Michael Hudson on Piketty

Michael Hudson in Piketty's wealth gap wakes up:
"He’s started the discussion by showing the fact of vast inequality. What needs to be done now is to explain how did this inequality come about and what do you do about it? ....

One of the things that Piketty does not discuss when it comes to making fortunes is the role of debt, that most of these fortunes that have taken off since 1980 have taken off because of the increased debt leverage. As interest rates have fallen since 1980, you’ve had more and more bank credit going in to just bid up real estate prices, stock prices, bond prices, every kind of price, not to mention fine arts trophies that have gone with this. So, just as you’ve had the rising ratio of wealth to income of the 1%, you also have a rising ratio of debt to income. And so this indebtedness and the net worth again is very unequally distributed. Most peoples’ families, the major asset they have is in their home but these homes are also very heavily mortgaged and the mortgage payments they make, basically the 99% makes interest payments to the 1%.

And what to me really has been accelerating wealth at the very top is the financial sector, is the ability of the 1% to get the other 99% in debt to them by saying “Look, we’re controlling the access point to buying a home, to buying basic needs, in America to getting an education, and you can’t afford to buy a home or get an education or even a car without borrowing money. And we’re going to charge you enough interest so that everything you earn in effect you’re going to be paying us for interest”. And that’s the same thing that is leading the corporate raiders and the activist shareholders to try to raid corporations and say “Pay up more of your money as dividends”.

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So you’ve actually had a dismantling of tangible wealth and an increase in what used to be called fictitious capital or fictitious wealth, which is all basically debt leveraged wealth.......

When he talks about the rate of return the largest sector in the United States, and other countries also, is the real estate sector. If you look at from 1945 to today, the real estate sector doesn’t make an income. As you know, real estate by the billionaires is run as a personal charity. They don’t pay any income – if they made an income, of course, they would pay an income tax and declare it, but they don’t make any income. Almost all the rent they make is paid out either as interest or they charge depreciation as a cost. So what Piketty is referring to is not earnings before interest, taxes, depreciation and amortisation, but one portion of declared earnings excluding taxes, excluding interest, excluding depreciation and amortisation. The next highest wealth industry is oil and gas, they don’t declare any income because either they have a depletion allowance that makes them tax-exempt or they make all their income offshore in the flags of convenience countries. So the actual returns that are made, including the capital gains and total returns, simply are not available in the statistics that he looks at.

Secondly, what is growth? If you look at the American National Income & Product Accounts, for instance, 40% of all corporate profits in America a year ago when the statistics came out were made by the banks, by the financial sector. Now, these returns are basically a transfer payment. They don’t really add to growth. Financial services are not a service, unless you believe that a hold-up man that comes up to you in front of an ATM machine and says “Your money or your life” is giving you the service of giving you your life; it’s actually a transfer payment. He’s taking your money....

Well, what Piketty has done is make this wealth seen.....But one would really have to spend even more time reworking the statistics to untangle them to find out what is the actual reality behind this. "

And more in the post. It seems that Piketty's estimate of the wealth ap may be an underestimate even without taking tax havens into account.

Check also Ten ways to fight inequality without Piketty's wealth tax.