Dan Kervick — Cowan on Piketty and Science

Tyler Cowan complains that much of the debate about Thomas Piketty’s Capital in the 21st Century is ignoring the existing science on wealth inequality, which Cowan believes “has already offered a wide range of insights on these topics, as well as having rendered some of the more extreme claims unlikely.” And Cowan offers this paper by Ana Castañeda, Javier Díaz-Giménez and José-Víctor Ríos-Rull as an instance of the kind of science that is being ignored. Cowan says the paper he cites contains “a reasonably good and accurately calibrated model” and as a result “we already have a theory which does quite well in explaining U.S. wealth inequality, and it isn’t based on the total centrality of a comparison of r and g, as you find in Piketty.” And he complains that “no one in the current debates is citing this piece, Piketty included.”

But it doesn’t surprise me that serious researchers on wealth and income inequality would not cite the paper by Castañeda et al. Note this passage from footnote 10 in the paper:

Note that throughout this article our definition of earnings both for the U.S. and for the model economies includes only before-tax labor income. Consequently, it does not include either capital income or government transfers.

In other words, the authors’ model assumes there is no capital income or government transfer income, only labor income. That is a strange restriction to say the least....

Rugged Egalitarianism
Cowan on Piketty and Science
Dan Kervick