Piketty’s new book, Capital in the 21st Century April 22, 2014Posted by larry in economic inequality, economics, Piketty.
Thomas Piketty’s new book, Capital in the 21st Century, is making more headlines than one might have thought possible for an economics text. Although it is accessible for someone with little economics training, it is data driven in a big way. The book is an historical account of economic inequality in the West over the past few hundred years. The most important period for our current purposes is the latter 19th century in the US. During that period, you had a similar concentration of wealth (i.e., assets) as is taking place now, but without the seemingly more or less complete capture of the political system that appears to be taking place now, at least in the US. This capture is one of the features of extreme wealth inequity that bothers Piketty.
On a biographical note, Piketty was at MIT and left that institution for Paris. He has said that one of the reasons he left was that he didn’t think American economists were that good, in general. UMKC and the University of Texas at Austin are two centers of heterodox economics in the US that are excellent. But Piketty wasn’t there. Then again, the French offer might have been too good to ignore.
Paul Krugman, not the most original or heterodox economist on the planet, was interviewed by Bill Moyers. Krugman makes his usual mistakes on money creation in the economy, but his remarks about Piketty’s results deserve to be heard. Don’t miss Moyers’ remarks following the interview. They are worth listening to as well. In this interview, Krugman admits that he never realized what Piketty has been researching and found out, with Saez and others, for the past 10 years or so. Some Krugman critics will probably not be surprised. But, at least, he has admitted that he didn’t know. As probably most know, Piketty’s book is about economic inequality. And it is a big deal. One could argue that it is the source of all the other inequities to which almost everyone is subject, except for the 1% or the .1% who are getting wealthier all the time, every minute of every day. The disparity between them and the rest is, it could be said, astronomical.
[I have included the hyperlinks in case the embed codes do not work as they are supposed to, which will be the fault of WordPress.]
Moyers refers to this study of US inequality and the emerging oligarchy by Gilens and Page. The study is entitled Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens (April 2014).
Here is Krugman’s review of Piketty from the NY Review of Books.
But here is an interview of Piketty himself by CNN.
A colleague of mine, Julian Wells, reminded me of James Galbraith’s review of Piketty’s book which is eminently worth reading, although it is technical in places. (http://www.dissentmagazine.org/article/kapital-for-the-twenty-first-century) Julian makes the following points, which are worth noting.
Jamie G. marks Piketty down for a number of errors, of which the one that resonated most with me was his complaint that Piketty has what my friend Andrew Kliman has dubbed a “physicalist” perspective — essentially the misconception that capitalist production is at bottom about producing things, whereas what it’s actual objective is is the production of capital.
Worse still, Galbraith says, Piketty’s attempt to measure physical capital is also incoherent (essentially because any one-dimensional measure must be a financial one).
Naturally various further errors in analysis flow from the above, and culminate in utopian policy prescriptions of a social democratic kind.
Unfortunately, I neglected to mention it along with Krugman’s comments. Yes, one must distinguish between Piketty’s data and the various levels of interpretation and explanation that he imputes to it. I don’t know of anyone who rejects the most important implication of his data, that of wealth (i.e., assets) tending to concentrate in the hands of a few. Even Galbraith himself talks of a new class war, although this “war” is not between the classes of industrialists and workers as in Marx’s day but between the 1% and everyone else, though he doesn’t express it quite like that in his The Predator State.
Galbraith’s review of Piketty’s book is the most critical review I have yet to come across and Julian is right to point out its importance to this debate, which has now entered the public arena, at least to some degree. Gilens and Page in their study, whose methodology is not the greatest, has obtained data that also supports this contention of wealth concentration, preferring, however, to calls this phenomenon “economic elite domination” rather than “oligarchy”, which John Cassidy in The New Yorker (Is America an Oligarchy?) contends is due to the former term being less pejorative in its connotations.
Of course, such wealth concentration is not new. It took place toward the end of the 19th century. When asked by Moyers why that didn’t lead to the result to which it seems to be leading today, Krugman contends that this was because the economy as a whole was growing so fast that the wealthy could not “get a lock” on the system. That is, wealth and its concomitant concentration was not growing as fast as general GDP. Which supports Piketty’s point in this respect, that wealth is currently growing faster than general GDP – i.e., it is outpacing it. Piketty’s remedy for this is progressive taxation, in this case, taxation used for redistributive purposes, as opposed to its other purposes (currency legitimation, influencing the direction and degree of spending, etc.).
However, even J. P. Morgan’s saving of the banking system from itself in the crash of 1907 could not have been achieved without the assistance of Teddy Roosevelt (the “Great Trustbuster”), i.e., the government, something Morgan himself at the time, and bankers since, prefer to forget. But a good, brief discussion of this can be found in Nomi Prins’s All the President’s Bankers.
The upshot seems to me to be, whether one agrees entirely or not with Piketty’s own interpretation of his data, is that he is bringing empirical data on economic inequality and its debate into the public arena and public discourse and forcing even economists like Krugman to face what many now are considering to be a “fact”, that economic inequality is an objective reality and not simply a matter of where one stands ideologically*.
Even Cameron appears to feel he has to respond to the influence of Piketty’s work, although his response, so far, has been extremely weak and vacillating. Rumor has it that the Miliband camp is reading and digesting the book.
Nevertheless, as Galbraith points out, one must be careful about Piketty’s own treatment of his data. Is this a subtlety that might perhaps escape the Cameron and Miliband camps, neither of which has so far conspicuously exhibited this particular trait in any substantial degree?
* I realize that my argument here is enthymematic and thereby incomplete, but to go into it further here would take us too far afield.