Sunday, April 27, 2014

Piketty's New Book is a Great Book for Lazy Thinkers

From Ryan Decker's review of Capital in the Twenty-First Century:
Most of the analysis in the book is more about accounting than economics. Piketty takes nearly everything as exogenous then divides things arithmetically. His ubiquitous r > g heuristic takes both sides of the inequality as given for almost the entire book. Lines like "the richest 10 percent appropriate three-quarters of the growth" (297) enable lazy readers to avoid thinking about what actually determines income. Language about "appropriation" suggests that we live in an endowment economy, as does the claim that post-World War I wealth inequality fell "so low that nearly half the population were able to acquire some measure of wealth" (350). Endogeneity, anyone? Taking income as exogenous leads to other large problems with inference, such as the claim that "meritocratic extremism can thus lead to a race between supermanagers and rentiers, to the detriment of those who are neither" (417). Piketty does not consider the possibility that this race results in more income than otherwise, nor does he consider the notion that an increase in the bargaining power of elite executives could actually come at the expense of capital owners rather than workers. I'm not making an argument for either here; I'm simply suggesting that Piketty's ideological quips don't deserve the certainty with which he delivers them...

This kind of fast-and-loose economic reasoning pervades the book. Piketty attributes the rise of the "patrimonial middle class"--the great home-owning middle class of developed countries--entirely to the rise of capital taxation (373). It's perfectly reasonable to argue that taxation played a role, but it's absurd to give taxation all the credit without further analysis. Piketty relies on this shaky causal claim for his central thesis; presumably unbounded capital accumulation wouldn't be a problem if everyone owned some. Denying that economic forces played any role in bringing wealth to the middle class helps Piketty claim that inequality will spiral out of control and leave us all in poverty unless serious tax reform is effected. This argument also requires him to assure readers that there are no tradeoffs associated with capital taxation: "It is important to note that the effect of the tax on capital income is not to reduce the total accumulation of wealth" (373). We also learn that there is "no doubt that the increase of inequality in the United States contributed to the nation's financial instability" (297). No identification problem here, folks; causal inference is easy! The book is littered with extremely strong claims like these, despite the existence of good reasons to at least be skeptical of some of them. Maybe Piketty is right about these things, but he has not shown it here; and even if his considerable collection of charts and tables is enough to dazzle most reviewers into fawning submission, the data are not sufficient for demonstrating his strong conclusions


  1. "Piketty's New Book is a Great Book for Lazy Thinkers "

    More like non-thinkers.

  2. Okay, for some endogenous relationships and rigor, see a Marxist review of Piketty's book at

  3. "Inequality". People bitch about this for one reason and one reason only. ENVY. Like a bunch of damned little children who didn't teach them that life isn't fair and they weren't necessarily going to make as much as Bill Gates or Warren Buffet.

  4. Stay in school, kid. You clearly have a lot to learn.