Monday, July 6, 2015

Thomas Piketty's Fun With False Equivalence

Of all the so-called "star economists" in the world, by far the most undeserving of the title is Thomas Piketty. Bar none.

In fact, in Piketty's case, one would have to use a few more quotation marks to make clear just how unfitting the title of "star economist" is to him. It would be more like "star 'economist'." As in, not only is he not really a star, but he's not much of an economist.

Nor is he much of a historian.

As this is written, Greece's future is extremely uncertain. In a referendum the Greek people have voted "no" to adopting budget cutting measures in exchange for another bailout. Greece has already defaulted on its debt payments, and it's unclear if they intend -- or will be able -- to make future payments.

Enter Thomas Piketty. Unable to accept that Greece reveals the utter paucity of the school of economic thought that he not only prefers, but fudged the numbers in order to become a standard bearer for -- Piketty has decided to try to deflect.

His answer? Germany simply should not attempt to collect the debt Greece owes.

His reason? Because billions of gold marks in post-WWI debt was forgiven.

This is what people who are familiar with logical fallacy refer to as a "false equivalent." There is an obvious difference between a debt imposed on Germany when Germany was scapegoated for a war that those imposing the debt had every bit as much to do with starting, and a debt freely and openly sought by those who incurred it.

There are few ways Piketty could even possibly be more on the wrong side of history. The Treaty of Versailles did not produce a just peace,  In fact, the Treaty of Versailles is a textbook case of an unjust peace, one not reached through agreeable negotiation, but rather imposed at the muzzles of thousands of guns.

It was literally a peace imposed by parties that were every bit the belligerent and opportunist as Germany or any other participant in the war.

In the end, as anyone whose study of history is even passing knows, the economic consequences of the Treaty of Versailles gave rise to a regime far more extreme, capable of horrors the Kaiser would have never imagined, let alone performed.

This is a very different relationship between debtor and creditor than the relationship between Greece and its creditors. Greece's debt was not imposed upon it, but rather openly sought. The Greek government borrowed billions to fund consumption, and now will find that prospective creditors will not lend them even a single euro.

Perhaps even more insipid than Piketty's historical argument is his generational argument, wherein he bizarrely suggests that because the German government of today is not held responsible for the actions of the German government of 1914 (101 years ago), that the Greek government of today cannot be held responsible for its actions in 2009. Six years ago.

Yes, Piketty is this ridiculous.

Those who, like Piketty, cannot accept that the Greek mess is their mess, are now clinging to his poor and nonsensical arguments for dear life.

It boggles the mind to try to imagine just how Piketty imagines an economy should function. Greece wanted to fund absurdly generous social benefits it. It did not have the money to pay for them. So they borrowed it.

How could Greece have funded these programs had they not borrowed?

If borrowers commonly refuse to repay, lenders will simply stop lending. For other countries that may want to borrow to fund similarly unsustainable social benefits -- or perhaps simply want to borrow to fund infrastructure -- how will they do this if lenders are no longer willing to lend?

The act of borrowing comes with the acceptance of an obligation to repay. How does Piketty imagine that borrowers can simply walk away from the obligation they've accepted?

An economy cannot function like this. It's madness to think otherwise.

Greece is hardly the first country to ever default on a debt. In fact, it's been shockingly common throughout history. Recovery from default is, under most conditions, a long and arduous process. But it is possible.

What Thomas Piketty has advocated for is the debtor's alternative to predatory lending: predatory borrowing. This is the idea that governments, because they are governments, can borrow irresponsibly and unsustainably for decades and then simply walk away from the debts they've incurred, demanding "forgiveness" as they do so.

No economist in their right mind could actually support this kind of practice.

One thing is crystal clear: whatever "star 'economist'" Thomas Piketty is actually practicing, it is not economics; perhaps the Paris School of Economics should see fit to have words.

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