I have pointed out on here recently that Thomas Piketty’s views on public sector debt are wholly un-Keynesian. Well, we should also point out that his view of inflation and interest rates are also fairly un-Keynesian. Piketty basically thinks that the reason that governments have been able to run persistent government deficits is due to consistent inflation which erodes the real interest rates governments must pay on their debt. This may be true, but the conclusions he draws from it are altogether incorrect and, again I must stress, not the conclusions a Keynesian economist would draw....Unfortunately, there is a tradeoff with Piketty. He got noticed by mainstream economists in no small part because he couched his argument in terms of their understanding and is well recognized as a top MIT modeler. So he is perceived as one of them, even if a bit eccentric. They don't view him as "heterodox" however and regard him as in the debate instead of outside it.
The upside is that now inequality and the internal contradictions of capitalism are on the table, but the downside is on neoclassical terms in the mainstream universe of discourse.
The good thing is that Piketty's analysis is providing a common focus and just about everyone agress that the data set he and his colleagues have assembled takes the debate to a new level, with strong empirical grounding. This is providing a playing field for mainstream and non-mainstream economists to interact in a shared context, although using different methods.
So far, this looks to be an advance favorable to those not in the mainstream and not using its universe of discourse. However, non-mainstream economists need to be beware of being sucked into the mainstream universe of discourse or compromising with it. That would be a backward step.
Fixing the Economists
Why Thomas Piketty is Wrong About Inflation and Interest Rates
Philip Pilkington
2 comments:
The passage quoted from p. 134 isn’t part of an explanation of “the reason governments have been able to run persistent deficits”. Piketty isn't focused here on the long-term government budget constraint, solvency, crowding out or the various things the debt hysterics wring their hands about. He is discussing the distributional effects of the debt-financing of deficits, and considering the ways in which government debt financing might or might not benefit rentiers. He entertains the possibility that issuing debt in the context of inflation can offset the upward re-distribution of wealth that other wise comes from the government selling bonds to the capital class, and his claim is that it can, but not indefinitely.
Piketty’s book is not a treatise on employment, inflation, growth, etc. It is a treatise on distributional economics, not aggregate economics. His considerations are all related to that topic. His main point regarding public debt is that interest-bearing government securities are always owned by a wealthy minority of the population, and that historically this has helped make that minority richer.
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