Economic Methodology: Thinking Math Can Substitute for Economics Turns Economists Into Real Morons Department


The highly estimable Tim Taylor wrote:

Tim Taylor: Some Thoughts About Economic Exposition in Math and Words: “[Paul Romer’s] notion that math is ‘both more precise and more opaque’ than words is an insight worth keeping…”

And he recommends Alfred Marshall’s workflow checklist:

  1. Use mathematics as a shorthand language; rather than as an engine of inquiry.
  2. Keep to them till you have done.
  3. Translate into English.
  4. Then illustrate by examples that are important in real life.
  5. Burn the mathematics.
  6. If you can’t succeed in 4, burn 3.

This is sage advice.

And to underscore the importance of this advice, I think it is time to hoist the best example I have seen in a while of people with no knowledge of the economics and no control over their models using—simple—math to be idiots: Per Krusell and Tony Smith trying and failing to criticize Thomas Piketty.

(2015) The Theory of Growth and Inequality: Piketty, Zucman, Krusell, Smith, and “Mathiness”: It is Krusell and Smith (2014) that suffers from “mathiness”–people not in control of their models deploying algebra untethered to the real world in a manner that approaches gibberish.

I wrote about this last summer, several times:

  • Department of “Huh?!”–I Don’t Understand More and More of Piketty’s Critics: Per Krusell and Tony Smith
  • The Daily Piketty: Ryan Avent on Housing in the Twenty-First Century: Wednesday Focus for June 18, 2014
  • In Which I Continue to Fail to Understand Why Critics of Piketty Say What They Say: (Late) Friday Focus for June 6, 2014
  • Depreciation Rates on Wealth in Thomas Piketty’s Database

This time, [it was a] reply… to Paul Romer… with a Tweetstorm. Here it is, collected, with paragraphs added and redundancy deleted:

My objection to Krusell and Smith (2014) was that it seemed to me to suffer much more from what you call “mathiness” than does Piketty or Piketty and Zucman. Recall that Krusell and Smith began by saying that they:

do not quite recognize… k/y=s/g…

But k/y=s/g is Harrod (1939) and Domar (1946). How can they fail to recognize it? And then their calibration–n+g=.02, δ=.10–not only fails to acknowledge Piketty’s estimates of economy-wide depreciation rate as between .01 and .02, but leads to absolutely absurd results:

  • For a country with a K/Y=4, δ=.10 -> depreciation is 40% of gross output.
  • For a country like Belle Époque France with a K/Y=7, δ=.10 -> depreciation is 70% of gross output….

Krusell and Smith had no control whatsoever over the calibration of their model at all. Note that I am working from notes here, because no longer points to Krusell and Smith (2014). It points, instead, to Krusell and Smith (2015), a revised version. In the revised version, the calibration differs. It differs in:

  • raising (n+g) from .02 to .03,
  • lowering δ from .10 or .05 (still more than twice Piketty’s historical estimates), and
  • changing the claim that as n+g->0 K/Y increases “only very marginally” to the claim that it increases “only modestly”. The right thing to do, of course, would be to take economy-wide δ=.02 and say that k/y increases “substantially”.)

If Krusell and Smith (2015) offer any reference to Piketty’s historical depreciation estimates, I missed it. If it offers any explanation of why they decided to raise their calibration of n+g when they lowered their δ, I missed that too.

Piketty has flaws, but it does not seem to me that working in a net rather than a gross production function framework is one of them.

And Krusell and Smith’s continued attempts to demonstrate otherwise seem to me to suffer from “mathiness” to a high degree.

Here are the earlier pieces:

DEPARTMENT OF “HUH?!”–I DON’T UNDERSTAND MORE AND MORE OF PIKETTY’S CRITICS: PER KRUSELL AND TONY SMITH: As time passes, it seems to me that a larger and larger fraction of Piketty’s critics are making arguments that really make no sense at all–that I really do not understand how people can believe them, or why anybody would think that anybody else would believe them. Today we have Per Krusell and Tony Smith assuming that the economy-wide capital depreciation rate δ is not 0.03 or 0.05 but 0.1–and it does make a huge difference…

Per Krusell and Tony Smith: Piketty’s ‘Second Law of Capitalism’ vs. standard macro theory: “Piketty’s forecast does not rest primarily on an extrapolation of recent trends…

…[which] is what one might have expected, given that so much of the book is devoted to digging up and displaying reliable time series…. Piketty’s forecast rests primarily on economic theory. We take issue…. Two ‘fundamental laws’, as Piketty dubs them… asserts that K/Y will, in the long run, equal s[net]/g…. Piketty… argues… s[net]/g… will rise rapidly in the future…. Neither the textbook Solow model nor a ‘microfounded’ model of growth predicts anything like the drama implied by Piketty’s theory…. Theory suggests that the wealth–income ratio would increase only modestly as growth falls…

And if we go looking for why they believe that “theory suggests that the wealth–income ratio would increase only modestly as growth falls”, we find:

Per Krusell and Tony Smith: Is Piketty’s “Second Law of Capitalism” Fundamental? : “In the textbook model…

…the capital- to-income ratio is not s[net]/g but rather s[gross]/(g+δ), where δ is the rate at which capital depreciates. With the textbook formula, growth approaching zero would increase the capital-output ratio but only very marginally; when growth falls all the way to zero, the denominator would not go to zero but instead would go from, say 0.12–with g around 0.02 and δ=0.1 as reasonable estimates–to 0.1.

But with an economy-wide capital output ratio of 4-6 and a depreciation rate of 0.1, total depreciation–the gap between NDP and GDP–is not its actual 15% of GDP, but rather 40%-60% of GDP. If the actual depreciation rate were what Krussall and Smith say it is, fully half of our economy would be focused on replacing worn-out capital.

It isn’t:


That makes no sense at all.

For the entire economy, one picks a depreciation rate of 0.02 or 0.03 or 0.05, rather than 0.10.

I cannot understand how anybody who has ever looked at the NIPA, or thought about what our capital stock is made of, would ever get the idea that the economy-wide depreciation rate δ=0.1.

And if you did think that for an instant, you would then recognize that you have just committed yourself to the belief that NDP is only half of GDP, and nobody thinks that–except Krusall and Smith. Why do they think that? Where did their δ=0.1 estimate come from? Why didn’t they immediately recognize that that deprecation estimate was in error, and correct it?

Why would anyone imagine that any growth model should ever be calibrated to such an extraordinarily high depreciation rate?

And why, when Krusell and Smith snark:

we do not quite recognize [Piketty’s] second law K/Y = s/g. Did we miss something quite fundamental[?]… The capital-income ratio is not s/g but rather s/(g+δ) no reference to Piketty’s own explication of s/(n+δ), where δ is the rate at which capital depreciates…

do they imply that this is a point that Piketty has missed, rather than a point that Piketty explicitly discusses at Kindle location 10674?

?One can also write the law β=s/g with s standing for the total [gross] rather than the net rate of saving. In that case the law becomes β=s/(g+δ) (where δ now stands for the rate of depreciation of capital expressed as a percentage of the capital stock)…

I mean, when the thing you are snarking at Piketty for missing is in the book, shouldn’t you tell your readers that it is explicitly in the book rather than allowing them to believe that it is not?

I really do not understand what is going on here at all…

In Which I Continue to Fail to Understand Why Critics of Piketty Say What They Say: “Per Krusell II: So I wrote this on Friday, and put it aside because I feared that it might be intemperate, and I do not want to post intemperate things in this space.

Today, Sunday, I cannot see a thing I want to change–save that I am, once again, disappointed by the quality of critics of Piketty: please step up your game, people!

In response to my Department of “Huh?!”–I Don’t Understand More and More of Piketty’s Critics: Per Krusell and Tony Smith, Per Krusell unfortunately writes:

Brad DeLong has written an aggressive answer to our short note…. Worry about increasing inequality… is no excuse for [Thomas Piketty’s] using inadequate methodology or misleading arguments…. We provided an example calculation where we assigned values to parameters—among them the rate of depreciation. DeLong’s main point is that the [10%] rate we are using is too high…. Our main quantitative points are robust to rates that are considerably lower…. DeLong’s main point is a detail in an example aimed mainly, it seems, at discrediting us by making us look like incompetent macroeconomists. He does not even comment on our main point; maybe he hopes that his point about the depreciation rate will draw attention away from the main point. Too bad if that happens, but what can we do…

Let me assure one and all that I focused–and focus–on the depreciation assumption because it is an important and central assumption. It plays a very large role in whether reductions in trend real GDP growth rates (and shifts in the incentive to save driven by shifts in tax regimes, revolutionary confiscation probabilities, and war) can plausibly drive large shifts in wealth-to-annual-income ratios. The intention is not to distract with inessentials. The attention is to focus attention on what is a key factor, as is well-understood by anyone who has control over their use of the Solow growth model.

Consider the Solow growth model Krusell and Smith deploy, calibrated to what Piketty thinks of as typical values for the 1914-80 Social Democratic Era: a population trend growth rate n=1%/yr, a labor-productivity trend growth rate g=2%/yr, W/Y=3.

Adding in the totally ludicrous Krusell-Smith depreciation assumption of 10%/yr means (always assuming I have not made any arithmetic errors) that a fall in n+g from 3%/yr to 1%/yr, holding the gross savings rate constant, generates a rise in the steady-state wealth-to-annual-net-income ratio from 3 to 3.75–not a very big jump for a very large shift in economic growth: the total rate of growth n+g has fallen by 2/3, but W/Y has only jumped by a quarter.

Adopting a less ludicrously-awry “Piketty” depreciation assumption of 3%/yr generates quantitatively (and qualitatively!) different results: a rise in the steady-state wealth-to-annual-net-income ratio from 3 to 4.708–the channel is more than twice has powerful.


We have a very large drop in Piketty’s calculations of northwest European economy-wide wealth-to-annual-net-income ratios from the Belle Époque Era that ended in 1914 to the Social Democratic Era of 1914-1980 to account for. How would we account for this other than by (a) reduced incentives for wealthholders to save and reinvest and (b) shifts in trend rates of population and labor-productivity growth? We are now in a new era, with rising wealth-to-annual-net-income ratios. We would like to be able to forecast how far W/Y will rise given the expected evolution of demography and technology and given expectations about incentives for wealthholders to save and reinvest.

How do Krusell and Smith aid us in our quest to do that?

Depreciation Rates on Wealth in Thomas Piketty’s Database:: Thomas Piketty emails:

We do provide long run series on capital depreciation in the “Capital Is Back” paper with Gabriel [Zucman] (see, appendix country tables US.8, JP.8, etc.). The series are imperfect and incomplete, but they show that in pretty much every country capital depreciation has risen from 5-8% of GDP in the 19th century and early 20th century to 10-13% of GDP in the late 20th and early 21st centuries, i.e. from about 1%[/year] of capital stock to about 2%[/year].

Of course there are huge variations across industries and across assets, and depreciation rates could be a lot higher in some sectors. Same thing for capital intensity.

The problem with taking away the housing sector (a particularly capital-intensive sector) from the aggregate capital stock is that once you start to do that it’s not clear where to stop (e.g., energy is another capital intensive sector). So we prefer to start from an aggregate macro perspective (including housing). Here it is clear that 10% or 5% depreciation rates do not make sense.

No, James Hamilton, it is not the case that the fact that “rates of 10-20%[/year] are quite common for most forms of producers’ machinery and equipment” means that 10%/year is a reasonable depreciation rate for the economy as a whole–and especially not for Piketty’s concept of wealth, which is much broader than simply produced means of production.

No, Pers Krusell and Anthony Smith, the fact that:

[you] conducted a quick survey among macroeconomists at the London School of Economics, where Tony and I happen to be right now, and the average answer was 7%[/year…

for “the” depreciation rate does not mean that you have any business using a 10%/year economy-wide depreciation rate in trying to assess how the net savings share would respond to increases in Piketty’s wealth-to-annual-net-income ratio.

Who are these London School of Economics economists who think that 7%/year is a reasonable depreciation rate for a wealth concept that attains a pre-World War I level of 7 times a year’s net national income? I cannot imagine any of the LSE economists signing on to the claim that back before WWI capital consumption in northwest European economies was equal to 50% of net income–that depreciation was a third of gross economic product.

One more remark: if more than half LSE macroeconomists really do believe that net domestic product is 28% lower than gross domestic product—for that is what a depreciation rate of 7% per year gets you with an aggregate capital-output ratio of 4—then more than half of LSE macroeconomists need to be in a different profession. I don’t believe Krusell and Smith’s survey. I don’t believe their LSE colleagues told them what they claimed they had…

Time for Me to Take Another Look at Nancy MacLean’s “Democracy in Chains”!



Should-Read: Nancy MacLean: DEMOCRACY IN CHAINS: THE DEEP HISTORY OF THE RADICAL RIGHT’S STEALTH PLAN FOR AMERICA “As 1956 drew to a close, Colgate Whitehead Darden Jr., the president of the University of Virginia, feared…

…second Brown v. Board of Education ruling, calling for the dismantling of segregation in public schools with “all deliberate speed.” In Virginia, outraged state officials responded with legislation to force the closure of any school that planned to comply…. Darden… could barely stand to contemplate the damage…. Even the name of this plan, “massive resistance,” made his gentlemanly Virginia sound like Mississippi. On his desk was a proposal, written by the… chair of the economics department… James McGill Buchanan [who] liked to call himself a Tennessee country boy. But Darden knew better….

Without mentioning the crisis at hand, Buchanan’s proposal put in writing what Darden was thinking: Virginia needed to find a better way to deal with the incursion on states’ rights represented by Brown. To most Americans living in the North, Brown was a ruling to end segregated schools—nothing more, nothing less. And Virginia’s response was about race. But to men like Darden and Buchanan, two well-educated sons of the South who were deeply committed to its model of political economy, Brown boded a sea change on much more…. Federal courts could no longer be counted on to defer reflexively to states’ rights…. The high court would be more willing to intervene when presented with compelling evidence that a state action was in violation of the Fourteenth Amendment’s guarantee of “equal protection”…. States’ rights… were yielding in preeminence to individual rights. It was not difficult for either Darden or Buchanan to imagine how [the Warren] court might now rule if presented with evidence of the state of Virginia’s archaic labor relations, its measures to suppress voting, or its efforts to buttress the power of reactionary rural whites by underrepresenting the moderate voters of the cities and suburbs of Northern Virginia. Federal meddling could rise to levels once unimaginable.

James McGill Buchanan was not a member of the Virginia elite. Nor is there any explicit evidence to suggest that for a white southerner of his day, he was uniquely racist or insensitive to the concept of equal treatment. And yet, somehow, all he saw in the Brown decision was coercion. And not just in the abstract. What the court ruling represented to him was personal. Northern liberals… who looked down upon southern whites like him,… were now going to tell his people how to run their society. And… he and people like him with property were no doubt going to be taxed more…. What about his rights? Where did the federal government get the authority to engineer society to its liking and then send him and those like him the bill? Who represented their interests in all of this?

I can fight this, he concluded. I want to fight this. Find the resources, he proposed to Darden, for me to create a new center on the campus of the University of Virginia, and I will use this center to create a new school of political economy and social philosophy… an academic center… with a… political agenda: to defeat the “perverted form” of liberalism that sought to destroy their way of life, “a social order,” as he described it, “built on individual liberty,” a term with its own coded meaning but one that Darden surely understood. The center, Buchanan promised, would train “a line of new thinkers” in how to argue against those seeking to impose an “increasing role of government in economic and social life.” He could win this war, and he would do it with ideas.

While it is hard for most of us today to imagine how Buchanan or Darden or any other reasonable, rational human being saw the racially segregated Virginia of the 1950s as a society built on “the rights of the individual,” no matter how that term was defined, it is not hard to see why the Brown decision created a sense of grave risk among those who did. Buchanan fully understood the scale of the challenge he was undertaking and promised no immediate results. But he made clear that he would devote himself passionately to this cause.

Some may argue that while Darden fulfilled his part—he found the money to establish this center—he never got much in return. Buchanan’s team had no discernible success in decreasing the federal government’s pressure on the South all the way through the 1960s and ’70s. But take a longer view… a different picture… a testament to Buchanan’s intellectual powers and… the ideological origins of the single most powerful and least understood threat to democracy today: the attempt by the billionaire-backed radical right to undo democratic governance…. A quest that began as a quiet attempt to prevent the state of Virginia from having to meet national democratic standards of fair treatment and equal protection… would, some sixty years later, become… a stealth bid to reverse-engineer all of America, at both the state and the national levels, back to the political economy and oligarchic governance of midcentury Virginia, minus the segregation…

Must-Read That’s it. I’m calling this one for Nancy MacLean in Nancy MacLean versus the critics of her book Democracy in Chains on the rise of right-wing Public Choice.

I think she gets a number of things wrong, but she gets the big thing about it right:

Steve Horwitz: MACLEAN ON NUTTER AND BUCHANAN ON UNIVERSAL EDUCATION: “Finding examples of misleading, incorrect, and outright butchered quotes and citations in Nancy MacLean’s new book…

…has become the academic version of Pokemon Go this week. I now offer one small contribution of my own…. Hardly enemies of democracy in the paper, Nutter and Buchanan see their task (as Buchanan did for his whole career) as offering analyses that could inform the deliberations of the democratic process…. MacLean sees this paper as an attempt by the two scholars to undermine public education in Virginia in order to keep the effects of pre-Brown segregation while still complying with the law….

They also never mention race in the paper, as she acknowledges, but their use of the technical language of economics and their race-neutrality is seen by her as evidence of their attempt to generate racist outcomes by stealth…. One might also note that supporting Brown also means that one is thwarting the desires of democratic majorities…. It’s fascinating that she sees the foundation of the arguments of democracy’s supposed opponents as a rejection of a Supreme Court decision that told local and state majorities that they couldn’t have the segregated schools they wanted…

Yep. That’s an extraordinary own goal by Horwitz: The true democracy is the Herrenvolk democracy…

Must-Read A propos of Nancy MacLean’s Democracy in Chains My view is that Brown v. Board of Education was not the major cause of James Buchanan’s decision to try to build and U VA President Colgate Darden’s decision to fund the “Virginia School of Political Economy”—Public Choice as a discipline that had only one wing, a right one, and that would, as the late Mancur Olson liked to say, “never be healthy until [or because?] its left wing was as strong as its right, and it was no longer an ideological movement masquerading as an academic sub discipline”.

But BvBoA was certainly a trigger, and support was always very welcome from those whose concerns about appropriate governmental decentralization, limited powers, and checks and balances started and ended with preserving white supremacy.

Noah Smith was on the case back in 2011:

Noah Smith (2011): NOAHPINION: THE LIBERTY OF LOCAL BULLIES: “I have not been surprised by any of the quotes that have recently come to light from Ron Paul’s racist newsletters. I grew up in Texas, remember…

Fifteen Theses on “The Wealth of Humans” and “After Piketty”

Notes for the July 11, 2017 Research on Tap event:

  • Ryan Avent (2016): The Wealth of Humans: Work, Power, and Status in the Twenty-first Century
  • Heather Boushey, J. Bradford DeLong, and Marshall Steinbaum: After Piketty: The Agenda for Economics and Inequality

Meditations on Ryan Avent:

Ryan Avent: What will happen to ‘The Wealth of Humans’? “This really dramatic technological change… the digital revolution… is adding hugely to the amount of effective labor that’s available to firms…. A lot of routine tasks in factories and in offices… [to] be automated…. High-skilled jobs… use these new technologies to do work that used to require a lot more people to do and in the process are displacing workers… enormous, abundant labor…. Employer[s] with… huge reservoir[s] of willing workers at very low wages… say…. “I don’t need to invest in this labor-saving technology…. replace my cashiers with automated checkout… replace the people moving boxes in the warehouse with robots”. And so you get this sort of self-limiting technological change…. The more powerful the digital revolution… the more people… looking for low-wage work… the less of an interest firms have in using machines to replace them…”

  1. For the past thirty and the next thirty years—but probably not more—we are in all likelihood facing the increasing drift toward inequality driven by the rise of the Overclass as identified by Thomas Piketty. As long as the Overclass has enough control over the political system to manipulate it to reap enough rents to peg the rate of return on wealth—not physical capital, wealth—at 5%/year, we will see much if not all of the benefits from economic growth flowing to this Overclass, which will increasingly be an overclass of heirs and heiresses, rather than one that can claim that its wealth is due to some sort of meritocratic chops.

  2. For the past ten years and the next ten years—if not more—our biggest and principal problem has been an economy in secular stagnation afflicted by slack demand, and that in a high -pressure economy like we had under Clinton in the late 1990s or Kennedy-Johnson in the 1960s, most of what we see as our economic problems would not melt completely away but be much reduced. Robots and artificial intelligence were overwhelmingly seen not as problems but as opportunities in the high-pressure economy of the later 1990s.

  3. A generation ago we feared. But then we feared not the robot but the mainframe—and our fears of the mainframe then were like our fears of the robot now, save that while we now fear that robots will leave us with no work to do, we feared then that mainframes would leave us with no meaningful work to do and no work to do save being a mainframe-controlled dumb robot. As the Apple commercial said, we feared that 1984 would be like 1984: Those fears were vastly overblown: we did not become robots subordinated to mainframes; instead, microcomputers and the internet became our personal intelligent tools.

  4. The human brain is a massively parallel supercomputer that fits inside half a shoebox. It draws 50 watts of power. It is an amazing innovation, analysis, assessment and creation machine. 600 million years of proto-mammalian and mammalian evolution coupled with the genetic algorithm means that almost every single human can solve AI problems far beyond our current engineering reach—so much so that much of what our machines find impossible our brains find so trivially easy that we call such capabilities “unskilled”. When combined with our brains, human fingers are amazingly fine manipulation devices. And human back and leg muscles—especially when testosterone soaked—are quite good at moving heavy objects. Thus back in the environment of evolutionary adaptation, we used our brains, our big muscles, and our fingers to lead cognitively interesting—if stressful and short—lives.

  5. Back in the environment of evolutionary adaptation, we used our brains, our big muscles, and our fingers to lead cognitively interesting—if stressful and short—lives. Short: life expectancy at brith of 25 or so. Stressful: watching relatively young people die around you all the time is a significant source of stress. And in order for the average woman to have two children who survive to reproduce, the average woman would have had to have three reach adulthood, about four reach the age of five, about six live births, and about nine pregnancies—that’s the average. Up until 250 years ago, the average woman spent about six years pregnant and eighteen years breastfeeding. Some more. Some less.

  6. History has rolled forward since the hunter-gatherer age. And as history has rolled forward, we have figured out other things to do to add economic and sociological value than using our backs and legs to move things, our fingers to grasp things, and our brains to decide what to hunt and gather. Using backs to move heavy objects and our fingers to perform fine manipulations in cognitively-interesting ways has, relatively, declined.

  7. As our use of our backs and fingers guided by our brains to create value has declined, we have turned to: (1) turning many of us into robots ourselves, performing simple routinized repetitive and vastly boring tasks to fill in the gaps in value chains between the robots that we know how to build; (2) jobs as microcontrollers for domesticated animals and machines—the horse does not know what plowing the furrow is—(3) finding jobs as relatively simple accounting and software bots, keeping track of stuff, what it is useful for, and how its use is to be decided; (4) becoming personal servitors; (5) becoming social engineers—trying to keep all those things and all those people—especially, perhaps, trying to keep those brains soaked in testosterone—somehow working in harmony, somehow pulling together, although admittedly with limited success; and (6) remaining innovators, analyzers, assessors, and creators as well.

  8. Backs started to go out with the domestication of the horse. Fingers began to go out with the invention of the spinning jenny. But humans-as-microcontrollers, humans-as-accounting-‘bots—paper shufflers—and humans-as-the-robots we cannot yet build—took up all the job slack. Every horse needs a microcontroller. And a human brain was the only possible option. Even today, to a large amount every textile machine needs a human watching it at least part of the time. It doesn’t know when it’s gone wrong. It has no clue how to fix itself. It no more understands the idea of “fixing” any more than Alpha-Go understands that it is playing Go, and not just solving a problem of outputting a two-element vector in response to a 19 x 19 matrix of inputs with the additional structure that the output changes the matrix and that the possible matrices have a value-function structure.

  9. Now, however, we can finally peer into a future in which the microcontrollers and the accounting bots are on their way out in a manner analogous to the backs and the fingers. But this is our future. This is not our present. For the past ten years and the next ten years—if not more—our biggest and principal problem has been an economy in secular stagnation afflicted by slack demand, and that in a high -pressure economy like we had under Clinton in the late 1990s or Kennedy-Johnson in the 1960s, most of what we see as our economic problems would not melt completely away but be much reduced.

  10. What do we see when we peer into a future in which the microcontrollers and the accounting bots are on their way out in a manner analogous to the backs and the fingers? Fortunately, one thing this brings with it isthe forthcoming extinction of the the jobs that treat humans as simple robots: simple cogs in the machine that is Henry Ford’s River Rouge assembly line. Many occupations that vastly underutilize the massively parallel supercomputer that fits in half a shoebox are on the way out—and good: for those are not properly “human” jobs at all.

  11. Not yet, but starting soon, and continuing for perhaps the next hundred years, we face the deep problem of the obsolescence of human brains as resources that can be employed—or, rather, underemployed—to create substantial economic value. Over the past six thousand years, ever since the domestication of the horse, we have seen the erosion, at first slowly and in the past two centuries rapidly, of the obsolescence of human muscles as resources that can be employed to create substantial economic value. But we have benefited because human brains underemployed—as microcontrollers for domesticated animals and machines, and as relatively simple accounting and software bots—have nevertheless been of great and increasing value. But now our microcontrollers are better microcontrollers than human brains, and our software accounting ‘bots are becoming better accounting ‘bots than human brains. Not next year, and not next decade, but further out by some unknown time, humans’ jobs will be as: personal servitors, social engineers, and innovators, analyzers, assessors and creators. Here we might well, someday, have a huge problem.

  12. The market economy will amply fund AI research that replaces workers in capital intensive production processes by machines. Such industries have mammoth returns to scale. They thus tend to be characterized by large oligopolies. And so the firm that funds such labor-replacing research will capture with its own scale and in its own value chain a substantial part of the benefits of such R&D. That means that the combination of coming AI with a market economy might well be absolute poison for equity and equitable growth. It will race ahead with shedding workers in capital intensive production processes.

  13. The market economy will not amply fund AI research that assists and amplifies workers in labor intensive production processes. Such tend to be small scale. The inventors and the innovators cannot capture even a small part of the benefit in their own production processes and value chains. And intellectual property is a very weak reed indeed to rely on to fix the problem—in fact, intellectual property is more likely to be the problem than the solution, cf. Nathan Myhrvold, and Intellectual Ventures.

  14. The combination of coming AI with a market economy might well be absolute poison for equity and equitable growth. It will race ahead with shedding workers in capital intensive production processes. There will be—as Laura Tyson and Mike Spence pointed out in their contribution to Heather, Marshall, and my After Piketty book—a synergy between the dangers posed by the Rise of the Robots on the one hand and the inequality generating forces analyzed by Thomas Piketty in his Capital in the Twenty-First Century on the other.

  15. Technological progress could rescue us from Pikettyian dystopia. Robots could be intelligent tools. AI could be gold for equity: amplifying the capabilities of workers in labor intensive production processes would, as John Maynard Keynes once said, bring us vastly closer to economic El Dorado. Recall how a generation ago we feared not the robot but the mainframe—and our fears of the mainframe then were like our fears of the robot now, save that while we now fear that robots will leave us with no work to do, we feared then that mainframes would leave us with no meaningful work to do and no work to do save being a mainframe-controlled dumb robot. As the Apple commercial said, we feared that 1984 would be like 1984. But we are unlikely to see a repeat of the microcomputer revolution. Firms will not invest on a large scale in AI that amplifies the capabilities of labor in labor intensive industries. It will not happen unless some NGO does. How about an engineering school? How about an engineering school at a public university?

A Few Notes on the CUNY “After Piketty” Panel…

Cursor and After Piketty

After Piketty: The Agenda for Economics and Inequality

Themes worth noting from the After Piketty CUNY launch event—that I missed, being on the wrong coast.

But having been on the wrong coast, I can now add, in a l’esprit d’escalier sense, what I would have said if I had been there, had been thinking very quickly, and had the last word:

(1) “Capital” vs. “Wealth” in PIketty’s Capital in the 21st Century

Branko Milanovic: Not a confusion, but the use of “capital” for wealth was criticized because for economists “capital” is productive capital: the input into the production function in the theory of growth, and so on. But “wealth”, for people who work on income distribution like myself, includes all other things, including real estate, and other things which are even not necessarily immediately marketable. Although, obviously, real estate is. So there is a little bit of a difference between the two. In the book… the two are really conflated…

Paul Krugman: The place where I think is closest to him being—wrong is not quite the right word—where there is a really serious critique from the economists’ point of view—I defer the historical social issues to other people–he makes a lot about the rising ratio of capital to income. That we’ve been accumulating capital in a way. That we had a lot of capital destroyed by the by the wars of the 20th century. Then we restore it and we get a much more capital. He talks about this as a story of there’s more and more capital out there and that this given certain parameters whatever it tends to raise the capital share of income even as it reduces the rate of return. The thing that has become clear is that an awful lot of that rise in the value of capital is real estate. A lot of the Piketty book is written as if there’s capital and there’s labor. That is true. But an awful lot of the capital by value turns out to be housing. That does change your picture significantly. It doesn’t mean that the underlying thesis is wrong, but it means that that it’s a little harder to make his case than might otherwise have seemed to be the case…

Brad DeLong: If “capital” in Piketty is taken to mean what neoclassical economists typically mean by “capital”—the argument K in some aggregate production function, produced means of production elastically produced under constant returns to scale and valued at their replacement cost—then Piketty’s argument does appear to have a major problem. We then face what Keynes called the euthanasia of the rentier as the capital stock-annual output ratio rises: the observed technical elasticity of substitution between capital and labor strongly suggests that the rate of profit falls more in relative terms than the capital stock-annual output ratio rises, and so the wealthier superrich receive a smaller share of society’s income over time.

But it was never Piketty’s intention for “capital” in his book to mean only he argument K in some aggregate production function, produced means of production elastically produced under constant returns to scale and valued at their replacement cost. As Thomas writes in his contribution to After Piketty:

Had I believed that the one-dimensional neoclassical model of capital accumulation (based upon the so-called production function Y = F(K,L) and the assumption of perfect competition) provided an adequate description of economic structures and property relations, then my book would have been 30 pages long rather than 800 pages long. The central reason my book is so long is that I try to describe the multidimensional transformations of capital and the complex power patterns and property relations that come with these metamorphoses (as the examples given above illustrate). I should probably have been more explicit about this issue, and I am grateful to Suresh for giving me the opportunity to clarify this important point…

Piketty’s intention was always to, in Suresh Naidu’s terms, be “wild Piketty” rather than “domesticated Piketty”. The book is about all of those assets that are claims on society’s income—monopoly rents, spoils of rent-seeking, real estate, brands, control over value chains, as well as productive physical capital receiving its marginal product.

You can claim that Piketty invited this confusion by titling his book Capital in the 21st Century rather than Wealth in the 21st Century. But you would not have to read far in the book to get a sense that it was, indeed, not 30 pages long but 800. IMHO, many critics of Piketty did not read far. What Ryan Avent said of Clive Crook can, I think, stand as an evaluation of a great deal of Piketty criticism:

Why, for instance, doesn’t Mr Piketty say that r must be significantly above g to generate the expected divergence, Mr Crook complains. This, after literally hundreds of pages in which Mr Piketty has walked through when and how the capital-income ratio has been pushed away from its long-run trend rate. You don’t even have to read hundreds of pages to get the qualification Mr Crook wants; you can start with the page on which r>g is first mentioned: “If, moreover, the rate of return on capital remains significantly above the growth rate for an extended period of time (which is more likely when the growth rate is low, though not automatic), then the risk of divergence in the distribution of wealth is very high.” Emphasis mine. I suppose if you only read the book’s conclusion you could miss these details, but who would do that?…

(2) “Patrimonial Capitalism”

Paul Krugman: We still have… an 80s frame of mind… visualize… self-made men, whether it’s Steve Jobs or Gordon Gekko depending upon… your take on the goodness or badness…. [But] increasingly now we are looking at patrimonial capitalism—inherited fortunes. Don’t think Steve Jobs. Think Koch brothers. Piketty makes an argument that that’s increasingly going to be the case[:]… Don’t think “Gilded Age”, which is America and which is an era of self-made men. Instead, think more “Belle Epoque”: late 19th century France, which is very much a dynastic inherited wealth thing….

To date most of the explosion of income concentration at the very top has… been… compensation… bonuses and executive pay. There’s a lot of interesting discussion of that in Capital in the 21st Century. But that is not nearly at the level of rigor of explanation, because it’s hard when nobody really fully understands….

I don’t think it’s a problem of us mislabelling what is truly “capital income”. If you look at what a hedge fund manager or a Fortune 500 CEO receives, he—and almost always he—because of the inherited wealth that he brought to the table. It is associated with the job. whether it’s “earned” in a social sense is a whole different question. What is true is that the way that income comes for such people is very different from the way it comes from an ordinary wage or salary worker. It’s not that there’s a job and there’s pay. It’s that you do something. You climb. It comes in the form of stock options—although those are actually a lot less tied in reality to the price of the stock than people think. The basis tends to get adjusted. In the finance industry it comes from however much profit you’ve managed to make.

What’s odd is that argument is used sometimes to defend preferential tax treatment. And we have the “carried interest” loophole, which lets people in the finance industry pay much lower tax rates. The argument is: well, yes, they’re working hard and all this stuff, but the returns to that labor are highly uncertain, so you don’t want to treat it as normal income. To that, some of us say: you know, I’m writing a book in which you put often an awful lot of work, and then you have no idea how much if any money you’re going to make at the end. And somehow or other I’m paying a full rate.

There’s something going on. To a large extent this is a category of income that must have always existed. John D. Rockefeller, the original John D. Rockefeller, did not inherit his wealth. For most of his life he presumably was making most of his money through the profits of his enterprises rather than as return on his accumulated capital. But it seems to be much more prevalent now than it was before. That is a bit of a problem for the Piketty argument. He is saying: inherited wealth will go back to becoming much more central. But I don’t think it’s a fundamental category error.

Salvatore Morelli: The original Piketty and Saez studies on top incomes in the U.S. were showing that, relatively speaking, labor income was much more prevalent at the top—if we exclude the top 0.001%, of course. But it’s also true that that study in particular was based on tax statistics, so on tax returns. The problem is that not all the capital income is reported in the tax returns. Importantly, a growing share of capital income is not reported. This led Thomas Piketty and Emmanuel Saez and Gabriel Zucman to do a follow-up study, which is now part of the DINA Project—Distributional Income National Accounts. What they did is to take the national account income and distribute it back to the population so that it does not suffer from the tax-reporting bias. When you do that, it’s actually surprising to see how capital income rises across the distribution. Even at the bottom of the distribution you have a lot of capital income—most of capital income from tax-exempt savings accounts was not reported in tax statistics. When you get to even the top 10% people are earning more income from capital and not from labor. The research question is still open. But I wanted to point that out.

Paul Krugman: Returns and profits—dividends and capital gains—which are popping up in your account in the Bahamas are just not going to be in the original Piketty-Saez data. That means that we actually are more like the 19th century than we think we are, yes.

Branko Milanovic: There is an analysis based on the French data only, because that’s the only country which apparently has the data, which shows what percentage of people would inherit what amount of money which would allow them, given improving life expectancy, to with that money live at a medium level of income for that country. That is, actually, a very impressive statistic. When you think that if I inherit something that would actually allow me to live at the mean income level of my country until I die, it is really a very strong sort of inequality that brings back the role of inheritance very strongly….

Brad DeLong: In the old days you would not get stock options—you would simply be handed the stock in a corporate organization or reorganization. Rather than showing up in the income statistics at its option value when your stock options were granted you and then at the difference between market value and strike price when you exercised your options, they would not show up in the income statistics at all. Thus even leaving to one side all of the tax-avoidance, tax-evasion, and data-quality issues, it is somewhat misleading to say that the superrich get much much more of their income from “labor” now than they used to.

And, of course, calling it “labor” and invoking marginal product theory is totally misleading. The most that the ideologues of the right seeking to justify the superrich will say is that “tournaments” are effective effort-elicitation mechanisms: that because of the cognitive biases and deficits of the CEO-financier-entrepreneurial class, you elicit an enormous amount of effort from many people relatively cheaply by offering a few really big prizes.

But the societal benefits of all of this enormous effort are missing. Corporate control is no better than it was in the 1950s. CEOs are no better than in the 1950s. Economic growth is certainly worse than in the 1950s. And as for risk management—ha!

(3) Politics: Belle Époque France and Progressive Era America

Paul Krugman: One piece that really impressed me in Piketty was the discussion of the Third French Republic, which is “liberte, egalite, fraternite”, and yet politics is dominated by vast inherited wealth dynasties. A point he makes is that the intellectual domination—that the fact that inherited wealth in effect managed to set the terms of discussion and to define what was responsible, what you could do. You
can easily see that looking at a lot of things are going on in America now. How that happens we can talk about. We can talk about foundations. We can talk about influence. We can talk about all of those things…. A countervailing thing… [is] the United States in the Progressive Era… a vastly unequal society… in which it was quite common for people—often people who were themselves very much on the top—to express ideas that would be regarded as radically left-wing today… to talk about the dangers of vast wealth… the importance of high inheritance taxes to prevent concentration… people—I believe including Theodore Roosevelt—saying things like: we would want to tax this wealth even aside from the revenue we raise, for we want to make sure that these great fortunes do not accumulate. For anyone to try to say that now you would be accused of being a radical Marxist. Maybe the dominance of patrimonial wealth is not—the intellectual dominance is not necessarily as large as we might imagine…

Brad DeLong Andrew Carnegie’s “he who dies rich dies disgraced”… The transformation to what we have today is very interesting… I remember a panel I did at Rice University with R. Glenn Hubbard. The two-step was something like: financial inheritance really does not matter because the truly valuable things our children inherit from us is the good values we inculcate in them—therefore, because they have good values, they deserve to inherit our money too. It did not seem to me to make much sense.

(4) Stakeholders

Paul Krugman: The last thing I want to say is: countervailing institutions…. Maybe my imagination is limited, but it’s hard for me to think of anything that I know in my history that is comparable to the historical but now largely vanished role, at least in this country, of unions. Organized labor has always been the huge counterweight to organized wealth. That diminution—if you ask me what would be the one thing that I would want to see happen to get us back, it would be somehow rather to restore the role of a substantial effective labor movement….

I almost hate to use the language of responsibility, not out of any personal moral aversion but because I don’t think they care. The point was that they did in fact. In the America I grew up in, there were large corporations viewed themselves as representing a variety of stakeholders—not simply not simply the stock investors. That included labor. That was partly either because they were unionized or because they knew there were unions out there, and knew that they knew would become unionized if they did not represent all stakeholders. Thus there is certainly a way in which the private sector can play a role in being an institution for equality. That is in fact the way America was for about 40 years after WWII. So it can happen here. Whether and how we get to make that happen now—I don’t know. Think about a corporate executive who has various interests. He wants to be rich. He wants to not have this employees hate him. If there’s a ninety-one percent marginal tax rate, as there was in the in the 50s, he’s probably going to pay more attention to the to the personal non-pecuniary aspects of the job. Part of the explosion of top incomes probably does reflect the fact that we’ve made it possible for people to keep whatever they get by making life harder for other people…

Brad DeLong: How much soft compensation did CEOs receive in the era of social democracy anyway?

The big countervailing institution is supposed to be the government: we are supposed to vote for progressive taxes, on the grounds that most of what produces the superrich is good luck, and good luck is a very good thing to tax—we would all agree to very high taxes on good luck if we were to make decisions back behind the veil of ignorance.

The Trump minority coalition—and the right-wing coalition generally—have been running, ever since the late-nineteenth century breaking of real American Populism on the anvil of racism, on the claim that the superrich are worthy because they are people like us while progressive taxes are illegitimate because the benefits flow to them, and they are not people like us. Obamaphones!

Alexis de Tocqueville had something very interesting to say about this, back at the end of the 1840s, in the very brief interregnum between Orleanist Monarchy and Second French Bonapartist Empire that was the Second French Republic:

I was at once struck by a spectacle that both astonished and charmed me. A certain demagogic agitation reigned, it is true, among the workmen in the towns ; but in the country all the landed proprietors, whatever their origin, antecedents, education or means, had come together, and seemed to form but one class: all former political hatred and rivalry of caste or fortune had disappeared from view. There was no more jealousy or pride displayed between the peasant and the squire, the nobleman and the commoner ; instead, I found mutual confidence, reciprocal friendliness, and regard. Property had become, with all those who owned it, a sort of badge of fraternity. The wealthy were the elder, the less endowed the younger brothers ; but all considered themselves members of one family, having the same interest in defending the common inheritance. As the French Revolution had infinitely increased the number of land-owners, the whole population seemed to belong to that vast family. I had never seen anything like it, nor had anyone in France within the memory of man….

[During the June insurrection,] I returned from my round convinced that we should come out victorious ; and what I saw on nearing the Assembly confirmed my opinion. Thousands of men were hastening to our aid from every part of France, and entering the city by all the roads not commanded by the insurgents. Thanks to the railroads, some had already come from fifty leagues’ distance, although the fighting had only begun the night before. On the next and the subsequent days, they came from distances of a hundred and two hundred leagues. These men belonged indiscriminately to every class of society ; among them were many peasants, many shopkeepers, many landlords and nobles, all mingled together in the same ranks. They were armed in an irregular and insufficient manner, but they rushed into Paris with unequalled ardour : a spectacle as strange and unprecedented in our revolutionary annals as that offered by the insurrection itself. It was evident from that moment that we should end by gaining the day, for the insurgents received no reinforcements, whereas we had all France for reserves.

On the Place Louis XV, I met, surrounded by the armed inhabitants of his canton, my kinsman Lepelletier d’Aunay, who was Vice-President of the Chamber of Deputies during the last days of the Monarchy. He wore neither uniform nor musket, but only a little silver-hiked sword which he had slung at his side over his coat by a narrow white linen bandolier. I was touched to tears on seeing this venerable white-haired man thus accoutred. “Won’t you come and dine with us this evening?”

“No, no,” he replied ; ” what would these good folk who are with me, and who know that I have more to lose than they by the victory of the insurrection — what would they say if they saw me leaving them to take it easy ? No, I will share their repast and sleep here at their bivouac. The only thing I would beg you is, if possible, to hurry the despatch of the provision of bread promised us, for we have had no food since morning”…

(5) Politics

Paul Krugman: The issue polling is interesting because for the most part as I read it it says that likely voters basically have center-left views—that the center-left movement that we say is dying is in fact, on by the issues, almost all of them, what people support. People believe in guaranteed health care. People believe in most of the strong social safety net. They want all of these things.

The most recent polling obviously has the United States has been on two things. Health care, where people just absolutely hate what’s being proposed. They suddenly discover that they love Obamacare now that it’s maybe its way out.

What was interesting—and this is maybe the last word—is the poll that came out I think this morning—Quinnipiac—showed people with very center-left views on almost everything. The one piece of the current administration’s tax agenda that people do approve of is abolition of the estate tax.

So it turns out that people want a strong welfare state, a strong middle class, and patrimonial capitalism…

Brad DeLong: As Heather Boushey said: go figure.

“After Piketty” Publication Day

Today is our publication day!

Heather Boushey, J. Bradford DeLong, and Marshall Steinbaum, eds.: After Piketty: The Agenda for Economics and Inequality (Cambridge: Harvard University Press: 0674504771).

Let’s see if I can maintain a post an hour today on this, shall we?

Here is my amazon review:

As one of the co-editors of this book, I know it very well. I am greatly pleased with how this project came out—we have very serious people, as Bob Solow would put it, writing very serious takes on what Thomas Piketty has accomplished, where he has gone wrong, and what gaps remain to be investigated by others. Social scientists thinking of citing on, working along lines related to, or drawing on Piketty should certainly read this book. People who have read Capital in the Twenty-First Century who are curious about how serious people are reacting to and assessing the book should read it as well.

A Brief History of (In)equality: Now Live at Project Syndicate

Digesting Income Inequality Mind the Post

Over at Project Syndicate: A Brief History of (In)equality: BERKELEY – The Berkeley economist Barry Eichengreen recently gave a talk in Lisbon about inequality that demonstrated one of the virtues of being a scholar of economic history. Eichengreen, like me, glories in the complexities of every situation, avoiding oversimplification in the pursuit of conceptual clarity. This disposition stays the impulse to try to explain more about the world than we can possibly know with one simple model. For his part, with respect to inequality, Eichengreen has identified six first-order processes at work over the past 250 years.

READ MOAR of A Brief History of (In)equality at Project Syndicate

Must-Read: Y. Berman, O. Peters and A. Adamou: Far from Equilibrium: Wealth Reallocation in the United States

Must-Read: Well, well, well–since the 1980s modeling the U.S. wealth distribution as an endless non-ergodic inegalitarian spiral seems to fit rather well. That’s a genuine surprise…

Y. Berman, O. Peters and A. Adamou: Far from Equilibrium: Wealth Reallocation in the United States: “We fit observed distributions of wealth–how many people have how much–to a model of noisy exponential growth and reallocation…

…Everyone’s wealth is assumed to follow geometric Brownian motion (GBM), enhanced by a term that collects from everyone at a rate in proportion to his wealth and redistributes the collected amount evenly across the population. We use US data from 1917 until 2012. Firstly, we find that the best-fit reallocation rate has been negative since the 1980s, meaning everyone pays the same dollar amount and the collected amount is redistributed in proportion to his wealth, a flow of wealth from poor to rich. This came as a big surprise: GBM on its own generates indefinitely increasing inequality, and one would expect this extreme model to require a correction that reduces the default tendency of increasing inequality. But that’s not the case: recent conditions are such that GBM needs to be corrected to speed up the increase in wealth inequality if we want to describe the observations. Secondly, our model has an equilibrium (ergodic) distribution if reallocation is positive, and it has no such distribution if reallocation is negative. Fitting the reallocation rate thus asks the system: are you ergodic? And the answer is no. With current best-fit parameters the model is non-ergodic, and throughout history whenever the parameters implied the existence of an ergodic distribution, their values implied equilibration times on the order of decades to centuries, so that the equilibrium state had no practical relevance. http://arXiv:1605.05631

Must-Read: Thomas Piketty: Change Europe, Now

Must-Read: Thomas Piketty (2015): Change Europe, Now: “The extreme right has risen from 15% to 30% of the votes in France…

…unemployment and xenophobia, extreme disappointment with the left in power, the feeling that everything has been tried and that something else must be experimented… disastrous management of the financial crisis…. Only a democratic and social re-founding of the Euro zone, based on growth and employment, round a small core of countries prepared to move forward and provide themselves with appropriate political institutions, would enable us to counter the temptation to revert to nationalism and hatred which today threatens the whole of Europe….

It is important that the European leaders—in particular the French and the German—acknowledge their mistakes. We can discuss endlessly all sorts of reforms, both big and small, to be carried out in the various Euro zone countries: shop-opening hours, bus lanes, labour markets, retirement pensions, etc. Some are useful, others less so. But… this is not the reason for the sudden fall in GDP in the Euro zone in 2011-2013…. Recovery was stifled by the over-rapid endeavour to reduce the deficits in 2011-2013—with in particular rises in taxation in France which were much too heavy…. The application of blind fiscal rules… explains why in 2015 the GDP of the Euro zone has still not recovered its 2007 level….

As a first step, all the debts of more than 60% of GDP could be placed in a common fund, with a moratorium on repayments until each country has recovered a strong growth trajectory since 2007. All historical experiences show that above a certain level, it makes no sense to repay debts for decades. It is better to ease the burden clearly so as to invest in growth, including from the creditors’ point of view…. New democratic governance… the setting up of a Euro-zone parliament comprising members from the national parliaments in proportion to the population of each country. This Euro-zone Parliamentary Chamber should also be entrusted with the voting of a common corporate tax… [to] enable the financing of an investment plan in infrastructures and universities…. Europe has all the assets required to offer the best social model in the world. Let’s stop squandering our opportunities…. Before coming to plan B, proposed by the extreme Right and which the extreme Left is increasingly tempted to invoke, let’s start by giving a fully-fledged plan A a genuine chance.

Must-read: Thomas Piketty: “A New Deal for Europe”

Must-Read: Thomas Piketty: A New Deal for Europe: “Only a genuine social and democratic refounding of the eurozone…

…designed to encourage growth and employment, arrayed around a small core of countries willing to lead by example and develop their own new political institutions, will be sufficient to counter the hateful nationalistic impulses that now threaten all Europe. Last summer, in the aftermath of the Greek fiasco, French President François Hollande had begun to revive on his own initiative the idea of a new parliament for the eurozone. Now France must present a specific proposal for such a parliament to its leading partners and reach a compromise. Otherwise the agenda is going to be monopolized by the countries that have opted for national isolationism—the United Kingdom and Poland among them…

Must-watch: Thomas Piketty, Paul Krugman, and Joseph Stiglitz: “The Genius of Economics”

Must-Watch: Mark Thoma sends us to: Thomas Piketty, Paul Krugman and Joseph Stiglitz: The Genius of Economics: “Piketty, arguably the world’s leading expert on income and wealth inequality…

…does more than document the growing concentration of income in the hands of a small economic elite. He also makes a powerful case that we’re on the way back to ‘patrimonial capitalism,’ in which the commanding heights of the economy are dominated not just by wealth, but also by inherited wealth, in which birth matters more than effort and talent,’ wrote Paul Krugman in The New York Times. Krugman and his fellow Nobel laureate Joseph Stiglitz (author of The Great Divide) join Piketty to discuss the genius of economics.