Wednesday, May 07, 2014

Piketty Fever - Piketty, Piketty, and More Piketty


A couple of weeks ago, I posted on the Thomas Piketty phenomenon, Can Thomas Piketty's Capital in the Twenty-First Century Inspire Real Change? It was a popular post. So here is more, since there seems to be no shortage of media coverage of the man and his book and the right-wing hysteria he has produced.

To begin, here is the man himself, Thomas Piketty, talking about his strangely best-selling book, Capital in the Twenty-First Century.

Next up, David Brooks at The New York Times took aim at Piketty in a recent column, dispelling what he saw as the book's weaknesses.

In an interview with Salon, Piketty addressed Brooks' criticisms head on. Here is his response:
David Brooks… writes that “Piketty predicts that growth will be low for a century, though there seems to be a lot of innovation around. He predicts that the return on capital will be high, though there could be diminishing returns as the supply increases. He predicts that family fortunes will concentrate, though big ones in the past have tended to dissipate and families like the Gateses give a lot away. Human beings are generally treated in aggregate terms, without much discussion of individual choice.” What do you make of those critiques from David Brooks?

I do my best to respond to them in the book. As a general response, let me say that I don’t know what the future value of the growth rate and the rate of return will be.

It could be that we manage to get a lot higher growth that we’ve had in the past. It could be that we are all going to have so many children, and we are all going to be making so many new inventions, that the growth rate will be 4 or 5 percent, and will be as large as the rate of return. Or it could be that we don’t know what to do with capital anymore, and the rate of return will fall to the growth rate. You know, this could happen. But it would really be an incredible coincidence.

So in case this incredible coincidence happens, we will be fine. We will not need my other solution. And I will be very happy. All I am saying is that we should not bet on that. And we should make another plan, in case this incredible coincidence does not happen…

There is a lot of evidence suggesting that even if we try to promote innovation as much as we can, and even if we try to increase growth rate as much as we can – and I am certainly in favor of any policy going in this direction – that even if we do that, that’s not going to bring us to a 4 or 5 percent growth rate. We are still going to be somewhere between 1 and 2 percent, at least for productivity growth. And it’s not so easy to impact on population growth…

Maybe the total growth rate will not be 4 or 5 percent in the long run. Maybe it will be only 1 to 2 percent. I guess my main point in the book is that we should organize ourselves so as to be able to react to whatever happens.

So right now, what we see is that the top of the wealth distribution is rising at 6, 7 percent a year — more than three times faster than the size of the economy. How far is this going to go? Is this going to stop somewhere? Yes, of course it will stop somewhere. But where exactly will it stop? I think nobody knows…

We should not just be waiting for natural forces to get us to the right place… There is no natural force that makes the rate of return and the growth rate of the economy coincide in the long run. And there is no natural force that prevents the concentration of wealth from rising to a high level. So I am not saying this will rise forever. This will stop somewhere. I am just saying that this somewhere can be very high, and there is no natural force that prevents this from happening.

So instead of just waiting and seeing, I am just saying we should have more transparency on wealth — more financial transparency, more democratic transparency on wealth dynamics — and then we will adjust the tax rate to whatever we observe…

If what we observe is that the top of the wealth distribution is not rising more than the average… we don’t need to have a sharply progressive tax rate at the top. But if the top of the wealth distribution is rising at 6, 7 percent a year, then don’t tell me that a 1 or 2 percent tax rate on top wealth will kill the economy. So we have to be very pragmatic on this. And most importantly, we need to have democratic and fiscal institutions that are able to produce the kind of information, and the kind of transparency, that will allow us to adapt to whatever we observe…

I don’t pretend that I can predict the future value of the growth rate or rate of return. I’m just looking at the data. And if the data changes in the future, and the top stops rising three times faster than the average, then I will be very happy to look at the data and to say it.

I don’t have any stake in this.
Finally, here is a link fest from Bookforum's Omnivore blog on the topic of Piketty fever.

Piketty Fever

May 5 2014

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