The moment the hype started I thought that something was amiss. In 2012 Galbraith and his team published an extensive empirical investigation of income distribution using new datasets that they constructed. Beyond the interview I did with Galbraith and a few other articles and the like the release of the study didn’t get much play among economist types. The reason should be obvious: whereas Galbraith arrived at heterodox conclusions, Piketty’s are mostly orthodox.
As Galbraith notes in his review Piketty seems to put some weight in the idea that the problems with income inequality that we face today are mainly to do with technology and education. Galbraith and his team, on the other hand, point to something that should be intuitively obvious to anyone following political and economic events in the past decade; namely, finance.On the other hand, a big reason that Piketty is even being looked at is that he is coming from an orthodox position. What he is saying is not new in heterodoxy, but heterodox economists don't draw media attention. So maybe the economic bugs in Capital may be political features. Weird.
Fixing the Economists
Misdirection: Galbraith on Piketty’s New Book on Capital
Philip Pilkington
10 comments:
This is not a constructive way to engage with Piketty's research. Leave it to self-styled heterodox economists to go into another tetchy sulk about orthodoxy and the mainstream in response to an important book based on a lot of hard work they didn't do themselves.
You know why Piketty's book is getting a lot of attention? Because it is based on a mountain of empirical research, and so it at least provides a framework for substantive, realty-based discussion, debate and even disagreement. It is filled with charts, and there is a website where one can find all of those charts. They are easy to understand.
Also, the time is right. The economic discussion of the past five years was dominated by the debate on countercyclical crisis policy, and the debate about fiscal vs monetary approaches to that policy. There was a strong resistance to talking about structural transformation - this resistance came from a lot of "heterodox" folks as well as mainstreamers like Krugman. Now the discussion is moving on from countercyclical policy, and the reality of the structural defects in our economic system are taking center-stage.
The most important line in Phil's post is in the first paragraph: "While I haven't yet read Piketty's book ..."
Pilkington's point is that Galbraith did a mountain of empirical research on this several years ago, and did a better job than Piketty...
for follow up comments...
He could be right DD. But since he hasn't read the book, on what basis does he make that judgement.
Do the previous posters realize that Piketty's book is about **wealth** not **income** inequality?
I ask because it seems that either Pilkington did not notice that or doesn't think it relevant.
Just askin' anyway. So, carry on.
Pilkington's concerns seem well-founded. At least he has read reviews of Piketty's book and has a general idea of what's in it. Is Piketty even aware of Galbraith's work? Apparently not, for Piketty claims,
"the dynamics of income inequality can only be studied in a long-run perspective, which is possible only if one makes use of tax records." [from Piketty's book]
Galbraith's reply,
"The statement is incorrect. Tax records are not the only available source of good inequality data. In research over twenty years, this reviewer has used payroll records to measure the long-run evolution of inequalities; in a paper published back in 1999, Thomas Ferguson and I tracked such measures for the United States to 1920—and we found roughly the same pattern as Piketty finds now." [from http://www.dissentmagazine.org/article/kapital-for-the-twenty-first-century]
I haven't read Piketty's book either. I've got Galbraith's 2012 book on my Kindle and have read some of it. This discussion helps put it in context. Galbraith seems to nail the global financial system as a culprit in the rising inequality, while Piketty's thesis is less well developed.
And I agree with Galbraith & Pilkington regarding the feasibility of alternative solutions. Obviously, increasing minimum wages is much more feasible than a global wealth tax.
Also, Piketty seems to have botched his discussion of the Cambridge capital debates,
Magpie-- Galbraith discusses Piketty's findings with regard to both wealth and income -- http://www.dissentmagazine.org/article/kapital-for-the-twenty-first-century.
The bottom line for me is that I have a tremendous amount of respect for Galbraith, but don't know Piketty very well. So I trust Galbraith's review. I also respect Pilkington, so I trust his take on this. I certainly trust Dan Kervick and others here, but haven't seen any convincing rebuttals to the criticisms of Galbraith and Pilkington...
Obviously, increasing minimum wages is much more feasible than a global wealth tax.
Sure, but it will also have much less impact. Let's get lots of proposals on the table. What are people afraid of?
All I know is that over the past three years I have been able to rely to Piketty's research partner Saez to churn out substantive and well-documented information on inequality, and that most of the major stories that have appeared on the growing income gap have drawn on that body research.
Frankly, during this period most of the "heterodox" post-Keynesians have offered nothing of deep substance on the issue of inequality, and have even denied its importance as a social and economic problem. While those bad old "mainstream" and "orthodox" people like Stiglitz wrote whole books on inequality, and analyzed the role it played in creating the conditions that precipitated the financial crisis, most post-Keynesians have not engaged with this research in any way. Galbraith, whose economic outlook seems broad and eclectic rather than doctrinaire PK, is the only one I can think of.
I do know that its intellectual malpractice to offer sweeping criticisms of a book one hasn't read.
Points well taken.
"Let's get lots of proposals on the table. What are people afraid of?" [Dan K]
This seems to be the point that Galbraith is making, and Pilkington is supporting.
"If the heart of the problem is a rate of return on private assets that is too high, the better solution is to lower that rate of return. How? Raise minimum wages! That lowers the return on capital that relies on low-wage labor. Support unions! Tax corporate profits and personal capital gains, including dividends! Lower the interest rate actually required of businesses! Do this by creating new public and cooperative lenders to replace today’s zombie mega-banks. And if one is concerned about the monopoly rights granted by law and trade agreements to Big Pharma, Big Media, lawyers, doctors, and so forth, there is always the possibility (as Dean Baker reminds us) of introducing more competition." [James Galbraith, as quoted by Phil Pilkington]
The heart of the Pilkington criticism is that Piketty's book leads to something of a dead end by traveling well trodden leftist roads that lead to impractical policy proposals. Galbraith is not necessarily opposed, but takes a broader view that matches what Dan K says here...
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