Piketty

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WaPo points out that Piketty's famous r > g relationship [return on capital, r, is significantly greater than the economy's growth rate, g] is not the only factor that drives inequality:

Piketty isn't saying that r>g is why inequality has increased so far. It's why he thinks inequality will keep increasing along hereditary lines in the future.

It's a distinction that most people -- even if they feel compelled to have an opinion on Piketty regardless of their familiarity with his work -- miss. Including, it turns out, the expert economists at the University of Chicago's Initiative on Global Markets (IGM).

Similarly, Slate looks at the conservative contention that Piketty has been rejected by economists:

Sample headline courtesy of the American Enterprise Institute's James Pethokoukis: "Survey: 81% of top economists disagree with the Piketty inequality argument." Except they didn't really. Piketty's Capital in the Twenty-First Century never suggests r>g is the main reason behind the recent rise of inequality. Rather, it theorizes that, in the absence of government intervention, r>g ensures the future concentration of income and wealth.

Kevin Drum notes that "one of the biggest weaknesses of Piketty's argument [is that] r > g has been true for centuries, but the rich have not gotten steadily richer over that time:"

Wealth concentration has stayed roughly the same. Piketty argues that this is likely to change starting around 2050 or so, but this is an inherently iffy forecast since it's several decades in the future. What's worse, he bases it mostly on a projection that economic growth (g) is shortly going to suffer an unprecedented fall. This makes his forecast even iffier. Piketty may be right, but projecting growth rates for the second half of the century isn't something he has any particular expertise in. His guess is no better than anyone else's.

Piketty was working from better--or at least more complete--data than any previous economist, but Drum's caveats are well noted.

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This page contains a single entry by cognitivedissident published on October 15, 2014 7:39 PM.

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