A rebuttal of Piketty from the right. First, there's a "measurement problem," and secondly, the empirical data doesn't support the normative conclusion, which is too narrow anyway.
Piketty's terror at rising inequality is an important data point for the reader. It has perhaps influenced his judgment and his tendentious reading of his own evidence. It could also explain why the book has been greeted with such erotic intensity: It meets the need for a work of deep research and scholarly respectability which affirms that inequality, as Cassidy remarked, is "a defining issue of our era."
Maybe. But nobody should think it's the only issue. For Piketty, it is.
Aside from its other flaws, "Capital in the 21st Century" invites readers to believe not just that inequality is important but that nothing else matters.
Then he concludes with an argument out of Mises:
Over the course of history, capital accumulation has yielded growth in living standards that people in earlier centuries could not have imagined, let alone predicted -- and it wasn't just the owners of capital who benefited. Future capital accumulation may or may not increase the capital share of output; it may or may not widen inequality. If it does, that's a bad thing, and governments should act. But even if it does, it won't matter as much as whether and how quickly wages and living standards rise.
That is, or ought to be, the defining issue of our era, and it's one on which "Capital in the 21st Century" has almost nothing to say.
49 comments:
This is just the "raises all boats argument." Crook thinks rising inequality isn't a bad thing as long as everybody is getting a little bit richer.
But the arguments that it is a bad thing have already been made well enough by Stiglitz, Wilkinson and others. Piketty's book is about what is happening in the realm of wealth and income inequality and what is causing it, and then offers some suggestions in the way of what to do about it. These suggestions won't appeal much to conservative toolbags who which to defend the status quo.
Piketty is the establishment, he is the neoclassical center right man that is pointing out the folly of the new democrat "left"? We had RINOs now we need DINOs to marginalize the new dems from old dems.
Todau Krugman shows Mosler is wrong too.
Increased rates dont help jusr look at Sweden
Huh? Who is Piketty marginalizing?
In equality is OK as long as the wealth gap is not expanding ( & preferably narrowing) and as long as there is fluid movement between low income to high income and vice versa.
Much ado about nothing. Did we really need more proof about inequality or think that it would change anybody's mind?
I agree with Tom that it's part of a trend -- a backlash against the "ownership society". So there's that.
But Piketty's book is neither an effective emotional appeal to non-economists, nor an intellectual work of dramatic interest to professional economists, whose reactions to the book are almost solely political...
Ryan,
I replied to your comment here:
https://www.blogger.com/comment.g?blogID=2761684730989137546&postID=78321222486047399
Much ado about nothing. Did we really need more proof about inequality or think that it would change anybody's mind?
Yes. Many economists were of the opinion that although inequality had grown greatly in the US in recent decades, there is a larger worldwide trend toward the reduction in inequality, and that capitalism exhibits a natural long-term tendency to reduce inequality. What Piketty shows is that across the developed world there is a long-term trend toward inequality, and that the 30 year postwar reduction in inequality was an anomaly.
Dan K-- I doubt you can find anyone's mind changed by Piketty's arguments. Have anyone in mind?
Yes, most of the center-left economists - such as Krugman - spent the last four years denying inequality was a problem and focusing all attention on countercyclical stabilization policy. Now they are all over it.
In case you haven't noticed, the Democratic Party is in disarray and falling into a panic over the fall election. They are trying to re-tool on the fly and are looking for issues that can inform a new more populist message.
Dan K-- It took me exactly 2 seconds to find Krugman's views on inequality pre-Piketty:
Why Inequality Matters, by Paul Krugman, December 15, 2013,
http://www.nytimes.com/2013/12/16/opinion/krugman-why-inequality-matters.html
"Rising inequality isn’t a new concern... But politicians, intimidated by cries of 'class warfare,' have shied away from making a major issue out of the ever-growing gap between the rich and the rest. That may, however, be changing. We can argue about the significance of Bill de Blasio’s victory in the New York mayoral race or of Elizabeth Warren’s endorsement of Social Security expansion. And we have yet to see whether President Obama’s declaration that inequality is “the defining challenge of our age” will translate into policy changes. Still, the discussion has shifted enough to produce a backlash from pundits arguing that inequality isn’t that big a deal.
They’re wrong."
That's already from December 2013, Dan. Piketty's book was released in France last year. Go back to read some of the ho-hum stuff Krugman said about Stiglitz a couple of year's ago.
There has been a gradually growing movement of concern and intellectual debate about inequality since 2008, but people like Krugman, Ezra Klein, Brad DeLong and the other center-left big shots have not been part of it, and have in fact done much to resist it and prevent inequality from becoming a major topic. But that is now changing. Piketty's book is one of a series of major works that are gradually knocking down the well-constructed intellectual defense mechanisms.
Of course, there are still many people who would prefer not to talk about inequality or debate it in an intelligent and well-informed way.
Dan K--
So far you haven't provided any examples to substantiate your claim that Piketty has changed anybody's mind.
I do agree that Piketty's book is part of a trend in recognizing that growing inequality is a problem. That's what the Occupy Wall Street movement was all about, for example, and Obama was making noises about inequality well before Piketty's book became popular.
I fear that Piketty's economics may actually set back the movement because it treats growing income inequality as some sort of natural force rather than an outcome of specific political policies....
Dan, why don't you just read the freaking book instead of coming up with 1000 contrarian reasons for avoiding and ignoring it?
You say it's "much ado about nothing." But you haven't read any of it, so you're just bullshitting.
The reaction of Club MMT to these events is most depressing. I always new a part of the MMT support community were tea partiers at heart who only liked MMT because it seemed to offer a path to pain-free, free money monetary stimulus and tax cuts for everybody. But now I'm starting to see just how deep these roots are. Except for Tom's links, the near total lack of engagement of people in the broader MMT community with the important research of other people on inequality over the past few years speaks volumes about where their hearts actually lie. And the stagnant, brain-dead adherence to a handful of dumbed-down MMT slogans and "framing" devices, along with the egregious anti-intellectualism and kneejerk rejection of things unread, has become an embarrassment.
I'm tired. This is a community I no longer want to be part of.
In his interview with Bill Moyers, Krugman admits that he had missed the significance of the inequality issue in historical context and future prospects, and he credits Piketty for changing his POV. It's the data that Picketty and his collaborators have assembled.
And we knew that that wasn't always true. We knew that in the Gilded Age or in the Belle Époque in Europe, which he prefers to talk about. That high incomes were mostly a result of having lots and lots of assets. But we sort of said, "Well, that's not the way things work anymore." And he says, "Oh yeah? It turns out that you're wrong." That’s true, that right now, a lot of high incomes in America are people who didn't start out all that rich. But we're rapidly moving towards a state where inherited wealth dominates. I didn't know that. I really was-- I should've known it. I should've thought about it, but I didn't. And so then here comes this book with-- I mean, it's beautiful-- absolutely analytically beautiful, if that makes any sense at all.
http://billmoyers.com/episode/what-the-1-dont-want-you-to-know-2/
See the transcript.
"why don't you just read the freaking book instead of coming up with 1000 contrarian reasons for avoiding and ignoring it? [Dan Kervick]
I'm too busy reading the collected works of Ludwig von Mises, so I can refute the Austrians...
Clive Crook: "Future capital accumulation may or may not increase the capital share of output; it may or may not widen inequality. If it does, that's a bad thing, and governments should act. But even if it does, it won't matter as much as whether and how quickly wages and living standards rise."
And wages and living standards in the US have stagnated for decades. So there you have it.
Dan Kervick,
I take serious issue with your comments. Not sure where they are coming from exactly.
Headline MMT'ers talk about inequality and ways to combat it all the time, before Pickety, before 2008, before 2000, etc.
I don't think inequality has ever been a major issue for most MMTers Charles. Look at a central text like Mosler's Seven Innocent Frauds. The topic never even comes up once.
Some of us have tried to build on the job guarantee ideas as one element in building a more just and equal society and in re-developing the economic foundations of our society, but there is always pushback from the camp that say the JG should not "interfere" with the private sector economy, and that the JG should be a strictly minimum wage "starter job" affair. And I know from repeated experience that any mention of redistributive taxation and other pro-equality policy measures usually falls like a lead balloon in MMT circles.
There were always tensions within the group of supporters. But the palpable hostility and unconcern from the MMT community toward not just Picketty, but the whole line of inequality and social justice research over the past several years, the obsession with tax cuts, the absence of any mature policy framework for the conduct of monetary policy and the deafening silence about most areas of economic policy are now just too obvious to be ignored.
And wages and living standards in the US have stagnated for decades. So there you have it.
Would you argue that rising inequality is a good thing for China and developing countries?
"he concludes with an argument out of Mises..."
Love it. There is no "argument" in von Mises, only (fractured) fairy tales. von Mises's visceral plutolatry repudiates Menger and Bohm-Bawerk. Not that any of the fans would notice.
Dan,
Not to speak for Warren but in his defense all he as ever said is that he is only in this hoping to for once in his life see the US economy operated at full capacity before he dies....
think like he wants to take the car out on the back straightaway and hammer it and see what it'll do... he doesnt want to 'run the racing team' so to speak he just wants to drive the car.
Others may have "bigger plans"....
If it takes a big empirical study like this to get the headliner Dem progressives all fired up then so be it.... probably going to help...
rsp,
- Brad DeLong was part of the group that create the WCEG (Washington Center for Equitable Growth). Not sure whether that center existed before the French version of the book came out, but it was presumably planned in advance. There was already a move to push inequality as an issue.
- James Galbraith (or Dean Baker) pointed out that raising the bottom end of the income distribution is a lot more realistic way of dealing with inequality than a completely unworkable capital tax. A capital tax could be evaded using the same structures as those used to avoid income tax, but it would be even easier to avoid. (Income is based on measurable cash flows. A capital tax would have to create a procedure to value private corporations, which is almost impossible to do.)
Yes, Brian, I think Stiglitz in the one who really got the ball rolling: the very prominent mainstream technocratic economist to identify inequality as a big problem.
Fed’s Bubble Finance Is Primary Cause of Massive Wealth Gains At The Top:
Capital that is invested in rigged financier games funded by the Federal Reserve (for example, carry trades and high-frequency trading) is entirely different from capital that is placed at risk in a start-up company.
Capital invested in building a house is quite different from capital invested in pyramiding the mortgage into mortgage-backed securities (MBS) and exotic financial instruments based on the MBS. *****
When the profits from financializing collateral and leveraging those bets to the hilt far exceed generating wealth by creating products and services, the economy is soon hollowed out as the perverse incentives of financialization start driving every business decision and strategy.
http://davidstockmanscontracorner.com/feds-bubble-finance-is-primary-cause-of-massive-wealth-gains-at-the-top/
All of these problems of inequality are caused by the beloved fiat funny money system which was invented for the very purpose of skimming by the elite via financialization. Calling such a government protected and created system "capitalism" is just more typical "progressive" B.S., lies and obfuscation.
Except, as Piketty explains, the growth in inequality took place throughout the 19th century, before there was a fiat monetary system.
I won't pretend to understand where Dan K. is coming from. For someone who followed MMT the way he did, it's pretty hard to believe he missed (completely) the overriding aim of the project. MMT exists to destroy the theoretical justification that gives rise to TINA and replace it with a clearer picture of the range of policy options that are available to achieve The Good Society. Do we tackle inequality head on? Without question. From the very beginning, we advocated a federally funded job guarantee program that includes paid sick leave, paid vacation, child care, health care, etc. We believe that the major drivers of inequality are operationalized by employing policies that are based on the notion that that budgets must be balanced. As long as that view prevails (and it will almost certainly be a centerpiece of any 2016 Hillary campaign), the progressives agenda will never be realized. So, yes, we spend a lot of time using simple metaphors to communicate with audiences/readers who have little interest (and even less patience) for "economics." But we have also managed to wrangle a seat at the table in some important academic and policy-making circles, and we are changing the conversation. Sorry we couldn't launch a few MMT blogs and change the world in 5 years. But this nonsense about us being closet Tea Partiers is total crap. I'm not wasting time assembling a list of 100 or more posts/publications to make the point. Let's take this interview with Randy Wray as a simple example. Read it alongside Kervick's claim that we oppose (or have never supported) redistributive taxation. http://sevenpillarsinstitute.org/news/economics/failure-orthodox-economics-interview-l-randall-wray
Then ask Pavlina T. and Scott F. whether their research has addressed issues of social justice. When I think about the personal and professional sacrifices we've made to try to promote a more humane and decent world, only to be accused of caring more about justifying tax cuts for the rich, I want to personally throttle someone.
Dan Kervick,
Warren's 'narrow' bank and Treasury-FED reforms would get rid of the institutional structure giving rising to the insane incentives in the financial sector fueling inequality and replace it with structure designed to promote full employment, real output, fairness in distribution, and price stability. Wall Street Robin Hood Tax? Warren wants to lay off thousands of people on Wall Street (like more than half of it) and to make them find new careers (go cure Cancer)!
Charles, while banking reform would be important, I don't think that alone would do much to eliminate inequality. For example the tremendous rise in CEO salaries has mostly taken place outside the banking system. The tendencies within capitalism toward the increasing concentration and inequality of wealth are endemic to the system and can't be addressed without more radical reform.
There are all sorts of ways to have full employment. For all I know ancient Egypt had full employment when slaves were building the pyramids.
Further, all of Pavlina's work on reorienting fiscal policy has explicit discussions of income inequality--between labor and capita and within labor.
see her latest:
http://www.levyinstitute.org/pubs/wp_772.pdf
And she specifically focuses on how pro-growth FP creates more inequality (e.g., p. 15 uses the Saez-Piketty raw data but focuses on income distribution by business cycle).
Except, as Piketty explains, the growth in inequality took place throughout the 19th century, before there was a fiat monetary system.
As has been explained ad nauseam, before fiat money, the bankers were getting rich from issuing credit not backed by specie.
Farley Grubb, source material for the Columbia “Modern Money Network” says that a major purpose of the constitutional ban on state paper money creation was the intent of merchant bankers to get rich doing it themselves:
In 1787 would-be bankers saw paper-money-creation power as a profit bonanza whose potential could be reaped only if they could be rid of competing government paper money. The U.S. dollar currency union was a counter- revolution led by merchant-bankers intent on usurping state and federal sovereign power over monetary matters to enhance their personal power and wealth. As Robert Morris confided in a letter to Silas Deane, “The present oppert’y of improving our Fortunes ought not to be lost, especially as the very means of doing it will contribute to the Service of our Country at the same time”. The chance timing of events circa 1787 gave merchant-bankers the opportunity to get rid of their principal money-creating competitor and to have said carved into the “stone tablets” of the U.S. Constitution, thus making the return of this competitor extremely difficult.
http://tinyurl.com/lvw6dfc
Today the U.S. has the same written Constitution in terms of monetary powers that the founding fathers created in 1787. Yet we have a national paper money that is backed not by specie but only by federal government taxes, or the good faith and credit of the federal government—a government that also has power to institute price and exchange rate controls on said currency (Rockoff). This paper money is also a legal tender, with the legal tender clause “This note is legal tender for all debts, public and private” printed on each note. It is issued by the Federal Reserve Banking system that, while only a quasi-government agency in the strict legal sense, is about as close to a national banking system incorporated by the federal government as one can get. Unless we take the original intent of the founding fathers in their debates and votes at the 1787 Convention on monetary/banking powers to be a devious ruse, then it is hard not to conclude that we have strayed far away from what they tried to prohibit constitutionally.
http://www.modernmoneynetwork.org/uploads/1/2/5/3/12534585/grubb_-_us_constitution_and_monetary_powers.pdf
http://www.modernmoneynetwork.org/seminar-5-constitutional-history.html
Rothbard has written extensively on how banks issuing paper money credit cause the business cycle beginning with the Panic of 1819:
Virginia was a leading stronghold of hard-money opinion. Its leading statesmen, such as Thomas Jefferson, attacked any issue of bank paper beyond the supply of specie. As we have seen in the case of the Crawford Report, Thomas Ritchie, editor of the Richmond Enquirer, used sophisticated economic arguments to attack any suggestion of inconvertible paper schemes. Typical of Virginia opinion was an Enquirer editorial laying the blame for the crisis squarely at the doors of the banks. The only remedy was for the parasitic banks to be eliminated, with industry and economy allowed to effect a cure.
http://mises.org/document/695/Panic-of-1819-Reactions-and-Policies-The
Dan here are some quotes from Piketty at the Quartz interview on policy (not taking anything away from Piketty's efforts/empiricism here):
http://qz.com/200213/ten-questions-for-thomas-piketty-the-economist-who-exposed-capitalisms-fatal-flaw/
"The economic fundamentals of Europe are much better than what we usually see, so it’s a problem of institutions. Our federal institutions are completely dysfunctional, they don’t work at all."
"[France's socialist President François Hollande] is saying “I want a common public debt” but then he still wants to have a separate choice of the level of the deficit for France and Germany, which makes no sense. The Bundesbank president, who is not a nice person, who is certainly very conservative, it was very easy for him to respond, “look, if you have a common credit card you can’t do shopping separately.”
"we have 50% of GDP in tax, there’s a lot to do to try and simplify the tax system, make it more efficient. In France, the big issue is not we have huge rising inequality like in the US. It’s true, I was opposing Hollande for this 75% tax rate above one million euros because I thought this is not the main issue. There are many issues of reforming the welfare state, making it more efficient and sustainable for the 21st century that are very different from the US."
So here we see him running down federal institutions, making the "govt is like a household" analogy, running down the progressive tax code", and talking of "sustainability" of the "welfare state"...
So it should be perhaps of no surprise that from a strictly MMT perspective, it may appear that he and his work are being kept at a bit "arms length"... these positions are in some significant contrast to what one may consider "MMT"...
I'm not sure we really know this guy.... some of these statements sound like Paul Ryan could have made them...
rsp,
Stephanie, I sincerely appreciate the opportunity to have been associated with the MMT project. But my understanding, or so I have been told, is that MMT is essentially equivalent to the views Warren Mosler first outlined in "Soft Currency Economics". I have searched through that piece and while it contains many admirable thoughts on employment, education and health care, there is nothing there about inequality per se. The piece is also completely neutral on progressive taxation and redistribution. The conclusion I have always drawn is that, Randy's personal views notwithstanding, MMT regards questions about socioeconomic equality to be "political questions" external to MMT itself.
Many economists and social thinkers have been studying and writing about inequality for several years now, producing increasingly enlightening and data-driven research. I don't think you can say MMT has engaged strongly with that literature at all, whether to support it, to be critical of it, or to analyze it in any way. And even macroeconomic arguments about the role of inequality in perpetuating macroeconomic economic dysfunction have been shunted aside and ignored, apparently in favor of the view that all that matters is a deficit large enough to generate sufficient aggregate demand.
The impression persists throughout the blogosphere that MMT is simply opposed to taxes, and that it teaches that all of our problems can be solved through the magic of fiat money while leaving the rich alone, making no major structural reforms to the US economic system, and doing nothing about fundamental socioeconomic structures in America. JD Alt wrote a piece to that seemed to be to that effect a few weeks ago at NEP. And I have been repeatedly told that economic well-being can all be handled by automatic stabilizers, as though nothing matters but the overall fiscal stance. I follow the economic policy discussions throughout the blogosphere and broader literature quite closely, whether they deal with reforms to retirement programs, education programs, health care programs, or financial sector reform, and MMT has contributed very little to these discussions over the past year other than to suggest that nothing important needs to be changed because ... fiat money something or other. Almost the sole exception is the job guarantee issue, but the JG proposal seems to come in about a half dozen different flavors.
But in this thread, my reaction was not primarily to the economists but mainly to the broader "MMT community" among whom - apart from almost the sole exception of Tom Hickey - I have detected in recent weeks following the release of the Piketty book a routine kneejerk hostility to discussing issues of economic equality, exploitation and oppression, and to any suggestion that our economic problems require anything more complicated than a combination of tax cuts and generic spending increases to manage demand. That has been combined with a lot of petulant whinging about from people who have proudly vaunted their refusal to read anything written by "mainstream" economists, seemingly under the cultish theory that if it’s not MMT, it’s pointless.
Of course, you’re not accountable for the personal views of us amateurs, and these impressions among the many followers of MMT about what it means might be all wrong. There is a blog at UMKC called New Economic Perspectives where the real economists can post their opinions any day of the week. But as far as I can tell, Scott, Pavlina, Randy and you have almost completely stopped posting there. And nobody can ask Warren any direct public questions any longer since he turned off his blog comments.
Matt, what do you think is wrong about the highlighted passages? It is certainly true that a country can't have it's own fully independent fiscal policy if it wants to be part of a currency union that issues a single unified debt instrument.
Also, EU institutions are dysfunctional. The EU and its institutions have ridden the European economy into the ground since the financial crisis hit, and institutional paralysis has prevented them from moving forward to ignite the economy and employ the people of their continent.
And I don't see the government/household analogy at work, just a claim that the tax code needs to be improved, which is true on anybody's economic theory. The same is true about the welfare state issue. Issues about the sustainability of any particular collection of welfare programs can't be addressed purely through the medium of fiat money. Welfare systems are concerned with commitments about the distribution of real goods and services from the people who produce them to others who will receive them. The fact that money can always be printed and distributed doesn't make real goods and services magically appear, or guarantee that the systems for distributing them are both just and viable.
In any case, I'm perfectly cool with people analyzing Piketty's research and issuing informed critiques of it. But I don't have much patience for comments of the widespread "I haven't read Piketty's book, but here's what's wrong with it" school of thought. Some of the critical comments I have read are so half-assed and just plain ignorant that there must be something going on here besides intellectually honest engagement with challenging ideas.
Dan Kervick,
CEOs of all firms, including non-financial firms, are compensated with financial wealth.
Do you think the stock market would be where it was w/o all this tomfoolery on Wall St. and do you not think that 'narrow' banks would help curb those excesses?
Do you really think that reforming Wall Street doesn't matter in the battle against inequality?
Do liar's loans matter to you? "A rolling loans incurs no loss" and by that the perps mean that they don't lose, not that there aren't losses both monetary and social.
Also, Warren talks about progressive land and luxury taxes in SCE. He has always said that "social engineering" purposes are valid reasons for progressive income taxes. Further, he told me on FB that I made "a better argument than most" for progressive income taxes as serving an auto-stabilizing "demand management" purpose with demand pull inflationary conditions. If in some other era when they've figured out how to run the economy at full employment with better distribution of incomes, but forget how to hit the brakes if it goes to fast w/ incomes rising, having progressive taxes in place is like having something of a fail-safe 'auto-stabilizing' tax increase in effect before Congress takes action to adjust fiscal policy (use its monopolist powers to adjust price level down). So it can help delay and signal demand-pull inflation to policymakers.
The problem is still enforcement, and its costs, keeping the politicians honest and the lobbyists at bay, etc.
Better to keep the financial sector simple for our political process and to limit the opportunities for fraud and rent-seeking.
Dan the institutions are not "completely dysfunctional" much of their problem is they are underfunded due to the "balanced budget" constraint...
The EU nations certainly can have different fiscal policies MMT has shown why under the current union the deficit countries NEED this flexibility as the surplus countries end up with the currency balances... and in effect they are already doing this as the ECB has continued to "write the check" every time a fiscal crisis point is reached in a deficit country...
Anyway I am looking at Pikettys data on home ownership and equities ...
Im thinking that our problem in regards to "wealth (as a stock measure) distribution" since the crash is being driven by
1. the GSEs not raising the conforming loan limits (largest household asset frozen in price),
2. ZIRP (household savers penalized), and
3. 70%+ of households not yet "trusting the stock market" as recently reported in a poll so they have not participated in the 5-year non-financial's equity price appreciation at large...
As a "flow measure", low end incomes have not kept pace due to the flat-line exhibited here:
http://chartsninja.com/charts/single/6956
No growth in incomes and credit as a result... this is again a policy being pursued due to as Kelton describes it above: "by employing policies that are based on the notion that that budgets must be balanced." ie the typical Democrat progressive Krugmanite 'deficit dove' position which is not helping and flat out wrong...
rsp
"In his interview with Bill Moyers, Krugman admits that he had missed the significance of the inequality issue in historical context and future prospects, and he credits Piketty for changing his POV." [Tom]
Fair point.
But as noted above, Krugman was already fully aboard the anti-inequality bandwagon pre-Piketty, and Krugman builds up a bit of a strawman here in invoking the old Krugman.
James Galbraith has a much better track record than Krugman on the subject of inequality. Joseph Stiglitz had this to say about Galbraith's 2012 book:
"In Inequality and Instability, James K. Galbraith brings to bear his considerable experience in government and academia to examine one of the most pressing issues of our time. In this accessible and far-reaching volume, he investigates not only the depth and breadth of inequality in Europe, America, and elsewhere, but also its implications for politics and society. It's no surprise that Galbraith, who is well known for having pioneered new understandings of economic inequality, leaves no stone unturned in his discussion of metrics and methodologies...It is a must-read for anyone who wishes to understand our political and economic era." --Joseph E. Stiglitz, author of Freefall: America, Free Markets, and the Sinking of the World Economy, winner of the 2001 Nobel Prize in economics (from Amazon.com.
So whose review do you give more weight -- Galbraith's or Krugman's.
Ultimately, the question is whether there is any room for debate on the economic points that Piketty is making with regard to "capital". Does Galbraith deserve a fair hearing, or should we write off his remarks as professional jealousy?
@ Detroit Dan
Just setting the record straight about what PK actually said about TP, not favoring PK over JKG, between whom there's been a running feud for some time. I side with JKG.
Post Keynesian vs New Keynesian
Piketty seems to be in the New Keynesian mold (along with Krugman). MMT and Galbraith are more Post Keynesian.
We shouldn't let the label get in the way of the problem, which in this case both sides agree is inequality. What are implications of Piketty's work for solving the problem, and how do those differ, if at all, from the Post Keynesian proposals?
Well, the post-Keynesian thoughts on inequality mostly seem to proceed from Chapter 24 of Keynes's General Theory. Keynes seems to have anticipated that states would ultimately be able to assure a sufficient level of capital accumulation to lead to a reduction in the kind of capital scarcity that leads to high rates of interest, and that the result would be a natural "euthanasia of the rentier". Along the same lines he also rebutted some of the arguments for taxes on capital that spring from the idea that taxing capital will suppress the overall level of capital accumulation.
I don't think there is a big difference of opinion here about fundamentals. But Piketty seems to be arguing that the trend Keynes anticipated hasn't occurred, and that persistently high rates of capital-based income have persisted. Much of the book is devoted to explaining the mechanisms behind those high rates. He also seems skeptical about past attempts to regulate the rate of interest directly, and seems to prefer that we let lenders charge what the market will bear for loaning capital, but then use the tax system to tax the capital and capital income. This seems to me mainly like a difference over workable mechanisms, not underlying principles. Both thinkers are saying that reducing inequality is mainly a matter of limiting the amount of wealth capitalists can accumulate, and the amount of income they can generate from that wealth.
One thing I like about Piketty's book is his discussion of the concept of rent. Piketty thinks the fundamental notion here is just income from capital, and that all people in all societies have always found something problematic or troubling about the idea of income derived purely from capital ownership without any work involved, while recognizing that this is a very difficult thing to regulate successfully. Modern economic theory has come up with a fancier concept of rent, seemingly to distinguish "good" income from capital form "bad" income form capital, with the latter due to market imperfections. Piketty seems skeptical of this whole approach.
Interesting! Thanks Dan K. Maybe I should read the book one of these days. Keynes' book also...
"..troubling about the idea of income derived purely from capital ownership without any work involved, while recognizing that this is a very difficult thing to regulate successfully."
Very true, but you don't need to regulate land rent. You can simply tax it. Remove this asset from financial markets and the biggest source of inequality is removed.
Bill: "And wages and living standards in the US have stagnated for decades. So there you have it."
Bob: "Would you argue that rising inequality is a good thing for China and developing countries?"
If we assume, as seems plausible, that economic growth depends in general upon an increase in capital, that does not mean that capital needs to increase more rapidly than economic growth, nor than inequality needs to increase more than economic growth for optimal growth.
Rapid growth in Emerging markets has "created anxiety" within developed and emerging nations, but as a whole, global inequality has diminished as a result of rapid growth in emerging markets, Piketty analyzed after reviewing loads of data.
Dan Kervick you may not agree with the effectiveness of the leading MMT proponent's solutions to dealing with inequality and I am personally certain you have a point there but at least they have raised the "elephant in the room question" for the public at large. This question being whether you see a need in a modern money economy for some entity that can create interest-free money. From that simple question flows a whole flood of other questions that relate to inequality. Of course many individuals don't even see the elephant in the room but MMT proponents perform a relentless role in getting them to recognise its existence.
If we assume, as seems plausible, that economic growth depends in general upon an increase in capital, that does not mean that capital needs to increase more rapidly than economic growth, nor than inequality needs to increase more than economic growth for optimal growth.
Fair enough, but without looking at real wages and Gini coefficients, benefits to ordinary citizens can be overlooked.
Has the claim been made that rising inequality is required for 'optimal' growth?
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