Monday, June 30, 2014

Corey Doctorow — Thomas Piketty's Capital in the 21st Century

If there was one word I'd use to sum up the structure of Capital, it's "careful." Piketty is offering up an inflammatory thesis (more on that in a minute), but his presentation is almost plodding. He retraces and reiterates his arguments again and again, which is helpful for those of us who don't trade in economics in our daily lives, and also is set to head off lazy critics who want to dismiss him out of hand. Indeed, one of the most entertaining episodes in the debate so far has been The Financial Times affair, where the FT's Chris Giles pointed out a bunch of "errors" in Piketty's work, only to have the normally even-keeled Piketty come back with a long, detailed rebuttal that boiled down to "Hey, asshole, if you'd bothered to look, you'd see that I documented every one of the decisions you're characterizing as an error, and if you want to disagree with me, then argue with my explicit, detailed assumptions instead of sloppily assuming I didn't even realize I was making them."

The reason for capitalism is that it is supposed to allocate reward based on "merit" -- it is supposed to move capital into the hands of the people who can do the most with it -- and if all our policy decisions are made in service to a class of supermanagers whose wealth comes from squatting on a fortune managed by some green-eyeshade quants who grow it without its owner ever doing a notable thing apart from being born to dynasty, there is no more reason for capitalism. Piketty darkly hints that the last time this happened, the world tore itself to pieces, twice, in an orgy of destruction that left millions dead and whole nations in ruin.…
Doctorow zeroes in on the weakness in Piketty's analysis as pointed out by Suresh Naidu.
There have been a number of critcisms leveled at Piketty since the English translation of Capital, and, like the Financial Times broadside, most of these have been unserious -- coming from people who clearly haven't read the book carefully enough. But there's one criticism I have a lot of time for: Suresh Naidu's critique of the politics of Piketty's analysis. Piketty treats the rate of return on capital as largely financial, while Naidu argues (convincingly) that it's political. The rules of property and the willingness of the state to support those rules through everything from guard labor to anti-default/anti-inflationary policies are political decisions, not laws of nature, and they are the crux of the rate of return.…
Inequality is the result of politics and institutional arrangements not economic "laws." Capitalism is not so much an economic system and a complex institution based in law and institutional arrangements. The outcome is the result of distribution of power rather than the operation of markets.

Thomas Piketty's Capital in the 21st Century
Corey Doctorow
(h/t Brad DeLong)

Doctorow doesn't get Piketty's analysis entirely correct, focusing on r > g, and he is out of paradigm with MMT. But it's a good read — Doctorow is a writer — and he scores some points.

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