As John notes below, Thomas Piketty’s empirical work appears to be unraveling, and if not in fact fraudulently manipulated, it is at least highly contestable. The Spectator’s Fraser Nelson wonders, where was Harvard University Press? The answer is disconcerting: the book is simply making Harvard University Press too much money for them to care about accuracy. Maybe Piketty should just re-render his findings in the shape of a hockey stick and be done with it. Anyway, the sagacious Tyler Cowen has lots more on the story.
Meanwhile, we shouldn’t miss another article from The Spectator featuring the contrasting views of economist Deirdre McCloskey, author of several important books on economic growth, especially Bourgeois Dignity: Why Economics Can’t Explain the Modern World, which I’ve used with students in a few classes now and then.
Here’s how The Spectator’s Evan Davis lays out the contrast:
But forget the characters. It is the intellectual contrast which gets to the heart of the debate between those who worry about in-equality and those who don’t.
Piketty (for those who have not followed the story so far) worries about capital and, in particular, the tendency for those who already have it to get more. ‘Money tends to reproduce itself,’ he says. The story is that for large swaths of history, capital has earned generous returns which allowed those who already have it to reinvest and watch their capital grow faster than the incomes of ordinary mortals. Wealth, by whatever means it is originally created, thus begets more wealth; successful entrepreneurs, through their initial accumulation of capital, go on to ‘become more and more dominant over those who have nothing but their labour’. In Piketty’s excellent phrase, it is through capital that ‘the past devours the future’.
McCloskey, by contrast, has long argued that economists are far too preoccupied by capital and saving. She doesn’t even like the word capitalism, on the grounds that capital is not what got us where we are today. ‘If Scotland is trying to become Holland, then capital accumulation is how to do it. That will double your income, maybe triple it.’ But for her, that sort of accumulation is a scratch-card-sized prize — and the lottery jackpot beckons. She enthuses about the Great Enrichment of the 19th century. ‘What happened, understand, is not 100 per cent growth, but anywhere from 2,900 per cent growth to 9,900 per cent growth. A factor of either 30 or 100.’
That jump in incomes came about not through thrift, she says, but through a shift to liberal bourgeois values that put an emphasis on the business of innovation. In place of capitalism, she talks of ‘market-tested innovation and supply’ as the active ingredient of our economic system. It is incidentally a system ‘drenched’ in values and ethics overlooked by economists.
As I suggested here a couple weeks back, Piketty’s actual data are secondary to the Left’s deep need to have a theory to back up their Hyena-like desire to ransack the assets of the successful and industrious. In other words, it won’t matter that Piketty’s empirical analysis is deeply flawed.
I sometimes have a great deal of fun pining down Leftists when they invoke John Rawls and let fly with generalizations such as “Inequalities of wealth are always unjust”—a phrase I’ve heard put exactly that way as a preface to some kind of redistributionist demand. I typically ask: “Can you please be specific about the point at which Bill Gates’s or Warren Buffett’s fortunes crossed from ‘just’ to ‘unjust,’ and why? Was it at $1 billion, of $5 billion?” They always change the subject; it’s not about any particular individual, they object; it is the very existence of a system that allows such great disparities to exist at all. That’s very helpful, I respond: it makes clear that what you’re really against is freedom.
Anyway, here’s the FT’s Chris Giles explaining what’s wrong with Piketty’s data: