Must-Read: Marshall Steinbaum: Thomas Piketty at the University of Chicago
Must-Read: It is genuinely surprising to me that Kevin Murphy thinks that Katz and Murphy (1992) is still close to the last word on inequality. And it is beyond genuinely surprising that Steve Durlauf thinks that Bill Gates’s wealth was acquired by merit and John D. Rockefeller’s by monopoly when they are both winners in gigantic winner-take-all natural-monopoly markets–a natural-monopoly created by economies of scale in refining and distribution in the case of oil, and by write-once run-everywhere protected by patent and copyright in the case of operating systems:
: Free-Market Dogmatism Still Going Strong at the University of Chicago: “A discussion between Piketty and… Kevin Murphy and Steven Durlauf…
…with Jim Heckman acting as moderator…. [Murphy] thinks that his 1992 paper with Lawrence Katz, which tried to explain the dynamics of the college wage premium in the 1970s and 1980s with reference to the supply and demand for skilled labor in the form of workers with a college degree, constitutes the final word… [even though] its model fails at explaining… labor market outcomes… since… [and relies on the residual of] skills-biased technical change: the Ghost in the Free Market Economics Machine….
Piketty started things off by claiming that… globalization and skill-biased technical change… don’t explain the phenomena… closed with what I consider a profound restatement of why Capital in the 21st Century is such an important book:
The gap between [the] official discourse and what’s actually going on is enormous. The tendency is for the winner to justify inequality with meritocracy. It’s important to put these claims up for public discussion.
Durlauf… said, quite reasonably, that the key mechanism of inequality is segregation, because it translates individual inequality into entrenched deprivation, and that its policy implications are therefore to foster integration in a variety of contexts….
Murphy’s presentation was where the wheels came off, intellectually speaking. He declared… by regurgitating his 1992 paper… [saying] “that theory has done an amazing job,” including a cryptic statement about how it explains the rise of tail inequality “if you extrapolate,” whatever that means…. Murphy stepped forward once again to declare that the economy’s “natural supply response of supplying capital” will help workers by reducing the capital share and increasing their productivity…. Durlauf asserted in his JPE review of C21 that no one thinks like Clark anymore, with his quasi-moralistic view of the efficient functioning of capital formation and the adjustment of its rate of return. Unfortunately, Durlauf’s empirical prediction was falsified by Murphy right there on that stage…. Murphy added that in the absence of better education, “The march of technology over time means there’s little for someone with no human capital to do.”… Then things got weird. Durlauf… [said] what mattered was [Americans’] perception of [inequality’s] source: whether justified by merit, as in the case of Bill Gates, or extracted through monopolization, as with John D. Rockefeller. At that, Piketty quipped that Bill Gates certainly agrees….
Murphy[‘s]… idea seems to be that the poor, benighted though they are, will adopt the morally correct position of looking out for their own interest by acquiring an education, so long as the incentive to do so is preserved by avoiding progressive taxation. Usually the fallacy in the moral philosophy of economics… is to argue that whatever reality exists is for the best…. In this case, though, the “ought” is a priori: people should be selfish. For that reason, they probably will be, so long as the status quo is maintained as an instructive lesson in the disaster befalling anyone not born rich…. Durlauf made a final, inscrutable point… saying that we should directly address the harms caused by inequality, by which he was referring to capture of the political system by the wealthy…