Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.

First notes on Thomas Piketty's Capital in the 21st Century

by Cyrille Sat Apr 12th, 2014 at 06:58:17 AM EST

Since being published in English (its original publication, in French, came a year sooner), Thomas Piketty's Capital in the XXIst Century has been heavily discussed - and reviewed.

I would like to comment and start discussions on some of its contents and assumptions. Since there have been questions about it, I will start writing even though I am yet to finish the book. Well, if I were to do it all in one go, it would be far too long a diary in any case. Please note that I am reading it in French, and thus cannot exactly quote the English version. At the point where I am in the book, little has been said of inequalities, which are the subject of part 3.

front-paged by afew

As with all critical reviews, I am likely to spend more words talking about weaknesses in the argument than about the strength of the book, so let me say upfront that it is a very important work, where not only Piketty but several other researchers working with him spent many years collecting data sets bridging very different time periods across several countries. This alone is invaluable, and the foundation for much (though admittedly not all, as Galbraith pointed out) of the current studies of inequality. To that he has added a considerable effort to present it with clarity, very much including notes about how a graph should be read. People accustomed to doing their own analyses may find some of the explanations long-winded (although even experts will make silly mistakes more often than they'd like), but the upside is that it is readable by pretty much anyone willing to spend the time -and considering the subject, I feel that this is an important thing. Also, Piketty keeps sending the reader to an online database if he wants the details, while acknowledging that he is presenting a somewhat simplified description. That is very good practice. All in all, I would very much praise his work (certainly not limited to this book), and recommend reading this book.

General remarks

Piketty writes a rather long introduction which helps understand what he has been trying to do. In it he mentions that it is as much a history book as an economics one -and I feel that he is right. He is on the right track with his remarks, very early in his career, that too many economists (especially English speaking ones) are far too infatuated with complex numbers and forget that economics comes from social sciences. Indeed, he repeatedly uses novels as evidence of what societies looked like, especially when we were short of data. I have some sympathy for that, and do not begrudge drawing from works of fiction (which would also help many readers who are more acquainted with Austen or Balzac than Smith, Ricardo, Marx or Keynes), though I feel he overdoes it somewhat at times, such as when he brings up Cameron's Titanic. Titanic, whilst a commercial success that many of his readers (not I) would have seen, is not a contemporary work and thus may say as much about our fantasies of the period as its reality.

As often when the reviews are so extreme, I feel that the reality may be somewhat less so. So, while I understand Galbraith's criticism, I feel that it comes out as much more negative than deserved. Others have even criticised him for not being revolutionary enough, considering the needs of the times. Well, he is writing an academic study about one issue only (for instance, while he mentions environmental constraints, that is not the crux of his work, though arguably the strongest reason why the current system needs to be overhauled), and not a political pamphlet.

Conversely, while this has been deemed the most important economics book of the decade, such a statement may lead to unrealistic expectations. Certainly, it is a stronger history and economics book than purely an economics one. Some of the confusions that inevitably derive from methodological choices (some of which may have been unavoidable) are not addressed as much as you'd expect with such a tag. I feel that this was what had Galbraith annoyed, as well as his not having been mentioned as much as he would have liked (and maybe should have been).


The introduction is a great read, and whoever feels the book is too long should at least read it. It also describes methodological choices that will then be used throughout the book. One of them is highly important as I feel that it will have some of the strongest impacts on the conclusions.

In essence, throughout the book, Piketty will call Capital everything that can be owned AND value it at market value. To be fair to him, he does mention that it is not ideal as markets can be moody. Yet, he says -and I have some sympathy for that- what else can you do, how else can you add hectares, bonds, patents and plants? That is true, provided you want to give a value to the sum of capital, which may not always be needed. But also, I feel that, while he repeatedly notes that market effects explain some of the variations he shows, he probably does not quite take enough account of that when deriving his conclusions.

On the revenue side, Piketty uses the net national revenue, which is a modified GNP, to take account of the fact that some of the GNP must be used to fight off capital depreciation, and thus is not a revenue at all. He tries to be consistent with that in his analysis, although you do find several instances in the book where he seems to omit depreciation and cost of ownership in his estimation of the return of capital. It is important to note that there is in that no distinction between revenues from work or from capital.

Much of the quantitative analysis (there is, to be fair, a lot of qualitative one too) that follows tracks the ratio of the value of capital to net revenues. Piketty states that this allows much better analyses than what had been often done in the past, which was to look at the breakdown between capital and labour in the sources of revenue, and says that this will be made clear. One third into the book, I still have not seen a clear explanation of why this gives better insights (it might be in the technical appendix, of course). Certainly, this view suffers more from the problems associated with using market values, and with the lack of distinction between the sources of revenue (although it has its advantages, as it gives an idea of how much capital accumulation there has been).

Looking at long-term evolutions, Piketty mentions forces of convergence and divergence among revenues. He does mention that some of the forces of convergence are theoretical -but does not highlight quite how weak their cases are. In particular, he mentions the view that production modes would require increasing competencies (call centre operators may debate the point, as would many skilled craftsmen whose work has been replaced by robots), which should increase the proportion of revenues from labour.

But that is not how compensation systems work: a durable unemployment and weak unemployment benefits will force very highly skilled people to work for very little pay, provided that all they have is their skills. Compensations are far more the result of power plays than of the importance of the contribution of any given factor. Of course Piketty knows that, and does mention that evidence does not back the case for convergence. Still, I feel that even the theoretical case is very weak.

Piketty briefly talks, during his introduction, of the notion of fair inequalities, and provides a decent definition. In that I understand that he is echoing Rawls, although not by name. This is fine, and I would find myself in much agreement, but I feel it is worth pointing out that the level of optimum fair inequality is not necessarily different from zero, at least for some measures of inequalities.
I would reckon that it is not quite the case, but I also notice that many of the arguments in favour of higher inequalities tend to be very weak and based on very questionable assumptions.

However, zero inequality is by essence impossible, if only because it cannot be achieved for all measures at the same time. For instance, would you look at income or disposable income? Do you adjust for specific needs (like being responsible for children) and if yes how? Do you adjust for local cost of living (which is not always a choice. Some people have careers which force them to live in major cities)? Do you take an instant view, or rather look at a lifelong progression? Those different perspectives will give a different result, and even full equality in one of them will mean inequalities in others. Piketty is of course right to suggest that what makes sense is not a straight refusal of inequalities, but that they be based on common utility.

Before closing the introduction, Piketty mentions where he comes from, as a child of the early 70s. He tells us that, having come of age on the year that the Berlin wall fell, he is immunised to all the simplistic rejections of Capitalism. That is fine, as long as the argument cuts both ways, and as long as elaborate criticism is acceptable (to be fair to Piketty, I am pretty sure that he agrees to that). Yelling "Russia" is itself a simplistic rejection of Communism (the case would be stronger for rejecting an immovable system), and even more so of a role for the state in the economy. Yet I see that far more often in the media. It is telling that, despite intellectual shortcuts being much more frequent on the other side, he should feel the need to point this out. I look forward to seeing academics starting their books by explaining that, having come of age during the Reagan-Thatcher years (or, in Piketty's case, just before the Shock Doctrine descended upon Russia), they are immunised against simplistic support for Capitalism.

Chapter One - Revenue and Production

A historical overview of returns on capital in chapter one suggests quite a few examples gravitating around 5%. Among them, Piketty shows the cost of renting an apartment in Paris, relative to its selling value. I find this rather objectionable, as ownership of an apartment (or house) involves significant costs, akin to the depreciation of any equipment. Everything I've read and experienced points to a cost of around 1% of the value of the property where land itself is an important part of the price (such as Paris), and higher elsewhere. This would be an important adjustment to the reported value of housing capital, and I believe that underestimation of those costs is one of the reasons leading to many overestimating the comparative advantages of ownership.

Similarly, later in the book, Piketty states that a 5% return on slaves (yes, slaves were capital at some point) would give them an average price of 20 years of average wages, while they were cheaper. But you had to house and feed the slaves you owned, plus they would not have lived forever (OK, if they were to have kids then I guess you owned them so the calculation would become actuarial). So such a price would probably not have been consistent with a 5% rate, another example where the stated aim of using net revenue may not have been followed.

Chapter Two - Growth: Illusions and reality

In his chapter 2, Piketty states that strong population growth will be a strong equalising factor, everything else being equal. It does not seem to me to follow necessarily.

Strong population growth can either be internal, or from immigration. The case is probably stronger for internal growth, as estates would have more inheritors. However, while this may mean that most people would need to rely on something else than inheritance, this would not necessarily reduce inequalities in any way. For instance, if the first born inherited the whole estate, the effect would rather be to increase inequalities.

As for immigration, I fail to see why that would reduce the importance of capital necessarily. Most immigrants probably have little wealth, but their arrival, all things being equal, would tend to depress wages while increasing the demand for the use of capital (most obviously housing), thus increasing its market value, which after all is what Piketty tracks. A similar case can be made for the impact of economic growth (as a factor watering down inequalities due to capital), which would indeed help workers accumulate savings more easily, however this would also translate in pushing up the market value of existing capital, especially where it cannot be meaningfully increased: landowners would not own a lesser proportion of the land, however high the growth may have been.

The thing is, Piketty's metric will tell us some things, but not all. You can have a lowish ratio of capital to net yearly revenue, but concentrated in very few hands. In fact, if very few people have a chance to accumulate capital (these days, it would probably require a level of capital control, although that has not always been so), this is likely to be the case as market rates would be low. But that would not mean a less unequal society, in fact probably the opposite. Looking at the ratio of capital to median disposable income, for instance, would probably give you very different insights. Then looking at its concentration would go even further. Maybe he covers that in the third part.

Chapter 3 - The transformations of Capital

It is essentially in passing and far from central to his thesis, but figures that Piketty presents in this chapter really should be highlighted in the public discourse.

You see, he talks about the breakdown between public and private capital. And then takes a look at the net position.

So, first, it should be clear how ridiculous the claims that France is a fundamentally statist society are. Private gross capital is over 4 times bigger than public gross capital (in net terms, the ratio is one to twenty, but I guess the gross figure is more relevant). That despite having a mostly public school and health system. And public housing. And a lot of historical buildings.

The other thing is that, while France has a little bit (not much) more debt than the UK, the other country having long historical records, its net position is positive by around 30% of GDP, and on a growing trend showing little interruption (in parallel with the debt, so the net position has not changed in the past few decades). The UK, on the other hand, currently has a zero net position, and its assets have at best been moving sideways since 1920, or even gone slightly down since 1950. Surely looking at both is a more relevant picture than merely looking at the debt side of things.

Chapter 4 - From Old Europe to the New World

Piketty, after spending a long time on France and the UK (for historical reasons), extends his analysis to other countries, such as Germany, USA and Canada. There I feel that the confusions inbuilt in measuring capital by its market value start to have a rather strong impact on the conclusions.

He touches upon it -noting that the drop in the relative value of capital after the bloody 1914-1945 period (and stagnation for some time after that) far exceeded the physical destructions. He does mention the effect of the drop in market price as being important, although he concludes that volume effects were more important (around 30% and 70% respectively). And he does mention, but maybe too quickly, the political choices at the time which restricted "capital" formation, although he really means in terms of ratio to revenue, as of course capital increased very fast during the boom years in Europe -only revenue did, too. Yet, as I know from reading reviews of the book, there will be little said in the rest of the book of the major weight of political choices in boosting capital relative to revenues, especially relative to earned revenues.

Piketty highlights that, despite the colossal growth of capital in Germany after 1946 (probably greatly helped by the cancellation of public debt, though he makes no mention of that), the level remains lower than in France or the UK, being just over 4 years of net national revenue in Germany, against 5.5 to 6 in France and the UK. He does mention that Germany did not have a housing boom, but claims that most of the difference comes from other factors. I find it reconcile that with his figures: housing capital is shown to be close to 3 years of national revenue in the UK, close to 4 in France where the bubble never popped, and just over 2 in Germany. Moreover, high real estate prices will also mean higher prices for housing used for professional purposes, very much so in heavily service-centric economies such as those of France and the UK.

This is not a trivial point. The intensity of capital ownership is implicitly used as a proxy for inequalities, but among types of capital, housing is probably the most evenly shared (though far from equally, of course), and also one that cannot be easily sold when it is the place where you live. So, to get an impression that Germany is a much more equal and meritocratic society (actually, poverty rates have shot up) because, largely due to its population going down, it has lower housing costs would be highly misleading.

Piketty also notes that, should you use the value of the capital owned by company instead of their market values, then the "paradox" disappears. This would be in addition to the housing price effect -should we thus conclude instead that German has a higher ratio of capital to revenues? We can see that using market value rather than physical capital has major implications for the analysis.

Much the same is the case for USA and Canada, though instead of it being due to a dwindling population, it is because they are so damn big, so that only in the zoned areas will property prices be able to go up much. They too have around 2 years of revenue in housing capital, and just over 4 years total capital. They are still "young" countries, and immigrants typically have next to no capital, so that the capital that they do have is probably more concentrated than in Europe, a point that is yet to be addressed in detail at the point where I am in the book.

That will be it for now - as I said, my main aim is to trigger discussions, so hopefully they will be forthcoming.

"as I said, my main aim is to trigger discussions"

Clearly, I unsuccessful.

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

by Cyrille (cyrillev domain yahoo.fr) on Fri Apr 11th, 2014 at 10:45:34 AM EST
Oops "was unsuccessful".
How could I delete that embarrassing typo?

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
by Cyrille (cyrillev domain yahoo.fr) on Fri Apr 11th, 2014 at 10:47:01 AM EST
[ Parent ]
We'll just leave it there to wreck your future career.

"Is it true, sir, that you once omitted 'was' in an Internet comment?"

by Colman (colman at eurotrib.com) on Fri Apr 11th, 2014 at 11:06:29 AM EST
[ Parent ]
It depends on what the meaning of "once" is.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
by Cyrille (cyrillev domain yahoo.fr) on Fri Apr 11th, 2014 at 11:30:20 AM EST
[ Parent ]
It's no embarrassing, it makes you sound like Yoda...

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Carrie (migeru at eurotrib dot com) on Fri Apr 11th, 2014 at 11:14:57 AM EST
[ Parent ]
Come on. It's not as though you wrote it in a suicide note, when it really would be too late to correct it. Here's the English part of what may be Jürgen Hermann's (the murderer of the Liechtenstein banker) suicide note:
I shot him as he deserved it. That's life. At the very end man kind are killing themselfs to stay alive.
by gk (gk (gk quattro due due sette @gmail.com)) on Fri Apr 11th, 2014 at 11:34:14 AM EST
[ Parent ]
Krugman just reviewed the book as well. He seemed to like it.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sat Apr 12th, 2014 at 10:34:04 AM EST
[ Parent ]
Krugman's review reinforces my sense that the problems with how capital is defined in Pikettey's Capital are greatly overshadowed by what is revealed by his analysis: overall trends in wealth distribution over the last 100+ years and what that implies for society.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Apr 12th, 2014 at 04:56:53 PM EST
[ Parent ]
Oh, of course. It is a book well worth reading, and a tremendous effort.

I feel it is the starting point for much thinking, rather than the end point, because of the choices made, but also because he could not realistically study every related issue with the same level of depth. And some do deserve to be studied in detail in the context of the historical perspective that Piketty provides.

Nothing wrong with being a foundation for further thoughts of course. Quite the contrary.

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 06:03:17 PM EST
[ Parent ]
Hm, regarding using market value. Perhaps here alternative measures such as energy or manhours or such could be helpful. As a historical measurement, mind you, not a currency.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Fri Apr 11th, 2014 at 11:50:39 AM EST
I'm not sure I understand how this would work.
In what he calls capital, you find land and government bonds. These would not require any energy or manhours, would they?

I feel that something like productivity of the capital may be interesting. Very hard to measure, of course, but at the point where I am in the book it seems that Piketty just assumes it's pretty much 5% of its market value all the time (as a long run average at least), which would then make it somewhat tautological. But even if true (which I doubt to some extent), it may be 5% because it's heavily taxed and thus its market value drops, or because it's not taxed and the long-term market value would be very high.
You'd have very different societies in either case. And probably different growth and savings trajectories -and they have a major impact on the capital to revenue ratio in the long run of course.

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 03:08:34 AM EST
[ Parent ]
Well, it depends on what he uses the sum of capital for. I was thinking along the lines of problems with estimating value over time. So if you sum it up at market value and translate into man-hours at going rate, it doesn't change a thing at a particular point in time but if you look at time series it could make a difference. But then again if he just assumes 5% without checking if that holds, then I might be trying to answer something else then what he is writing about.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Sat Apr 12th, 2014 at 04:41:32 PM EST
[ Parent ]
Actually no, he does check it later in the book -although the values are uncertain, as I keep getting the impression that some of the costs of ownership are forgotten (but maybe also some of the benefits).

I now understand what you meant. I guess it could help in some ways, although you'd still have the problems of some countries having a lower market value, but in fact at least as much capital (indeed he gives an example of just that, when agricultural land was plentiful but almost free in the early USA).

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 05:58:16 PM EST
[ Parent ]
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
[ Parent ]
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
[ Parent ]
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
[ Parent ]
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
[ Parent ]
thanks for this review.  between galbraith's predominantly negative review and krugman's generally positive one, it's great to have a relatively "objective" forum like this one to understand the book's strengths and weaknesses.

interesting comment in this review (whoever Will Hutton is):

... the rich get ever richer and more detached from the societies of which they are part: not by merit or hard work, but simply because they are lucky enough to be in command of capital receiving higher returns than wages over time. Our collective sense of justice is outraged.

The lesson of the past is that societies try to protect themselves: they close their borders or have revolutions - or end up going to war. Piketty fears a repeat. His critics argue that with higher living standards resentment of the ultra-rich may no longer be as great - and his data is under intense scrutiny for mistakes. So far it has all held up.

Nor does it seem likely that human beings' inherent sense of justice has been suspended. Of course the reaction plays out differently in different eras: I suspect some of the energy behind Scottish nationalism is the desire to build a country where toxic wealth inequalities are less indulged than in England.

Capitalism simply isn't working and here are the reasons why
Economist Thomas Piketty's message is bleak: the gap between rich and poor threatens to destroy us

Point n'est besoin d'espérer pour entreprendre, ni de réussir pour persévérer. - Charles le Téméraire
by marco on Sun Apr 13th, 2014 at 12:54:54 AM EST
Yes, I feel that there is a lot of that.

Also, in some way, it's even worse:
"but simply because they are lucky enough to be in command of capital receiving higher returns than wages over time" is true, but it's not just by a law of economics (see how things were different in the decades after WW2), it's largelly by design.

No wonder our sense of justice is outraged.

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

by Cyrille (cyrillev domain yahoo.fr) on Sun Apr 13th, 2014 at 02:39:45 AM EST
[ Parent ]
I'd add that Scotland is particularly sensitive to wealth inequality because historically (and even today) a vast quantity of private land is owned by relatively few individuals...
by Metatone (metatone [a|t] gmail (dot) com) on Sun Apr 13th, 2014 at 04:56:20 AM EST
[ Parent ]
From the Guardian name link:
Will Hutton has written a weekly column for more than 15 years: six years at the Guardian and nine years at the Observer. He is principal of Hertford College, Oxford, and chair of the Big Innovation Centre.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Apr 13th, 2014 at 09:57:30 AM EST
[ Parent ]
Piketty's dataset: part of a trend which is changing economics.  Merijn Knibbe

I'm reading Thomas Piketty's book about wealth, capital and inequality. At this moment one remark:

His book is based upon a very extensive `open source' dataset which spans the centuries and the globe (wealth, return on capital, labour share, share of capital etc.). This seems to be part of a trend as Piketty is not the only economist who does this. Other examples are:

Carmen Reinhart and Kenneth Rogoff with their `This time it's different. Eight centuries of financially folly` dataset, which spans the centuries and the globe (debt).

The late Angus Maddison data on GDP  (dataset continued by `a group of close colleagues') which span the millenia and the globe

The Bank for International Settlements with their recent dataset on house prices which span decades (for Norway: centuries) and the globe.

The (real) wages datasets of the International Institute of Social History (moderator: Jan Luiten van Zanden) which span the centuries and the globe.

These datasets are changing or did already change the science of economics. A common theme: there is no such thing as a stable monetary capitalist economy.

I do think that, as long as we have the Sveriges Riksbank prize in economics science in memory of Alfred Nobel, the founding and maintenance of such datahubs should be one of the arguments to award the prize.

Such awards would certainly seem more appropriate than many of their choices over the last quarter century - presuming they are rewarding advances in understanding and not advances in obfuscation.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Apr 14th, 2014 at 03:30:19 PM EST
Capitalism, and particularly the ownership aspect, is very conductive to the tradition of hierarchal, aristocratic distribution of status and power. Formally, democracy politics offers egalitarian, participatory balances of power. But fully "wild" financial capitalism seems to introduce its hierarchy in very short time. In particular, it takes over the political aparatus to serve stingy needs. Plus, the evolutionary history supplies ready psychological roles both for alphas and the misserable.
by das monde on Tue Apr 15th, 2014 at 05:37:41 AM EST
Case in point: The US, courtesy our glorious SCOTUS awarding elections to the highest bidder.
by rifek on Tue Apr 22nd, 2014 at 04:52:57 PM EST
[ Parent ]
I am starting to pay attention to Piketty's work.

The inequality "r>g" is actually the hidden engine for the wealth and status differentiation.

Competition is often cited as the most glorious aspect of capitalism. Sustained competition is indeed attractive, even in the inequality aspect. But once competition leads to long-term loosers and winners, it is then an inequality force like no other. Plus, labour competition and capital competition are very different (especially now), enforcing the "r>g" mathematics.

by das monde on Thu Apr 24th, 2014 at 06:23:05 AM EST
[ Parent ]
Krugman has more remarks (my bolding):


And let me say that while the core of Piketty's work is his economic analysis, his discussion of the political economy of dynastic wealth is a major additional highlight. I was especially struck by the somewhat paradoxical contrast between Belle Epoque France and Gilded Age America: a notionally egalitarian society in which anything that might challenge the privileges of inherited wealth was beyond the pale, versus a society that celebrated financial success but in which it was considered reasonable and respectable to advocate high taxation for the explicit purpose of reducing inequality. It seems to me that we want some real scholarship -- from political scientists, not (or not just) economists -- to figure out that contrast, and learn lessons that might help us break the cycle of rising dynastic power we face today.
by Metatone (metatone [a|t] gmail (dot) com) on Thu Apr 17th, 2014 at 04:24:17 AM EST
So: I think that is the power of Piketty's book, beyond the various flaws.

Alas, I don't think Political Science as it has been evolving in universities is really up to the job...

by Metatone (metatone [a|t] gmail (dot) com) on Thu Apr 17th, 2014 at 04:25:16 AM EST
[ Parent ]
As long as Political Science is completely mired in Gaussian Statistics anything they say about the political-economy is "Not Even Wrong."  Pareto showed income follows a Power Law back in the 1890s.  

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Wed Apr 30th, 2014 at 01:07:18 PM EST
[ Parent ]
There is nothing wrong with Gaussian statistics, so long as one remembers to apply proper misspecification tests.

And papers which don't apply (and publish) misspecification tests should be filed in the round archive regardless of the statistical model used.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Apr 30th, 2014 at 08:30:26 PM EST
[ Parent ]
Please note I wrote "mired in."  

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Thu May 1st, 2014 at 12:55:08 PM EST
[ Parent ]
Capital: Piketty and such   Peter Radford  RWEB

I will not pile on any more: the Piketty book is required reading. Enough said.....I have a few comments I want to make because of his book and the reaction to it.

First: it confirms, in my mind, my argument that economic systems cannot ever be carved out of their historical, social, and political contexts. Not, at least, if the analyst wants to be left with anything at all useful. Studying economics as some abstracted other-worldly stand alone entity is entirely pointless. Pretending that everyday people act in an economic sense without reference to a whole slew of cultural, institutional or other relationships and pressures is just nonsense. Of course they do. We all know that.

I understand that distilling some uniquely "economic" regularities is useful. I understand that establishing certain cause and effects relationships can help us understand society, but, ultimately it is society we are understanding, not just some economic agents roaming about absent any other influences. So anything understood within the domain of economics must then be converted to, or fitted within, the larger picture before it is thought of as having any relevance. Particularly policy relevance.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Apr 18th, 2014 at 09:37:17 AM EST
Economics stripped of its political and social context is less relevant than would be physics had it been stripped of experimental observation.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Apr 18th, 2014 at 09:41:31 AM EST
[ Parent ]
Further into his review Radford notes the continuing problem defining capital and labor and strongly suggests that both are social constructs having to do with the power to organize production. This is very similar to the argument put forth by Nitzan and Bichler in Capital as Power.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Apr 18th, 2014 at 09:52:33 AM EST
[ Parent ]

Paul Krugman speaking at the "Capital in the Twenty-First Century" forum at The Graduate Center of The City University of New York on April 16, 2014.

Krugman was one of two Noble Prize winners in the field of economics who showed up to support French economist Thomas Piketty's book on "Capital in the Twenty-First Century"

Point n'est besoin d'espérer pour entreprendre, ni de réussir pour persévérer. - Charles le Téméraire
by marco on Sat Apr 19th, 2014 at 10:46:54 PM EST
Well, we have the usual gang of right-wing idiots calling Piketty a Marxist, so he must have gotten something right.
by rifek on Tue Apr 22nd, 2014 at 04:54:46 PM EST
Naked Capitalism has an article on how popular the book is among economists, and the emergence of "Bastard-Pikettyism".
The mainstream acceptance of the book in economic circles is, in my view, due to the simplicity of the r > g story Piketty weaves into the long run inequality trends he has meticulously pieced together. This story is compatible with many of ridiculously simplistic explanations economists love, such as technology change, education, regulatory intervention in labour markets, and just about anything else. Yes, the mainstream is stuck on these same metaphysical explanations that Henry George made fun of back in the 1870s.
by gk (gk (gk quattro due due sette @gmail.com)) on Thu Apr 24th, 2014 at 04:59:00 AM EST
From the NC article:
One thing we miss in this process is that if ownership of wealth was equally distributed, it wouldn't matter whether r > g in terms of its impact in inequality. Or more precisely, institutional settings can be designed to combat any social force that concentrates wealth if we so desire, and if it is politically palatable.
I do not see a relation between these two statements. So we just need the institutions to concentrate on giving "r" to everyone? Firstly, that would be the ultimate acknowledgement that productive "g" is for fools, that "g" has to be exploited with meager reward. Someone has to produce more than "save" anyway. Secondly - Capitalism is then the ultimate casino, and we are forcefully invited to play.

Institutions could be designed and build to do any good - until they co-opted to do the opposite. The post-WWII institutions are failing for exactly this corruption reason.

by das monde on Thu Apr 24th, 2014 at 06:37:15 AM EST
[ Parent ]
From what I have seen it would appear that r > g will be the bulldozer of economic history. The only way to control its push towards a patrimonial capitalist state is to reverse wealth disparity. It has happened before so, presumably, it can happen again. But it will be an uphill fight.  

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Apr 24th, 2014 at 07:38:24 PM EST
[ Parent ]
Perhaps the best tool to control the effects of r > g is public control over the creation of money, but that is only beneficial if the government is controlled by people operating in the interests of the majority of individuals, not the majority of wealth.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Apr 24th, 2014 at 07:42:39 PM EST
[ Parent ]
Actually, sustaining r>g needs a lot of institutional support. Enforcement of debt, rent, property relations is strongest ever - just think of copyright, intellectual property. Somehow "incompetent" governments, international institutions do an outstanding job here.

Unless the accounting apparatus will crumble by itself at some time, a social-political transformation is needed, it seems. Or some independence from the totalitarian financial interests (so to speak), democratization of basic economic, monetary relations.

by das monde on Fri Apr 25th, 2014 at 02:15:08 AM EST
[ Parent ]
Ah, you beat me to it.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
by Cyrille (cyrillev domain yahoo.fr) on Fri Apr 25th, 2014 at 02:21:37 AM EST
[ Parent ]
Well, I would (and will) argue that, although you can make a case that r>g is almost a constant, it is not because of any actual economic grand truth, but because of a politics constant that the wishes of the mighty are listened to and acted upon.

r is constantly being propped up. Increasingly so under threat: "you give that to us or we move our capital to China/Caiman Island... insert wherever".
Interestingly, that is also the argument of the "super-managers", pretending that they must be paid a fortune because it is a global market where others are paid a fortune and they would leave the minute they were given a penny less.

When French CEOs claim that, it is quite extraordinary. For, as a few minutes of observations would show, the number of French CEOs of foreign mega multinational corporations is... zero (unless you count Renault-Nissan as a Japanese company, and anyway Ghosn is binational).

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

by Cyrille (cyrillev domain yahoo.fr) on Fri Apr 25th, 2014 at 02:21:03 AM EST
[ Parent ]
r > g ?

Rate of return is greater than growth?

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Wed Apr 30th, 2014 at 01:13:53 PM EST
[ Parent ]
Rate of return on capital is greater than growth means that capital's share of income increases with time. This is, of course, unsustainable in the long run.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Carrie (migeru at eurotrib dot com) on Wed Apr 30th, 2014 at 01:15:06 PM EST
[ Parent ]

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Wed Apr 30th, 2014 at 02:03:31 PM EST
[ Parent ]

Go to: [ European Tribune Homepage : Top of page : Top of comments ]