Capital in the Twenty First Century
Was very impressed by this first time round, but the subsequent scholarly pushback convinces me it's too flawed to endorse without including this list of corrections:
* Magness: Piketty's data don't account for bias in income tax reporting. This undermines his claim that inequality is now as bad as it was in the early 1900s: when tax codes change dramatically, as they did through the pre-war period and in 1986, the data become unrepresentative (without adjustment). After adjustment, it looks like inequality fell much less in the postwar boom and has risen much less, post-80s.
* Rognlie and Bonnet et al: Piketty calculated the increase in capital share wrong, it's a lot lower; price appreciation (benefiting the rich) is not general, instead driven by housing. This mostly benefits single-home-owners, who use their capital by living in it, and so aren't 'rentiers'; thus Piketty is mostly wrong about the rise of rentier capitalism. Also, housing shortages are often political rather than fundamental, which again undermines the big anti-capital policy implication.
* Furman and Orszag: Piketty's explanation for extreme income disparities (: large increases in corporate-executive bargaining power) isn't right; instead only a small group of monopolistic tech firms ("superstars") display this.
* Acemoglu and Robinson: The evidence is mostly strongly against his three fundamental laws of capitalism. Most importantly, the elasticity of substitution of capital for labour is less than one; therefore, Piketty's main mechanism for explaining inequality cannot be true.
* McCloskey: lots of errors.
Piketty's core claims:
The above research finds that the first is true in some places (in the UK, the US and Canada?), but each of the middle three is questionable. (4) could happen but we're not given much reason to think it inevitable. Summary: Piketty's data collection and descriptive work is mostly good, his analysis and modelling is flawed enough to undo his policy recommendations (5).
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The resentful econ undergrad in me thrilled to see Piketty saying this:
He's keen to emphasise his ideological hygiene, that he's a real-deal empiricist. Weighed down by overstatement of its own achievement (“the fundamental laws of capitalism”).
With a few more diagrams and boxed definitions, this would make an excellent intro macro textbook, gentle and empirically obsessive as it is. Lot of redundancy - whoa-there steady-now summary paragraphs every few pages - but I suppose that's what you need to do if you aim to be understood by policymakers.
* Magness: Piketty's data don't account for bias in income tax reporting. This undermines his claim that inequality is now as bad as it was in the early 1900s: when tax codes change dramatically, as they did through the pre-war period and in 1986, the data become unrepresentative (without adjustment). After adjustment, it looks like inequality fell much less in the postwar boom and has risen much less, post-80s.
* Rognlie and Bonnet et al: Piketty calculated the increase in capital share wrong, it's a lot lower; price appreciation (benefiting the rich) is not general, instead driven by housing. This mostly benefits single-home-owners, who use their capital by living in it, and so aren't 'rentiers'; thus Piketty is mostly wrong about the rise of rentier capitalism. Also, housing shortages are often political rather than fundamental, which again undermines the big anti-capital policy implication.
* Furman and Orszag: Piketty's explanation for extreme income disparities (: large increases in corporate-executive bargaining power) isn't right; instead only a small group of monopolistic tech firms ("superstars") display this.
* Acemoglu and Robinson: The evidence is mostly strongly against his three fundamental laws of capitalism. Most importantly, the elasticity of substitution of capital for labour is less than one; therefore, Piketty's main mechanism for explaining inequality cannot be true.
* McCloskey: lots of errors.
Piketty's core claims:
1. the capital share of national income has risen (at the expense of labour share).
2. r > g; wealth generally grows faster than economic output.
3. whenever r > g, inequality will rise because capital gets concentrated in fewer hands.
3b. r (the return to capital) won't change much in response to a decline in growth rate, because the elasticity of substitution between capital and labor is high.
4. The capital-output ratio will be worse in the future.
5. Therefore large wealth tax now, or both capitalism and democracy will die.
The above research finds that the first is true in some places (in the UK, the US and Canada?), but each of the middle three is questionable. (4) could happen but we're not given much reason to think it inevitable. Summary: Piketty's data collection and descriptive work is mostly good, his analysis and modelling is flawed enough to undo his policy recommendations (5).
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The resentful econ undergrad in me thrilled to see Piketty saying this:
To put it bluntly, the discipline of economics has yet to get over its childish passion for mathematics and for purely theoretical and often highly ideological speculation, at the expense of historical research and collaboration with the other social sciences. Economists are all too often preoccupied with petty mathematical problems of interest only to themselves. This obsession with mathematics is an easy way of acquiring the appearance of scientificity without having to answer the far more complex questions posed by the world we live in. There is one great advantage of being an academic economist in France: here, economists are not highly respected in the academic and intellectual world or by political and financial elites. Hence they must set aside their contempt for other disciplines and their absurd claim to greater scientific legitimacy, despite the fact that they know almost nothing about anything.
He's keen to emphasise his ideological hygiene, that he's a real-deal empiricist. Weighed down by overstatement of its own achievement (“the fundamental laws of capitalism”).
With a few more diagrams and boxed definitions, this would make an excellent intro macro textbook, gentle and empirically obsessive as it is. Lot of redundancy - whoa-there steady-now summary paragraphs every few pages - but I suppose that's what you need to do if you aim to be understood by policymakers.