Jonathan Chait: Piketty, Oligarchy, and Conservative Evasion: “Every so often, a right-winger billionaire will go on an epic public rant against class warfare, populism…
…and the depredations of the Democratic soak-the-rich tax agenda. But such rants are noteworthy not only for their hilarious lack of self-awareness and uncomfortable tendency to invoke Adolph Hitler, but for their sheer discordance with the rest of the Republican message. The GOP obviously does not want its public face to be filthy rich men wallowing in self-pity…. The sudden popularity of Thomas Piketty’s Capital in the Twenty-First Century has again thrust conservatives into the pseudo-populist defensive stance…. David Brooks’s column today… a wilder essay/rant by Washington Free Beacon editor Matthew Continetti. Brooks (not for the first time) suggests that the liberal concern over inequality is driven by liberal elites, who are prestigious and wealthy, but less wealthy than the hedge-fund titans with whom they regularly interact, and against whose riches they bristle with resentment…. Continetti, meanwhile, brings up Piketty only to argue that the true oligarchs in America are the liberals…. What both have in common is a myopic focus on the sociological identity of Democratic elites…. In fact, American politics revolves around a policy dispute that carries massive repercussions for inequality…. Neither Brooks nor Continetti mentions any of these things. For all the demented paranoia of Tom Perkins, Ken Langone, Charles Koch, and the like, at least they are willing to acknowledge the basic class contours of the struggle in which they’re engaged…”
One from the left that I like:
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…”
Continue reading “The Daily Piketty: Some More Reviews of Piketty”
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….
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?…
Capital in the Twenty-First Century: “What are the grand dynamics that drive…
…the accumulation and distribution of capital? Questions about the long-term evolution of inequality, the concentration of wealth, and the prospects for economic growth lie at the heart of political economy. But satisfactory answers have been hard to find for lack of adequate data and clear guiding theories. In Capital in the Twenty-First Century, economist Thomas Piketty analyzes a unique collection of data from twenty countries, ranging as far back as the eighteenth century, to uncover key economic and social patterns. His findings will transform debate and set the agenda for the next generation of thought about wealth and inequality…
Diane Coyle: Capital and Destiny: “It is with some trepidation that I offer my review of Thomas Piketty’s Capital in the 21st Century….
Piketty’s construction of a long-run multi-country World Top Incomes Database for income and wealth, along with Emmanuel Saez and Anthony Atkinson, is a magnificent achievement…. Piketty shows that the income share of (marketed financial) capital (at market values) declined substantially in the second half of the 20th century but is now climbing again. His argument is that this increase is a near-inexorable trend. The mid-20th century decline was essentially the result of Depression and war, or in other words, the massive destruction of assets and social dislocation; and the capital share stayed low for some decades because economic growth was unusually high, which–he argues–will no longer be the case. Specifically, population growth has slowed or turned negative, and Piketty is clearly gloomy about the prospect of productivity growth.
It’s clear that many readers have taken this argument as a given without concerning themselves about how it adds up. It is based on two equations… the share of capital in national income (α) is defined as the rate of return on capital (r) times the ratio of the capital stock to income (β)… an accounting identity … [and] a ‘steady state’ condition: when the economy settles down in a stable way in the very long run, at its long-term potential growth rate, the ratio of capital stock to income equals the savings rate (s) divided by the growth rate (g)….
The inequality r > g is a contingent historical proposition, which is true in some periods and political contexts and not in others…
The exception was the latter part of the 20th century…. I am sceptical about the economy ever reaching the balanced growth state…. I’m also doubtful that the saving rate would not adjust…. I also wish Piketty had spent more time discussing the rate of return…. James Galbraith’s point… is marketable capital consisting mainly of financial assets the right definition to plug into a balanced growth model?…
The sense of inevitability or otherwise does matter. Piketty’s policy proposal is a global wealth tax. He’s acknowledged how unrealistic this is, but says it’s important to change the intellectual climate. True, but how about also debating the rigged markets in finance and the corporate legal framework that have contributed so significantly to the growth in very high incomes, which are quickly turned into new wealth? What about income and inheritance taxes? And rather than treating savings, the return on capital and the growth rate as givens, isn’t it worth thinking about what determines them, and what actually determines causality in the book’s simple algebra. I’m glad Capital in the 21st Century has succeeded…. It’s just a bit of a shame it does so in such a deterministic–and therefore disempowering–way.
A video of the April 15, 2014 event featuring French economist Thomas Piketty discussing his new book, “Capital in the 21st Century.” The event, co-hosted by the Economic Policy Institute, is followed by a discussion moderated by Heather Boushey, Executive Director and Chief Economist of the Washington Center for Equitable Growth, with Josh Bivens, Research and Policy Director of the Economic Policy Institute, Robert M. Solow, Professor Emeritus at the Massachusetts Institute of Technology, and Betsey Stevenson, Member of the White House Council of Economic Advisers, serving as discussants: