misfitS pOLITICS

We talk. We write. We entertain. Or so we think.
  • Home
  • Misfit Migrants
  • Mess Hall
  • Meet The Misfits
  • Misc. Musings
  • Home
  • Misfit Migrants
  • Mess Hall
  • Meet The Misfits
  • Misc. Musings

That Time that Thomas Piketty was Right

5/9/2016

0 Comments

 
Alexandra F. Baldwin
I am, in some senses, completely nuts.

It’s not obvious, but if you hung around me long enough you’d realize that, beneath the seemingly normal surface, I have some really weird interests and habits. I have demonstrably outstanding social skills, I can find something to talk about with just about anyone, people generally like me, I’m a pretty good dresser, highly-educated, well-paid and find myself to be utterly adorable. Other than my diminutive stature, you wouldn’t notice a whole lot about me that is terribly unusual. But make no mistake, I have my quirks.

Evidence of my insanity?  I read every word of Thomas Piketty’s “Capital in the 21st Century". According to Amazon, it is possibly the least read book in history, but yours truly got through the entire thing (incidentally, I only got about 2/3 of the way through “A Brief History of Time,” finished “Flash Boys,” “The Great Gatsby,” “Catching Fire” and “The Goldfinch.” I never bothered with any of the Fifty Shades or the other books on that list.)

Generally speaking, the book is packed full of incredibly interesting data and much less interesting analysis of that data. Leaving aside the questions over the quality of that data, his major findings are based on a couple of obviously flawed assumptions (that all wealth from capital is reinvested and not consumed, that capital is never destroyed outside of war, and that future returns will match historical returns despite basic laws of supply and demand).

There is, however, one section of the book that I found to be a remarkably cogent and simple explanation to a substantial problem. And, for a book that was wholeheartedly embraced by the left, largely ignored by the people who should have been shouting its message loudest. The section dealt with national debt, specifically debt accrued as a result of structural deficits, not capital improvements.

Every nation has a public balance sheet. The nation has public assets, which include government land and buildings, sovereign wealth funds, military bases and equipment, national parks and any holdings of financial assets. Most nations also have public liabilities in the form of debts issued by the treasury and promises made by the government. After subtracting the latter from the former, we are left with Net Public Wealth.

When a government issues debt, it increases its liabilities. It also increases its assets in the form of the cash received for that debt. When it then spends that cash on things that do not go onto the public balance sheet – like salaries to government employees, interest on previously issued debt or transfer payments – then public assets have fallen, and along with it, Net Public Wealth.

Meanwhile, who has been the purchaser of that debt? That varies by country, but the short version is pretty simple: rich people. In the US, for example, the largest chunk is bought by other departments of government (social security and the Federal Reserve are the biggest buyers), and the rest is sold to foreign governments and institutions (about 1/3) and to Domestic individuals and institutions.

I’ll ignore, for the moment, the impact of other agencies and departments holding debt (because it mostly doesn’t matter) and focus on the public debt. Some pretty basic common sense tells us the underlying beneficiaries of most of those institutions are disproportionately wealthy citizens. The wealthy own the biggest pension benefits, they’re the shareholders in banks and insurance companies that own large amounts of debt, and they are the ones directly buying bonds from the Treasury as well. Even indirectly, they disproportionately attend the schools with massive endowments that own large chunks, and they collect the largest portion of social security benefits for the longest time. As the largest owners of the debt, they are collecting the most interest on that debt.

{Kind of a logical leap here, but I would add to what Piketty says that a government borrows because it does not ask its citizens to pay the full cost of the government that it provides. If we assume that, in the US, those taxes would have been levied in the same proportion as our current income tax, the wealthy (who pay almost all of that tax) are predominantly the ones being absolved of their tax burden. This certainly fits in with the progressive narrative that the wealthy are “not paying their fair share.” They are, in essence, lending money to the government rather than simply giving it to the government.}

To summarize, then, when the Federal government issues debt on an ongoing operating basis, it is indebting all taxpayers and decreasing the Net Public Wealth. The beneficiaries of that are the new owners of public debt, who have added an interest-bearing asset to their own balance sheet. Those new owners are disproportionately wealthy, meaning that we have shifted wealth from the public as a whole into the hands of a select group of wealthy citizens.

All of which makes the current progressive love of government debt quite mysterious.
0 Comments



Leave a Reply.

    Misfits

    Just a gaggle of people from all over who have similar interests and loud opinions mixed with a dose of humor. We met on Twitter.
    ​Enough said.

    (If that's not enough, you can learn more here)

    Tweets by misfitspolitics

    Archives

    December 2021
    October 2021
    September 2021
    January 2021
    September 2020
    June 2020
    May 2020
    April 2020
    February 2020
    January 2020
    November 2019
    October 2019
    September 2019
    August 2019
    July 2019
    June 2019
    April 2019
    March 2019
    February 2019
    December 2018
    November 2018
    October 2018
    September 2018
    July 2018
    June 2018
    May 2018
    April 2018
    March 2018
    February 2018
    January 2018
    December 2017
    November 2017
    October 2017
    September 2017
    August 2017
    July 2017
    June 2017
    May 2017
    April 2017
    March 2017
    February 2017
    January 2017
    December 2016
    November 2016
    October 2016
    September 2016
    August 2016
    July 2016
    June 2016
    May 2016
    April 2016

    Categories

    All
    2016
    9/11
    Abortion
    AFB
    Afghanistan
    Air Force
    #alfieevans
    Alfie Evans
    ALS
    Armed Forces
    Army
    Baby
    Ben Carson
    Bernie
    Blog
    Bosnia
    CAOC
    #CelebrateWomen
    Christie
    City Council
    Comey
    Cooking
    Crete
    Cruz
    Deep Fry
    Desert Storm
    Donald Trump
    Drug Companies
    Election
    England
    Europe
    Exclusivity
    F-16
    Fanfic
    Fayetteville
    FBI
    FDA
    Fiction
    Fire
    Florida
    Free Market
    Fun
    Germany
    Gilmore
    Government
    Health Care
    Hillary Clinton
    Hobby
    Iraq
    Italy
    John Kasich
    Kevin Williamson
    Korea
    Kuwait
    LANTIRN
    Life
    Local Politics
    Marco Rubio
    Medical Care
    Memoir
    Military
    MIsfitMemo
    #MisfitMemo
    Misfits
    Misfits Politics
    Moms
    Mother's Day
    Narrative
    National Review
    NATO
    Navy
    #NeverTrump
    Patent
    Pharmaceutical
    Philippines
    Phillippines
    Politics
    Raymond
    Reform
    Rex
    Rubio
    Scarcity
    September 11th
    Service
    Ted Cruz
    Thread
    Tweetstorm
    Twitter
    UK
    Water
    Weekly Rewind
    World Cup
    World Trade Center

    RSS Feed

Home

About

Contact​

Copyright © 2016
  MisfitsPolitics
  • Home
  • Misfit Migrants
  • Mess Hall
  • Meet The Misfits
  • Misc. Musings
  • Home
  • Misfit Migrants
  • Mess Hall
  • Meet The Misfits
  • Misc. Musings