Rick Bookstaber — Piketty Myopia

Like Brad DeLong, Rick Bookstaber is a very smart man who also has a good grasp of history. He takes a step back from the front lines and looks at Piketty in the long view. This could go a lot of ways and there is no way to know in advance what the future will bring. Piketty's view is based on projecting a continuation of trend, but history is a series of very different moments dialectically, and a moment can last for quite a long time or be relatively short. In additon, Bookstaber points out that much of the debate is over inequality is normative, and this amounts to a clash of ideologies on the  field of political engagement.

It is easy to run into problems when you are assuming the future will look the past, all the more so when you are also assuming exponential growth. Capitalism is not a law of nature; it need not look the same in the future as in the past; it doesn’t even need to be at the core of society. In the sweep of history, capitalism is a recent development, one that happens to encompass roughly the three hundred years Piketty is using for his analysis. So we should temper our excitement; his work is really based on one, very long-term, sample. To see this point, rather than looking back for three hundred years, go back a few thousand. In the West we have had two other periods comparable in many respects to that of the Industrial Era of today: The Roman Era, and then roughly a thousand years later the Commercial Era. Capital has been the dominating force this time around; in the others it was the military/political complex and the Church, respectively. And in both cases, the writers of the time assumed the structure of the era would go on indefinitely. It was just the way the world worked. If we went back to the these times, the theme would be the consolidation of the political corpus or of the Church, the analysis would not have been centered on the divisions between those with capital and those without. (I won’t get into the comparable time period in China’s history, but given that Piketty cloaks his thesis with the scope of all human history, he should add a second sample to his analysis and see how his thesis fits the dynasties in China over the past couple of millennium. My bet is, not so well)....

What might move us away from capitalism being the universal underpinning for society? Can the world look different in the future? Of course it can. How that happens and what comes next is an open question – people can't even agree on what led to the end of the Roman Era, and there we have the advantage of history to guide us. But here are some things just to give a flavor of the ways in which the capitalist system might be nudged from the current being the true and final state of mankind:

Piketty Myopia
Rick Bookstaber | Research Principal in the Office of Financial Research, and recently was Senior Policy Adviser to the Financial Stability Oversight Council and Senior Policy Adviser at the SEC

Where I see Piketty's contribution is in identifying a process that if left to itself is likely to "go exponential." When a historical process becomes exaggerated, it's likely cresting and unlikely to last much longer. However, like a financial bubble, it is difficult to identify were the present moment is on the curve, or how the curve will develop. But we can say with some assurance based on the past, that it will either implode or else call forth an exogenous response that counters it. In the case of increasing inequality, there is the dual problem is social dysfunction internally bring it to an end through political action or social unrest, or an external crisis arising owing to changing conditions. In the case of unbridled capitalistic acquisition driven by an assumption that unlimited growth is possible regardless of the means, the problem of negative externality affecting the environment adversely looms large, and this is likely to product a reaction against capitalizing assets and socializing liabilities to increase equity.