Links for May 5, 2017

Some economics content, for this rainy Friday afternoon:


Turbulence. Over at INET, Arjun Jayadev has posted the next in our series of “rebel masters” interviews with dissenting economists. This one is with Anwar Shaikh, who is, I’m sure, familiar to readers of this blog. Shaikh’s work resists summary, but the

broad thesis revolves around the idea that there is an alternative tradition-embedded in the classical approach of Smith, Ricardo and Marx which insists on understanding the world on its own terms rather than from an idealized economy from which the real world deviates. This approach focuses on what is termed “real competition” wherein competition between firms, each seeking to get the highest price they can, leads to a “turbulent gravitation” of prices around values. As such, there is never an equilibrium, but a dancing around some key deeper parameters.

As with all these interviews, there’s also some discussion of his own political and intellectual development, as well as of the content of his work.

I haven’t made a serious effort to read Shaikh’s big new book Capitalism. Given its heft, I suspect it will function more as a reference work, with people going to specific sections rather than reading it from front to back. (I know one person who is using it as an undergraduate textbook, which seems ambitious.) But if you want an admiring but not uncritical overview of the book as a whole, this review in New Left Review by John Grahl could be a good place to start. It’s written for people interested in the broad political economy tradition; it’s focused on the broad sweep of the argument, not on Shaikh’s position within current debates in heterodox economics.


The rich are different from you and me. [1] At Washington Center for Economic Growth, Nick Bunker calls attention to some new research on income inequality over the past 15 years. The key finding is that since the end of the 1990s, the rise in income inequality is almost all due to income from S-corporations (pass-through companies, partnerships, etc.) at the very top of the distribution. As a result, rising inequality shows up in tax data, but not in Social Security data, which captures only labor income. What do we take from this? First, the point I’ve made periodically on this blog: Incomes at the top are mainly capital income, not labor income. But there’s also a methodological point — the importance of constantly walking back and forth between your theoretical construct, the concrete social reality it hopes to explain, and the data (collected by somebody, according to some particular procedures) that stands between them.


What are foreign investors for? At FT Alphaville, Matthew Klein has a very interesting post on capital controls. As he notes, during the first decade of the euro, Spain was the recipient of one of “the greatest capital flows of all time,” with owners of financial assets all over Europe rushing to trade them for claims on Spanish banks. This created immense pressure on Spanish banks to increase lending, which in the event financed a runup in real estate prices and an immense quantity of never-to-be-occupied houses and hotels. (It’s worth noting in passing that this real estate bubble developed without any of the securitization that so mesmerized observers of the American bubble.) Surely, Klein says,

if you accept the arguments for regulating cross-border financial movements in any situation, you have to do the same for Spain. The country raised bank capital requirements and ran large fiscal surpluses, but none of that was enough. Plus, it didn’t have the luxury of a floating currency. Both the boom and bust would clearly have been smaller if foreigners had been prevented from buying so many Spanish financial assets, or even just persuaded to buy fewer bonds and more stocks and direct equity.

This seems right. But we could go a step farther. What’s the point of capital mobility?  If you don’t in fact want bank balance sheets expanding and shrinking based on the choices of foreign investors, what benefit are those investors providing to your economy? They provide foreign exchange (allowing you to run current account deficit), they provide financing (allowing credit to expand more), they substitute their judgement of future for domestic actors’. These are exactly the problems in the Spanish case. What is the benefit, even in principle, that Spain got from allowing these inflows?


There’s always a first time. Also from Matthew Klein, here is a paper from the Peterson Institute looking at historical fiscal balances and making the rather obvious point that there is little historical precedent for the surpluses the Greek government is expected in order to  pay its conquerors creditors. It is not quite true that no country has ever sustained a primary surplus of 3.5 percent for a decade a more, as Greece is expected to do; but such episodes are exceedingly rare.

My one criticism of Klein’s piece is that it is a little too uncritical of the idea that “market rates” are just a fact about the world. The Peterson paper also seems to regard interest rates as set by markets in response to more or less objective macroeconomic variables. Klein notes in passing that the interest rate Greece pays on its borrowing will depend on official choices like whether Greek debt is included in the ECB’s bond-buying programs. But I think it’s broader than this — I think the interest rate on Greek bonds is entirely a policy choice of the ECB. Suppose the ECB announced that they were fixing the interest rate on Greek bonds at 1 percent, and that they’d buy them as long as the yield was above this. Then private lenders would be happy to hold them at 1 percent and the ECB would not have to make any substantial purchases. This is how open market operations work – when a central bank announces a policy rate, they can move market rates while buying or selling only trivial amounts. If the ECB wished to, it could put Greece on a stable debt path and open up space for a less sociocidal budget, without the need for any commitment of public funds. But of course it doesn’t wish to.


Capital with Chinese characteristics. This new paper on wealth and inequality in China from Piketty, Zucman and Li Yang is an event; it’s a safe bet it’s going to be widely cited in the coming years. The biggest contribution is the construction of long-run series on aggregate wealth and the distribution of wealth and  income for China. Much of the paper is devoted, appropriately, to explaining how these series were produced. But they also draw several broad conclusions about the evolution of the Chinese economy over the apst generation.

First, while the publicly-owned share of national wealth has declined, it is still very high relative to other industrialized countries:

China has ceased to be communist, but is not entirely capitalist; it should rather be viewed as a “mixed economy” with a strong public ownership component. … the share of public property in China today is somewhat larger than – though not incomparable to – what it was in the West during the “mixed economy” regime of the post-World War 2 decades (30% in China today vs. 15-25% in the West in the 1950s-1970s). … Private wealth was relatively small in 1978 (about 100% of national income), and now represents over 450% of national income. Public wealth [has been] roughly stable around 250% of national income.

It’s worth noting that the largest component of this increase in private wealth is housing, which largely passed from public to private hands, The public sector, by Piketty and coauthors’ measures, continues to own about half of China’s non-housing wealth, including the majority of corporate equity, and this fraction seems to have increased somewhat over the past decade.

Second, income distribution has become much more unequal in China over the past generation, but seems to still be more equal than in the United States:

In the late 1970s China’s inequality… [was] close to the levels observed in the most egalitarian Nordic countries — while it is now approaching U.S. levels. It should be noted, however, that … inequality levels in China are still significantly lower than in the United States…. The bottom 50% earns about 15% of total income in China (19% in rural China, 23% in urban China), vs. 12% in the U.S. and 22% in France. For the time being, China’s development model appears to be more egalitarian than that of the United States, and less than Europe’s. Chinese inequality levels seem to have stabilized in recent years (the biggest increase in inequality took place between the mid-1980s and the mid-2000s)

The third story — much less prominent in the article, and of less important, but of particular interest to me — is what explains the observed rise in the ratio of wealth to national income. Piketty et al. suggest that 50-70 percent of the rise can be explained, in accounting terms, by the observed rates of saving and investment and their estimate of depreciation, while the remaining 30-50 percent is due to valuation changes. But in a footnote they add that this includes a large negative valuation change for China’s net foreign wealth, presumably attributable to the appreciation of the renminbi relative to the dollar. So a larger share of the rise in domestic wealth relative to income must be accounted for by valuation changes. (The data to put an exact number on this should be available in their online appendices, which are comprehensive as always, but I haven’t done it yet.)

This means that a story that conflates wealth with physical capital, and sees its growth basically in terms of net investment, will not do a good job explaining the actual growth of Chinese capital. (The same goes for the growth in capital relative to income in the advanced countries.) The paper explains the valuation increase in terms of a runup in the value of private housing plus

changes in the legal system reinforcing private property rights for asset owners (e.g., lifting of rent control, changes in the relative power of landlords and tenants, changes in the relative power of shareholder and workers).

This seems plausible to me. But I wish Piketty and his coauthors — and even more, his admirers — would take this side of the story more seriously. If we want to talk about the “capital” we actually see in public and private accounts, a theory that sees it growing through net investment is not even roughly correct. We really do have to think of capital as a social relation, not a physical substance.


On other blogs, other wonders.

Here’s a video of me chatting with James Parrott about robots.

Who’d have thought that Breitbart is the place to find federal government employment practices held up as an ideal?

At PERI, Anders Fremstad and Mark Paul have a nice paper on the distributional impact of different forms of carbon taxes.

Also at PERI, another whack at the Reinhart-Rogoff piñata.

I’ll be speaking at this Dissent thing on May 22.



[1] This phrase has an interesting backstory. The received version has it that it’s F. Scott Fitzgerald’s line, to which Ernest Hemingway replied: “Yes. They have more money.” But in fact, Hemingway was the one who said the rich were different, at a lunch with Maxwell Perkins and the critic Mary Colum, and it was Colum who delivered the putdown. (The story is in that biography of Perkins.) In “Hills like White Elephants,” Hemingway, for reasons that are easy to imagine, put the “rich are different” line in the mouth of his frenemy Fitzgerald, and there it’s stayed.

Piketty Post at Crooked Timber

Crooked Timber is having a book event on Piketty’s Capital in the 21st Century. My contribution is here. A few supplemental bits:

First, I need to point out a problem in my post. I write: “It’s striking, for instance, that the book does not contain a table or figure comparing r and g historically.” But of course, as David Rosnick points out in email, this is not true. There are three figures in chapter 10 that purport to give historical values for r and g. The inadequacy of these figures to bear the weight put on the r > g apparatus is, I think, evident. Why are there no cross-country comparisons? Why the odd periodizations? Why so much emphasis on the data-free values invented for the distant past and future? Perhaps most damningly, what about the fact that r > g is no more true in the increasingly unequal second half of the 20th century than in the increasingly equal first half? But none of that changes the fact that my sentence, as I wrote it, is wrong.

Some people may be interested in other things I’ve written relating to Piketty on this blog over the past couple years:

A Quick Point on Models

Posts in Three Lines

Piketty and the Money View: A Reply to MisterMR

Piketty and the Money View

Wealth Distribution and the Puzzle of Germany

Mehrling on Black on Capital

Three Ways of Looking at alpha = r k

With respect to the Crooked Timber piece, I should say — should have acknowledged in the post itself — that it all comes out of conversations I’ve been having with Suresh Naidu over the past year or so. Suresh himself has written various things about Piketty; he’s working on a piece now on these same themes of capital, Piketty and the money view that should move the conversation significantly forward.

I should also have pointed out the Real World Economic Review’s superb special issue on Piketty. Jamie Galbraith’s, Merijn Knibbe’s, and Yanis Varoufakis’ contributions made many of the same points I tried to make in the Crooked Timber post. Knibbe’s piece in particular is a tour de force, everyone interested in these debates should read it.

Finally, I should say: I’ve been reading Crooked Timber since it began, in 2003. For a long while I was a regular commenter there, most of that time pseudonymously as Lemuel Pitkin. Now twelve years is a long time in internet time. Not so long in real life but still long enough  for me to go back to graduate school, get my PhD and various teaching jobs, and to start this blog. Crooked Timber was probably my main inspiration to try to write in this format. So I can’t deny it, I’m thrilled to finally have a post up there.



A Quick Point on Models

According to Keynes the purpose of economics is “to provide ourselves with an organised and orderly method of thinking out particular problems”; it is “a way of thinking … in terms of models joined to the art of choosing models which are relevant to the contemporary world.” (Quoted here.)

I want to amplify on that just a bit. The test of a good model is not whether it corresponds to the true underlying structure of the world, but whether it usefully captures some of the regularities in the concrete phenomena we observe. There are lots of different regularities, more or less bounded in time, space and other dimensions, so we are going to need lots of different models, depending on the questions we are asking and the setting we are asking them in. Thus the need for the “art of choosing”.

I don’t think this point is controversial in the abstract. But people often lose sight of it. Obvious case: Piketty and “capital”. A lot of the debate between Piketty and his critics on the left has focused on whether there really is, in some sense, a physical quantity of capital, or not. I don’t think we need to have this argument.

We observe “capital” as a set of money claims, whose aggregate value varies in relation to other observable monetary aggregates (like income) over time and across space. There is a component of that variation that corresponds to the behavior of a physical stock — increasing based on identifiable inflows (investment) and decreasing based on identifiable outflows (depreciation). Insofar as we are interested in that component of the observed variation, we can describe it using models of capital as a physical stock. The remaining components (the “residual” from the point of view of a model of physical K) will require a different set of models or stories. So the question is not, is there such a thing as a physical capital stock? It’s not even, is it in general useful to think about capital as a physical stock? The question is, how much of the particular variation we are interested is accounted for by the component corresponding to the evolution of a physical stock? And the answer will depend on which variation we are interested in.

For example, Piketty could say “It’s true that my model, which treats K as a physical stock, does not explain much of the historical variation in capital-output ratios at decadal frequencies, like the fall and rise over the course of the 20th century. But I believe it does explain very long-frequency variation, and in particular captures important long-run possibilities for the future.” (I think he has in fact said something like this, though I can’t find the quote at the moment.) You don’t have to agree with him — you could dispute that his model is a good fit for even the longest-frequency historical variation, or you could argue that the shorter frequency variation is more interesting (and is what his book often seems to be about). But it would be pointless to criticize him on the grounds that there isn’t “really” such a thing as a physical capital stock, or that there is no consistent way in principle to measure it. That, to me, would show a basic misunderstanding of what models are.

An example of good scientific practice along these lines is biologists’ habit of giving genes names for what happens when gross mutations are induced in them experimentally. Names like eyeless or shaggy or buttonhead: the fly lacks eyes, grows extra hair, or has a head without segments if the gene is removed. It might seem weird to describe genes in terms of what goes wrong when they are removed, as opposed to what they do normally, but I think this practice shows good judgement about what we do and don’t know. In particular, it avoids any claim about what the gene is “for.” There are many many relationships between a given locus in the genome and the phenotype, and no sense in which any of them is more or less important in an absolute sense. Calling it the “eye gene” would obscure that, make it sound like this is the relationship that exists out in the world, when for all we know the variation in eye development in wild populations is driven by variation in entirely other locuses. Calling it eyeless makes it clear that it’s referring to what you observe in a particular experimental context.

EDIT: I hate discussions of methodology. I should not have written this post. (I only did because I liked the gene-naming analogy.)  That said, if you, unlike me, enjoy this sort of thing, Tom Hickey wrote a long and thoughtful response to it. He mentions among others, Tony Lawson, who I would certainly want to read more of if I were going to write about this stuff.

Posts in Three Lines

There is no long run. This short note from the Fed suggests that the failure of output to return to its earlier trend following the Great Recession is not an anomaly; historically, recessions normally involve permanent output losses. This working paper by Lawrence Summers and Lant Pritchett argues that it is very hard to find persistent growth differences between countries. From opposite directions, these results suggest that there is no reason to think that supposedly “slow” variables are more stable than “fast” ones; in other words, there is no economically meaningful long run.

Krugman on the archaeology of “price stability.” Here is Paul Krugman’s talk from the same Roosevelt Institute/AFR/EPI even I spoke at last month. The whole thing is quite good but the most interesting part to me was on the (quite recent) origins of the idea that price stability means 2 percent inflation. From Adam Smith until the 1990s, price stability meant just that, zero inflation; but in the postwar decades it was more or less accepted that that was one objective to trade off against others, rather than the sine qua non of policy success.
Capital is back — or is it? Here’s an interesting figure from Piketty and Zucman’s 2013 paper, showing the long-term evolution of capital and labor shares in the UK and France:
What we see is not a stable or rising capital share, but rather a secular shift in favor of labor income, presumably reflecting the long term growth of political power of working people from the early 19th century, when unions were illegal, labor legislation was unknown and only property owners could vote. What’s funny is that this long-term decline in the power of capital is so clearly visible in Piketty’s data, but so invisible in the discussion of his book.
Orange is the big lie. Like lots of people, I watched the Netflix show Orange Is the New Black and initially enjoyed it, enough to read the memoir on which it’s based. It’s not often you see ideology operation so visibly: The show systematically omits the book’s depictions of abuse and racism among the guards and solidarity among the prisoners, and introduces violence from the prisoners and compassion from the authorities that is not present in the book. For example, both book and show feature an affair between a female prisoner and a male guard, but in the show nothing happens to the prisoner while the guard is fired and prosecuted, while in reality the prisoner was thrown into solitary confinement and there were no consequences for the guard.

Wealth Distribution and the Puzzle of Germany

There’s been some discussion recently of the new estimates from Emmanuel Saez and Gabriel Zucman of the distribution of household wealth in the US. Using the capital income reported in the tax data, and applying appropriate rates of return to different kinds of assets, they are able to estimate the distribution of household wealth holdings going back to the beginning of the income tax in 1913. They find that wealth inequality is back to the levels of the 1920s, with 40% of net worth accounted for the richest one percent of households. The bottom 50% of households have a net worth of zero.

There’s a natural reaction to see this as posing the same kind of problem as the distribution of income — only more extreme — and respond with proposals to redistribute wealth. This case is argued by the very smart Steve Roth in comments here and on his own blog. But I’m not convinced. It’s worth recalling that proposals for broadening the ranks of property-owners are more likely to come from the right. What else was Bush’s “ownership society”? Social Security privatization, if he’d been able to pull it off, would have  dramatically broadened the distribution of wealth. In general, I think the distribution of wealth has a more ambiguous relationship than the distribution of income to broader social inequality.

Case in point: Last summer, the ECB released a survey of European household wealth. And unexpectedly, the Germans turned out to be among the poorest people in Europe. The median German household reported net worth of just €50,000, compared with €100,000 in Greece, €110,000 in France, and €180,000 in Spain. The pattern is essentially the same if you look at assets rather than net worth — median household assets are lower in Germany than almost anywhere else in Europe, including the crisis countries of the Mediterranean.

At the time, this finding was mostly received in terms the familiar North-South morality tale, as one more argument for forcing austerity on the shiftless South. Not only are the thrifty Germans being asked to bail out the wastrel Mediterraneans, now it turns out the Southerners are actually richer? Why can’t they take responsibility for their own debts? No more bailouts!

No surprise there. But how do we make sense of the results themselves, given what we know about the economies of Germany and the rest of Europe? I think that understood correctly, they speak directly to the political implications of wealth distribution.

First, though: Did the survey really find what it claimed to find? The answer seems to be more or less yes, but with caveats.

Paul de Grauwe points out some distortions in the headline numbers reported by the ECB. First, this is a survey of household wealth, but, de Grauwe says, households are larger in the South than in the North. This is true, but it turns out not to make much of a difference — converting from household wealth to wealth per capita leaves the basic pattern unchanged.

Per capita wealth in selected European countries. From de Grauwe.

Second, the survey focuses on median wealth, which ignores distribution. If we look at the mean household instead of the median one, we find Germany closer to the middle of the pack — ahead of Greece, though still behind France, Italy and Spain. The difference between the two measures results from the highly unequal distribution of wealth in Germany — the most unequal in Europe, according to the ECB survey. For the poorest quintile, median net worth is ten times higher in Greece and in Italy than in Germany, and 30 times higher in Spain.

This helps answer the question of apparent low German wealth — part of the reason the median German household is wealth-poor is because household wealth is concentrated at the top. But that just raises a new puzzle. Income distribution Germany is among the most equal in Europe. Why is the distribution of wealth so much more unequal? The puzzle deepens when we see that the other European countries with high levels of wealth inequality are France, Austria, and Finland, all of which also have relatively equal income distribution.

Another distortion pointed to by De Grauwe is that the housing bubble in southern Europe had not fully deflated in 2009, when the survey was taken — home prices were still significantly higher than a decade earlier. Since Germany never had a housing boom, this tends to depress measured wealth there. This explains some of the discrepancy, but not all of it. Using current home prices, the median Spanish household has more than triple the net wealth of the median German household; with 2002 home prices, only double. But this only moves Germany up from the lowest median household wealth in Europe, to the second lowest.

The puzzle posed by the wealth survey seems to be genuine. Even correcting for home prices and household size, the median Spanish or Italian household reports substantially more net wealth than the median German one, and the median Greek household about an equal amount. Yet Germany is, by most measures, a much richer country, with median household income of €33,000, compared with €22,000, €25,000 and €26,000 in Greece, Spain and Italy respectively. Use mean wealth instead of median, and German wealth is well above Greek and about equal to Spanish, but still below Italian — even though, again, average household income is much higher in Germany than in Italy. And the discrepancy between the median and mean raises the puzzle of why German wealth distribution is so much more uneven than German income distribution.

De Grauwe suggests one more correction: look at the total stock of fixed capital in each country, rather than household wealth. Measuring capital consistently across countries is notoriously dicey, but on his estimate, Germany and the Netherlands have as much as three times the capital per head as the southern countries. So Germany is richer in real terms than the South, as we all know; the difference is just that “a large part of German wealth is not held by households and therefore must be held by the corporate sector.” Problem solved!

Except… you know, Mitt Romney was right: corporations are people, in the sense that they are owned by people. The wealth of German corporations should also show up as the wealth of the owners of German stocks, bonds, or other claims on those corporations — which means, overwhelmingly, German households. Indeed, in mainstream economic theory, the “wealth” of the corporate sector just is the wealth of the households that own it. According to de Grauwe, the per capita value of the capital stock is more than twice as large in Germany as in Spain. Yet the average financial wealth held by a German household is only 25% higher than in Spain. So as in the case of distribution, this solution to the net-wealth puzzle just creates a new puzzle: Why is a dollar of capital in a German firm worth so much less to its ultimate owners than a dollar of capital in a Spanish or Italian firm?

And this, I think, points us toward the answer, or at least toward the right question.

The question is, what is the relationship between the level of market production in an economy, and the claims on future production represented by wealth? It’s a truism — tho often forgotten — that the market production counted in GDP is only a part of all the productive activity that takes place in society. In the same way, not all market production is capitalized into assets. Wealth in an economic sense represents only those claims on future income that are exercised by virtue of a legal title that is freely transferable, and hence has a market value.

For example, imagine two otherwise similar countries, one of which makes provision for retirement income through a pay-as-you-go public pension system, and the other of which uses some form of funded pension. The two countries may have identical levels of output and income, and retirees may receive exactly the same payments in both. But because the assets held by the pension funds show up on balance sheets while the right to future public pension payments does not, the first country will have less wealth than the second one. Again, this does not imply any difference in production, or income, or who ultimately bears the cost of supporting retirees; it is simply a question of how much of those future payments are capitalized into assets.

This is just an analogy; I don’t think retirement savings are the story here. The story is about home ownership and the value of corporate stock.

First, home ownership. Only 44 percent of German households own their own homes, compared with 70-80 percent in Greece, Italy and Spain. Among both homeowners and non-homeowners considered separately, median household wealth is comparable in Germany and in the southern countries. It’s only the much higher proportion of home ownership that produces higher median wealth in the South. And this is especially true at the bottom end of the distribution — almost all the bottom quintile (by income) of German households are renters, whereas in Greece, Spain and Italy there is a large fraction of homeowners even at the lowest incomes. Furthermore, German renters have far more protections than elsewhere. As I understand it, German renters are sufficiently protected against both rent increases and loss of their lease that their occupancy of their home is not much less secure than that of home owners. These protections are, in a sense, a form of property right — they are a claim on the future flow of housing services in the same way that a title to a house would be. But with a critical difference: the protections from rent regulation can’t be sold, don’t show up on the household’s balance sheet, and do not get counted as wealth.

In short: The biggest reason that German household wealth is lower than than elsewhere is that less claims on the future output of the housing sector take the form of assets. Housing is just as commodified in Germany as elsewhere (I don’t think public housing is unusually important there). But it is less capitalized.

Home ownership is the biggest and clearest part of the story here, but it’s not the whole story. Correct for home ownership rates, use mean rather than median, and you find that German household wealth is comparable to household wealth in Italy or Spain. But given that GDP per capita is much higher in Germany, and the capital stock seems to be so much larger, why isn’t household wealth higher in Germany too?

One possible answer is that income produced in the corporate sector is also less capitalized in Germany.

In a recent paper with Zucman, Thomas Piketty suggests that the relationship between equity values and the real value of corporate assets depends on who exercises power over the corporation. Piketty and Zucman:

Investors who wish to take control of a corporation typically have to pay a large premium to obtain majority ownership. This mechanism might explain why Tobin’s Q tends to be structurally below 1. It can also provide an explanation for some of the cross-country variation… : the higher Tobin’s Q in Anglo-Saxon countries might be related to the fact that shareholders have more control over corporations than in Germany, France, and Japan. This would be consistent with the results of Gompers, Ishii and Metrick (2003), who find that firms with stronger shareholders rights have higher Tobin’s Q. Relatedly, the control rights valuation story may explain part of the rising trend in Tobin’s Q in rich countries. … the ”control right” or ”stakeholder” view of the firm can in principle explain why the market value of corporations is particularly low in Germany (where worker representatives have voting rights in corporate boards without any equity stake in the company). According to this ”stakeholder” view of the firm, the market value of corporations can be interpreted as the value for the owner, while the book value can be interpreted as the value for all stakeholders.

In other words, one reason household wealth is low in Germany is because German households exercise their claims on the business sector not via financial assets, but as workers.

The corporate sector is also relatively larger in Germany than in the southern countries, where small business remains widespread. 14 percent of Spanish households and 18 percent of Italian households report ownership of a business, compared with only 9 percent of German households. Again, this is a way in which lower wealth reflects a shift in claims on the social product from property ownership to labor.

It’s not a coincidence that Europe’s dominant economy has the least market wealth. The truth is, success in the world market has depended for a long time now on limiting dependence on asset markets, just as the most successful competitors within national economies are the giant corporations that suppress the market mechanism internally. Germany, as with late industrializers like Japan, Korea, and now China, has succeeded largely by ensuring that investment is not guided by market signals, but through active planning by banks and/or the state. There’s nothing new in the fact that greater real wealth in the sense of productive capacity goes hand hand with less wealth in the sense of claims on the social product capitalized into assets. Only in the poorest and most backward countries does a significant fraction of the claims of working people on the product take the form of asset ownership.

The world of small farmers and self-employed artisans isn’t one we can, or should, return to. Perhaps the world of homeowners managing their own retirement savings isn’t one we can, or should, preserve.