Wednesday, May 7, 2014

Why I need to read Piketty

I haven't read Thomas Piketty's Capital in the Twenty-First Century yet, but I need to.

From what I've read, his history of inequality is top-notch and makes the book a must-read, but his predictions for the future and his policy suggestions are not.

I'm of the opinion that inequality is an unimportant distraction from the real issue: The well being of the poor. That's what people should care about.

It's flawed to believe that inequality itself causes riots and social disorder (which is not the same as saying they are bad, but encourage bad behavior). Those uprisings occur when people can no longer afford food, and capitalism, globalization and technology have made food cheap and readily available in developed nations. Agricultural subsidies deserve no credit.

Despite what Robert Reich claims, real incomes and standards of living have been increasing in America. Reich cherry pick one way of calculating interest rates - the CPI inflation calculator - and underestimate wages by ignoring non-monetary forms of compensation like health care.

So in comes Piketty with the idea that at certain points in history, interest rates outpace growth. He's not just accidentally invoking the idea of of a negative sum game: he's pursing it head on. That's a terrible trend and if he's correct that it is happening now and here to stay, everything I believe would be suspect and ripe for revision.

So that's the big question for me, is Piketty correct in his future predictions, and what about the policy recommendations he makes? Surely his fans already supported them and are using his book to rationalize that view, and just as surely people who oppose those policies are going to ignore his book because it challenges their world view.

There's some troubling talk about Piketty having a soft spot for command and control policies and the USSR. I'd have to read it for myself to make that call, but if true it's a serious flaw.

The thing I find most interesting is that Tyler Cowen is a critic despite having recently written "Average is Over" which also predicts a future of structural inequality. Tyler is one of my favorite living economists and his response implies that Piketty doesn't have a slam dunk, but still wrote a book people need to read.

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