Tuesday, November 18, 2014

Mark Thoma — When Piketty Argued for Income Redistribution, He Changed Economics

Thomas Piketty’s Capital in the Twenty-First Century is beginning to receive book of the year awards, but has it changed anything within economics? There are two ways in which is has, one involving how economists approach questions about the distribution of income and wealth, and the other involving the use of historical narrative as a means of evaluating economic models.…
What Piketty has done in his book is revive the study of the distribution of wealth without violating the positive and normative distinction that economists hold so dear. It’s fine to leave questions about the distribution (or redistribution) of wealth to the political arena, but how can politicians make good decisions if economists cannot tell them about the laws of motion that determine the evolution of wealth and income distributions? Whether or not Piketty is correct about the fundamental determinants of these distributions remains to be seen, but he deserves much credit for reviving these questions and bringing them to the forefront of economic research.

Another thing Piketty deserves credit for is the revival of the historical, narrative methodology as a means of evaluating theoretical models. I was taught that economists should follow a “scientific” methodology. One first writes down a mathematical model, derives hypotheses from it, and then takes those hypotheses to the data to be evaluated through formal statistical tests.
Piketty shows us an alternative where historical narratives rather than formal statistical tests can be used to draw important conclusions about the ability of particular models to explain the world. Economists, to a large degree, have lost the historical methods and perspective – knowledge of history would have served us well during the financial crisis – and Piketty deserves a lot of credit for reviving this important way of understanding the world.
The Fiscal Times
When Piketty Argued for Income Redistribution, He Changed Economics
Mark Thoma | Professor of Economics, University of Oregon

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