Thomas Piketty’s Being Entirely Ludicrous About Russian Top Income Shares

This is ludicrous here from Thomas Piketty. No, seriously, this is taking a dump on the very idea of rational economic investigation. Who got what in the Soviet Union was based upon non-monetary transactions. Thus measuring who got what in the form of money isn’t a useful description of inequality.

But, you know, if you want to prove that not-communism is a bad idea because inequality taking that dump’s still politically useful, isn’t it?

The dismantling of the USSR and its productive apparatus led to a fall in standard of living in 1992-1995. Income per capita rose as from 2000 and in 2018 stands at approximately 70% of the West European level in terms of purchasing power parity (but is twice as low if one uses the prevailing rate of exchange, given the weakness of the rouble). Unfortunately inequalities have risen much more rapidly than the official statistics claim, as is demonstrated in a recent study carried out with Filip Novokmet and Gabriel Zucman (available on WID.world).

More generally, the Soviet disaster led to the abandon of any ambition of redistribution. Since 2001, income tax is 13%, whether your income be 1,000 roubles or 100 billion roubles. Even Reagan and Trump have not gone as far in the destruction of progressive taxation. There is no tax on inheritance in Russia, nor in the People’s Republic of China. If you want to pass on your fortune in peace in Asia, it is better to die in the ex-Communist countries and definitely not in the capitalist countries such as Taiwan, South Korea or Japan where the tax rate on inheritance on the highest estates has just risen from 50% to 55%.

But while China has succeeded in conserving a degree of control on capital outflows and private accumulation, the characteristic of Putin’s Russia is an unbounded drift into kleptocracy.

Not-communism has led to the re-emergence of rich people and inequality and this is bad very bad. As illustrated:

It comes from here. This is quite ghastly as an error:

According to the best available estimates,
Russia’s per adult national income was stagnating at about 35-40% of Western
European levels between 1870 and World War 1. Tsarist Russia was a poor and
illiterate country. The ratio between Russia and Western Europe rose spectacularly to
as much as 65% in the aftermath of World War 2. This reflects the modernization
strategy followed by the Soviet state after the Bolshevik revolution—based on rapid
industrialization and mass investment in basic education—as well as the mediocre
growth performance of Western countries during the 1914-1945 period. Russia’s
relative position then reached a plateau and stagnated at about 55-65% of Western
European levels between 1950 and 1990. One can even detect a relative decline
starting in the late 1970s and during the 1980s, from more than 65% to less than
60% (despite the growth slowdown in the West during this period).

Soviet living standards were 60% of Western Europe’s? It’s hard to argue that Soviet living standards were even 60% of the Eastern Bloc countries. and we know very well that East German standards were some 30 to 50% of West Germany’s in 1989.

What’s happened here is that they’ve taken price measures as their information. Entirely losing the fact that a car which cost $5 might have taken you 10 years of solid Communist Party membership to get onto the 15 year waiting list for. Or those carrots at 5 kopecks a kg weren’t in fact available in the state ration store. Nor meat from an identifiable species of mammal in fact.

Just to remind, I was actually in the Soviet Union, living and working there just before the end. I was also in the richest area of it, Moscow, and it simply wasn’t true that living standards were anything like 60% of Western Europe’s. Really, not in a city where there were still four families sharing a kitchen and bathroom in a carved up pre-Revolutionary apartment.

Their estimates of living standards are so far out as to be a lie.

But it gets worse, and for much the same reason. Their estimates of income inequality are similarly based upon the idea that income – rubles – was a useful guide to living standards. They are, often enough, in a purely market economy. But in one where money isn’t what buys you things, but blat is, then you’ve got to either measure incomes differently or measure them using blat units.

The easy way to do this is to measure consumption inequality. That was large, very large indeed in fact, far more so than the same consumption inequality is today in Western Europe.

These errors in measurement make their findings ludicrous to the point of irrelevancy. Cash incomes simply weren’t what was important in the Soviet system. Your position in the power structure was, this determined the size of apartment you were allocated – even if there would be one allocated – which shops you could get your food from (and the higher up you were the more likely they delivered), your basic ability to even register for the waiting list for a car, washing machine, fridge and so on. In a society where money doesn’t determine living standards to measure inequality by money incomes is just ludicrous. Yet that’s what they’ve done, isn’t it?

I’d posit – not claim to be able to prove, just posit – that consumption inequality in Soviet times was greater than it is now in Russia. Certainly it would be a close call which way around it went. Making these figures from Zucman and Piketty ludicrous to the point of lies to my mind.