
Why Are Economists Giving Piketty the Cold Shoulder? - objections
http://bostonreview.net/class-inequality/marshall-steinbaum-why-are-economists-giving-piketty-cold-shoulder
======
reckoner2
Some thoughts: While working in finance I was able to talk to many people
who's work was related to economics. Employees at banks and brokerages,
governments and regulator bodies. Most had heard of Piketty, and many agreed
with his basic premises (r>g, and all it entails). His reach actually
surprised me.

But I also had contact with academics, and like the article said, it's not so
much that academics are refuting Piketty, but that they simply aren't studying
the same problems that he is talking about. From what I've been told, a lot of
academic work in economics is focused on incredibly unique and specific
problems. It isn't "fashionable" to be studying something so broad and perhaps
abstract as inequality.

~~~
_yosefk
Dean Baker (warned of the housing bubble since 2002, "Bernie 2016") gave the
best response to Piketty that I heard from a left-wing economist:

* Piketty's data is correct

* him collecting it was a harder feat than one might think

* attributing r>g to some unchangeable nature of capitalism is wrong because "capitalism is infinitely malleable" (every market is regulated somehow, things change a lot depending for instance on whether you do or don't have patents)

* Piketty's policy prescription (a global wealth tax) is unimplementable and harmful in the sense of getting all the attention instead of people focusing on his correct assessment that r>g and then on realistically implementable policies which could change this.

~~~
cityhall
Normalizing the concept of a wealth tax is productive even if it's
unimplementable. The right has used the same approach by having think tanks
promote flat consumption taxes and zero corporate tax rates.

If nothing else the absence of a theoretically desirable wealth tax serves as
a justification for progressive income taxes and higher capital gains taxes.

~~~
_yosefk
Isn't taxing income making r>g?

A wealth tax isn't unimplementable because of political will but because a lot
of assets are illiquid, hard to price, easy to hide, easy to move to another
country (hence the call for a global tax, but what if a few countries defect?)
or a combination.

As to approaches: "the left" if there is such a thing successfully campaigned
for a full confiscation of property, a 100÷ wealth tax if you like, in huge
chunks of the world - I don't see a weakness in persuasive ability there.
Wasn't a great idea though. A smaller wealth tax is a better idea, but still
not great. Baker who one can agree or disagree with has better policy ideas,
or at least better thought-out and consistent ones IMO.

------
enraged_camel
I read Piketty's book, and some of the critical response. In my semi-educated
opinion (I only have a Bachelor's in Economics), the criticisms failed to poke
a hole in his main argument: that capitalism as a system is unegalitarian
because it allows wealth to grow faster than economic output, resulting in
increasing amounts of income inequality over time.

>>But perhaps the greatest rebuke of Piketty to be found among academic
economics is not contained in any of these overt or veiled attacks on his
scholarship and interpretation, but rather in the deafening silence that
greets it, as well as inequality in general, in broad swathes of the
field—even to this day.

The reason for this deafening silence is simple: the truth revealed by Piketty
is inconvenient, and there are no easy solutions.

~~~
barking
>there are no easy solutions

What's so hard about shifting the burden of tax from income to wealth? Week
after week having 30% of your income taken away is what prevents a lot of
people from ever getting ahead.

~~~
enraged_camel
Sure. But I want to correct you on one thing: the US median income is $52,000.
While the marginal tax rate for that amount, when filing as a single, is 25%,
the _effective_ tax rate is only 19%. When filing jointly, it is 16%.

You don't reach 30% effective rate (single) until you make $500,000, at which
point you're pretty well off. :)

~~~
ryanwaggoner
True, but that ignores FICA, state income tax, city income tax (rare), sales
tax, property tax, etc, etc. Granted, these aren't all income taxes, they have
their own curves, etc, but still, paying an overall effective rate of 30%
isn't that difficult.

~~~
enraged_camel
The numbers I provided include FICA.

------
tormeh
They're not. When The Economist agrees you have a point then you're pretty
mainstream. True, some economists are nitpicking on his book because they
don't like the conclusion, but the problem Picketty has identified is rarely
denied.

~~~
spangry
I don't think that all who disagree with Picketty's conclusions do so simply
because they don't like them. Nor would I agree that all critiques are mere
nitpicks. For example, here's an IMF working paper that conducts an empirical
examination of Picketty's hypothesis:
[https://www.imf.org/external/pubs/ft/wp/2016/wp16160.pdf](https://www.imf.org/external/pubs/ft/wp/2016/wp16160.pdf)

From the abstract:

 _In this paper, I build a set of Panel SVAR models to check if inequality and
capital share in the national income move up as the r-g gap grows. Using a
sample of 19 advanced economies spanning over 30 years, I find no empirical
evidence that dynamics move in the way Piketty suggests. Results are robust to
several alternative estimates of r-g._

~~~
fennecfoxen
I don't have a link to the actual academic article on it at the moment, but
there are a variety of ways in which Picketty's science has been examined and
found to be kind of bunk.

First, he made a lot of methodological errors, like using tax data as a proxy
for income and then not adjusting for a change in tax treatment between one
year and the next in the 1980s.

Second, more fundamentally, he's computing inequality without accounting for
taxes and transfer payments, i.e. the things that we do to ameliorate
inequality, e.g. food stamps, the EITC, and the entire Social Security,
Medicare, Medicaid complex. I seem to recall that employer-paid benefits which
are excluded from tax, like health insurance benefits, are also excluded.

At the high-level, in terms of big theoretical flaws, he posits this broad
"when rate of return on capital exceeds the growth of the economy the rich
just get richer" theory which is fine until the rich person dies, gives most
of his assets away to charity, loses half of what's left to the death tax, and
has more than one heir. People sometimes joke about how economists make a
bunch of ridiculous assumptions in their models, and "people live for ever" is
actually one of them, and it actually makes sense _most of the time_ (because
it usually doesn't affect what you're modelling), but _this is the case where
it affects what you 're modelling_.

This all started in 2014, so some of it may have been improved or corrected
since then, but Picketty's popularity is still independent of any actual
measure of facts or truths in the world. It's related to confirmation bias of
the listener. This is why he is used in politics so much. (This isn't special
or specially bad; it's why anything is, really. But see it for what it is and
look to science rather than politicians for a fight on the facts.)

~~~
uhnuhnuhn
What's wrong with computing pre-transfer inequality? His thesis is about how
the capitalist market distributes income and wealth. The fact that governments
see the need to intervene and redistribute is a symptom of the inequality
generated by the market.

Regarding your "big theoretical flaws" on intergenerational wealth dynamics,
here's an entire chapter by Piketty and Zucman on the subject, confirming that
their central hypothesis holds when taking inheritance into account:
[http://gabriel-zucman.eu/files/PikettyZucman2015.pdf](http://gabriel-
zucman.eu/files/PikettyZucman2015.pdf)

~~~
geezerjay
> What's wrong with computing pre-transfer inequality? His thesis is about how
> the capitalist market distributes income and wealth.

It seems to me that it's quite a crass methodological error to base an
analysis on income distribution on ignoring how income is distributed.

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stablemap
I thought the author would mention the new collection of essays _After
Piketty: The Agenda for Economics and Inequality_ , particularly since he is
one of the editors.

[http://www.hup.harvard.edu/catalog.php?isbn=9780674504776](http://www.hup.harvard.edu/catalog.php?isbn=9780674504776)

------
ThomPete
The primary problem economist have with Piketty is not is analysis but his
solutions.

------
bpodgursky
Why are climate scientists giving Scott Pruitt a hard time?

Saying what people want to hear does not make you a good researcher. They
don't take him seriously for the same reason we don't take young-earth
creationist researchers seriously. It's not good research.

Edit: I'm not an economist, and I'm not going to do justice to the criticisms
(which aren't hard to find), but fine, here are links:

[http://www.robertdkirkby.com/blog/2015/criticisms-of-
piketty...](http://www.robertdkirkby.com/blog/2015/criticisms-of-piketty/)

[https://www.bloomberg.com/view/articles/2015-03-27/piketty-s...](https://www.bloomberg.com/view/articles/2015-03-27/piketty-
s-three-big-mistakes-in-inequality-analysis)

~~~
enraged_camel
Sorry, but comparing Piketty to Pruitt is laughable. One is a distinguished
professor of economics. The other is a businessman and lawyer who apparently
knows nothing about science.

~~~
omginternets
>One is a distinguished professor of economics.

... with a Nobel prize, to boot.

~~~
notahacker
Piketty likely _will_ get a Nobel Memorial Prize in Economic Sciences awarded
one day, but he doesn't have one at the moment

~~~
omginternets
Ah, I thought he already had it. Duly noted, thanks for the correction.

------
mtgx
For the same reason they gave Sanders the cold shoulder, without actually
doing any real analysis of his plans.

[http://cepr.net/blogs/beat-the-press/nyt-invents-left-
leanin...](http://cepr.net/blogs/beat-the-press/nyt-invents-left-leaning-
economists-to-attack-bernie-sanders)

[https://theweek.com/articles/606698/why-are-bigshot-
liberal-...](https://theweek.com/articles/606698/why-are-bigshot-liberal-
economists-hippiepunching-bernie-sanders)

------
ewanmcteagle
The uniformity of thought here is somewhat concerning to me. Here is a
detailed review of the Piketty by an academic who disagrees:
[http://www.deirdremccloskey.org/docs/pdf/PikettyReviewEssay....](http://www.deirdremccloskey.org/docs/pdf/PikettyReviewEssay.pdf)

~~~
0xcde4c3db
As far as I can tell (I ran out of patience about halfway through), this is
less a review of _Capital_ than it is an attempt to brand Piketty part of a
particular ideological lineage. It seems like for every sentence quoted from
the book there's a couple of paragraphs name-dropping Marx, Aristotle, Malthus
et. al..

Also:

> One begins to suspect that the typical leftist—most of the graver worries
> have come from there abouts, naturally, though not so very naturally
> considering the great payoff of “capitalism” for the working class—starts
> with a root conviction that capitalism is seriously defective. The
> conviction is acquired at age 16 years when the proto-leftist discovers
> poverty but has no intellectual tools to understand its source.

 _Seriously?_

------
Mikeb85
Very few economists I know of disagree with Piketty's conclusions. Everyone
knows he's right. But it is a very inconvenient problem, and most economists
and leaders have a vested interest in not solving it.

~~~
Hermel
His observation is that inequality is raising in most western countries. (It
does not increase globally.) His conclusion is that we should tax the rich
more - which is not very original and many disagree with. Also, Piketty misses
some of the root causes of inequality. He blames capitalism, when in fact the
main driver is increasing age. The older people get, the more their income and
wealth differs. As society ages, inequality increases. Furthermore, many
western countries are importing inequality through immigration. When lots of
poor enter a rich country, the inequality in that country goes up.
Furthermore, divorces and being a single parent is a huge poverty risk in many
western countries. To a certain extent, inequality is the price of liberally
allowing divorces and children outside marriage.

So it is not that economists deny Piketty's observations, but they find his
recipes to counter inequality overly simplistic.

~~~
Mikeb85
Piketty adresses concentration of wealth due to aging, inheritance, etc...,
and is a proponent of estate and wealth taxes.

And the solutions _are_ simple, just uncomfortable for those who aren't poor.

~~~
dantheman
"For every complex problem there is an answer that is clear, simple, and
wrong" \- Mencken

~~~
contras1970
In the present case it is: "maintain the course".

------
doggydogs94
Professional economists are under no special obligation to study Piketty's
work just because it is popular.

------
arkis22
Piketty's idea that r > g leads to wealth inequality just makes me shrug. You
can't really have it another way.

If r (the rate of return on capital) is less than g (the growth in output)
that means that people have no incentive to build wealth or become more
intelligent to deploy that capital more profitably. If I'm never going to make
more than the growth in output, why bother with capital?

The logical conclusion to that would be that everyone wants to be an employee
and nobody wants to be an employer.

If I can grow my wealth more quickly than the nations output, I'm grabbing a
bigger slice of the pie. The hope with capitalism is that I'm grabbing that
pie because I've earned it and the market hopes I'll be able to steward that
wealth.

So yeah, capitalism may be inherently inclined to wealth inequality because
some people outperform. But do you really want it another way?

There certainly is wealth inequality in the world, but it isn't actionable to
blame it on r > g. It's more effective to look at things on a micro basis.
Does this person have a child that is prohibiting them from saving? Why is the
person being excluded from jobs? Do they have a proper education?

~~~
dragonwriter
> So yeah, capitalism may be inherently inclined to wealth inequality because
> some people outperform. But do you really want it another way?

You mean would I want capitalism to be different, or would I want a system
that wasn't driven to inequality because it relied on capital returns to drive
both the economic system and (due to fungibility of power) and the political
system?

The first is a pointless question, the second, well, yeah. It's the
fundamental problem with capitalism that led both socialist critics to
identify and seek to overthrow it, and more moderate social democrats to seek
to reform and moderate it.

> There certainly is wealth inequality in the world, but it isn't actionable
> to blame it on r > g.

Sure it's actionable, and if it's the true cause, no micro action is
meaningful.

You may not _like_ the actions that are implied by understanding the root
cause, but that doesn't make it not actionable.

~~~
arkis22
The idea that outperformance should be rewarded with wealth is fundamental to
the idea of capitalism. It is well represented by the idea of r > g. Also,
just because r > g, doesn't mean that the economy relies on capital returns.
It means it relies on capital returns being able to outstrip increases in
output.

If you want a system where r = g, you are requiring some sort of top down
wealth allocation system to cap r, (a morally and legally supreme
government...socialism?). I'll avoid that system.

If you think it's actionable perhaps you could suggest an action?

If you think no micro action is meaningful, does this mean you would be
comfortable walking up to a homeless person and saying that you're not going
to bother helping them with their problems because no matter what they do, r >
g and they're screwed? That's a pretty lame excuse, I'd feel bad saying that.

~~~
dragonwriter
> The idea that outperformance should be rewarded with wealth is fundamental
> to the idea of capitalism. It is well represented by the idea of r > g.

No, the idea that aggregate performance should redound principally to the
benefit of capital holders is fundamental to the idea of capitalism, and, yes,
that pretty much implied that r > g leads to greater inequality under
capitalism.

> If you think it's actionable perhaps you could suggest an action?

If the problem is fundamental to capitalism, the action to correct it is to
move away from capitalism.

> If you think no micro action is meaningful, does this mean you would be
> comfortable walking up to a homeless person and saying that you're not going
> to bother helping them with their problems because no matter what they do, r
> > g and they're screwed?

No, it means when I do something to momentarily alleviate the immediate
problems of a homeless person, I know that unless I am also working to reform
the fundamental politico-economic system to deal with the structural problem,
I'm doing nothing more than putting a band-aid on a sucking chest wound.

r > g is not the problem, r > g is aggregate prosperity. Capitalism is the
problem that turns aggregate prosperity into greater relative deprivation and
narrow concentration of wealth.

~~~
arkis22
>No, the idea that aggregate performance...

You're saying no, but our statements mean essentially the same thing.
Aggregate performance rebounds to the benefit of capital holders because they
are outperforming. For example, it is better to save and lend than it is to
borrow, which is why interest rates exist.

I'm not disagreeing that r > g can lead to greater inequality under
capitalism. The reason you can have inequality under capitalism is because you
have the opportunity for outperformance. I don't want to live somewhere that
opportunity doesn't exist. You can if you'd like.

How can you say that it's a problem fundamental to capitalism when I can look
through history and say these things without a doubt:

Socialism is the problem that turns aggregate prosperity into greater relative
deprivation and narrow concentration of wealth.

Autocracy is the problem that turns aggregate prosperity into greater relative
deprivation and narrow concentration of wealth.

Communism is the problem that turns aggregate prosperity into greater relative
deprivation and narrow concentration of wealth.

Dictatorships are the problem that turns aggregate prosperity into greater
relative deprivation and narrow concentration of wealth.

It's not a fundamental problem of capitalism, it's a fundamental problem of
society.

By doing something to alleviate their immediate problems do you mean help them
get clothes for a job interview? Point out a way for them to learn a skill to
get a job? Locate a homeless shelter for them to spend the night? The longer
you take to reform the system, the guiltier you should feel for not simply
helping the person with a comparatively more immediate solution: micro
actions. All of a sudden micro actions are meaningful.

Your suggestion for an action on how to deal with the inequality of capitalism
is to adopt... not capitalism? I think you're lacking important details on how
to turn that into an action.

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antisthenes
This is a clickbait title and should be changed.

------
joeblow9999
His work depends entirely on a normative judgement that inequality is a bad
thing. Those of us who do not believe that can dismiss him.

~~~
jobstijl
His work doesn't depend an a normative judgement that inequality is a bad
thing. His work is an observation about how inequality works, not a judgement.

