Sunday, April 27, 2014

Greg Mankiw — First Thoughts on Piketty

I have been reading Thomas Piketty's "Capital in the 21st Century." It is truly an impressive work, and I am much enjoying it. I have recently organized a session at the upcoming AEA meeting (January in Boston), where David Weil, Alan Auerbach, and I will be discussing the book, followed by a response from Professor Piketty.

Let me offer a few immediate reactions.
Greg Mankiw's Blog
First Thoughts on Piketty
N. Gregory Mankiw | Chairman and Professor of Economics at Harvard University

In my best recall, this is the first time that I find myself agreeing  with Mankiw more than disagreeing. Definitely the best review on the right I have encountered so far, although it is just an overall impression to be filled in later. Most of the  response from the right has been either to ignore Piketty, or to either dismiss him or demonize him.

To his credit, Mankiw confronts the issue head on. He likes the historical analysis, questions long term economic forecasts (rightly, I believe), and forthrightly states that the issue of policy is philosophically and politically determined rather than economically, which I also view as correct.

The fundamental issue is between the view of the first Chief Justice of the Supreme Court John Jay and Abraham Lincoln. 
“No power on earth has a right to take our property from us without our consent.” ~John Jay
Those who own the country ought to govern it. ”~John Jay (American History Central)
It is rather for us to be here dedicated to the great task remaining before us -- that from these honored dead we take increased devotion to that cause for which they gave the last full measure of devotion -- that we here highly resolve that these dead shall not have died in vain -- that this nation, under God, shall have a new birth of freedom -- and that government of the people, by the people, for the people, shall not perish from the earth. ~Abraham Lincoln, The Gettysburg Address
These are mutually exclusive principles of social and political philosophy that define the difference between the left and right. In the view of the right, distribution is exclusively an economic matter to be determined in the competitive marketplace in which all compete equally and the most meritorious reap the greatest success from their own superior qualities. In the view of the left, distribution is a social and political matter as well as an economic one, and perfect competition does not exist under capitalism in a monetary production economy that is influenced not only by market-based exchanged but also cultural and institutional factors that result in asymmetries that direct outcomes with respect to status, power, and accumulation.


Ryan Harris said...

The political solution need be a compromise between the extremes. The majority of people need to find that distribtion just and respectful of basic principles of property such that the government can maintain the appearance of authority and rule of law by means other than security forces.

Unknown said...

"All Property, indeed, except the Savage's temporary Cabin, his Bow, his Matchcoat, and other little Acquisitions, absolutely necessary for his Subsistence, seems to me to be the Creature of public Convention. Hence the Public has the Right of Regulating Descents, and all other Conveyances of Property, and even of limiting the Quantity and the Uses of it. All the Property that is necessary to a Man, for the Conservation of the Individual and the Propagation of the Species, is his natural Right, which none can justly deprive him of: But all Property superfluous to such purposes is the Property of the Publick, who, by their Laws, have created it, and who may therefore by other Laws dispose of it, whenever the Welfare of the Publick shall demand such Disposition. He that does not like civil Society on these Terms, let him retire and live among Savages. He can have no right to the benefits of Society, who will not pay his Club towards the Support of it."

Benjamin Franklin, Benjamin Franklin to Robert Morris, 25 Dec. 1783

"Private Property therefore is a Creature of Society, and is subject to the Calls of that Society, whenever its Necessities shall require it, even to its last Farthing; its Contributions therefore to the public Exigencies are not to be considered as conferring a Benefit on the Publick, entitling the Contributors to the Distinctions of Honour and Power, but as the Return of an Obligation previously received, or the Payment of a just Debt."

Benjamin Franklin, Queries and Remarks respecting Alterations in the Constitution of Pennsylvania, 1789

"While it is a moot question whether the origin of any kind of property is derived from Nature at all … it is considered by those who have seriously considered the subject, that no one has, of natural right, a separate property in an acre of land … Stable ownership is the gift of social law, and is given late in the progress of society."

Thomas Jefferson, Thomas Jefferson to Isaac McPherson, 13 Aug. 1813

Tom Hickey said...

Right, the argument is over the balance between liberty and law and order, which is the distinction between libertarianism at one extreme and authoritarianism at the other, and between personal freedom and cultural convention expressed as custom and tradition, which is the distinction between social liberalism and social conservatism, with radicals at one extreme and reactionaries at the other. The tension among these poles modulates historical change dialectically.

A fundamental issue is the degree to which economic liberalism is compatible with political liberalism, and other is the degree to which social liberalism is compatible with cultural continuity. This implies a critique of the feasibility of alternatives.

Different people fall into different quadrants and different positions within the quadrants, so it is impossible to find outcomes that please everyone. Therefore, the need to address the "tyranny of the majority" in a popular democracy.

The way we do that now is through asymmetrical status, power, and wealth, tilting the playing field toward an elite.

If the desire is to change this, the questions then become, what are the options, and what are the advantages and disadvantages of the anticipated outcomes.

Tom Hickey said...

Great quotes, y. I'll post them.

Roger Erickson said...

These guys should all read some systems science?

No system can function without titrating the SUM adaptive potential of local PLUS aggregate feedback?

It's year 2014 in the modern human era of nation states, and some people called "economists" are just NOW realizing that systems have to work as .... well .... systems?

There are these other disciplines, with a rich & far more ancient history in that topic? Things like biology, biochemistry, physics, military doctrine, anthropology, ecology, autocatalysis, General Systems Theory.... even AI and computing networks? Even the PSTN & internet algorithms "know" that local+distant path feedback together identify optimal organization paths?

All this Piketty discussion means to me is that the average economist is pathetically under (& too narrowly) educated.

What happened to the simple concept of a "Liberal Education?"