Professor Piketty and his colleagues at the Top Income Distribution
Study have put us all in great debt for the great increase in our
knowledge of historical development of inequalities in income and in
wealth in a number of leading countries.

Notice I have already mentioned two inequalities, income and wealth.
There is one more leading inequality which does not receive much
attention in Piketty’s work: consumption. Papers and books have already
appeared which try to measure this inequality. Many more inequalities,
e.g. health, educational achievement, race, and gender differences have
been the subject of study, but these are more specialized and less
central to economic analysis.

There is a strong argument for emphasizing consumption. Why, after all,
do we consider inequality in wealth, income, or consumption to be
undesirable? If we consider only economic arguments, it is because the
poor are being deprived of goods that are valuable to their lives,
exactly because they are more basic than the desires of the rich.

This has important implications for how we evaluate Piketty’s arguments
about inequality. It suggests an alternative metric of inequality, one
under which some of the problems that Piketty identifies are not, in
fact, problematic.

Consider a world, like that envisioned by Piketty, in which the rich
consume relatively little (compared with their property income). They
accumulate wealth by investing in industry, thereby increasing output in
the future. If they do not consume more in the future, but instead,
simply continue to accumulate, then the additional future output is
available for the consumption of the poor.

If, instead of being available to the poor, the additional output were
somehow reinvested in the productive sector, we would find a world in
which the ratio of investment to consumption is steadily rising. This is
not the world we live in, and would produce visible results contrary to
even casual observation.

In the neoclassical picture, consumption is the ultimate end of the
economy. The rich accumulate for ultimate consumption, perhaps of
generations in the far future, or, in some significant part, for
philanthropy. Piketty seems instead to have a picture of the economy as
a process of automatic accumulation, without regard to planned
consumption. Estates grow at the market rate of return (100% saving out
of property income). This is not a realistic account of how rich people
– or indeed anybody – treats their income. It also leads us to ignore
the politics of how this wealth is actually consumed.

Taking consumption seriously has important implications for measurement.
If we are truly concerned with inequality, we should be most concerned
with the distribution of consumption. The measurements we should look to
are measurements of inequality in consumption, since it is differences
in consumption that we really ought to care about.

This also has implications for policy: for example, if what we care
about is differences in consumption, we might consider a progressive tax
on total consumption of an individual. This would have to be done on an
annual basis, like the current income tax, not at point of sale. Such a
tax was long ago proposed by John Stuart Mill and later by Irving Fisher
and Nicholas Kaldor. Piketty refers to Kaldor’s work but does little to
refute it, saying only that no such tax exists. This is true, but of
course the progressive wealth tax favored by Piketty is equally untried
in practice.

We might be especially moved to consider a consumption tax if we
consider that Piketty’s proposed wealth tax seems in any case to be much
higher than it sounds. If we are to assume, say a 5% return on property,
then a 2% per annum tax on wealth would amount to about 40% of property
income. If investment is financed by property income, this implies a
very considerable reduction in investment. Is this desirable? One might
doubt it, especially since the effects on investment would be
substantial, even apart from incentive effects, which might also be
quite considerable.

Thomas Piketty’s *Capital in the Twenty-First Century* presents a
troubling puzzle for social democrats and for parties of the
centre-left, as well as for academics interested in developing a more
egalitarian public policy agenda. Supported by a previously unimagined
wealth of statistical detail, gained through the archival labour over
many years of a large team of researchers, Piketty’s book confirms
profound concerns about the long-range dynamics of capitalism. Wealth
does not naturally disperse down to the many, but sticks to the few, and
especially to those who carry the arbitrary advantages of patrimonial
inheritance. The facts of inequality are devastating, and come with an
accompanying sense of deflation at the level of policy and political
action. We may have come to see the grim facts of capitalism’s internal
dynamics more clearly than ever before, but it is much less clear that
we have the tools to cure capitalism’s disfiguring disease of
accelerating inequality. Hence we see that a common reaction to
Piketty’s work on the left is one of resignation or even despair. The
sardonic good humour and cautious optimism displayed by Piketty himself
can seem oddly out of place against the background picture that has been
created by his years of ground-breaking research. [click to continue…]

A brief conversation with 2 students crystallized for me why two things I have been doing in my classes for a while work well, and I want to recommend them to other teachers; and also make a recommendation for students.

Background to the conversation. The class is very small, just 14 people (this is unusually small — my normal class sizes are around 25, 80-100, 150-170). R&M live together; G, who is also in the class, lives with them. They have a 4th roommate, MA. Class was once a week on Wednesday nights.

R: “MA might come to class on Wednesday. I mean, it’s like she’s in the class, so she might as well just come along”
Me: “What do you mean?”
M: “Well, we all just argue about class in our apartment for half the week, and she can’t really avoid it”
R: “Yes, as soon as the memos start coming in on Sunday, we start reading them to see what everyone says”
M: “We always look to see what S [a very poised, provocative, freshman] says, because at least one of us will disagree with her”
R: “And even if M and I agree, G always disagrees with us. Our apartment is just full of argument from Sunday through Wednesday”

So what are the two things I do?

[click to continue…]

Abraham Newman and I have a piece in the new Foreign Affairs, discussing the Safe Harbor decision, and arguing that it’s really an example of the US finding some of its own preferred extraterritorial rules being used against it. Since Foreign Affairs allows me to put the whole piece up for a few months, here’s the full text for anyone who’s interested …

[click to continue…]

*Capital in the Twenty-First Century* was a classic as soon
as it was published.[^21] It deserves a place on bookshelves beside its
illustrious namesake of the 19th century. Capital, in
*Capital*, is the wealth of nations. It extends beyond
firms’ traditional productive capital to encompass the entire public and
private patrimony that can be sold on a market (thus excluding
non-transferable forms of capital such as human, cultural and social
capital). The book is the culmination of fifteen years of individual and
collective research on the evolution of income and wealth inequalities.
Thanks to data based on the collection of income tax, Thomas Piketty and
his colleagues had already widely explored income inequality in France,
the United-States, India, China, and more generally in the world by the
early 2000s, fuelling a unique and remarkable dataset: the *World
Top Incomes Database.* However, this work focused on income
rather than wealth, and hence provided an incomplete account of economic
inequality. This new book fills in this gap in a very timely fashion. [click to continue…]

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. [click to continue…]

Imagine that you’re a person who is obsessed with airplanes. Naturally
you’re excited when everyone starts talking about this big new book,
*Aviation in the 21st Century.* You get your copy and start
reading. Just as you’d hoped, there’s a detailed discussion of the
flight characteristics of a vast variety of plane types and a
comprehensive record of different countries’ commercial fleets, from the
beginning of aviation until today, plus a few artfully chosen
illustrations of classic early planes. But long stretches of the book
are quite different. They are devoted to the general principle that, in
an atmosphere, heavier objects fall faster than light ones, building up
to the universal law that lighter-than-air objects will float. Finally,
in the conclusion, you find some bleak reflections on the environmental
consequences of air travel – hardly mentioned til now – and a plea for
the invention of some new technology that will allow fast air travel
without the use of fossil fuels. How do you feel, when you set the book
down? You would be grateful for the factual material – even if the good
stuff is mostly relegated to the online appendices. You would be
impressed by the rigorous logic with which the principle of buoyancy was
developed, and admire the author’s iconoclastic willingness to break
with the orthodox view that all motion takes place in a vacuum. You
probably share the author’s hopes for some way of eliminating the carbon
emissions from air travel. But you might also find yourself with the
uneasy feeling that the whole is somehow less than the sum of its parts. [click to continue…]

A friend asked me last week how I watch cricket. Do I sit for 8 hours at a time, or watch highlight reels, or what? So I explained that when possible I watch live during breakfast when the kids have left the house, and actually take a short lunch break if there is live cricket to watch. If I am cooking, or cleaning the house, I have it on, turned up loud, in case anything unmissable happens (only if my cooking is uncomplicated enough to . But, if I know a game is likely to get tense and exciting, and will not be able to see it at all — teaching, days of meetings, etc — then I try to avoid learning what happened, and watch either highlights or, sometimes, long parts of innings, later (sometimes much later). He scoffed. How hard can it be to avoid learning what happened in a Test match when you’re in Wisconsin? [1] He, much more impressively, has to avoid learning the scores in a Packers game (I didn’t say that, in fact, this is something I manage to do all season every season, with no effort at all). Anyway, he told me that when he was a kid, on days that his dad couldn’t see a game, he (the dad) would come home and say “We’re in the cone of silence. Nobody say anything” and expect complete cooperation from everyone in his herculean effort to avoid learning the score.

Well, every Briton over the age of 40 knows what comes next. But surely there must be an episode from an American sitcom with exactly the same plot, no?

https://www.youtube.com/watch?v=NXoKl3Hpsh0

[1] During the World Cup I had the misfortune of teaching a class with a smart and lovely Indian lad, who did his absolute best to keep results to himself, but…well, his best often wasn’t good enough.

As I’ve argued on my own blog, it seems likely [^1] that the global agreement on reached at COP21 in Paris will mark the turning point in efforts to stabilize the global climate. If so, it will mark the defeat of the right in one of the most bitterly contested arenas of their long-running culture war, and also one of the hardest to explain. There’s no obvious reason, apart from tribal hostility to “enviros” why this should have been a culture war battleground at all.[^2]

There was, by 1990 or so, a well developed literature on “free market environmentalism” which pushed the idea that environmental problems were the result of inadequate property rights, and that the solution was to create such rights: in this case, tradeable emissions permits. Environmentalists were generally hostile to the idea, preferring direct regulation. Eventually most environmental groups came around to the view that a carbon price was essential to solving the problem. Instead of claiming victory, the right opposed the idea ferociously and effectively, with the result that the policy outcome has included much more intrusive regulation, and much less reliance on markets, than would have been optimal. The oddity of a supposedly market-oriented government in Australia preferring “Direct Action” over price-based policies is by no means unusual.

Has the climate change culture war helped or harmed the right? The harm is obvious enough. The scientific and economic evidence on climate change is so clear cut that mounting a case against it requires a huge amount of willing gullibility (the fact that is labelled “scepticism” is one of the smaller ironies of the story). The result has been a big contribution to the lowering of intellectual standards that allows someone like Donald Trump to become a plausible candidate for the Republican nomination in the US.

The intellectual damage has been particularly severe for libertarians, who have traditionally thought of themselves as the smart, logical types, deriving their policy positions from rigorous deduction. As the case of climate change has shown, you can get any answer you want if you make up your own facts. Now, we have the sorry spectacle of self-described libertarians making the kinds of spurious claims, in relation to the health effects of wind power, that were once the province of the least credible environmentalists, and demanding the appointment of highly paid government regulators. At the turn of the century, libertarianism had a plausible case to be the way of the future. Now, as far as I can see, it has disappeared from view in the US and survives in Australia only because of the vagaries of the Senate electoral system.

Against that, the struggle to save the planet from dangerous climate change has chewed up a huge amount of energy and effort on the left. Arguably, that has distracted attention from economic issues, and allowed the steady rise of the 1 per cent to go unchallenged. That analysis fits with the widely held view that the culture wars are just a device to keep the rightwing base agitated enough to turn out, losing time after time, but still providing the votes needed to keep pro-rich politicians in office.

[^1]: A Republican win in 2016 would certainly be a major problem. But the momentum is such that it would probably not make much difference. Even if a Republican Administration weakened environmental standards, no one is going to build a new coal-fired power station in the US, knowing that it might have to shut down after the next election.

[^2]: There was, initially, some significant support from fossil fuel interests (notably Exxon) through bodies like the Global Climate Coalition. But that dropped off quite early as most big corporations worked out that they were better off changing their business models to incorporate renewables than fighting to save the old ways of doing things. For at least the last decade, the economic issues have been secondary – it’s all culture war all the time.

Early in *Capital*, Thomas Piketty writes:

> [H]istorical experience suggests that the principal mechanism for convergence [of incomes and wealth] at the international as well as the domestic level is the diffusion of knowledge. In other words, the poor catch up with the rich to the extent that they achieve the same level of technological know-how, skill, and education. (p. 71).

Yet when he turns to policy prescription in part IV of the book, his
treatment of education is relatively brief and mainly forms a part of
his discussion of the “modernization of the social state.” By this he
means that ‘the tax and transfer systems that are the heart of the
modern social state are in constant need of reform and modernization,
because they have achieved a level of complexity that makes them
difficult to understand and threatens to undermine their social and
economic efficacy.’ Given the emphasis Piketty places on education as a
force for equality in the opening section of the book, the brevity of
the final discussion disappoints. He might have said much more. In what
follows, I will summarize Piketty’s educational policy prescriptions,
comment on the theoretical framework underlying them, and then point to
what I take to be an even more important source of education’s
egalitarian effects. [click to continue…]

Benedict Anderson has died. I’m hoping someone like Henry or Chris writes something more substantive in the coming days about his contributions. While I read Imagined Communities, it never touched me in the way it has so many other scholars and students. Reading people’s comments on Facebook and Twitter, I’m struck by how intellectually diverse his audience was, how ride-ranging his reach. All morning, people from so many different fields and persuasions have been testifying to Anderson’s impact upon them and their work. Which leads to a thought: I’d put Anderson up there with Clifford Geertz and, increasingly, Jim Scott as among the most influential scholars of the last half-century. All of them scholars of Southeast Asia. I’m sure other people have noticed this and/or perhaps written about this, so forgive my saying the obvious, but what is it about that region that has made it such a site of transformative scholarship and fertile reflection?

Update (10:45 am)

Somehow or other, it seems, Henry actually has already posted here on Anderson’s death. Weirdly, I only just saw it. Maybe he and I were writing at the same time? Anyway, read Henry.

Obituary here. His _Imagined Communities_ was an important book to me, as it was, I suspect, to many other people in the Crooked Timber community. Indeed, it’s the book that made me decide to do graduate studies in political science (how could it not be wonderful to work in a discipline where one could read novels and newspapers to reach grand conclusions about political and social life; I was to find out). He was of Anglo-Irish stock – how much that double alienation (membership of an unintegrated but socially privileged minority within a state based on the usual national myths) shaped his viewpoint has been the subject of a lot of amateur speculation. I liked his book on international anarchism (review here, combined with a review of Scott’s Art of Not Being Governed), but more for the details than the whole. There’s a funny anecdote in it about an assassination attempt on a Captain-General:

bq. With the help of two Asturian anarchists, a young Cuban nationalist called Armando Andre hid a bomb in the roof of the ground-floor toilet of the Captain-General’s palace. The device was supposed to explode when Weyler sat down on the pot, bringing the whole second floor down on his head. The plotters were unaware, however, that Weyler suffered so severely from haemorrhoids that he almost never used the facility, preferring an earthenware field-potty when he had to relieve himself. The bomb went off, but no one was hurt, and Weyler decided to inform Madrid that the explosion had been caused by stoppages which prevented the latrine’s gases from escaping normally.

with further references to how the General was “partly relieved” and to the “diehard colons” of the revolution. I like that he had a low (if somewhat pince-sans-rire) sense of humour, despite his formidable learning and clipped Etonian accent – I can only imagine that he took great delight in smuggling the story and dubious jokes into an otherwise serious and densely researched academic book. More of us should be like him.

I would like to raise two related questions to Thomas Piketty. The first
concerns his repeatedly declared conviction that economic theory cannot
explain trends in inequality by itself, that policies and institutions
are equally important, and that economists must therefore put forward
their hypotheses and explanations with this interdependence in mind.
Given what I have understood Piketty’s main thesis to be, I wonder up to
which point he is actually committed to that claim. The second concerns
Part Four of _Capital_, where Piketty sketches a proposal for how to
regulate capital in the 21st century. In a nutshell, my concern about
Piketty’s proposal is that there seems to be a friction between the
diagnosis offered in the rest of the book (which seems to draw a rather
bleak picture of the power of capital in the early 21st century) and the
suggested cure (which seems to rely on the optimistic hope that, once
well-minded citizens will have recognized the problem, the only hurdle
will be to find the right policy to fix it). To put it provocatively,
both my questions are inspired by the suspicion that Piketty seems to
hold on to a social-democratic optimism of sorts at all costs, whereas
his findings seem to push him in a different direction. With the label
‘social-democratic optimism’ I mean two things: on the one hand,
optimism about the role of policies and institutions in taming capital
on the one hand; on the other, the persuasion that what politics is
fundamentally about is making citizens understand what the problems are
in a well-minded, reasoned dialogue, and then they will be persuaded to
do the right thing. [click to continue…]