The Dim-Post

May 18, 2014

This actually happened

Filed under: books,economics — danylmc @ 6:58 am

I read the introduction to Piketty last night, then dreamed that my computer stopped working because – it claimed – it was contributing to the aggregate increase in the rate of return on capital over economic growth. I do not remember how the dream ended.

I will write more about the actual book later. But I’ve been interested in the debate in the economics blogosphere. Left-wing economists all seem to think Pikety is right and right-wing economists all seem to think he’s wrong. (I would note that the objections I’ve heard from some on the right: ‘Piketty disregards the decline of inequality between nations, cf the development of China,’ or ‘Pikety disregards the ability of education and skills transfer to reduce inequality,’ seem to be issues Piketty addresses in the introduction to his book. Maybe there are more substantive critiques out there?).

Anyway, my point is that the question Piketty asks is important: does capitalism reduce or increase inequality over time? He reckons it increases inequality, left-wing economists agree with him; right-wing economists reckon he’s wrong. What are non-economists supposed to make of a discipline that splits along partisan lines over a fundamental empirical question?

72 Comments »

  1. “What are non-economists supposed to make of a discipline that splits along partisan lines over a fundamental empirical question?”

    Is it really a purely empirical question? Given that how one defines ‘capitalism’ (specifically, how one defines greater or lesser levels of capitalism in a society) and how one measures ‘inequality’ are both highly debatable?

    It’s quite common for people from the STEM disciplines to get frustrated over the way economists, anthropologists, sociologists and the like aren’t able to produce clear cut, reproducable findings, but this is more to do with the ambiguous nature of the area of enquiry than the failings of its practicioners.

    Comment by kalvarnsen — May 18, 2014 @ 7:20 am

  2. Especially left leaning philosopher princes looking to vilify the evil jonky

    Comment by Stephen x — May 18, 2014 @ 7:27 am

  3. If you presume that we are living in a capitalistic system I think you only have to think of what it was like to live in your parents or Grandparents times
    I feel we live in much better times than them despite the rose tinted glass of the left

    Comment by rayinnz — May 18, 2014 @ 7:35 am

  4. “If you presume that we are living in a capitalistic system I think you only have to think of what it was like to live in your parents or Grandparents times”

    My grandparents raised nine children on the income of one semi-skilled worker. Your move, capitalism.

    Comment by kalvarnsen — May 18, 2014 @ 7:58 am

  5. What are non-economists supposed to make of a discipline that splits along partisan lines over a fundamental empirical question?

    That it’s a social science, and therefore consists of the gathering of evidence to support pre-conceived views.

    …does capitalism reduce or increase inequality over time?

    Depends how you define capitalism, I guess. Capitalism as a production process, as described by Marx, rapidly and intensely increases inequality over time. ‘Capitalism,’ as in the societies of the developed world, has a lot of political restrictions put on it due to the fact people get to vote, so it’s actually pretty hard for capitalism to increase inequality over time in practice – unless we let it, of course…

    Comment by Psycho Milt — May 18, 2014 @ 8:11 am

  6. My grandparents raised nine children on the income of one semi-skilled worker. Your move, capitalism.

    How much would it cost to raise nine children in the same standard of living, today?

    Comment by Graeme Edgeler — May 18, 2014 @ 8:19 am

  7. My parents were able to buy a house and bring up three kids on one income. My grandparents did the same but with five kids and they owned a pony (yes, ponies for everybody!)

    I’d love to have the same option my mum did to stay at home until my kids reached school age but can’t see a way to do it financially.

    Comment by lucyjh — May 18, 2014 @ 8:36 am

  8. Read Robert Reich on Piketty yesterday https://www.facebook.com/RBReich?fref=nf
    He has something to offer your debate, especially his views on economics of the post war decades.

    Comment by Stephanie — May 18, 2014 @ 8:48 am

  9. Economics is just psuedoscience. What do you expect?

    Comment by Grant — May 18, 2014 @ 8:58 am

  10. @Graeme: Are you arguing that it’d be cheaper today, or are you just curious about the specifics?

    Comment by kalvarnsen — May 18, 2014 @ 9:03 am

  11. I’m skeptical that it really can be framed as an empirical question. But I think that about a lot of issues.

    Does the book consider that it might be technology that causes (whatever we define as) inequality?

    The early empires and the associated enormous increase in inequality were founded on the newly developed technology of record keeping not on a capitalist economy.

    And loo at the wealth cretated computers and the Internet – google, Facebook, apple, whatsapp etc.

    Comment by NeilM — May 18, 2014 @ 9:30 am

  12. Any sufficiently advanced economics is indistinguishable from ideology.

    Or, slightly more subtly, the baseline ideological value-judgements and methodological preferences that inform research or assessment seem to have enormous effects on the final analysis even when the basic problem is generally agreed.

    L

    Comment by Lew (@LewSOS) — May 18, 2014 @ 9:57 am

  13. If capitalism is “bad”, what do these left wing economists offer as an alternative? (Or do they not claim “bad”, but claim to be simply making an observation.)

    Is inequality bad? I am far less “equal” than Bill Gates, but need I worry about it..?

    University professors, “notoriously” left wing, (I guess they would be when they’re taxpayer funded) are more equal than university cleaners, so this strikes me as being a bit like catastrophic anthropogenic global warming: many people claim to believe it, but there’s little evidence in it in their lifestyle choices or pay demands.

    Comment by Clunking Fist — May 18, 2014 @ 10:46 am

  14. The baseline for inequality has shifted enormously in the last several generations.. its no longer a grim battle to get food on the table, get education and health support or most of the things we have of right today.

    America is quite unequal but being “poor” there is to live in a larger house than the middle class in Europe, have TVs and cars and phones etc. Take cars.. the poor now drive a car that would have been considered luxurious by the rich even 30 years ago.. a 20 year old Japmobile will happily plow along with near complete reliability at modern speeds and be relatively safe. It mightn’t be much of a status symbol but its a hell of a lot more reliable, economic and safe than a jalopy of mid 20th century.

    Inequality is also a result of a progressive society.. we might have all been more equal when we lived off the sheeps back because most jobs and wages had to be tied to that one big earner. But then people invented new things and some of them got rich, created new industries with wages indexed to the new industry rather than the price of a lamb in the London market. You could see this result in the massive shift of Maori off the land to the cities.. so called the fastest diaspora of modern times. Back in mid last century manufacturing was 50% of the economy, not the 13-15% of today where even more new industries like IT and services are taking the front seat. Today exported services are even bigger than dairying.

    To me inequality at the moment looks more like a transition period where we have a great many people trying to trnsit from an agrarian economy but not having the literacy, numeracy or skills to fully partake of a much more complex world.

    Incidentally there’s the odd historian who thinks that increasing complexity has been a factor in the downfall of some civilisations.

    JC

    Comment by JC — May 18, 2014 @ 11:27 am

  15. >What are non-economists supposed to make of a discipline that splits along partisan lines over a fundamental empirical question?

    I know what you want to make of it. That economics is bunk. Which might be true, but on economic matters, which are really fucking important matters, it’s nearly all we’ve got.

    It’s kind of stink that we live in times where profoundly important decisions are made over the technological equivalent of shapes in tea-leaves, but that is how it’s always been, too. Sometimes it looks like it’s improving, and it’s still probably the thing with the best power to explain economic movements. But it’s still a really, really weak power.

    I’d say it’s like that almost by necessity. A corollary of market efficiency. Our economic situation already contains all of the information about it’s own situation, and its future is something of a random walk. Every stability breeds a new instability, as people seek to exploit it. Almost no proposition is guaranteed to be a certain loss – some hopelessly broken economy will be priced as such, and thus any investment in it could actually yield excellent dividends. Our economy is a small-cap stock, at times it steams ahead, at times it slumps. If it seems overpriced, that could just be because we don’t have the same information as the people driving the price up. But they could also be wrong too.

    Comment by Ben Wilson — May 18, 2014 @ 11:48 am

  16. The thing that bugs me about Piketty is that he still seems to be trying very hard to justify capitalism despite having 200 years of data showing that it doesn’t work.

    As for the complaints that you list that the RWNJs have about Piketty – well, from my reading so far he seems to have addressed them all. Which means that it’s just the RWNJs trying to create scare memes again.

    Comment by Draco T Bastard (@DracoTBastard) — May 18, 2014 @ 3:10 pm

  17. “That it’s a social science, and therefore consists of the gathering of evidence to support pre-conceived views.”

    Actually, it’s not. At it’s base economics is concerned about the best distribution of our limited and finite resources. The best distribution is to ensure that people have enough to live well while not going above the sustainable level of use of those finite resources.

    The problem stems from the fact that the economists got hung up about motivation and decided that money was the motivator and that nothing could be done without money making money the Prime Resource rather than what it is – a simple tool with no inherent value. From that focus on money has stemmed the idea that to motivate rich people you need to give them more money while to motivate poor people you need to take money from them (ie, Paula Bennett and National kicking people off benefits). All of this is, of course, delusional. People are self-motivated. In other words, they don’t need extrinsic rewards to do anything. All they need is enough to live on and they’ll happily go on working.

    Of course, the psychopaths that want to be rich know this which why they can get people to work for them, pay them very little and scoop some off the top to reward themselves for doing nothing.

    Comment by Draco T Bastard (@DracoTBastard) — May 18, 2014 @ 3:41 pm

  18. That it’s a social science, and therefore consists of the gathering of evidence to support pre-conceived views.

    My economics lecturer at university reckoned it’s not a social science at all. Given the way economists behave, it’s hard not to disagree with him.

    Comment by Ross — May 18, 2014 @ 3:45 pm

  19. “Is it really a purely empirical question? Given that how one defines ‘capitalism’ (specifically, how one defines greater or lesser levels of capitalism in a society) and how one measures ‘inequality’ are both highly debatable?”

    Be that as it may, danyl’s point wasn’t that there is debate regarding the answer to the ’empirical question’, but rather the debate falls along ideological lines. In other words, economists are choosing how they define and answer these ’empirical question’ based on what they WANT to find. Which is simply a ridiculous state of affairs.

    Comment by wtl — May 18, 2014 @ 4:21 pm

  20. ” Maybe there are more substantive critiques out there?”

    Some I have seen:

    Trying to project into the future based on an analysis of historical data is complete speculation.

    Related to the above: Treating the return on capital as exogenous.

    Ignoring depreciation

    Looking at inequality of income instead of inequality of consumption

    Comment by Swan — May 18, 2014 @ 4:33 pm

  21. >My economics lecturer at university reckoned it’s not a social science at all. Given the way economists behave, it’s hard not to disagree with him.

    Did he think it was any kind of science? Opinions on that seem to vary. Often, listening to economic outlooks and explanations, I hear stuff that seems to anthropomorphize markets in a hilarious way that would be worthy of some kind of soothsayer invoking the wrath of the gods in explaining what happened, and predicting what will happen. And they’re different every time. So long as it’s a good story…it seems to be important to have a good story, when explaining the titanic struggles of the money gods.

    Comment by Ben Wilson — May 18, 2014 @ 4:35 pm

  22. What are non-economists supposed to make of a discipline that splits along partisan lines over a fundamental empirical question?

    That outside some very technical areas where the units of measurement and agreed relevant data are reasonably stable, that’s social science. What you measure, how you measure it, the framework within which you collect and assess data and the nature of the observer – read Eric Crampton on the Law Commission’s report on alcohol use in NZ, for example – all have an impact on what is said and how it is expressed. Nothing new here. And, by the standards of social science, economics is better than most social sciences and has consistently had more effective and stable explanatory power. There is no hard and fast line between the social sciences and many of the physical sciences. It’s a spectrum and the methods of the social ones have a lot in common with many of the physical sciences in key areas – forecasting in political meteorology, for example. One of the more amusing takedowns of the pretensions of the social sciences is the book Fads and Foibles of Modern Sociology in which the founding Professor of Sociology at Harvard, Pitirim Sorokin, launches into many of his former students.

    Comment by Tinakori — May 18, 2014 @ 5:06 pm

  23. Two issues are being conflated, I think.

    What is economics and how should it be done? I reckon that this is the main question and that it’s far too important to be left to economists. What good is an economist who can’t explain her reasoning to non-economists? Pretty useless, I reckon. As Tinakori says though, there are some things economists can agree on. If “we” could expand the set of such things we’d be much better off. Piketty’s data has set a ball rolling, posing important questions. It seems desirable and correct that these be thoroughly debated.

    By contrast I don’t generally fret about the second issue: how did economist X reach that view and is she right? I totally agree with you and Lew that prior views matter, a lot. Still, this is at least a contestable field. The blogosphere is an enormous force for good here, because disingenuous ratbags can be called out and implicit assumptions challenges.

    Don’t bag the discipline, use it.

    Comment by John Small (@smalltorquer) — May 18, 2014 @ 5:53 pm

  24. I think the debate has to be seen in light of the fact that Picketty himself firmly took the debate into the territory of the ideological. The book is full of sweeping assumptions, policy prescriptions, value judgements etc.

    Comment by Swan — May 18, 2014 @ 6:25 pm

  25. >It’s a spectrum

    It is, although if physics is x-rays, this shit is radio waves.

    Comment by Ben Wilson — May 18, 2014 @ 6:50 pm

  26. “Be that as it may, danyl’s point wasn’t that there is debate regarding the answer to the ‘empirical question’, but rather the debate falls along ideological lines. In other words, economists are choosing how they define and answer these ‘empirical question’ based on what they WANT to find. ”

    Are you sure it’s not the opposite? That is, economists whose conclusions are generally more anti-capitalist are defined as left wing, and economists whose conclusions are generally more pro-capitalist are defined as right wing?

    Comment by kalvarnsen — May 18, 2014 @ 7:12 pm

  27. Economics is politics in its pyjamas.

    Comment by rob — May 18, 2014 @ 8:42 pm

  28. “It is, although if physics is x-rays, this shit is radio waves”

    All science is either physics or stamp collecting – Ernest Rutherford.

    Comment by Tinakori — May 18, 2014 @ 9:08 pm

  29. “Are you sure it’s not the opposite? That is, economists whose conclusions are generally more anti-capitalist are defined as left wing, and economists whose conclusions are generally more pro-capitalist are defined as right wing?”

    If unbiased researchers are being defined as left wing or right wing based on the results of their study, it is an equally ridiculous state of affairs.

    Comment by wtl — May 18, 2014 @ 9:25 pm

  30. @wtl: When we call someone a ‘right wing economist’ it’s shorthand for ‘an economist whose ideas generally support right wing approaches’.

    It’s a bit worrying to me that people here are seem to be looking for excuses to write off an entire academic discipline.

    Comment by kalvarnsen — May 19, 2014 @ 4:11 am

  31. There are many things that most economists agree on. Many of those things are ignored by many or most politicians. It seems to me that, whether we think they’re great at it or not, economists are probably the people who most know what’s going on in the economy. Doing things that pretty much all economists agree are a poor way to get the outcome you’re purporting to seek cannot be a good idea. But we do it all the time.

    @Draco: to me capitalism is much like democracy. Famously described by Churchill as “Democracy is the worst form of government, except for all those other forms that have been tried from time to time.” It’s easy to point to supposed failings, but usually the cure is worse than the disease. I’ve yet to see any suggested alternative system that has the capacity to lift an entire planet out of poverty in the space of about 4 generations. Certainly communism didn’t work, and feudalism, monarchies, dictatorships had all been tried.

    Comment by PaulL — May 19, 2014 @ 4:45 am

  32. @Paul: Is dictatorship an alternative to capitalism?

    Comment by kalvarnsen — May 19, 2014 @ 6:10 am

  33. Yeah, probably no. Do you have a good list of alternatives to capitalism? Marxism perhaps? I’m just not sure what it is that people think we’d do instead.

    Comment by PaulL — May 19, 2014 @ 6:46 am

  34. Do you have a good list of alternatives to capitalism? Marxism perhaps? I’m just not sure what it is that people think we’d do instead.

    Almost everyone seemed to like the social democratic welfare capitalism of the mid 20th century, except a handful of economists and oligarchs.

    Comment by danylmc — May 19, 2014 @ 7:29 am

  35. Classic Marxism is intended to be an addendum to capitalism, rather than an alternative.

    But you’re right, most people in the New Zealand mainstream political discoursearen’t really talking about disposing of capitalism, just limiting it or modifying it. Danyl’s example is a good one – it isn’t an alternative to capitalism so much as an attempt to ‘save it from itself’.

    BTW, Danyl, for somebody who praises mid-20th century Keynesian capitalism in general, you often seem to recoil from some of its main features (e.g, direct state ownership and management of critical industries).

    Comment by kalvarnsen — May 19, 2014 @ 7:44 am

  36. Hang on. Actually existing communism has been one of the most successful developmental economics of the 20th century. Russia, for instance, went from “feudal basketcase” to “first man in space” under communism, while communist China has grown at a crazy impressive rate. Whether or not communism can convert that rate of growth into meeting the human needs of populations is a different case, but actually existing communism does seem to be pretty good at the farms-to-factories game.

    Comment by Keir Leslie — May 19, 2014 @ 9:17 am

  37. @kalvarnsen: Keynes argued more for active and direct government spending to stimulate aggregate demand rather than propose direct state ownership.

    This misconception seems to have stemmed from the contemporary view of “The State” being equivalent to “The Government” – in the sense of constitutional powers and reach – as opposed to Keynes Victorian centred view of “The State” being a collection of public and private institutions within which individuals pursued altruistic ideas and the aim of public welfare. Keynes “State” would have included the activities of people like Carnegie or Bill Gates as well as institutions like universities and banks.

    He actually described this notion as an institutional/organisational middle ground between government and private interests as one where the objects of the members was “the public good as they understand it, and from whose deliberations motives of private advantage are excluded”; the key point being, that the good “as they understand it” is necessarily personally motivated rather than sanctioned and codified within a bureaucracy.

    Furthermore, he was absolutely a proponent of the mixed economy model.

    Comment by Gregor W — May 19, 2014 @ 9:19 am

  38. @Keir: I don’t think anybody would describe what has been happening in China since the late 70s as “communism”. As for Russia, interesting point, but I think you may be underestimating the degree to which Imperial Russia was a pre-industrial country.

    @Gregor: To be honest I am arguing less about what Keynes proscribed and more about actual policy. I only described those states as “Keynesian” because that’s a label that is often applied but I agree that understanding the policy model requires more than just understanding Keynes. Direct government control via the civil service of critical industries was the settled policy of most post-WW2 western states, notably the UK, France, Germany and of course New Zealand. You’re right this wasn’t really an aspect of Keynesian thought so much as it was a sort of soft-corporatism or mercantilist managerialism, but regardless of whether or not Keynes would have approved, I think my point stands re: Danyl’s big-picture approval of mid-20th century economics but small-scale disapproval, though.

    Comment by kalvarnsen — May 19, 2014 @ 9:35 am

  39. @Keir: Sorry, double negative – you may be underestimating the degree to which Imperial Russia was an industrial country.

    Comment by kalvarnsen — May 19, 2014 @ 9:38 am

  40. “Actually existing communism has been one of the most successful developmental economics of the 20th century. Russia, for instance, went from “feudal basketcase” to “first man in space” under communism”

    Yeah. It’s amazing how productive a command economy can be if you’re careful to not count “deaths from starvation and political persecution” as negatives.

    L

    Comment by Lew (@LewStoddart) — May 19, 2014 @ 9:42 am

  41. Did he think it was any kind of science?

    It was a long time ago, but I don’t think he did. Maybe a soft science like sociology but that’s about it. Science is all about falsification and verification of theories, which economics is far removed from.

    Comment by Ross — May 19, 2014 @ 10:12 am

  42. If we’re going to count famine deaths as negatives, Anglo imperialist capitalism is going to struggle (which was the actually existing mode of production that initiated the industrial revolution.) As, in fact, will pre-1917 Russia…

    I’m not defending communist state led development as a good way to build a healthy and happy society. But if you don’t care about breaking eggs — and if you’re defending actually existing imperialist capitalism there’s a lot of broken eggs you’re implicitly buying — it does do a reasonably good job at trundling up the tech ladder and all that stuff.

    Anyway. It doesn’t really matter. But given that the fastest economic growth for the greatest number of people ever has been carried out under an explicitly marxist-leninist state operating a pretty traditional communist state-led development strategy with private sector involvement in less important economic areas (i.e the NEP strategy), it seems weird to be banging the drum for capitalism as the greatest developmental strategy evar.

    Comment by Keir Leslie — May 19, 2014 @ 10:25 am

  43. Imperial Russia was a completely backward radically reactionary state. If you want to know how “industrialised” the place was, in 1914 just 10% of the population was literate. Because the tiny Russian elite refused to be taxed in a modern sense, the state relied on feudal taxation – poll taxes, excise duties – and was chronically short of money. Imperial Russia fell out of the ranks of the Great powers after it’s defeat in the Crimean war (where the medieaval attitude of the aristocracy to the serfs is best summed up by the issuing of a post-war contract to a British firm to tidy up the battlefields by removing the skeletons and grinding them down to bone meal), and despite an economic “boom” in the 1890s – from a very low base – remained a fundamentally backward country defeated by Japan in 1905. When the Great War started, the Tsarist regime barely lasted two years, with the Russian army collapsing in the Summer of 1916 after suffering around 2 million dead in less than 24 months fighting – a figure indicative of a regime whose attitudes had not changed from that of the Crimea.

    Comment by Sanctuary — May 19, 2014 @ 10:34 am

  44. China has had very little to do with Communism since the mid 1990’s, and many would argue that the three decades of growth since then have been because of the creeping introduction of capitalism in China. Plenty of dead people from the 1950s, 60s and and 70’s who would disagree with the benign guiding hand of Marxism.

    Russia has been a fascist country more often than not, and under Putin meets almost every definition of Fascism I have seen (Umberto Eco or Emilio Grentile for instance).

    For all their faults, the USA and UK and Western Europe are the advertisement for capitalism. Still the destination of choice for immigrants from everywhere else, still the driving force of innovation – both scientific and social.

    Comment by nadis — May 19, 2014 @ 10:51 am

  45. oops – Gentile. Fat fingers

    Comment by nadis — May 19, 2014 @ 10:51 am

  46. But given that the fastest economic growth for the greatest number of people ever has been carried out under an explicitly marxist-leninist state operating a pretty traditional communist state-led development strategy with private sector involvement in less important economic areas (i.e the NEP strategy), it seems weird to be banging the drum for capitalism as the greatest developmental strategy evar.

    Indeed, a murderous totalitarian dictatorship can industrialise far quicker than other types of society. But for some reason, most people don’t consider ‘murderous totalitarian dictatorship’ a serious contender when thinking what kind of society they’d like to live in…

    Comment by Psycho Milt — May 19, 2014 @ 11:45 am

  47. Yeah. It’s amazing how productive a command economy can be if you’re careful to not count “deaths from starvation and political persecution” as negatives.

    Silly Lew. These are examples of what those clever economists calls “externalities”. They can be neatly discounted from consideration, leaving the theory sacrosanct.

    Comment by Gregor W — May 19, 2014 @ 11:48 am

  48. Almost everyone seemed to like the social democratic welfare capitalism of the mid 20th century, except a handful of economists and oligarchs.

    I don’t think so, especially on the left. Internationally, read the elegant disdain of the moderate left winger JK Galbraith or locally find almost any left wing writing of the era from the moderate to the far left and you will see a view that welfare capitalism was a pathetic way station on the way to the uplands of the more managed world of a command economy of some kind. The problem was that the world wasn’t managed enough and economists like Galbraith assumed the Soviet system was at least as good as welfare capitalism at economic development rather than, as it was so succinctly described, Upper Volta with rockets.

    On the poo flinging lower down in the thread there is only one thing to say. The only serious ideological dispute between the various totalitarians is about who gets to run the firing squad after the revolution.

    Comment by Tinakori — May 19, 2014 @ 12:29 pm

  49. I attempted to leave a comment here yesterday morning, but it looks like IOS-Chrome probably swallowed it whole without posting. Sigh. Talk about first world problems!
    —-

    I’ve started reading Picketty in the last week too.

    After reading your thoughts Danyl I wondered what Greg Mankiw, the old warhorse of macroeconomics, would make of him. Mankiw, as well as being the chair of Harvard’s economics department was the economist attached to the Romney-Ryan ticket in the last US Presidential race. He’s about as representative of big money establishment Right as it is possible to be.

    http://gregmankiw.blogspot.co.nz/2014/04/first-thoughts-on-piketty.html

    ‘The book has three main elements:
    A history of inequality and wealth.
    A forecast of how things will evolve over the next century
    Policy recommendations, such as a global tax on wealth.

    Point 1 is a significant contribution. I like this part of the book a lot.

    Point 2 is highly conjectural. Economists are really bad at such things.

    Point 3 is as much about Piketty’s personal political philosophy as it is about his economics. As we all know, you can’t get “ought” from “is.”’

    Certainly there is widespread acclaim for the scholarly nature of Picketty’s work – his historical account of wealth fomenting inequality seems to be in little dispute.

    Mankiw shields himself behind point 2 – I haven’t read far enough into Picketty to assess how reasonable his predictions are, but 2 is a pretty disappointing piece of rebuttal from one of the West’s great economic leaders. Either economics is useful at helping society make decisions, or it’s not and should get out of the way. I don’t think it acceptable for those advocating strongly for partisan ideals on the basis of their scientific validity to then turn around and chortle the excuse “Yes, but it’s a dismal science!”

    I must admit I am fairly cynical about Mankiw in this regard. Afterall, he decided to hitch his wagon to Paul Ryan whose great contributions to US political debate have been a series of numerically illiterate alternative budgets.

    In light of reading The Spirit Level alongside “Capital in the Twenty-First Century”, the debate over what “is” seems relatively settled for the moment. Inequality is bad: wealth concentrates and leads to increasing inequality.

    To refuse to argue from this “is” to a more equal and fair “ought” seems increasingly ideological and unjustifiable.

    Comment by Oh Busby — May 19, 2014 @ 12:31 pm

  50. Of course I left out the most usefully succinct piece of Mankiw’s review:

    “The bottom line: You can appreciate his economic history without buying into his forecast. And even if you are convinced by his forecast, you don’t have to buy into his normative conclusions.”

    Comment by Oh Busby — May 19, 2014 @ 12:44 pm

  51. “Almost everyone seemed to like the social democratic welfare capitalism of the mid 20th century, except a handful of economists and oligarchs.”
    That’s where only a handful of people collected welfare before it all galloped out of control and was used as voter-bait, people went off to die in europe, Maori were beaten if found speaking te reo at school, shame prevented single mothers living as part of society, men were in charge, rape was “non-existant”, few had a car (but at least that 90% of us who didn’t were “equal” in our misery)? Ah, the good old days.
    Yep, I’d rather be free of materialistic aspirations like everyone else in the olden days, than be lower middle class in this modern age.

    “Almost everyone seemed to like” links to data?

    The problems with claiming this should be empirical, is that data needs to be interpreted. And it’s clear folk interpret, and manipulate, data in accordance with their prejudices. Just look at the way we can “hide the decline by using Mike’s Nature trick”.

    Comment by Clunking Fist — May 19, 2014 @ 1:23 pm

  52. @CF – almost everyone seems to agree (and empirical evidence suggests) that the formula of your posts is something…something…occasional wry observation..something…global warming is a scam.

    Points for consistency, Sir!

    Comment by Gregor W — May 19, 2014 @ 2:04 pm

  53. @Sanc: Oh, joy, you consider yourself an expert on Czarist Russia on top of everything else. Much as I’d love to get down in the weeds with you and try to pick apart your latest soapbox denunciation of the black horse de jour, we’d be here all week, and you’re not very good at staying on topic. But I can’t resist low hanging fruit, so I’ll just say that of the metrics you’ve mentioned only the literacy one is relevant to industrialisation.* I don’t know where you’re getting 10% from – Lenore Grenoble estimates literacy as being at about 30% in 1897, and 20% in rural areas. (Grenoble, ‘Language Policy in the Soviet Union’, Kluwer 2003). Where does your 10% come from?

    *Russia as ‘not a Great Power’ after the Crimean War, though? Really?

    Comment by kalvarnsen — May 19, 2014 @ 5:19 pm

  54. Russia as ‘not a Great Power’ after the Crimean War, though? Really?

    I thought this was a bit odd too. Imperial Russia was pretty much universally regarded as a Great Power until the Russo-Japanese War 1904-5 with the rapid process of decline ending in 1917.

    Comment by Gregor W — May 19, 2014 @ 5:40 pm

  55. @Gregor W: I think after 1905 it was still seen as a Great Power. The 1907 Entente certainly saw Russia treated as a Great Power by Britain, and the Entente was definitely seen as an alliance of three equals.

    Comment by kalvarnsen — May 19, 2014 @ 6:01 pm

  56. And a further review from Larry Summers: http://www.democracyjournal.org/32/the-inequality-puzzle.php?page=all

    Hanging over this subject is a last issue. Why is inequality so great a concern? Is it because of the adverse consequences of great fortunes or because of the hope that middle-class incomes could grow again? If, as I believe, envy is a much less important reason for concern than lost opportunity, great emphasis should shift to policies that promote bottom-up growth.

    Books that represent the last word on a topic are important. Books that represent one of the first words are even more important. By focusing attention on what has happened to a fortunate few among us, and by opening up for debate issues around the long-run functioning of our market system, Capital in the Twenty-First Century has made a profoundly important contribution.

    Note – I found this review via Mankiw, who describes it as “one of the best reviews of the book I have seen.”

    Comment by Oh Busby — May 19, 2014 @ 7:34 pm

  57. #3

    Dear Prime Minister “Nice Guy” John Key

    You were looking awfully tired today at the Prime Minister’s Post-Cabinet Press Conference. Bet you’ve been losing sleep since our last message appeared. Of course the media don’t realize it is serious yet. Even the blog owner posted it as a joke. But you know different, don’t you, John? Just like you knew all about those extra-judicial killings.

    You said that you and Ian Fletcher would resign if evidence emerged that New Zealand knew about the collection and then use (via the dark search engine named “xkeyscore”) of metadata of all New Zealanders. Well, I think it’s time to resign, John.

    We have a copy of the legal correspondence between the GCSB’s then lawyer Rebecca Kitterage and [redacted], as well as a document in which the GCSB states that it had searched for [redacted’s partner] in the NSA database and had discovered that the partner’s current name was not his original birth name.

    i.e., the GCSB New Zealand has the technology to search people at will whom it sees as a threat, with just a few strikes of a keyboard.

    How about you come clean, John!

    Just in case you stoop to consider another extra-judicial killing, Prime Minister, and indeed, NSA: said documents, as well as a great deal more damning evidence, has been secured in various locations and with various people in a way that you could never have tracked.

    Power to the people, down with tyranny and state murder!

    Anonymous

    Comment by Anonymous — May 19, 2014 @ 8:12 pm

  58. Summers’ review cuts to the chase. No matter the economic theory behind inequality, the immediate task is to stop the wealthy avoiding paying tax and that that will require more extensive international cooperation.

    Comment by NeiiM — May 20, 2014 @ 12:43 am

  59. I can’t take Summer’s seriously – he is one of the architects of the GFC given he was instrumental in (and personally enriched by) the Clinton era financial de-reg including the abolition of Glass-Steagall, and has heartily assisted the Wall St massive looting post 2008. The guy is a fucking crook and completely ethically compromised IMO.

    However, to answer NielM’s point – “the immediate task is to stop the wealthy avoiding paying tax” – the solution should be relatively straightforward in NZ

    Given that the penalties for evasion are up to a 50k fine and 5 years imprisonment there would probably be options for asset seizure under the Criminal Proceeds (Recovery) Act 2009 as evasion meets the threshold of “significant criminal activity” under s6.

    WRT avoidance, the Commissioner has fairly wide powers to adjust taxation at and individual level under subpart GA1 of the Income Tax Act 2007.

    Comment by Gregor W — May 20, 2014 @ 10:20 am

  60. Gregor W @52. Cheers for that. My mother always said I tried, was always trying…

    What about the Good Old days, though? Were they that good if you had to sit at the back of the bus? Hide in shame if you had a child out of wedlock? Had one pair of shoes? Handed down from your sister?

    I guess the good old days were a bit better if you were a university professor…

    But my point still stands: if lefties we REALLY worried about inequality, they’d come up with policies that didn’t keep impacting disproportionally on the poor or disadvantaged. Like GST, like welfare traps (Big Kahuna, anyone? Anyone?), like criminalisation of marijuana & boy racers, etc etc.

    Comment by Clunking Fist — May 20, 2014 @ 1:51 pm

  61. Yeah Clunk, when the workers finally sieze the means of production it’ll be the boy racers that are first against the wall.

    Comment by Oh Busby — May 20, 2014 @ 7:00 pm

  62. @Busby: And the pot dealers.

    Comment by kalvarnsen — May 20, 2014 @ 7:07 pm

  63. Well I’m intrigued but the notion of political discussion via dream revelation.

    Danyl might be the Fellini of NZ politics.

    Comment by NeilM — May 20, 2014 @ 7:31 pm

  64. There are some critiques of Piketty, in particular from the Financial Times – some of those critiques look significant. http://www.bloomberg.com/news/2014-05-23/piketty-book-on-inequality-contains-errors-financial-times-says.html

    Comment by PaulL — May 26, 2014 @ 8:17 pm

  65. @PaulL,

    The Economist magazine doesn’t seem to think so:

    The fourth question is whether the book’s conclusions are called into question by [the Financial Times'</i] analysis. If the work that has been presented by [the Financial Times'</i] represents the full extent of the problems, then the answer is a definitive no … .

    http://www.economist.com/blogs/freeexchange/2014/05/inequality-0

    Comment by Andrew Geddis — May 26, 2014 @ 8:51 pm

  66. Yes, but the economist also wrote:

    “Thomas Piketty’s blockbuster book is a great piece of scholarship, but a poor guide to policy”

    If the scholarship is also being called into question, what remains? The contention at the start of this discussion was that it’s bizarre that a serious scientific discipline seems to have such uncertainty, and uncertainty based on ideology. If it’s true that Piketty seems to have written a book based on his ideology and to some extent based on doctored data, then that original proposition may not be sound.

    Comment by PaulL — May 26, 2014 @ 9:47 pm

  67. The contention at the start of this discussion was that it’s bizarre that a serious scientific discipline seems to have such uncertainty, and uncertainty based on ideology. If it’s true that Piketty seems to have written a book based on his ideology and to some extent based on doctored data, then that original proposition may not be sound.

    Not at all. Is there a widespread consensus amongst the economist crowd that Piketty has “written a book based on his ideology and to some extent based on doctored data”, or is that a charge being thrown at him by a sector of the economist crowd based on their ideology and desire to undermine its conclusions by over-inflating some errors in an incredibly broad data field? Because if it is the latter, isn’t that entirely consistent with Danyl’s original question?

    Comment by Andrew Geddis — May 27, 2014 @ 7:34 am

  68. http://www.bloomberg.com/news/2014-05-26/piketty-rejects-ridiculous-allegations-of-data-flaws.html

    Bloomberg have a round up of serious people saying the FT piece is pretty weak, fwiw.

    Comment by Pascal's bookie — May 27, 2014 @ 9:13 am

  69. Also worth a read:
    http://marginalrevolution.com/marginalrevolution/2014/05/what-do-the-piketty-data-problems-really-mean.html

    But leaving all that aside, we all KNOW that increasing the influence of the state (nay, super state) in our lives will improve equality. Just look at how effective the fixed exchange rate of the Euro (viz a viz other euro nations, i.e. their main trading partners) has been on improving equity in Europe, through massively reduced unemployment and superb improvements in contentment, all leading to a sharp shift away from the parties of the right.

    Oh… Shit, you mean GDP and growth DO matter?

    Comment by Clunking Fist — May 27, 2014 @ 4:00 pm

  70. http://reason.com/archives/2014/04/26/living-with-inequality/print

    Less maths in this one.

    Comment by Clunking Fist — May 27, 2014 @ 6:07 pm


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