Some thoughts: While working in finance I was able to talk to many people who's work was related to economics. Employees at banks and brokerages, governments and regulator bodies. Most had heard of Piketty, and many agreed with his basic premises (r>g, and all it entails). His reach actually surprised me.
But I also had contact with academics, and like the article said, it's not so much that academics are refuting Piketty, but that they simply aren't studying the same problems that he is talking about. From what I've been told, a lot of academic work in economics is focused on incredibly unique and specific problems. It isn't "fashionable" to be studying something so broad and perhaps abstract as inequality.
Dean Baker (warned of the housing bubble since 2002, "Bernie 2016") gave the best response to Piketty that I heard from a left-wing economist:
* Piketty's data is correct
* him collecting it was a harder feat than one might think
* attributing r>g to some unchangeable nature of capitalism is wrong because "capitalism is infinitely malleable" (every market is regulated somehow, things change a lot depending for instance on whether you do or don't have patents)
* Piketty's policy prescription (a global wealth tax) is unimplementable and harmful in the sense of getting all the attention instead of people focusing on his correct assessment that r>g and then on realistically implementable policies which could change this.
My undergrad was primarily in Econ, and it was a pretty common saying that "Nobody is a Macroeconomist."
After Economics moved hard away from Political Economy and into Mathematics some time ago, that kind of broad economics is rare so not really considered the same way or has the same amount of academic discussion.
That basic premise seems flawed to me for two reasons. First is that r is like a first deriative (of the asset value) and g as a second derivative (gdp being the first derivative of the total assets of a country, while gdp growth the seocnd), so they are not direcly copareable. The second is that r is very directly measurable, while the gdp and gdp growth have huge uncertainties and inconsistencies. Here's an example: the GDP of Bulgaria. In 1996 it was about $10BN, and in 2016 about $50BN. It grew in 20 years by 5, which means an annualized rate of 8.4%. However if you look at the historical gdp growth then the average for the last 20 years is about 1% (see [1] and [2]). Why the disconnect? I don't know, but if someone tells me that r>g because g is 1%, I take that with a grain of salt.
I read Piketty's book, and some of the critical response. In my semi-educated opinion (I only have a Bachelor's in Economics), the criticisms failed to poke a hole in his main argument: that capitalism as a system is unegalitarian because it allows wealth to grow faster than economic output, resulting in increasing amounts of income inequality over time.
>>But perhaps the greatest rebuke of Piketty to be found among academic economics is not contained in any of these overt or veiled attacks on his scholarship and interpretation, but rather in the deafening silence that greets it, as well as inequality in general, in broad swathes of the field—even to this day.
The reason for this deafening silence is simple: the truth revealed by Piketty is inconvenient, and there are no easy solutions.
Indeed; I think people are out of ideas. "Right-thinking" people continue to believe in liberalizing economies, globalism and so on, and they've yet to come to terms with the backlash that's fueling people like Trump, UKIP / Brexit, Le Pen, and so on. There's no alternative idea on the horizon; we know socialism isn't very effective at much more than rent capture and corruption, and we know nationalism / protectionism ultimately makes economies non-competitive globally. But we don't have a solution to the problem of global capital chasing efficiency globally, and thereby hollowing out the middle of the income distribution in Western economies.
A lot of ideas have been discredited, or at least played out. But there's still a constituency for those ideas, and there will continue to be until the orthodox "elites" come to terms with what's going on.
(And they're not really elites; I count myself as one of them, as skilled developers are not at immediate risk of being outsourced and are not strongly bound to any one country. I'm still winning from the current economic system. But I can see that it can't continue, the majority won't stand for it.)
But does that make it "net" less egalitarian than other economic systems (in practice), after accounting for all of the other advantages of capitalism?
Kind of like Churchill's quote about how democracy is the worst form of government, except for all of the others that have been tried.
From a problem-solving standpoint, I don't think the solutions are really that hard. I think some of them are downright easy. What's hard is getting anything done in the current environment. Perhaps that's what you meant, though.
In this comment I disagree with Piketty. It is written very rigorously, you must find a very careful deductive argument in it. (Otherwise it's useless.)
So, the rest of this comment makes a very dense argument, first using a proxy argument and then switching in the actual argument. The proxy argument is correct but probably you don't like reading it. So just get through it like bitter medicine.
So. Proxy argument. True statement:
Computers are inherently unegalitarian because smarter people get more utility out of them. You simply cannot give the same amount of utility to a dumber and a smarter person at the same capital cost.
So far you might be thinking "Huh? You're saying smarter people get more pleasure out of reading so the Internet is unequal? What the hell... Anyone can read, who cares if some people get more pleasure out of it and others less?"
But the problem is that nearly the same argument applies to startups and creating wealth. Instead of utility (personal pleasure from the Internet), you are now discussing "access to the wheels of capitalism".
Musk slept at the office and shared a computer. Sergey Brin is a Ukrainian immigrant.
The reason these people have unequal results is because computers are inherently not egalitarian: smart people just get more out of them.
You can't stop it, any more than you can stop smart people from getting more pleasure from reading. Can't be done. sorry.
Here is a question Piketty didn't ask: what percent of dynastic, billionaire wealth was created in a single generation in America?
Not addressed at all.
[EDIT: removed reference to more information than is contained here. This comment contains all of the information to understand my point.]
What's so hard about shifting the burden of tax from income to wealth? Week after week having 30% of your income taken away is what prevents a lot of people from ever getting ahead.
They're not. When The Economist agrees you have a point then you're pretty mainstream. True, some economists are nitpicking on his book because they don't like the conclusion, but the problem Picketty has identified is rarely denied.
I don't think that all who disagree with Picketty's conclusions do so simply because they don't like them. Nor would I agree that all critiques are mere nitpicks. For example, here's an IMF working paper that conducts an empirical examination of Picketty's hypothesis: https://www.imf.org/external/pubs/ft/wp/2016/wp16160.pdf
From the abstract:
In this paper, I build a set of Panel SVAR models to check if inequality and capital share in the national income move up as the r-g gap grows. Using a sample of 19 advanced economies spanning over 30 years, I find no empirical evidence that dynamics move in the way Piketty suggests. Results are robust to several alternative estimates of r-g.
You don't get clicks for writing articles about [fellow] economists if you don't insult them for not having the same opinion and research focus as you, preferably without recourse to intellectual honesty. Piketty's Capital has more citations on Google Scholar than some of Friedman's better known papers that formed the basis of macroeconomics policy and arguments for half a century...
No doubt in 5-10 years when the fashionable economics theory du jour concerns debt or housing or tax incidence or technological progress - and large sections of the economics profession do respond - the author will be amongst those chastised for "ignoring" such pressing issues by not abandoning his interest in researching inequality to write papers focusing on Fashionable New Theory instead.
I agree. Economists are definitely not giving Piketty the cold shoulder. He is a star in the field. His protege, Zucman, killed it on the job market.
There are definitely some economists who disagree with him, but if you go into any academic field and you'll find plenty of people disagreeing with the field's luminaries.
I thought the author would mention the new collection of essays After Piketty: The Agenda for Economics and Inequality, particularly since he is one of the editors.
Why are climate scientists giving Scott Pruitt a hard time?
Saying what people want to hear does not make you a good researcher. They don't take him seriously for the same reason we don't take young-earth creationist researchers seriously. It's not good research.
Edit: I'm not an economist, and I'm not going to do justice to the criticisms (which aren't hard to find), but fine, here are links:
the fact that there is good-faith professional disagreement in the field of Economics does not indicate that Piketty is a charlatan in the same way that Scott Pruitt is a charlatan when it comes to climate science.
Piketty is a world class economist that presents rigorous arguments backed by very large amounts of empirical data. Scott Pruitt is a political hack paid to lie about climate science for the benefit of the fossil fuel industry. The fact that you conflate them says more about you than it does about Piketty or Pruitt.
Sorry, but comparing Piketty to Pruitt is laughable. One is a distinguished professor of economics. The other is a businessman and lawyer who apparently knows nothing about science.
As far as I can tell (I ran out of patience about halfway through), this is less a review of Capital than it is an attempt to brand Piketty part of a particular ideological lineage. It seems like for every sentence quoted from the book there's a couple of paragraphs name-dropping Marx, Aristotle, Malthus et. al..
Also:
> One begins to suspect that the typical leftist—most of the graver worries have come from there abouts, naturally, though not so very naturally considering the great payoff of “capitalism” for the working class—starts with a root conviction that capitalism is seriously defective. The conviction is acquired at age 16 years when the proto-leftist discovers poverty but has no intellectual tools to understand its source.
Very few economists I know of disagree with Piketty's conclusions. Everyone knows he's right. But it is a very inconvenient problem, and most economists and leaders have a vested interest in not solving it.
His observation is that inequality is raising in most western countries. (It does not increase globally.) His conclusion is that we should tax the rich more - which is not very original and many disagree with. Also, Piketty misses some of the root causes of inequality. He blames capitalism, when in fact the main driver is increasing age. The older people get, the more their income and wealth differs. As society ages, inequality increases. Furthermore, many western countries are importing inequality through immigration. When lots of poor enter a rich country, the inequality in that country goes up. Furthermore, divorces and being a single parent is a huge poverty risk in many western countries. To a certain extent, inequality is the price of liberally allowing divorces and children outside marriage.
So it is not that economists deny Piketty's observations, but they find his recipes to counter inequality overly simplistic.
> But it is a very inconvenient problem, and most economists and leaders have a vested interest in not solving it.
I don't have an opinion on the matter (haven't Piketty) but saying such things really is a conversation killer and makes me question your honesty. You are basically questioning the intellectual integrity of anyone who is critical to an idea you support. If you genuinely believe that, I urge you to get out of your bubble a bit!
Piketty's idea that r > g leads to wealth inequality just makes me shrug. You can't really have it another way.
If r (the rate of return on capital) is less than g (the growth in output) that means that people have no incentive to build wealth or become more intelligent to deploy that capital more profitably. If I'm never going to make more than the growth in output, why bother with capital?
The logical conclusion to that would be that everyone wants to be an employee and nobody wants to be an employer.
If I can grow my wealth more quickly than the nations output, I'm grabbing a bigger slice of the pie. The hope with capitalism is that I'm grabbing that pie because I've earned it and the market hopes I'll be able to steward that wealth.
So yeah, capitalism may be inherently inclined to wealth inequality because some people outperform. But do you really want it another way?
There certainly is wealth inequality in the world, but it isn't actionable to blame it on r > g. It's more effective to look at things on a micro basis. Does this person have a child that is prohibiting them from saving? Why is the person being excluded from jobs? Do they have a proper education?
> So yeah, capitalism may be inherently inclined to wealth inequality because some people outperform. But do you really want it another way?
You mean would I want capitalism to be different, or would I want a system that wasn't driven to inequality because it relied on capital returns to drive both the economic system and (due to fungibility of power) and the political system?
The first is a pointless question, the second, well, yeah. It's the fundamental problem with capitalism that led both socialist critics to identify and seek to overthrow it, and more moderate social democrats to seek to reform and moderate it.
> There certainly is wealth inequality in the world, but it isn't actionable to blame it on r > g.
Sure it's actionable, and if it's the true cause, no micro action is meaningful.
You may not like the actions that are implied by understanding the root cause, but that doesn't make it not actionable.
Let's agree that you can't have it another way. But there are still huge questions attendant to that arrangement.
For example, should opportunity be unlimited, or is the prospect of earning enough for a very comfortable life sufficient motivation?
Or, how much are we willing to let families build dynastic wealth? Shouldn't wealthy people's children be expected to compete without a huge head start over the children of poor families?
Shrugging suggests to me that the conversation is over, but I think it's just beginning once we recognize that this is a fundamental economic force. How do we harness it as a society and pursue a just world?
> The logical conclusion to that would be that everyone wants to be an employee and nobody wants to be an employer.
Is that true? If I have capital wouldn't I want to allocate it for the best risk/return/effort. That my percentage of the pie is shrinking doesn't mean I would allocate my capital inefficently to accelerate that shrinkage.
For example, imagine today you had 1 million dollars. If interest rates were 0.1% would you say no to that risk free $1000 a year? I wouldn't. I would click that button. Perhaps it would encourage me to spend more but I wouldn't sit on cash.
> If r (the rate of return on capital) is less than g (the growth in output) that means that people have no incentive to build wealth or become more intelligent to deploy that capital more profitably. If I'm never going to make more than the growth in output, why bother with capital?
You can still spend the principal you made without having to be employed. If I understand correctly, r>g is about how much of new wealth is coming to labor vs rent on existing capital.
> If r (the rate of return on capital) is less than g (the growth in output) that means that people have no incentive to build wealth or become more intelligent to deploy that capital more profitably. If I'm never going to make more than the growth in output, why bother with capital?
The idea is that you consider yourself a smart and educated investor. Therefore, you are confident that even with r = g, your particular investment is wise and will yield a huge profit.
> So yeah, capitalism may be inherently inclined to wealth inequality because some people outperform. But do you really want it another way?
You can get a rate of return that will consistently be higher than the growth of the economy by dumping your money into an index fund. I would consider that more like taking advantage of other people's work than "outperforming" anything.
> The logical conclusion to that would be that everyone wants to be an employee and nobody wants to be an employer.
This is interesting. Let's say there is a a r=g, to r is slightly less than g world. Then people would try to maximize employment & investing that income. Sortof double dipping. Am I thinking about that correctly?
Also, r<g doesn't mean that you're 'never' going to make more than the growth in output, right? Theoretically good stewards would outpace the market.
His work doesn't depend an a normative judgement that inequality is a bad thing. His work is an observation about how inequality works, not a judgement.
Your comment is a strange one, and I hear it a lot projected at Marxian-thinking people and economists too. In the case of Marx, he does not call inequality a bad thing, he says it is within the self-interest of the workers themselves to rise up against the system which produces the inequality; there is no moral judgment nor a decision on what is just - he states it as a fact from his research.
[+] [-] reckoner2|9 years ago|reply
But I also had contact with academics, and like the article said, it's not so much that academics are refuting Piketty, but that they simply aren't studying the same problems that he is talking about. From what I've been told, a lot of academic work in economics is focused on incredibly unique and specific problems. It isn't "fashionable" to be studying something so broad and perhaps abstract as inequality.
[+] [-] _yosefk|9 years ago|reply
* Piketty's data is correct
* him collecting it was a harder feat than one might think
* attributing r>g to some unchangeable nature of capitalism is wrong because "capitalism is infinitely malleable" (every market is regulated somehow, things change a lot depending for instance on whether you do or don't have patents)
* Piketty's policy prescription (a global wealth tax) is unimplementable and harmful in the sense of getting all the attention instead of people focusing on his correct assessment that r>g and then on realistically implementable policies which could change this.
[+] [-] TheSpiceIsLife|9 years ago|reply
I think it can be summarised as: Inequality has a marketing problem.
No one's buying equality. Those who can afford equality don't need it and those who need it can't afford it.
[+] [-] AndrewKemendo|9 years ago|reply
After Economics moved hard away from Political Economy and into Mathematics some time ago, that kind of broad economics is rare so not really considered the same way or has the same amount of academic discussion.
[+] [-] lumberjack|9 years ago|reply
I think it is more the fact that it isn't wise to study highly politicised topics until you gain some status.
[+] [-] f_allwein|9 years ago|reply
[+] [-] credit_guy|9 years ago|reply
[1] http://www.tradingeconomics.com/bulgaria/gdp [2] http://www.tradingeconomics.com/bulgaria/gdp-growth
[+] [-] enraged_camel|9 years ago|reply
>>But perhaps the greatest rebuke of Piketty to be found among academic economics is not contained in any of these overt or veiled attacks on his scholarship and interpretation, but rather in the deafening silence that greets it, as well as inequality in general, in broad swathes of the field—even to this day.
The reason for this deafening silence is simple: the truth revealed by Piketty is inconvenient, and there are no easy solutions.
[+] [-] barrkel|9 years ago|reply
A lot of ideas have been discredited, or at least played out. But there's still a constituency for those ideas, and there will continue to be until the orthodox "elites" come to terms with what's going on.
(And they're not really elites; I count myself as one of them, as skilled developers are not at immediate risk of being outsourced and are not strongly bound to any one country. I'm still winning from the current economic system. But I can see that it can't continue, the majority won't stand for it.)
[+] [-] meowface|9 years ago|reply
Kind of like Churchill's quote about how democracy is the worst form of government, except for all of the others that have been tried.
[+] [-] e40|9 years ago|reply
From a problem-solving standpoint, I don't think the solutions are really that hard. I think some of them are downright easy. What's hard is getting anything done in the current environment. Perhaps that's what you meant, though.
[+] [-] logicallee|9 years ago|reply
So, the rest of this comment makes a very dense argument, first using a proxy argument and then switching in the actual argument. The proxy argument is correct but probably you don't like reading it. So just get through it like bitter medicine.
So. Proxy argument. True statement:
Computers are inherently unegalitarian because smarter people get more utility out of them. You simply cannot give the same amount of utility to a dumber and a smarter person at the same capital cost.
So far you might be thinking "Huh? You're saying smarter people get more pleasure out of reading so the Internet is unequal? What the hell... Anyone can read, who cares if some people get more pleasure out of it and others less?"
But the problem is that nearly the same argument applies to startups and creating wealth. Instead of utility (personal pleasure from the Internet), you are now discussing "access to the wheels of capitalism".
Musk slept at the office and shared a computer. Sergey Brin is a Ukrainian immigrant.
The reason these people have unequal results is because computers are inherently not egalitarian: smart people just get more out of them.
You can't stop it, any more than you can stop smart people from getting more pleasure from reading. Can't be done. sorry.
Here is a question Piketty didn't ask: what percent of dynastic, billionaire wealth was created in a single generation in America?
Not addressed at all.
[EDIT: removed reference to more information than is contained here. This comment contains all of the information to understand my point.]
[+] [-] barking|9 years ago|reply
What's so hard about shifting the burden of tax from income to wealth? Week after week having 30% of your income taken away is what prevents a lot of people from ever getting ahead.
[+] [-] tormeh|9 years ago|reply
[+] [-] spangry|9 years ago|reply
From the abstract:
In this paper, I build a set of Panel SVAR models to check if inequality and capital share in the national income move up as the r-g gap grows. Using a sample of 19 advanced economies spanning over 30 years, I find no empirical evidence that dynamics move in the way Piketty suggests. Results are robust to several alternative estimates of r-g.
[+] [-] notahacker|9 years ago|reply
No doubt in 5-10 years when the fashionable economics theory du jour concerns debt or housing or tax incidence or technological progress - and large sections of the economics profession do respond - the author will be amongst those chastised for "ignoring" such pressing issues by not abandoning his interest in researching inequality to write papers focusing on Fashionable New Theory instead.
[+] [-] Gimpei|9 years ago|reply
There are definitely some economists who disagree with him, but if you go into any academic field and you'll find plenty of people disagreeing with the field's luminaries.
[+] [-] stablemap|9 years ago|reply
http://www.hup.harvard.edu/catalog.php?isbn=9780674504776
[+] [-] unknown|9 years ago|reply
[deleted]
[+] [-] hatmatrix|9 years ago|reply
You should probably redact his name.
[+] [-] ThomPete|9 years ago|reply
[+] [-] bpodgursky|9 years ago|reply
Saying what people want to hear does not make you a good researcher. They don't take him seriously for the same reason we don't take young-earth creationist researchers seriously. It's not good research.
Edit: I'm not an economist, and I'm not going to do justice to the criticisms (which aren't hard to find), but fine, here are links:
http://www.robertdkirkby.com/blog/2015/criticisms-of-piketty...
https://www.bloomberg.com/view/articles/2015-03-27/piketty-s...
[+] [-] metaphorm|9 years ago|reply
Piketty is a world class economist that presents rigorous arguments backed by very large amounts of empirical data. Scott Pruitt is a political hack paid to lie about climate science for the benefit of the fossil fuel industry. The fact that you conflate them says more about you than it does about Piketty or Pruitt.
[+] [-] meowface|9 years ago|reply
[+] [-] enraged_camel|9 years ago|reply
[+] [-] mtgx|9 years ago|reply
http://cepr.net/blogs/beat-the-press/nyt-invents-left-leanin...
https://theweek.com/articles/606698/why-are-bigshot-liberal-...
[+] [-] ewanmcteagle|9 years ago|reply
[+] [-] 0xcde4c3db|9 years ago|reply
Also:
> One begins to suspect that the typical leftist—most of the graver worries have come from there abouts, naturally, though not so very naturally considering the great payoff of “capitalism” for the working class—starts with a root conviction that capitalism is seriously defective. The conviction is acquired at age 16 years when the proto-leftist discovers poverty but has no intellectual tools to understand its source.
Seriously?
[+] [-] Mikeb85|9 years ago|reply
[+] [-] Hermel|9 years ago|reply
So it is not that economists deny Piketty's observations, but they find his recipes to counter inequality overly simplistic.
[+] [-] olalonde|9 years ago|reply
I don't have an opinion on the matter (haven't Piketty) but saying such things really is a conversation killer and makes me question your honesty. You are basically questioning the intellectual integrity of anyone who is critical to an idea you support. If you genuinely believe that, I urge you to get out of your bubble a bit!
[+] [-] doggydogs94|9 years ago|reply
[+] [-] arkis22|9 years ago|reply
If r (the rate of return on capital) is less than g (the growth in output) that means that people have no incentive to build wealth or become more intelligent to deploy that capital more profitably. If I'm never going to make more than the growth in output, why bother with capital?
The logical conclusion to that would be that everyone wants to be an employee and nobody wants to be an employer.
If I can grow my wealth more quickly than the nations output, I'm grabbing a bigger slice of the pie. The hope with capitalism is that I'm grabbing that pie because I've earned it and the market hopes I'll be able to steward that wealth.
So yeah, capitalism may be inherently inclined to wealth inequality because some people outperform. But do you really want it another way?
There certainly is wealth inequality in the world, but it isn't actionable to blame it on r > g. It's more effective to look at things on a micro basis. Does this person have a child that is prohibiting them from saving? Why is the person being excluded from jobs? Do they have a proper education?
[+] [-] dragonwriter|9 years ago|reply
You mean would I want capitalism to be different, or would I want a system that wasn't driven to inequality because it relied on capital returns to drive both the economic system and (due to fungibility of power) and the political system?
The first is a pointless question, the second, well, yeah. It's the fundamental problem with capitalism that led both socialist critics to identify and seek to overthrow it, and more moderate social democrats to seek to reform and moderate it.
> There certainly is wealth inequality in the world, but it isn't actionable to blame it on r > g.
Sure it's actionable, and if it's the true cause, no micro action is meaningful.
You may not like the actions that are implied by understanding the root cause, but that doesn't make it not actionable.
[+] [-] GavinMcG|9 years ago|reply
For example, should opportunity be unlimited, or is the prospect of earning enough for a very comfortable life sufficient motivation?
Or, how much are we willing to let families build dynastic wealth? Shouldn't wealthy people's children be expected to compete without a huge head start over the children of poor families?
Shrugging suggests to me that the conversation is over, but I think it's just beginning once we recognize that this is a fundamental economic force. How do we harness it as a society and pursue a just world?
[+] [-] acover|9 years ago|reply
Is that true? If I have capital wouldn't I want to allocate it for the best risk/return/effort. That my percentage of the pie is shrinking doesn't mean I would allocate my capital inefficently to accelerate that shrinkage.
For example, imagine today you had 1 million dollars. If interest rates were 0.1% would you say no to that risk free $1000 a year? I wouldn't. I would click that button. Perhaps it would encourage me to spend more but I wouldn't sit on cash.
[+] [-] umutisik|9 years ago|reply
You can still spend the principal you made without having to be employed. If I understand correctly, r>g is about how much of new wealth is coming to labor vs rent on existing capital.
[+] [-] bjourne|9 years ago|reply
The idea is that you consider yourself a smart and educated investor. Therefore, you are confident that even with r = g, your particular investment is wise and will yield a huge profit.
> So yeah, capitalism may be inherently inclined to wealth inequality because some people outperform. But do you really want it another way?
You can get a rate of return that will consistently be higher than the growth of the economy by dumping your money into an index fund. I would consider that more like taking advantage of other people's work than "outperforming" anything.
[+] [-] lsseckman|9 years ago|reply
This is interesting. Let's say there is a a r=g, to r is slightly less than g world. Then people would try to maximize employment & investing that income. Sortof double dipping. Am I thinking about that correctly?
Also, r<g doesn't mean that you're 'never' going to make more than the growth in output, right? Theoretically good stewards would outpace the market.
[+] [-] jack9|9 years ago|reply
Less incentive. The epeen comparison factor is underrated by anyone who ignores game theory.
[+] [-] antisthenes|9 years ago|reply
[+] [-] joeblow9999|9 years ago|reply
[+] [-] jobstijl|9 years ago|reply
[+] [-] ue_|9 years ago|reply