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I think in Piketty's defence, he set out to gather historical evidence and try to put inequality in a historical perspective.

Due to the kind of records available, in order to construct some of the long-run measures he is interested in, he has to use market values, because that is what there is data for. (Historical tax records in the UK, for instance regarding Estate tax work in this way, I understand.)

There have been some good discussions over at CrookedTimber. I'll try to reprise some of my thoughts from that discussion over here in some other comments.

by Metatone (metatone [a|t] gmail (dot) com) on Sat Apr 12th, 2014 at 04:04:05 AM EST
Worth noting in passing that I'm even slower in reading this book than you are - I just don't have a lot of time at the moment.
by Metatone (metatone [a|t] gmail (dot) com) on Sat Apr 12th, 2014 at 04:04:32 AM EST
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Yes, this was why I said I felt that it was a stronger history and economics book than purely economics one, and I had the choice of market value in mind when I talked of unavoidable methodological choices. I fully accept his explanation that he had little choice about that.

I just feel that, thus far at least, he may have slightly understimated the implications of the choice when forming some of his conclusions (and policy recommendations).

There also is the problem of aggregating the revenues of capital and of labour. The same ratio of capital to revenue would tell a very different story if revenue is mostly from capital or mostly from labour. This is where the "usual" analysis, breaking this down, would make a lot of sense.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Sat Apr 12th, 2014 at 04:17:57 AM EST
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In fact, just reading a bit further brings up a few points that are related to market price and policy choices issues:

-Private capital shot up in the UK by a level that savings could not explain, apparently mostly because privatisations happened at very low prices (same with Russia in the 90s). This would be, to a lesser extent, a factor in France and Italy as well. Hard to believe that it was

-Italy had a much higher private capital to revenue ratio, mostly because the State (Berlusconi?) chose to borrow from the rich rather than tax them.

-Piketty mentions that the price of assets (he seems to mean company assets, and thus exclude financial and real estate ones, which clearly moved a lot) went up, explaining about a third of the rise in capital to revenue ratio. He states that the ratio of market value to book value went up in all 8 main developed countries since its value "in 1970-80".

I find that very strange. In all countries, the ratio was higher in 1980 than 1970. In all countries but France and Canada, 1980 or 1981 is a low point (Canada starts slowly rising in 1976, and takes off in 1990. France keeps going down until 1984, returns to 1970 value in 1986 with a sharp upward trend, drops again from 1988 to 1995 and takes off again in 1995 -following political changes), after which it takes off.
Now, the narrative of a major change in trend right at the time of the Thatcher-Reagan revolution is very different from a return to long-term valuation following a vague starting point in the "1970-80" period. I know Piketty has little sympathy for the Thatcher-Reagan model, so what's going on? Is he afraid that he would lose much readership if he made it too explicit?

Guess that will be the basis of a second set of notes...

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Sat Apr 12th, 2014 at 06:36:20 AM EST
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This point is definitely worth a diary. I have lots of thoughts, but I'm still behind in the book, so laying out the specifics could help discussion a lot.
by Metatone (metatone [a|t] gmail (dot) com) on Sun Apr 13th, 2014 at 04:54:47 AM EST
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