Piketty, in three parts

by Henry on December 15, 2015

It’s the unfortunate fate of greatly influential books to be greatly misunderstood. When a book is sufficiently important to reshape intellectual and political debates, it escapes, at least to some extent, its author’s intentions. People want to latch onto it and use it as a vehicle for their own particular gripes and concerns. Enemies will distort the book further, some because they dislike the book’s message, others because they feel that they, rather than the book’s author, should have been the messenger adorned by history with laurels. The book will further be subject to the more ordinary forms of misprision and adaptation (some helpful; others less so) that all books are subject to.

These processes of reinterpretation and misinterpretation have been unusually marked for Capital in the Twenty-First Century because it is such a big and ambitious book. There are three major parts to it – a big theory, a set of major empirical claims and a (preliminary) set of policy proposals. Most earlier critics have focused on one or another of these three while occluding the others in a kind of chiaroscuro. I want to do something a little different – to separate out the first part from the others so as better to understand one aspect of its contribution, and to argue that the second and third are connected in different ways than most readers understand. Thinking about the book in this way draws out some potentially interesting insights. If the theory is taken as a contribution in itself, rather than an explanation of the observed empirics, it has interesting and important things to say about the dynamics of capitalism that emerge better when treated in isolation. If the empirics are an important contribution, it is more because they establish the social fact of inequality, which in turn has implications for the policy measures that one might propose as an interim measure.

First, the theory. Piketty’s famous inequality, r>g, stems from a style of economic reasoning that would have been familiar to the classical economists, but produces a distinct allergic reaction in many modern economists. Most prominently, Daron Acemoglu and James Robinson have argued both that this entire way of thinking about economic problems is wrong, and that it doesn’t really explain the observed facts. Acemoglu and Robinson don’t have any innate objection to enormous and sweeping historical arguments based on simple models, since that’s the business they are in too (their Economic Theory of Dictatorship and Democracy sets out to explain vast patterns of historical development on the basis of game theoretic arguments straightforward enough that an undergraduate student could grasp and reproduce them). Instead, their objection is to the particular kind of simplicity that Piketty aspires to. Piketty and Acemoglu are institutionalists, whose work explores the proposition that institutions matter in demonstrably causal ways to observed economic outcomes. This helps explain relative levels of prosperity (some sets of institutions are more conducive to economic well being than others). It also helps us understand how power relations bridge the gap between politics and economics. Acemoglu and Robinson’s most important contribution (at least from the perspective of a political scientist like me) is to provide a simple possible explanation of how different relationships between elites and non-elites help explain when we may expect democracy and when dictatorship.

Piketty’s account is quite different. It’s unfair to suggest, as Acemoglu and Robinson do, that institutions play no role in his argument. He’s clearly very interested, for example, in the role of educational institutions. However, it is fair to suggest that he doesn’t have a fully developed theory of how power inequalities might translate into, for example, differences in the rules governing economic sectors, and that he often prefers cultural explanations (to explain, for example, the shift towards higher paid managers) to institutional ones.

Even so, this critique misses out on what’s interesting – and potentially very depressing – about Piketty’s theoretical account. Standard economic arguments start from an implicit set of assumptions about the absence of power relations. Perfect competition, by definition, is a state of the economy in which no one actor is more powerful than another – all actors are price takers, not price makers. This leads to a highly fruitful set of arguments about how real life markets – let alone polities – just aren’t like that. Markets aren’t perfect. Inequalities are rife. And as people like Jack Knight, Doug North when he was wearing his former-Marxist hat and (obviously, far more modestly) me have argued, this provides the foundations for a reasonably excoriating critique of standard economic claims. To the extent that the happy assumptions of perfect competition are not justified, so that power relations matter, we have no theoretical warrant whatsoever to believe that powerful and self-interested actors will influence institutions towards socially optimal outcomes. Specifically, these theories draw attention to the distributional consequences of institutions – i.e. who gets what. Unequal power leads to unequal influence over the institutions that distribute the benefits of cooperation, which in turn means that the benefits are likely to be distributed in unequal and inefficient ways. Here, there’s a hidden theoretical connection between standard economic critiques e.g. of monopoly and left-rationalist critiques of how actually-existing capitalism works. The latter, in a sense, draw the full conclusions of the arguments of the former. Both suggest moreover that in a world where there weren’t any power disparities, so that actors were fully equal participants in markets and politics, the problems of skewed institutions and unequal distribution of gains would disappear. Bringing conditions closer to the true equality of perfectly competitive markets would largely solve the problem.

Piketty’s claim is potentially much more corrosive. For him, the fundamental problem isn’t one of flawed markets and unequal power. It’s one of markets working as they are supposed to. In Piketty’s description (p.27), ‘the more perfect the capital market (in the economist’s sense, the more likely r is to be greater than g.’ Even more bluntly, the r>g inequality (p.424) ‘has nothing to do with market imperfections and will not disappear as markets become freer and more competitive. The idea that unrestricted competition will put an end to inheritance and move toward a more meritocratic world is a dangerous illusion.’ If Piketty is right, institutional reforms aimed at removing market imperfections will do nothing to address the fundamental problem of economic inequality, and may, indeed, exacerbate it. The problem isn’t in the institutions but in market capitalism itself, so that efforts to reform corrupt institutions will not fix the core problem. If you’re playing blackjack, you’d prefer to be playing against an honest dealer than a crooked one. But either way, you’re going to end up losing money.

This conducts towards an account in which institutions are not the problem, but can serve as a brake on the problem. The right kind of institutions can restrain the innate and natural long run tendencies of the market to produce economic inequality. How to get to these institutions is a different problem. If one were to combine parts of Piketty’s theory with parts of the theory of his critics, one might well end up concluding that we’re all screwed. The innate tendencies towards economic inequality that Piketty describes will lead to institutional dynamics that favor the rich, so that there is no real prospect for countervailing forces. On this account, we end up in the kind of world that William Gibson describes in his novel The Peripheral (a world that I suspect owes quite a bit to Piketty’s arguments).

Second, the empirics. Plausibly, the empirical observations that Piketty (and his colleagues – the book reports some of the key results from a much larger project) – report are compatible with a wide variety of causal mechanisms in addition to, or instead of, the mechanisms implied by Piketty’s own theory. It may well be that institutional factors play an important role in generating economic inequality. It may also be in part a result of the emergence of new economic sectors. It may be the result of cultural shifts (as Piketty occasionally argues). There is prima facie evidence supporting each of these accounts, and others besides. There isn’t (as best as I can judge the debates) nearly enough evidence to authoritatively adjudicate between these different plausible mechanisms.

In a sense, however, this isn’t the point of the contribution. Piketty is an economist, but his contribution is better understood in sociological terms. As sociologists like Marion Fourcade and sociologically minded political scientists like Martha Finnemore have argued, economic knowledge doesn’t appear automatically. Instead, it’s the product of social processes of legitimation, in which socially legitimated social structures produce socially legitimated forms of knowledge that are validated in socially legitimated ways. We live in a technocratic age, which among other things means that the kinds of knowledge that appeal to technocrats, such as high quality statistical data, are likely to appear legitimate in ways that other kinds of knowledge are not. Piketty and his colleagues have engaged in slow, patient work, the boring of hard boards, building high quality data sets that appear to confound the previous technocratic wisdom that we didn’t need to worry about inequality.

This makes a vast and important social phenomenon, that might otherwise have been partly obscured, visible, salient and socially undeniable. This is not to deny that there are other things going on too. If there hadn’t been an economic crisis, the reaction would have probably been more muted. Furthermore, knowledge on its own is not a sufficient condition for successful political action (more on this below). Finally, like all statistical knowledge, it is imperfect and open to challenge and improvement. Although efforts to undermine the credibility of the project (such as the notorious Financial Times investigation) have failed, it will continue to get empirical pushback. However, this pushback is likely to further increase the salience of the problem of inequality, by making it a major object of scientific inquiry.

It also helps explain both the positive and negative reactions that Piketty’s book has received. If you (whether for principled or unprincipled reasons) don’t want inequality to be a problem that people pay attention to, and want to try and solve, then the Piketty book is likely to seem like a disaster to you. You’ll devote a lot of time and energy to trying to tear it down. Sometimes, this criticism will be useful (ideological bias is the beginning point for most serious argument, as well as most unserious argument). Sometimes it will be a form of denialism. Equally, if you are someone who believes that inequality is a real problem, Piketty’s work not only helps to validate your beliefs, but it gives you a new set of tools to understand and explain the world. This is true of activists as well as academics – the language of the 1% and the 99% provides a fascinating example of how a set of statistical findings can provide an interpretive frame to organize an entire social movement.

Finally, it helps explain Piketty’s policy prescriptions, some of which are proposed not so much to solve the problem of inequality, as to help generate the kinds of politics that might solve the problem. Piketty’s entire project could be seen as a bet – that generating increased knowledge about the actual shape of inequality will help generate the kinds of politics that can successfully address inequality. His careful gathering of data and his ingenious search for proxies where data is available (e.g. using publicly visible data on the performance of university endowments as a proxy for the returns to capital available to the merely ordinarily rich and the super rich) all try to cast light on what was invisible and occluded. So too do his policy proposals. For example, his self-admittedly utopian proposal for a global tax on capital is in part motivated by the desire to reduce financial opacity, and to make it clearer just how well the truly rich are doing. He believes that many people don’t understand this:

For … half of the population, the very notions of wealth and capital are relatively abstract. For millions of people, “wealth” amounts to little more than a few weeks’ wages in a checking account or low-interest savings account, a car, and a few pieces of furniture. The inescapable reality is this: wealth is so concentrated that a large segment of society is virtually unaware of its existence, so that some people imagine that it belongs to surreal or mysterious entities. That is why it is so essential to study capital and its distribution in a methodical, systematic way.

Yet a truly systematic understanding is impossible given currently available data. A global capital tax could help generate this data.

The primary purpose of the capital tax is not to finance the social state but to regulate capitalism. The goal is first to stop the indefinite increase of inequality of wealth, and second to impose effective regulation on the financial and banking system in order to avoid crises. To achieve these two ends, the capital tax must first promote democratic and financial transparency: there should be clarity about who owns what assets around the world. … it would generate information about the distribution of wealth. National governments, international organizations, and statistical offices around the world would at last be able to produce reliable data about the evolution of global wealth. Citizens would no longer be forced to rely on Forbes, glossy financial reports from global wealth managers, and other unofficial sources to fill the official statistical void. (Recall that I explored the deficiencies of those unofficial sources in Part Three.) Instead, they would have access to public data based on clearly prescribed methods and information provided under penalty of law. The benefit to democracy would be considerable: it is very difficult to have a rational debate about the great challenges facing the world today— the future of the social state, the cost of the transition to new sources of energy, state- building in the developing world, and so on— because the global distribution of wealth remains so opaque.

In part, this policy proposal doubles down on the bet that Piketty’s book embodies – it is another way to generate empirically validated knowledge that can inform democratic debate. The implication is that if we (as a democratic society, in the US, France, Ireland or some congeries of these national societies) truly understood how rich the rich were, we could do something about it, and perhaps address a number of collective challenges that otherwise seem insuperable.

Obviously, this bet is an uncertain one. Piketty has little to say about the politics through which knowledge generates political action. What one might say is that this and other proposals he makes for knowledge generation might help create a plausibly necessary but insufficient condition for political change. What more we might need than knowledge is difficult to say (I have little idea beyond broad generalities). One plausible surmise though, is that if we’re in the world of the theoretical double bind where (a) Piketty is right about the inherent tendency of capitalism to produce enduring economic inequality, and (b) his critics are right about how economic inequality generates political and institutional inequality, we’re in a very difficult position. It’s unlikely under these conditions that democracy can generate the required political action, regardless of how much knowledge is generated. We need to hope either that capitalism isn’t as prone to generate economic inequality as Piketty believes, or that this economic inequality does not translate seamlessly into unequal political power.

{ 36 comments }

1

Rakesh Bhandari 12.15.15 at 4:55 pm

Yes, Acemoglu and Robinson would not agree that without confiscatory wealth taxation institutions cannot be “inclusive” (or “impersonal open access” ones), but that conclusion follows from Piketty’s work.

I agree with almost everything in the post.

Consider how little policy impact there was from scientific knowledge of the astonishing black/white wealth gap—something perhaps even less well-known than the level of discrimination that Devah Pager’s audits showed. It has been buried in the popular discussion of race.

Here are the powers of denialism at least in regards to the conditions of a minority.

I actually think that the left would be let down by the wealth data that Piketty wants to collect by way of taxation. It may well be that there is simply not enough wealth to tax to solve for the social and environmental problems that may grow worse over time. But for Piketty this, if true, would be a valuable corrective needed for true democratic deliberation.

2

eric titus 12.15.15 at 4:59 pm

Henry: “For Picketty, the fundamental problem isn’t one of flawed markets and unequal power. It’s one of markets working as they are supposed to.”
Critics: “Markets don’t work the way they’re supposed to.”

It does seem to me that Picketty’s book is very valuable politically and in its empirical contributions (which had shown up in article form). Whether the theoretical apparatus of r>g is a lasting contribution remains to be seen, but heterodox economists, sociologists, and others studying inequality see a cause for concern. If this actually became the way inequality was studied and talked about, it would set the field back 30 years. As a sociologist, it’s a little concerning that now that SBTC is finally on the way out, we have another theory of inequality that rests on shaky ground but is being taken up by mainstream economists.

3

Rakesh Bhandari 12.15.15 at 5:08 pm

One of the interesting cultural shifts involves the social psychology of American and British elites who, according to P, took their loss of relative power in the 1970s hard though this was nothing but a mechanical result of post-war reconstruction. Piketty seems to explain the more resolute turn to neo-liberal institutions in the Anglo-American world as a psychological response to a diffuse anxiety about the waning of global command.
Part of this was the reduction in marginal tax rates, which sharply increased the incentives for supermanagers to demand mega compensation and for Boards to acquiesce (as the increased compensation wouldn’t be appropriated by the state anymore).
Piketty is quite right that those who read him as mechanically applying a few laws to account for historical developments have him wrong.

4

BenK 12.15.15 at 5:18 pm

Yes, power can create and maintain inequality; and institutions can assist.

Already, insane amounts of money flow through the hands of so-called bureaucrats, and Picketty believes that putting even more of the world’s resources through their fingers will somehow ‘improve’ society. If power to politicians and their minions is the means to the ends of universal happiness and well-being, indeed, we should be hopeless. This is the final inconvenient fact – that ‘the right kind of politics’ is actually just a re-assignment of the tail wealth to a different group of people, who for ideological reasons, believe they are entitled to it.

In the end, markets serve to concentrate wealth and governments to concentrate power, and wealth can buy power and power can co-opt wealth. Are there orthogonal systems which inherently resist this? Places where nothing scales? Until you can buy immortality with time, then that is a limiting axis. Social relationships, also, don’t scale that way (although fame can snowball, friendship and family can’t). Religion – virtue seems to be self-limiting, in an ironic sense often taken to be hypocrisy, but not necessarily so. Real knowledge also continually uncovers ignorance.

In a sense, an increasing value on labor thus pushes equality by increasing an emphasis on time. Empowering families against government and market; empowering local entities; empowering religion; empowering scholarship. They seem to squander the efficiency of centralized, concentrated power and money. But perhaps, they side-step it. Of course, people who want to reshape the world – and rapidly – can’t wait. They can’t be patient. They can’t afford to distribute influence. The need to solve everything, everywhere, now, requires that the power be placed in their own two hands – or at least given to the ‘right kind of politics.’

5

notsneaky 12.15.15 at 5:49 pm

“their Economic Theory of Dictatorship and Democracy sets out to explain vast patterns of historical development on the basis of game theoretic arguments straightforward enough that an undergraduate student could grasp and reproduce them”

This is a bit OT, but I don’t think that argument is that straightforward. The key “insight” is that a switch to democracy will occur when the elites *cannot* credibly commit to redistribution. A smart undergraduate will of course get it but then so could any smart person.

(and actually the game theoretic apparatus is a big complicated mess. One could even say unnecessarily complicated since the point could be made in much simpler terms and that this kind of thing sort of characterizes a lot of Acemoglu’s work (I’m thinking of his model of slavery which is just a dressed up efficiency wage model))

6

David Timoney 12.15.15 at 6:55 pm

On aspect of Piketty’s ‘Capital’ that I don’t think has received sufficient attention in the Anglosphere is its relation to French history. This is relevant both in his attitude to data (e.g. his admiration for the French records on capital instituted by the Revolution) and his hopes that institutions can be turned to progressive ends.

Piketty’s belief is that a progressive tax on wealth is unfinished business from 1789, which he refers to as “the bourgeois revolution par excellence”. The book’s epigraph comes from the Revolutionary Declaration of the Rights of Man and Citizen: “Social Distinctions can be based only on common utility”. Insofar as the book’s title is a gesture to Marx, the content is essentially “contre Marx” in its treatment of capital and the sidestepping of the materialist conception of history, and as such is an attempt to recover the democratic and pragmatic impulses of the Revolution and its “constructivist” approach to institutions.

Piketty mentions his admiration for the historian Francois Furet and specifically his pioneering work in “serial” or quantitative history, i.e. using extensive datasets to trace historical trends. But he also sees Furet’s career as a warning of what happens when you abandon the patient analysis of data and commit, as the historian famously did in the 1970s, to a polemical focus on political culture. Furet sought to trace the totalitarian legacy of the Revolution and the Terror through to the twentieth century, which brought him into sharp conflict with orthodox Marxists and historians of the Annales school, as much for his neglect of data and his relegation of class and the material base as for his anticommunism.

Piketty is sympathetic to Furet’s anti-totalitarian stance, but he regrets the older man’s abandonment of serial history and, I suspect, feels that the democratic credentials of the Revolution have been obscured by the prominence given to the totalitarian inheritance. Furet was part of a wider fashion in the 1980s and 90s that sought a “post-ideological” historiography of 1789, focusing on intellectual fashions and cultural phenomena rather than economics and class. This was obviously influenced by a neoliberal ideology that sought to place the market and property beyond dispute (the “end of history” etc). Outside of France, this influenced historians like Simon Schama, who claimed in Citizens (1989) that “the Revolution gave birth to a new kind of political community sustained more by rhetorical adrenaline than organized institutions”.

What I think Piketty is suggesting is that Schama’s view was actually a reflection of contemporary political weaknesses that have continued down to today, and that the rhetorical adrenaline of progressives, such as the “we are the 99%” slogan, which itself originated in the earlier analytical work of Piketty and Emmaneal Saez, is insufficient. What is needed is first data and then the reform of the institutions, i.e. democratic governance. In fact, he elsewhere explicitly ties the quality of democratic institutions to their data-aggregation strengths, thereby reviving a tradition that dates back to Condorcet on the eve of the Revolution: “political institutions have a constructive role to play in order to allow for an efficient aggregation of all the socially-useful information that is dispersed among individuals”. In other words, the Occupy movement’s aversion to concrete demands let Wall Street and The City off the hook. In recommending a progressive annual tax on wealth, no matter how “Utopian”, Piketty is avoiding the same mistake.

7

Waiting for Godot 12.15.15 at 7:30 pm

Thank you for this post. I am getting Pinketty’s book for each of my children with a copy of your analysis (with appropriate attribution). Happy Holidays from the heartland of democracy and the anus of progress.

8

Dissenter 12.15.15 at 9:50 pm

Pikketty’s data is junk. He manipulated stats to produce the results he wanted, showing rising inequality. It’s a clear cut case of bending the numbers to confirm his theory, not the other way around.

See here for a thorough refutation: http://ssrn.com/abstract=2543012

9

Rakesh Bhandari 12.15.15 at 10:30 pm

Yes to @6. Many important ideas there.

10

Thomas Lumley 12.16.15 at 3:20 am

para 3: “Piketty and Acemoglu are institutionalists, whose work explores the proposition that institutions matter in demonstrably causal ways”

Typo?

11

LFC 12.16.15 at 5:08 am

From the last paragraph of the OP:

Piketty has little to say about the politics through which knowledge generates political action. What one might say is that this and other proposals he makes for knowledge generation might help create a plausibly necessary but insufficient condition for political change. What more we might need than knowledge is difficult to say (I have little idea beyond broad generalities).

Well, presumably another “condition for political change” besides knowledge is a political/popular movement, whether expressed in terms of electoral politics or otherwise. But perhaps Henry considered this too much of a “broad generality” to mention.

We need to hope either that capitalism isn’t as prone to generate economic inequality as Piketty believes, or that this economic inequality does not translate seamlessly into unequal political power.

The crucial word here appears to be “seamlessly.” Pretty clearly, economic inequality does translate into unequal political power, unless some steps are taken to block the ‘translation’. What steps? Well, in the U.S. context one obvious (though not cure-all) answer is to reduce the influence of money in politics through public financing or perhaps (as I heard Sanders propose in an interview) giving every voter a sum of money intended to be used as a campaign contribution to candidates of their choice.

I realize there are limits to how much can be said in a blog post (and the author had numerous other calls on his time, including the task of organizing this whole symposium), but this post seems curiously uninterested even in speculating about how the ‘translation’ of economic inequality into political inequality can be blocked. Instead, the OP contents itself with outlining what it sees as Piketty’s contributions, stressing his (laudable) concern with transparency and “knowledge generation,” and then at the hand basically throws up its hands and says, in effect, “let’s hope things aren’t as bad as they probably are.”

12

LFC 12.16.15 at 5:12 am

correction:
and then at the end

13

Will S. 12.16.15 at 5:15 am

@8

That paper has three separate red flags. And just in the abstract! First, one of the authors is a professor at George Mason, which has the worst reputation for economics of any university in the country. Second, the other author is Bob Murphy, who might have the worst reputation of any economist in the country. Third, it’s published in the Journal of Private Enterprise. Really, that’s the source you’re going to roll with?

14

LFC 12.16.15 at 5:36 am

Rakesh B. @3
Piketty seems to explain the more resolute turn to neo-liberal institutions in the Anglo-American world as a psychological response to a diffuse anxiety about the waning of global command.
There was an economic crisis of sorts in the ‘developed’ world in the 70s: stagflation, oil shocks, pressure on corporate profits, etc. This helped pave the way for Thatcher and Reagan. It’s been argued that stagflation discredited (politically if not otherwise) the ‘postwar growth model’ (as I heard one historian label it). Prob. not the whole story, but I’m not sure you can go with “a psychological response to a diffuse anxiety about the waning of global command” and ignore what was actually happening in the global and domestic economies. The ‘psychological response’ probably wouldn’t have found a successful outlet if economic conditions had been different.

15

magari 12.16.15 at 12:01 pm

Stagflation was a part, but so too was the increasing social-political power of organized labor. See Blyth Great Transformations for an excellent account of the self-conscious organization of capitalists into a class in the 1970s. Notably, many of the now familiar business lobbying groups were founded in the 70s, or greatly increased their membership in the 70s. Pair Blyth’s book with Piketty and Marx and you get a great macro view of contemporary political economic inequality.

16

rj 12.16.15 at 12:26 pm

“I actually think that the left would be let down by the wealth data that Piketty wants to collect by way of taxation. It may well be that there is simply not enough wealth to tax to solve for the social and environmental problems that may grow worse over time.”

I think that’s hardly the issue. Let’s hypothetically say there’s a global wealth tax and every country in the world agrees to legitimately abide by that, great. None of the collected money is coming back to the first world poor, all it would do is go to sub-Saharan Africa and other places dealing with extreme poverty with people that laugh at what is considered poverty in Western Europe, east Asia, and North America.

17

jake the antisoshul soshulist 12.16.15 at 2:35 pm

@4
I think I agree to the extent that I understand what you are saying. But, the problem with institutions is that we have to surrender, at least some, of our autonomy to those institutions. And the institution that I have the most problem surrendering to is religion.
I tend to view religion as a greater threat to liberty than government or even markets.

18

Dissenter 12.16.15 at 4:20 pm

@13 – Ad hominem much?

19

James Wimberley 12.16.15 at 5:04 pm

The great merit of a concrete demand, even if it looks unrealistic, has been strikingly brought out by the inclusion of a 1.5 degree C target in the Paris Agreement. Officially it’s an aspiration of lower status than the 2 degree limit, but this distinction will disappear in practice. The powerless coalition of small island states took it up, and pushed it, and pushed it. In the end, led by the Marshall Islands (!), they traded their support of the demands by India, China, and South Africa for ever-stronger language on “differentiated responsibilities” and climate finance to get the USA and EU to sign up to 1.5. That was the temporary “coalition of high ambition”. A true David and Goliath story. Cf. also Wilberforce’s campaign against the slave trade – not slavery.

I wouldn’t rule out that we might finally get action against tax havens through apportionment of corporate taxes by sales or value added. This is technically feasible because it’s how they deal with corporate taxes between states in the USA. But it needs a campaign focused on one feasible demand, not a general delenda est Caesarea.

20

Dissenter 12.16.15 at 5:46 pm

@13 – Since you seem to prefer attacking institutional affiliations as a substitute for engaging the actual evidence of how Piketty fudged his stats, how about this finding of the same thing from Berkeley’s Alan Auerbach?

https://www.aeaweb.org/aea/2015conference/program/retrieve.php?pdfid=421

Or let me guess – you’re just going to dismiss it without reading it as well since his coauthor works at the American Enterprise Institute.

21

Bruce Wilder 12.16.15 at 6:16 pm

Dissenter @ 18

LOL. That was just too precious. A classic in trolling.

22

Layman 12.16.15 at 6:19 pm

@ Dissenter, life is short, and there is much to read, and much of it is hackery. If a particularl source seems to produce a lot of what you think is hackery, I imagine you no longer waste time reading what it produces. Isn’t that so?

23

Rakesh Bhandari 12.16.15 at 6:32 pm

So @20; if we guess at the tax toll on top incomes and then determine an after-tax r and then adjust that r for risk, it turns out that r<g. But that misses the the whole point of the University endowment data–that the wealthiest bear much less risk due to the superiority of their financial advisers.

24

Cleric 12.16.15 at 7:59 pm

@Layman – That’s awfully tautological. “I think X is from a hack source, so I won’t read X. Therefore X is invalid.”

If the source is so hackish, then surely it would be easy to dispense with the arguments of a short article. And since a claim has been made about the strength of Piketty’s empirics, surely the discussion would benefit from a word offered in their defense to these criticisms.

25

Layman 12.16.15 at 9:03 pm

@ Cleric

If you feel compelled, then have at it.

26

John Quiggin 12.16.15 at 9:08 pm

@Cleric Let’s do it as a syllogism

Everything published by source Y is hackery (established by induction)
X is published by source Y
Therefore X is hackery

This argument is valid for most sources likely to be cited by a US rightwinger.

27

Cleric 12.16.15 at 9:56 pm

@John Quiggin –

It seems rather to be the case that:

John asserts everything published by source Y is hackery (established by John’s own hackery)
John refuses to read sources he hackishly deems hackery.
Therefore John refuses to read source Y.

This argument establishes that John is unwilling to engage material that John deems disagreeable to his a priori acceptance of other material.

28

LFC 12.16.15 at 10:06 pm

Just thinking about David Timoney’s comment @6, which appears to locate Piketty squarely in the Enlightenment tradition (e.g. Condorcet), emphasizing, as does Henry F. in his post here, the data-gathering and ‘knowledge-generating’ potential of political institutions including, presumably, government agencies (when those are not controlled by a corrupt elite, at any rate).

This could seem to cut against what I understand to be Foucault’s (and his followers’) emphasis on governments’ use of information, from early-modern times on, to control and surveil, i.e., restrict the freedom of, individuals. This line of thought of course has had a big influence in English-speaking academia, prob. including, if sometimes indirectly, recent work on biopolitics esp. in the wake of the ‘war on terror’.

I guess one ‘solution’ would be: information-gathering for good ends (data-generation on wealth) but not for bad ends (invasion of privacy). But this distinction might be sometimes easier to maintain in theory than in practice.

On a general philosophical level, for Condorcet, “efficient aggregation of all the socially-useful information that is dispersed among individuals” is a step toward, or precondition for, liberation. For Foucault, it’s usually the opposite. Piketty in this sense is pro-Condorcet, anti-Foucault.

(p.s. I’ve read some Foucault, but not, e.g., Discipline and Punish. So take this comment for whatever it’s worth, or not…)

29

reason 12.17.15 at 12:57 pm

Rakesh Bandari @23
Surely risk is IRRELEVANT in this discussion. You don’t need to worry about it. The point is the rich can afford the risk and grow richer by taking it.

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reason 12.17.15 at 1:00 pm

P.S. We are talking here about the rich as a class not about individual rich people. When you realise that, you must see that risk is a red herring here.

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reason 12.17.15 at 1:05 pm

To rephrase Piketty in perhaps better clearer language:
If average returns to investment are higher than the average rate of growth of national income, then over time returns to investment will become a large fraction of national income. (You can add a proviso about adjustments for the average realised rate of tax on investment income and the realised average rate of tax on natonal income as well).

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Dan Hirschman 12.18.15 at 8:24 pm

“Piketty is an economist, but his contribution is better understood in sociological terms. As sociologists like Marion Fourcade and sociologically minded political scientists like Martha Finnemore have argued, economic knowledge doesn’t appear automatically. Instead, it’s the product of social processes of legitimation, in which socially legitimated social structures produce socially legitimated forms of knowledge that are validated in socially legitimated ways.”

Very nicely said! Readers interested in following-up on the social and technological conditions for Piketty and Saez’s discovery might find this working paper of interest: “Rediscovering the 1%: Economic Expertise and Inequality Knowledge.”

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Rakesh Bhandari 12.18.15 at 9:10 pm

Your paper seems very interesting indeed, Dan Hirschman.

I heard Londa Scheibinger speak about how ignorance was produced about abortifacients given the population bias of the mercantilist period. And how long was ignorance produced about the effects of redlining on the massive black/white wealth gap? Isn’t this ignorance still produced, more or less? At PTA and School Board meetings I never hear it brought up in discussions of the achievement gap until I bring it up.

Hasn’t the fact that labor incomes have been lagging productivity long been perceptible within the extant “regimes of perceptibility”? Though perceptible, that seems not to have led to policy reforms, however. Tom Palley has also raised the question of why Edward Wolff’s previous findings on the concentration of wealth did not create the same interest as Piketty’s findings. So it’s not just that it was already known that the top 1% was appropriating a great deal of the overall income gains. There were also data on rising wealth concentration.

I think you are right here: “Finally, that the 1992 “Krugman calculation” debate [about the disproportionate share of new income being appropriated by the 1%–rb] did not result in sustained attention to top incomes highlights the importance of linking narrow observations to routine methods of observation and broader theoretical frameworks. As an isolated calculation, Krugman’s calculation was a political claim used to criticize the economic legacy of Ronald Reagan. Piketty and Saez instead framed their calculation in the long sweep of the past century, and published their findings in academic journals rather than feeding them into op-eds and stump speeches.”

Yes, Piketty’s historical perspective makes the difference in that it gives a clear explanation for why meritocratic capitalism, such that it was, is exceptional, and took catastrophic events, to create. So we should not expect it to last, and the recent rise of the 1% was not an accident, soon to be undone. This historical perspective created the presumption that the inequality we are seeing would rise and become entrenched; it became a social problem in that way.

But of course we are being optimistic: we may yet see ignorance produced about what Piketty and Saez have found.

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Rakesh Bhandari 12.22.15 at 4:15 am

From the OP: “..economic knowledge doesn’t appear automatically. Instead, it’s the product of social processes of legitimation, in which socially legitimated social structures produce socially legitimated forms of knowledge that are validated in socially legitimated ways. We live in a technocratic age, which among other things means that the kinds of knowledge that appeal to technocrats, such as high quality statistical data, are likely to appear legitimate in ways that other kinds of knowledge are not. Piketty and his colleagues have engaged in slow, patient work, the boring of hard boards, building high quality data sets that appear to confound the previous technocratic wisdom that we didn’t need to worry about inequality.”

In a way though Piketty does NOT present his statistics in the most highly technocratic form–that whole series of operations in which covariates are introduced and tested to account for observations produced through history or experiment. I think it’s Mike Savage who pointed out that Piketty’s statistics are mainly not explanatory but descriptive–a victory for serial history.

He does note en passant some regressions that he must have conducted in terms of what exactly depressed capital values during the War period (he found that physical destruction of capital was not that important) and I think there are regression results hinted at in terms of how much the rise in the K/Y ratio in the long 19th c in France can be accounted for by s/g.

But for the most part the statistical knowledge is descriptive, not explanatory. So I would say that his statistical work may not be in the most advanced technocratic form? Rather the book became compelling due to the way in which makes sense of history.

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Rakesh Bhandari 12.22.15 at 4:23 am

Here is the passage from Mike Savage in the British Journal of Sociology:
“Piketty’s book is fundamentally descriptive. Rather than the typical social scientific insistence on causality as the holy grail, the book’s ample figures and graphs present only uni- and bi-variate distributions. There are no complex causal multi-variate models, no ‘variable centred’ attempts to distil the relative significance of various bundles of independent variables and the like. There is no league table of causal variables explaining wealth accumulation which pop out at the end of the book. Instead, Piketty relies on descriptive figures showing trends over time with no attempt to explain the trends through introducing independent causal variables.

This strategy is interesting given the current methodological debate regarding the relative merits of ‘descriptive’ versus ‘causal’ strategies in the social sciences (see for instance Abbott 2000; Savage 2009). Piketty is far from alone in championing description (Savage 2009 also explores the use of descriptive approaches by Andrew Abbott, John Goldthorpe and Bruno Latour and of course this could be extended to include Clifford Geertz and others). None the less, it will surely be the case that his book is now the best example of what one might be able to achieve using description and the fact this appears so powerful is indeed telling.

What are the merits of this descriptive strategy? Firstly, we need to get away from the view that this is an empiricist approach, or that Piketty’s strength lies in assembling ‘facts’ (for which argument see http://manchestercapitalism.blogspot.co.uk/2014/06/piketty-or-just-facts.html). Just like all good social scientists, Piketty is well aware that facts do not speak for themselves. What is distinctive to Piketty’s work is his repertoire of assembling his data to a particular visual template.”

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Metatone 12.22.15 at 10:43 pm

Worth adding that Beinhocker cites simulation work that provides another theoretical route to Piketty’s conclusion that “the system working perfectly” leads to inequality.

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