Category: Research & Analysis

The Daily Piketty: Some More Reviews of Piketty

Posted on by Brad DeLong

One from the left that I like:

  1. Jedediah Purdy: To Have and Have Not: “Piketty recommends a small, progressive global tax on capital to draw down big fortunes and press back against r > g. He admits this idea won’t get much traction at present, but recommends it as a… measure of what would be worth doing and how far we have to go to get there. It’s an excellent idea, but it also shows the limits of Piketty’s argument. He has no theory of how the economy works that can replace the optimistic theories that his numbers devastate. Numbers — powerful ones, to be sure — are what he has…. Without a theory of how the economy produces and allocates value, we can’t know whether r > g will hold into the future. This is essential to whether Piketty can answer his critics, who have argued that we shouldn’t worry much… [because other economic forces will] blunt r > g. Piketty doesn’t really have an answer to these challenges, other than the weight of the historical numbers….

    “We should grope toward a more general theory of capitalism by getting more systematic about two recurrent themes in Piketty’s work: a) power matters and b) the division of income between capital and labor is one of the most important questions…. The period of shared growth in the mid-20th century was not just the aftermath of war and depression. It was also the apex of organized labor’s power in Europe and North America….

    Piketty shows that capitalism’s attractive moral claims — that it can make everyone better off while respecting their freedom — deserve much less respect under our increasingly ‘pure’ markets than in the mixed economies that dominated the North Atlantic countries in the mid-20th century. It took a strong and mobilized left to build those societies. It may be that capitalism can remain tolerable only under constant political and moral pressure from the left, when the alternative of democratic socialism is genuinely on the table…. Reading Piketty gives one an acute sense of how much we have lost with the long waning of real political economy, especially the radical kind…. Ideas need movements, as movements need ideas. We’ve been short on both…”

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Evening Must-Read: Yet Another Good Piketty Review from Suresh Naidu

Posted on by Brad DeLong

Suresh Naidu: Notes from Capital in the 21st Century Panel: “There is a ‘domesticated’ version of [Piketty’s] argument…

…a story about technology and the world market making capital and labor more and more substitutable over time, and this is why r does not fall very much as wealth accumulates…. This is story that is told to academic economists, and it is plausible, at least on the surface. 

There is another story… that the rate of return on capital is set much more by institutions, norms and expectations than by supply and demand of the capital market…. I think the production approach is less plausible… because housing [with land] plays such a large role… average wages would have increased along with K/Y [if factors are paid marginal products]…. The (really great) sections from the book on corporate governance actually suggest something quite different… a gap between cash-flow rights and control rights…. This political dimension of capital, the difference between the valuation written down in the balance sheet and the real power to dispose of the asset, is something that the institutional view of capital can capture better than the marginal product view. This is, I think, also a fruitful interpretation of what was at stake behind the old capital controversies….

If it is just a very high substitutability… labor market reforms are… off the table, as firms just replace workers with machines if you try to raise the wage….

Evening Must-Read: Martin Wolf: A more equal society will not hinder growth – FT.com

Posted on by Brad DeLong

Martin Wolf: A more equal society will not hinder growth: “Over the past half century, notes the IMF…

inequality has been rising in high-income countries and falling in developing countries… the difference between market and post-intervention inequality in high-income economies is smaller than elsewhere…. Inequality reduces growth. The direct impact of redistribution is negligibly negative. But the indirect effect, via reduced inequality, is beneficial to growth…. Increasing already very high levels of redistribution will harm growth. Yet, below the policy extreme, further redistribution does not harm growth…. Not only does inequality damage growth, but efforts to remedy it are, on the whole, not harmful. These are just statistical relationships derived from data that cover a large number of heterogeneous countries. Nonetheless, the findings suggest that trade-offs between redistribution and growth need not be a big worry…”

Why I Do Not Credit Claims That America’s Poor Have in Truth Been Getting Much Richer Over the Past Generation…

Posted on by Brad DeLong
The Richer You Are the Older You ll Get Real Time Economics WSJ

Joseph Zumbrun: The Richer You Are the Older You’ll Get: Economist Barry Bosworth at the Brookings Institution…

…crunched the numbers and found that the richer you are, the longer you’ll live. And it’s a gap that is widening, particularly among women…

Evening Must-Read: Paul Krugman (1992): The Rich, the Right, and the Facts

Posted on by Brad DeLong

Paul Krugman: Inequality 1992: “I happened to notice Greg Mankiw…

…citing some bogus claims that the one percent is an ever-changing group, not a persistent elite, and I thought ‘Wait–didn’t we deal with that one long ago?’ And that brought to mind the piece I wrote for the American Prospect 22 years ago, ‘The rich, the right, and the facts.’ (It doesn’t say this on the Prospect site, but it was indeed published in 1992). See the section on income mobility.

The truth is that inequality denial is largely a crusade of cockroaches–the same bad arguments just keep coming back. Oh, and I do think that my old piece looks surprisingly contemporary. In particular, I was focused on the one percent even then. http://prospect.org/article/rich-right-and-facts-deconstructing-income-distribution-debate

Hoisted from Comments: The Idler on Ryan Avent vs. Clive Crook on Thomas Piketty’s “Capital in the Twenty-First Century”

Posted on by Brad DeLong

Apropos of Ryan Avent Is Very Unhappy with Clive Crook’s Review of Piketty’s “Capital in the Twenty-First Century”, The Idler makes a good catch. I would dearly love to hear anybody’s proposed reconciliation.

Clive Crook today:

The Most Important Book Ever Is All Wrong! 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…

Clive Crook back before the election of Barack Obama:

First Principles: September 2006: The Height of Inequality: America’s productivity gains have gone to giant salaries for just a few… Productivity growth has always been seen as perhaps the single most important indicator of rising, broad-based prosperity. But remarkable growth in top-end pay, together with the relative constancy of labor’s overall share of income, has an obvious implication: the highest earners are now capturing most of the gain in national income caused by economy-wide productivity growth….

This is quite disturbing. Historically, rising productivity has been a tide that lifted nearly all boats. For more than twenty years during the long surge of productivity growth that followed the Second World War, median incomes in the United States rose as quickly as the highest incomes. This came to be regarded as normal—and, seen from a global vantage point, it still is. The dispersed benefits of high aggregate productivity are the reason why jobs of almost every kind pay better in rich countries than in poor ones….

Perhaps the CEOs’ appetites can be curbed. Maybe the superstars will find that their audiences cannot widen without limit. And perhaps, if both those things happen, productivity growth will again raise incomes broadly, as it once did, and as it is supposed to. If not, how much longer before the dwarves get restless?…

Morning Must-Read: Evan Soltas: Wage Discrimination

Posted on by Brad DeLong

Even Soltas: Yes, the Pay Gap Persists: “Mark Perry and Andrew Biggs… at the American Enterprise Institute argued… that no pay gap exists between men and women after you control for the different choices they make…. I took issue…. I found a persistent pay gap on the order of 4 to 10%…. And I also wrote that it’s probably wrong to take all these [controls] as unaffected by pressure or discrimination. Perry responded… that the pay gap might persist because of gender differences in risk tolerance…. [and] because professional athletes and musicians are paid well and tend to be men. Sadly, his argument makes no sense….

  1. My regression has ‘fixed effects’ for occupation. This means that it fully accounts for any occupation-level compensating differentials for risk. So everything Perry and Biggs write about men dying in forestry, or what have you–yeah, my analysis accounts for that. That’s what a fixed effect is.

  2. My analysis is of workers paid hourly wages. Professional athletes and musicians are not hourly workers….

Look, I understand why Perry and Biggs have to respond…. They misrepresented the research consensus on the gender pay gap in a major newspaper, and I called them out on it…. The 23-percent number reflects more than discrimination. But if they are going to try to explain away the pay gap, they’re going to need to try a bit harder than this.

Could We Have Had a Severe Recession Without the 2008 Financial Crisis?

Posted on by Brad DeLong

Over at Grasping Reality: Monday DeLong Smackdown: Scott Sumner: Could We Have Had a Severe Recession Without the 2008 Financial Crisis?: “I have trouble with DeLong’s implicit assumption is that the financial crisis caused the Great Recession….

The years leading up to 1990 saw Australian-level NGDP growth, if not more. So even if lending standards tightened sharply in the wake of the 1989-90 crisis, there was no possibility of hitting the zero bound…. With no zero bound in prospect, there’d be no reason for markets to expect an NGDP collapse…. Even if we had managed the 2007-08 subprime crisis very well from a regulatory/resolution perspective, there is no question that banks would have tightened lending standards sharply. That effectively reduces the demand for credit…. It’s quite plausible that the Wicksellian equilibrium natural rate would have fallen to zero in late 2008, even with a better resolution of the banks….

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