So, I have finally gotten around to reading Piketty's monumental book. Something struck me right away that I think many ignore, at least I have seen no one comment on it. His emphasis on the importance of r > g, (rate of return on capital as he defines it greater than GDP growth rate) seems overblown. Now I must admit that he repeatedly warns that the path of the distribution of income and wealth is hard to predict and that many factors are involved. But it is also the case that he makes little of how often the direction of change does not correspond with the direction of change in this simple equation, that its effect is overwhelmed by other factors.
Well, Dan Kervick did address it, as I recall.
Econospeak
When The Rate Of Return And The Rate Of Growth Do Not Matter Much For Piketty
J. Barkley Rosser | Professor of Economics and Business Administration James Madison University
14 comments:
In thinking about Piketty's work, I recall our recent discussion of Dan K's criticism of MMT with regard to certain issues that Dan K did not feel were addressed by MMT. STF responded that he follows standard Post Keynesian economics in addressing these issues in which MMT does not have its own special theory.
That seemed like a very good answer, and I think the lack of a good framework is the main reason I'm resistant to Piketty's work. Dan K and others make a pretty good case that there is some good stuff in Piketty on inequality. But there is no framework to back up Piketty's work other than that of New Keynesianism. Since I prefer PK to NK, I don't see Piketty's work as going anywhere. Dan K has said that Piketty stands alone, but that leaves so many unanswered questions of the type Dan K brought up with regard to MMT.
Perhaps Dan K or someone could integrate Piketty's work with Post Keynesian / MMT economics?
But there is no framework to back up Piketty's work other than that of New Keynesianism.
Sorry, Dan, but this seems off to the mark to me. Piketty has a very elaborate framework for understanding the dynamics of wealth and income distribution. I have attempted to lay out that framework in some detail in the course of about 15 posts on Piketty, and there is much more to do.
What Piketty does not present are any theories about the forces that drive growth, employment and unemployment, prices and inflation, interest rates, or the business cycle. So identifying his framework with New Classicism, New Keynesianism, Old Keynesianism, the New Consensus, Post-Keynsianism, Monetarism or any of the other main variants of post-WWI macro seems off the mark.
Piketty's book is, as he says, an essay on distributional economics, a classical topic that hardly anybody else in recent times has addressed in anything approaching the thorough and serious way Piketty has.
Dan K--
So Piketty's only framework is his own, and this does not include growth, employment and unemployment, prices and inflation, interest rates, or the business cycle? I guess you are saying that Piketty is not New Keynesian, but that leaves a huge gap.
As we have discussed before, James Galbraith has published numerous works on distributional economics, with the advantage that Galbraith's work fits within the framework of Post Keynesian economics. Clearly, Piketty is on the wrong side of the capital controversy, for example, and is in the erroneous New Keynesian camp.
If you disagree with what I wrote above, please indicate specifically where I have gone wrong.
Thanks. Appreciate the devil's advocacy...
"But there is no framework to back up Piketty's work other than that of New Keynesianism."
Dan, I have no idea what you are even talking about here. You're really not discussing anything that is remotely relevant to Piketty's project.
From what I can see, those who understand Piketty hold that he doesn't fall into any school and is really developing a new emprically and historically based methodology.
Those that don't understand him seem to be looking at him through the lens of their own POV instead of seeing what he is really about and what his approach is.
Obviously piketty has to speak the language of the tribe to communicate, but his methodology is quite different. As a result many have failed to recognize it and criticized a straw man they set up. Others come at him ideologically with red herrings.
Sorry for the confusion.
I'm trying to say that Piketty's work should be considered a piece of a larger puzzle. It would be much more powerful as part of MMT or Post Keynesian economics, for example.
Standing on its own, this work will soon be forgotten, in my opinion. There will be no group of Pikettyist economists to teach and advocate the good points in the book. New Keynesianism will die soon (because of ISLM, marginalism, production functions, and all that dead weight), and Piketty's work will die with it unless it get picked up elsewhere.
This blog is mostly dedicated to discussing why MMT and Post Keynesianism are better than New Keynesianism and other schools of economics. We generally work from that assumption.
That doesn't mean we shouldn't welcome challenges such as that posed by Piketty. We would be wasting our time if not at least discussing such challenges, as Dan K has pointed out.
"I am talking about all the high school stuff including:
in-group/out-group maintenance
banning
ridiculing
shunning
back-biting
paranoia
dogma enforcement
etc."
So if you really believe that Piketty is onto something new and worthwhile, then I would thing you would want to add that to economic framework, not just consider it an island or a good room in a rotten house (to mix metaphors)...
But Piketty's stuff needs to be rewritten to fit with PK economics, which should be possible...
Here's an analogy:
You've got an evolutionary science blog. Someone writes a great book on altruism, but it's written from the Christian perspective. Wouldn't you try to separate the great ideas from the Christian apologetics? Wouldn't try to use standard scientific notation and terminology, rather than just saying it's a whole new way of looking at things that doesn't fit in anywhere?
I think we may be seeing a trend toward empiricism and historical analysis developing. Actually, this is the approach that Reinhart and Rogoff took in assembling their data base, however flawed that was. Piketty et al's project was far larger and they released the data and the methodology they used. I don't think we have seen the end of this yet, and the data is now out there for others to use in building their case if they don't accept Piketty's.
As I see it, it boils down to the ratio between capital share and labor share, and that is not an economic issue as much as it is a power issue that has economic consequences like persistent inequality of income and wealth.
I would treat labor as non-homogenous and see the cohorts of labor that can command economic rent as part of the power structure and therefore as an aspect of capital share, since they are diverting capital share to their own compensation based on a power relationship with owners of capital that really cuts them in on ownership privileges and power.
Good comments, Tom. Thanks.
I agree that Piketty's work is highly political but still allocation of national income to labor and capital is highly relevant to economics. Piketty seems to have a decent framework for addressing this (from what I've read from Dan K), so it would be good to incorporate that in the bigger picture. Galbraith's work should be in the same chapter.
It's a shame Piketty's work hasn't meshed better with other heterodox work and garnered support from the likes of Galbraith, but perhaps there will be some evolution in that direction.
The historical empircism is fascinating, but the resulting statistical analyses are apt to be wildly off the mark, as proven by Reinhart and Rogoff. It's hard enough to collect good data in the current computer age.
Gotta run. Thanks again for keeping this site up and responding to my comments...
I'm much more interested in what is true or false. The tribal squabbles aren't really my thing.
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