April 21, 2014

Piketty is Back

Jane Goodall studied gorillas. She contributed much to academic research and also brought interesting facts and riveting footage to lay people.

Thomas Piketty studies income inequality; he seeks it with the same intensity as Ms. Goodall -- mutatis mutandis. Wikipedia points out "Piketty has close connections with the French socialist party, and took part in the economic commission of that party from 1995 to 1997." His 2004 paper with Emanuel Saez is probably the most frequently cited academic work on inequality. Alan Reynolds's "Income and Wealth" is generally a book length refutation.

While he has strong views, he is a serious academic and those views are worthy of scrutiny. His new book, Capital in the 21st Century" has received rave reviews from the left and I exchanged some messages with a good friend of this blog who regretted that most of the opposition was political and polemical. I liked Christopher Demuth's QOTD-achieving WSJ editorial.

While it is not an economic refutation, Clive Crook's piece in Bloomberg View is a good read and inspired my "Inequalities in the Mist" comparison. Piketty, sez Crook, does superb research -- but then takes imaginative leaps from the data to reach conclusions.

Piketty's terror at rising inequality is an important data point for the reader. It has perhaps influenced his judgment and his tendentious reading of his own evidence. It could also explain why the book has been greeted with such erotic intensity: It meets the need for a work of deep research and scholarly respectability which affirms that inequality, as Cassidy remarked, is "a defining issue of our era."

Maybe. But nobody should think it's the only issue. For Piketty, it is. Aside from its other flaws, "Capital in the 21st Century" invites readers to believe not just that inequality is important but that nothing else matters.

This book wants you to worry about low growth in the coming decades not because that would mean a slower rise in living standards, but because it might cause the ratio of capital to output to rise, which would worsen inequality. In the frame of this book, the two world wars struck blows for social justice because they interrupted the aggrandizement of capital. We can't expect to be so lucky again. The capitalist who squanders his fortune is a better friend to labor than the one who lives modestly and reinvests his surplus. In Piketty's view of the world, where inequality is all that counts, capital accumulation is almost a sin in its own right.

If that is not sufficiently conclusive for you, keep in mind Paul Krugman likes it.

Hat-tip: @yipeedog

Economics and Markets Posted by John Kranz at April 21, 2014 10:12 AM

"Nothing else matters" beside income inequality? Not even Catastrophic human-caused climate change?

Last week's 'Moyers and Company' featured Bill Moyers and Paul Krugman discussing 'Capital in the 21st Century' for the entire show. (What could go wrong?) I DVRed it but haven't watched yet. You see, I still have episodes of NCIS and The Mentalist from last year that are yet to be seen. Perhaps the reader will at least give me an A for good intentions.

Posted by: johngalt at April 21, 2014 12:00 PM

Clearly we need to have a big ThreeSources watching party. I'll bring chips & dip...

Posted by: jk at April 21, 2014 1:24 PM

I thought this review was a good one too.

Posted by: T. Greer at April 22, 2014 5:53 AM | What do you think? [3]