in his jacket pocket ready for that historic moment.  When the vote went narrowly against the PQ,  Parizeau appears to have gulped down a glass or two of something fortifying, and then proceeded to tell his shell-shocked and disappointed supporters that "It's true that we lost, but to what?  To money and the ethnic vote".

That was something of a lapse for Parizeau, who usually came across as an urbane and agreeable type.  But it's exactly the kind of sentiment that permeated the PQ's strategy in the provincial election campaign that culminated yesterday in the party's trouncing at the polls, after only eighteen months in office.  It's hard to recall a more inept election campaign, or a more unpleasant one.  The party's current leader (though not for much longer) is a career politician named Pauline Marois.  She comes across as the kind of woman you encounter from time to time in the supermarket checkout line, muttering about dark-skinned people and boisterous children.

The election call was preceded by the introduction of a thoroughly unpleasant secular "charter of rights", which would among other things have prevented government employees from wearing any visible symbols of religious faith.  This would have applied to Christians wearing small crucifixes or Jews with their kippas, but no-one was left in any doubt that the real targets were the province's burgeoning Muslim population.  Secularism is popular in formerly "priest-ridden" Quebec, and the charter had its supporters in rural areas and smaller towns, though the chattering classes in Montreal were aghast.  However, all opinion polls showed that the charter was a low priority item for most voters, far behind such issues as the economy and employment.

Another issue that ranked low with the voters was sovereignty, or even the threat of another referendum on the subject.  That's inconvenient for the PQ, since "making Quebec a country" is the party's main raison d'etre. In a stunning error of judgment, Mme Marois introduced as a star candidate a wealthy businessman named Pierre Karl Peladeau, who immediately delivered a fist-pumping speech calling for an immediate push for sovereignty.    It didn't help that Peladeau -- a kind of Canadian Rupert Murdoch, owner of a large chain of right-wing news media -- is a notorious union-basher,  not a good fit with the PQ's traditionally more left-leaning base. The party's support immediately plummeted, and the election was as good as lost from the moment Peladeau joined the campaign.

There are suggestions that this election may be the last gasp for Quebec sovereignty. It would be rash to draw that conclusion: it only takes two people to start a political party, and it only takes an inept government to leave the way open for all kinds of ideas to take hold with the voters.  Still, it's striking that the age cohort on which the PQ now relies for most of its support is the over-55s, who have fond memories of the two previous referenda. It's hard to see how the party will be able to sell its message to the younger generation -- and doubly hard if, as seems possible, the abrasive Peladeau is installed as Marois' replacement.

The age of the PQ's support base, by the way, provides an interesting contrast with the Scottish independence referendum, now less than six months away.  Scotland's first minister, Alex Salmond, was anxious to extend the franchise for the referendum to sixteen-year-olds, presumably calculating that the young might be more keen to take a punt on independence than their parents and grandparents.  Yesterday's results in Quebec suggest that might not be the case.

The other big contrast between Quebec and Scotland lies in the tone of the campaigning.  Quebec's was marked by mudslinging and insults.  In Scotland. almost all commentators have remarked on the civility of the proceedings on all sides*.  The issues are being debated fiercely but fairly; perhaps the most stinging insult so far has been Salmond's description of PM David Cameron as a "feartie" for refusing a TV debate!  Marois and the PQ lost by appealing to the baser instincts of their voters, whereas Salmond is trying, at least at this stage of the campaign, to offer a positive vision.  It remains to be seen whether that's a winning strategy.

* I wrote that sentence before coming across these cretinous comments from Lord Robertson.

Too much time, not enough news

Many years ago there was a newsreader in Canada who was allowed to deliver his half-baked personal opinions at the end of each bulletin.  At the end of these turgid expressions of his personal biases, he'd intone with maximum pomposity that: "That's not news, but that too is reality".

That was in the days before the rise of the all-news TV channels.  Nowadays, alas, a lot of what pollutes the airwaves is neither news nor reality.  I first blogged about this back in 2007, when a minor fire near the London Olympics site briefly led to wall-to-wall apocalypse watch at BBC News 24.  Probably my favourite among many moments of mirth during that (mercifully brief) saga was the point at which the commentator was warning that a nearby rail line was closed, even as the live video was showing a train moving past.

But all of that is nothing compared to the past month's coverage of the disappearance of Malaysia Airlines Flight 370, particularly as it's been handled by CNN.  It's probably true to say that if we confine ourselves to actual facts, then just about everything concrete about this tragic accident was known within the first 24 hours after the plane vanished from its intended course.  Everything since then, up to and including the current search off the coast of Western Australia, contains a huge element of speculation and guesswork -- much of it well-informed, but speculation and guesswork nonetheless.

It's quite remarkable that for at least the first three weeks after the plane vanished, CNN covered almost nothing else, and even now, great chunks of its prime time coverage are given over to repetitious speculation over the tiniest new development.  A rotating cast of talking heads has batted the issues back and forth, endlessly contradicting each other (and themselves) in an entirely pointless search for a theory they can all agree on.  A 777 simulator near the Toronto airport, normally used by kids' parties and adult thrillseekers, has been commandeered by the network 24 hours a day, and its taciturn operator's plaid shirts have been recognized with their own Twitter account.  It turns out that the simulator was actually Plan B for CNN: originally it wanted to lease an actual 777 for the duration of the search, but there wasn't one available.

Remarkably, this blanket coverage has given CNN a huge ratings boost, but what else has been achieved? Well, we've learned that the network has a kook on hand for every occasion, in this case the guy who speculated that the plane might have been sucked into a black hole.  And we've also been reminded that some Americans think they're smarter than anyone else.  It's been quite shocking to be told repeatedly that the failure to locate the plane is all the fault of the Malaysians.  That country may have made a few errors in the early going, but now that much of the world, including the US, has been searching unsuccessfully for the plane for about three weeks, it must be apparent to any sensible observer that this is a really, really difficult search.

Look at it this way.  It took two years to locate the wreckage of the Air France Airbus that went down in the south Atlantic back in 2009, even though that plane did not deviate significantly from its intended course.  By contrast, one of the few things that we know for sure about MH 370 is that it deviated wildly from its intended course.  Based purely on the fuel it was carrying, it could be anywhere from the Hindu Kush to the Roaring Forties.  The fact that the principal search area keeps shifting every few days as the available radar information is reassessed is a clear indication of the unprecedented problems the searchers are facing. "Needle in a haystack" doesn't come near to describing it.

CNN is gradually scaling back its coverage, but it's hard to see what will persuade it to relegate the story to the more sober level of coverage that now seems appropriate*.  After all, the Russia/Ukraine crisis couldn't break through the "all 370, all the time" mentality, a fact which has no doubt been welcome news in the Kremlin.  It's not in CNN's power to give any closure to the families and loved ones of the victims, but they could at least try to avoid adding to their grief through endless, ghoulish speculation.

*UPDATE, April 3 -  Sadly, we've now learned the answer to this:  the latest mass shooting at Fort Hood.