It's been way too long since I last posted. The delay was due to my "day job" of running a small business. One can only procrastinate so much when it comes to accounting and taxes. Trying to sort out the needless complexity of federal income taxes is enough to convert anyone into a progressive on tax reform - but I'll save that rant for some other day.

Piketty and his Book, Capital in the Twenty-First Century

Today's blog offering is about the recent brewhaha over Professor Thomas Piketty's brand new book Capital in the Twenty-First Century (we will refer to this book as just Capital for the rest of the post).

There are whole farms of editorial misstatements in this week's and last week's newspapers and sponsored blogs over this book. When I compare op-ed pieces on Piketty's opus, it seems like every editorial or review is about a different book. For example, Capital as read by Nobel-Prize winning economist Krugman (http://www.nytimes.com/2014/04/25/opinion/krugman-the-piketty-panic.html) appears to be a different work compared to the Capital read by right-leaning editorialist David Brooks (http://www.nytimes.com/2014/04/25/opinion/brooks-the-piketty-phenomenon.html), by Wall Street fund manager Daniel Shuchman (http://online.wsj.com/news/articles/SB10001424052702303825604579515452952131592), or by engineer and part-time journalist David Auerbach (http://www.slate.com/articles/technology/technology/2014/04/thomas_piketty_capital_in_the_twenty_first_century_surprisingly_entertaining.html). I could list more articles on Piketty's Capital, like the ones found in the venerable weekly Economist (http://www.economist.com/news/finance-and-economics/21592635-revisiting-old-argument-about-impact-capitalism-all-men-are-created) or the American Business flagship magazine Forbes (http://www.forbes.com/sites/scottwinship/2014/04/17/whither-the-bottom-90-percent-thomas-piketty/). It seems like the world has exploded with numerous reviews and commentary on this French economist's book while I was on vacation for the last two weeks.

I have not read Piketty's book and therefore am not in a position to produce my own critique. Regardless of what Piketty actually wrote, I am both intrigued and disappointed that I can predict the overall tone and much of the content of most reviews and commentary on Capital by author or publication for most of the news outlets I visit (with the one exception of Salon, as discussed below). For example, Krugman uses Piketty's analysis of growing income equality to go straight for the jugular of the voodoo economics favored by the modern American neo-con rightwing. But that's Krugman's bread-and-butter for his New York Times column. The man just can't resist taking those potshots at the supply-side economic theories of the American right wing because the former lives in a data-driven universe and latter does not.

Obligatory Tangent: Voodoo Economics

Okay, I admit it - that was a cheap shot. You caught me red-handed. I like Krugman's stuff and therefore must come clean that the above statement may be biased. Let's look at that for a moment before moving on. The term "voodoo economics" was coined by George Bush Sr. when he was running against Ronald Reagan for the Republican nomination as the party's presidential candidate in 1980. Voodoo economics was Daddy Bush's label for what is known as supply-side economics or "Reaganomics" on this side of the Atlantic. The lynchpin of Reaganomics is the theory that cutting taxes on capital-based income will create incentives to reinvest this formerly-taxed income in new business development, thus stimulating the economy and creating jobs. The tax revenue lost would be recouped through taxes on the new economic growth, namely the newly-created wages and business profits. By reducing the tax expense for businesses, the money saved would then "trickle-down" to the rest of the economy through new business spending. Deregulation of industry and shrinking the size of government were also part of Reaganomics, on the grounds that removing governmental meddling for both businesses and individuals would also stimulate the economy. The BBC has a nice bite-sized overview of voodoo economics at http://news.bbc.co.uk/2/hi/americas/270292.stm and the Stern School of Business at NYU has a nice in-depth overview at http://pages.stern.nyu.edu/~nroubini/SUPPLY.HTM.

Federal deficit reduction has been and still is integral to the current economic philosophy of the right wing; but if you give it a minute of thought, I believe you will realize that deficit reduction is actually a separate issue from supply-side economics. This is important only because right-wing pundits believe that policies which are the opposite of those recommended by supply-side theory, namely increasing taxes, regulating industry and not shrinking government, will lead to recession along with a growth in the federal deficit and in interest rates. The irony here is that the federal deficit exploded under Reagan's and Bush Senior's terms as President with their policies of deregulation and tax cuts, from $40 billion in 1979 to $221 billion in 1986. As to the economic impact of Reaganomics, numbers from the Congressional Budget Office show that the growth in GDP abruptly slowed during the Reagan administration, indicating a drop in economic activity.

In actual fact, the Clinton administration approach to federal deficit reduction did everything that supply-siders hate: taxes were increased while the growth of federal spending was slowed but not reversed. By the start of Clinton's second term, the federal deficit was cut in half. When Clinton left office, he left Bush Jr. a budget surplus of $236 billion. During that time, real interest rates and the growth rate of the GDP were both stable. (Federal deficit data is from the Congressional Budget Office, www.cbo.gov/publication/45249; GDP data is from the U. S. Bureau of Economic Analysis, http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=3&isuri=1&903=4).

So what's the gig with voodoo economics? Simply that they don't work as advertised, particularly in recessionary economies. At the risk of sounding like Krugman, cutting both taxes and government spending make recessions worse. This isn't arm waving. This is a statement based on data, and more data than just comparing Reagan/Bush Sr., Clinton and Bush Jr. The numbers aren't even exclusively American, especially when looking at the effect of taxes or consumer and government spending on measurements of economic health, namely unemployment, real wages, and prices indices. Krugman covers much of this ground in his 1995 book, Peddling Prosperity (ISBN 978-0393312928) but for an up-to-date look at the failure of supply-side economics, I refer the reader to the 2013 data-intense analysis of Stuckler and Basu in their book The Body Economic (ISBN 978-0-465-06398-7). Don't be fooled into thinking it's a book on public health policy. Read this book for its number crunching of international economic and societal data. Admittedly, the progressive rhetoric of the authors is strident but what they have to say is backed up by data, lots of data, and even more data. I'm a data-driven person and so I recommend this book highly.

To conclude this verbose tangent on voodoo economics, it was no surprise to me that Krugman's op-ed piece on Piketty was really just another another platform for one of his attacks on right wing economic theorists who are long on wind and arm waving and short on real numbers. I don't like Krugman because I'm a liberal because I'm not a liberal. I like Krugman because he pays attention to real-world economic data and eschews theoretical economic models regardless of the political orientation of their supporters. So much for my bias on Krugman.

More Predictable Reactions to Piketty's Capital

David Brooks is one of the New York Times' token op-ed conservatives. Mind you, what I have to say here is personal opinion and that the reader's opinion may be different from mine. I find that Brooks is no Krugman and that most of his stuff is unfocused and underwhelming, though I do enjoy his regular tiffs with New York Times liberal editorialist Gail Collins because of their good-natured humor. Brooks' piece on Piketty is like Brooks himself: full of fuzzy thinking and fuzzy, often incorrect assumptions. Here's an example from Brooks' Piketty article:

If you are a young professional in a major city, you experience inequality firsthand. But the inequality you experience most acutely is not inequality down, toward the poor; it’s inequality up, toward the rich. You go to fund-raisers or school functions and there are always hedge fund managers and private equity people around. You get more attention than them at parties, but your whole apartment could fit in their dining room. You struggle with tuition, but their kids go off on ski weekends. You wait in line at the post office, but they have staff to do it for them.

The first time I read this, my inner smart aleck protested that you'd never see the Wall Street elite at school functions since all their kids are off at Choate or Emma Willard or some other private school. And what's that bit about struggling with tuition? Young professionals I know in New York or San Francisco can't afford private schools for their kids, many of which carry price tags as expensive as tuition at an Ivy League university. Most professionals of my acquaintance, like my sister or my cousins, have to settle for moving to a bedroom community with a good public school system. And somehow, I find his take on inequality really very odd: that Brooks believes that observing the wealthy 1% is more common than seeing the homeless in Union Square or MacArthur Park, or seeing the slums every commuter observes from the windows of the subway or BART or from one's car on the Nimitz Freeway on the south side of Oakland. I have a hard time with that since the signs of poverty are as common and frequent as every person holding a "will work for food" sign at busy intersections and highway onramps, an unavoidable sight unless you live in a gated community that you never leave. This is just one example of why I find Brooks to be a fuzzy thinker and a fuzzy writer.

The quality of the New York Times' conservative editorialists has suffered since the late William Safire retired, sad to say. I do find it interesting that Brooks seems to assume that the reader has already read Piketty's book with its hefty retail price of $39.95 (and only $21.99 on Kindle!) but the devil's advocate in me wants to point out that Brooks' piece is an editorial, not a book review.

Out of the several of pieces from the Wall Street Journal ("WSJ") on Piketty's book, I will use just the one I mentioned above since I find it representative of many of the WSJ editorials I've read in recent years. I have to delineate between the old WSJ and the new because I find the WSJ just isn't what it used to be after Murdoch bought it. The amount of criticism of business and politics on the editorial page has declined and some topics, like racism and workplace discrimination, don't even appear anymore. I'm not alone in thinking the WSJ has strayed from its former standards of superior business reporting and analysis as any search on "Wall Street Journal changes since Murdoch" will show. The discussions on the changes at the WSJ at journalism.org would be a good place to start for those who are interested.

For me, the new style of WSJ editorials tend to feel like varsity versions of the junior varsity "commentary" reporting at Fox News. Strawman arguments, name calling and other forms of ad hominem attacks never used to show up at the WSJ but subtle forms of these are now not uncommon. Here's an example from the WSJ book review by Wall Street insider Shuchman:

"the author believes that no CEO could ever justify his or her pay based on performance. He doesn't say whether any occupation—athletes? physicians? economics professors who sell zero-marginal-cost e-books for $21.99 a copy?—is entitled to higher earnings because he does not wish to 'indulge in constructing a moral hierarchy of wealth.' "

Wow. Strawman and ad hominem all in one sentence! I'm going to resist the temptation here to ponder whether Shuchman perhaps found Piketty's commentary on exploding executive salaries a little too close to home. Someone please pass me my 6-pack of mice! For myself, I find nothing wrong with Piketty's desire to avoid the creation of a "moral hierarchy of wealth" where one's worth in life is measured only in terms of how much you earn. Despite the common American failing to use wealth as a measure of social standing and personal worth, it is not true that any given physician is a better person than a house wife raising a pack of children, or that a best seller author is a better person a truck driver, or that a Wall Street fund manger is a better person than a bank teller. Methinks that Shuchman doth protest too much.

I find that this sort of subtle nastiness has infected the op-ed pages of the WSJ since its takeover by Murdoch's media empire. As I pointed out in an earlier blog post (http://blog.someonewaswrongontheinternet.com/post/2013/09/23/Pipeline-Pathways-and-Foot-In-Mouth), this is the new Murdoch-owned WSJ where one editorialist claimed that:

"Pipelines also tend not to go straight through exposed population centers like Lac-Mégantic."

If you recall, this brilliant example of cluelessness was out of an editorial titled "Can Environmentalists Think?" It makes me wonder if the op-ed page editor was asleep when this was submitted. Unfortunately, this is the sort of snarkiness one can expect out of the WSJ these days. I find it incredibly sad because I used to really love the WSJ with its deep and nuanced reporting on business, which was unique and every bit as good as the Economist but on a daily basis. But things have changed since the buy-out of the WSJ's parent corp Dow Jones and over a hundred journalists fled for other news outlets, which would be a devastating loss for any news organization (ref: http://mediamatters.org/blog/2011/04/25/exodus-former-wsj-staffers-speak-out-against-mu/179020). I think the only reason I still subscribe to the WSJ is for fodder for this blog. Really.

Moving on to the book review in the Economist, it has everything that one expects from this premier European economic weekly: a good overview of what the book is about, an appreciation of Piketty's attempt to tie economic trends to modern philosophical and cultural trends and a list of both good and bad aspects in Piketty's analysis. Where the WSJ book review ridiculed Piketty's invocation of literature and culture in his analysis of the use of capital in modern societies, including Communist ones, the Economist's review discussed the value of examining economic theory from different cultural perspectives that change over time. This review was comprehensive, nuanced and sophisticated. The unnamed author of the review did not pull punches where he or she saw gaps in Piketty's assumptions or disagreed with Piketty's conclusions, but those criticisms were delivered ever so politely, demonstrating that disagreement doesn't have to be wrapped in nastiness or sarcasm. The review in the Economist makes me want to read Piketty's book for myself. This is the sort of journalism that one expects from the Economist and it's one of the reasons why I adore this weekly. If you have never sampled the joys of intelligent business-oriented news and analysis in the Economist, you should take the time to check it out.

The treatment of Piketty's book by Forbes is interesting and in-character for this maverick of American business reporting. While the article I cited earlier is intelligent and perceptive, it's only one in a whole series of a planned examination by Forbes on the different aspects of Piketty's book. Going over to the Forbes website, a search on "Piketty" returns 15 already-written articles and blogs on his book plus several others discussing Piketty in general or in comparison to other economists of international standing. Well, that's Forbes for you. Like the eccentric and flamboyant members of the Forbes family who founded and ran this magazine, one never knows quite what to expect but whatever it turns out to be, it will be interesting. Given the sheer number of divergent opinions on Piketty reflected in the Forbes articles, I know I have revised my opinion on Forbes upwards.

Red Bashing

Now there's one thing about the Piketty book that I've not discussed yet, and that is Piketty's treatment of Marx. Piketty's specialty in economics is economic inequality and on that subject he apparently takes some of what Marx said seriously. Keep in mind that Piketty is a French economist working and teaching in France, a place where words like "socialist" or "communist" are not necessarily the lies of Satan straight out of the Necronomicon. Since he doesn't have to worry about the American tenure system for academics, examining the theories of Marx with something other than condemnation does not carry the risk of career suicide that it would be in the U.S. of A. Apparently, Piketty makes some very un-American suggestions to combat what he believes is an irreversible run-away spiral of wealth inequality a la Marx, like a world-wide 80% tax on income from capital gains - well, that's the impression I get from that pile of informative Forbes articles. David Brooks at the New York Times was dead on the money for once when he wrote that such a global wealth tax was the product of a utopian idealist.

Now saying that something in Marx might be right is enough to invoke a lynch mob in these parts. Only one of the Piketty reviews (Auerbach at Slate) noted that not only did Piketty agree with some observations by Marx but that he also had lots to say about where Marx got it wrong. This left me wondering about the potential lack of balanced reporting on Piketty's book and about possible trends of pinko commie bashing in Piketty book reviews and editorials. So I made a completely unscientific random survey of reviews and commentary, and my results are listed below:

  • New York Times - Krugman: no mention of anything like Marx or commies (http://www.nytimes.com/2014/04/25/opinion/krugman-the-piketty-panic.html)
  • New Tork Times - Brooks: offhand neutral remark about Marxism (http://www.nytimes.com/2014/04/25/opinion/brooks-the-piketty-phenomenon.html)
  • Wall Street Journal - Shuchman: red bashing (http://online.wsj.com/news/articles/SB10001424052702303825604579515452952131592)
  • Wall Street Journal - Paletta: no mention of Marx (http://blogs.wsj.com/economics/2014/04/14/5-takeaways-on-wealth-and-inequality-from-piketty)
  • National Review - Pethokoukis: red bashing (http://www.nationalreview.com/article/374009/new-marxism-james-pethokoukis)
  • Slate - Auerbach: neutral observation on Piketty's treatment of Marx (http://www.slate.com/articles/technology/technology/2014/04/thomas_piketty_capital_in_the_twenty_first_century_surprisingly_entertaining.html)
  • Slate - Weissmann: offhand neutral mention of Marx (http://www.slate.com/articles/business/moneybox/2014/04/thomas_piketty_capital_how_america_s_liberals_fell_for_a_french_economist.html)
  • Economist - anon.: neutral mention of Marx's theories (http://www.economist.com/news/finance-and-economics/21592635-revisiting-old-argument-about-impact-capitalism-all-men-are-created)
  • Forbes - Winship: neutral mention of Marx's theories (http://www.forbes.com/sites/scottwinship/2014/04/17/whither-the-bottom-90-percent-thomas-piketty/).
  • American Enterprise Institute - Hassett: neutral mention of Marx's theories (http://www.aei.org/speech/economics/remarks-on-thomas-pikettys-capital-in-the-twenty-first-century/)
  • Salon - O'Hehir: rightwing conservative bashing (http://www.salon.com/2014/04/26/the_new_gilded_age_a_bigger_con_job_than_the_first_one/)
  • Salon - Donovan: rightwing conservative bashing (http://www.salon.com/2014/04/24/the_rights_piketty_nightmare_coming_of_age_in_the_era_of_post_exceptionalism/)
  • New Yorker - Cassidy: neutral mention of Marx's theories, neutral observations on Piketty's treatment of Marx (http://www.newyorker.com/arts/critics/books/2014/03/31/140331crbo_books_cassidy)
  • Rush Limbaugh Show - Limbaugh: red bashing squared (http://www.rushlimbaugh.com/daily/2014/04/24/the_left_is_giddy_over_new_marxist_book)
  • Bloomberg - Crook: minor neutral mention of Marx (http://www.bloombergview.com/articles/2014-04-20/the-most-important-book-ever-is-all-wrong)
  • Naked Capitalism - "Rumplestatskin": no mention of Marx (http://www.nakedcapitalism.com/2014/04/corrupting-piketty-21st-century.html)

This list is interesting. I was surprised by the lack of red bashing from Hassett at the right-wing American Enterprise Institute. Pethkoukis, a career red basher at the the National Review also publishes stuff through the American Enterprise Institute and he seldom passes up the opportunity to spout anti-commie utterances. I guess this means that the American Enterprise Institute doesn't insist on red bashing but they don't ban it either.

What really surprised me was Salon, which I have liked over the years. A double whammy of conservative bashing was not what I expected but the facts are staring me in the face: Salon does not ban the bashing of conservatives and conservative ideas. My opinion of Salon has been revised downward. Sic transit gloria salon.

Biased Journalism

My big point in this digression is that a review or commentary of someone's controversial work can be more reflective of the person who writes it or the publication in which it appears than it is of the work being discussed. This idea popped into my brain after I read Krugman's column and Brooks' column back-to-back. Neither column told me much about Piketty's book but each spoke volumes to me on the signature writing styles of these two columnists. I then visited several other newspaper and magazine websites to test my hypothesis. To a first approximation, I think my observation is correct with one caveat. Here's the caveat: the shorter the review or commentary, the more likely it reflects the opinions of its author or publisher and the less likely it is to inform the reader about the content of the work under discussion. But don't take my word for this. Run your own test of this hypothesis and make up your own mind on this matter.

I think it's good to test this hypothesis on a subject you don't care much about or on a issue where you don't already have a strong opinion formed. Like me this morning, if you know nothing about the celebrated international French economist Thomas Piketty, then run your experiment on his book Capital. If you are already informed about Piketty's Capital, then pick a different subject you don't know much about. Next, make a list of news outlets and/or authors along with your own evaluation of whether they are liberal vs. conservative and cursory vs. detailed. Then visit each news outlet or author on your list and look at the political orientation for each article you find discussing your chosen subject. The gig here is not whether you agree or disagree with the opinions you find, but rather what the political orientation might be for any author or news outlet. Also look at each piece of reporting as to whether it delivers facts and observations and whether it resorts to arm-waving, grandstanding, ad hominem attacks and other opinion-manipulation tricks like strawman arguments. Be aware that any given piece of writing may include both factual content and rhetorical tricks. The purpose of the exercise is to measure factual reporting vs. political bias. You might learn something new about who does a good or bad job reporting the news. I certainly did.

Post Script 1:

I haven't read Piketty's book. At $22 for an ebook version, I find the price a bit too high. I'll wait for the library to get a copy or will pick up a copy in a few months for a few bucks at a used book store. While I will slap down $40 for a good science book, like the American Chemical Society overview on the chemistry of paper that I just picked up, I find that most tomes on economic theory are tedious and uninteresting. Molecules are much more engaging that monetary supply and macro-economibarf. I dropped the one economics class I tried in college. I'd rather decline verbs in Latin or wash dishes. So no, I'm going to pass on reading this tome of economic theory until I can borrow it or buy it cheap. That's why this post is about bias in the journalistic reactions to this book and not about the book itself.

Economics. Blech!

Post Script 2:

Of all the articles I've read on this book, John Cassidy's review in the New Yorker (http://www.newyorker.com/arts/critics/books/2014/03/31/140331crbo_books_cassidy) is by far the best: balanced, detailed and interesting. I almost bought a copy of Capital in the Twenty-First Century after reading this review before sanity reasserted itself.

Economics. Blech! Just because I sometimes write about economics doesn't mean that I like economics.

Notes on References: all the URLs listed in this blog post were accessed on 26 April 2014.