Ryan Avent — Thomas Piketty's "Capital" — Housing in the twenty-first century

OVER the last few days a couple of interesting critiques of Thomas Piketty's "Capital in the Twenty-First Century" have been published, by Matt Rognlie and Justin Wolfers. Both touch on the importance of housing wealth to Mr Piketty's story, and suggest that the role housing plays in the data weakens the book's argument. I expressed some disagreement with this view on Twitter, and Mr Rognlie wrote me to explain his view in a bit more detail. I've responded to him, and I thought I would publish the response here. 

First, I certainly don't think that criticism of Mr Piketty's book, on the issue of housing or anything else, is unreasonable. On the contrary, the discussion the book has attracted has for the most part been really interesting and illuminating. And challenging, which is good. What occasionally strikes me as odd is the tendency for criticisms of the book to reach inexorably for the conclusion that "Piketty is wrong", whether or not that is the most obvious upshot of the particular critique. He surely is about some things. On others he isn't, on others we are unable to say for now, and on others he is useful whether or not the details turn out to be right 

In my view, for example, one of the main contributions of the book is a mental framework, scrutable to the layman, for assessing how particular economic changes might influence the distribution of wealth. Economists may feel that they already had perfectly good frameworks for doing that. I don't know that they did; plenty of academic economists seem to have found Mr Piketty's framework useful. At any rate, those that already had models they liked made very little effort to make them accessible to the public. 

Part of the attraction of Mr Piketty's framework is that it leaves one free to make up one's own mind about what is likely to happen. The structure he provides allows us to work through the distributional effect of a falling growth rate or a rising savings rate. Maybe he is incorrect to think that g can decline over the long run without triggering a one-for-one decline in r. If so, the framework he has provided allows us to think through the implications of that outcome. And others as well: worlds in which technology makes it much easier to substitute capital for labour, for instance, which is one in which I've developed a particular interest.

On to housing….

The Economist
Thomas Piketty's "Capital" — Housing in the twenty-first century
Ryan Avent

(h/t Brad DeLong)