Econintersect: Chris Giles of the Financial Times published an detailed attack on Thomas Piketty's new book Capital in the Twenty-First Century over a week ago (Data problems with Capital in the 21st Century). Piketty responded immediately in the Financial Times (Piketty response to FT data concerns ) and then more formally at length. (See GEI Analysis: A Fact Checking Response to FT.) Giles is continuing his attack with a new column while Piketty has proclaimed "this debate is over".
See videos after the Read more >> jump.
In his latest column Giles abandons any pretense of "purity" in his questioning of Piketty's work and reduces his attack to one of questioning the professor's ethics. It is at this point on the timeline at which Piketty makes his "debate over" remark in an interview of Piketty and Sen Elizabeth Warren (D, MA) conducted by Ryan Grim (Huffington Post). A 2-minute excerpt from that interview can be viewed:
The full 48-minute interview is shown below:
Econintersect commentary: After review of the debate from many quarters a widely shared general conclusion is that there are questions about how both Giles and Piketty selected data and how both dealt with the numbers. Unfortunately much of what appears in public on this subject is written with "political pens" which blunts the objectivity of the presentations: "conservatives" downplay the significance of Giles' questionable data selections while "liberals" minimize questions about Piketty's choices.
This political discussion about data choices and cherry-picking biases is unfortunate because the handling of data does deserve to be reviewed critically and that effort is ill-served by involving those who have a political "persuasion" to represent.
In addition there are more fundamental questions. There are serious posts that discuss a variety of assumptions made by Piketty in formulation and adaptation of theory. These deserve to be debated in analytical forum, free from an Op Ed venue. Here are four of the articles we have read to date that we would suggest are important apolitical dissertations . (The first and last have been discussed 'behind the wall' in our What We Read Today daily column).
- James K. Galbraith Takes on Thomas Piketty's "Capital in the Twenty-First Century" (James K. Galbraith, AlterNet, 21 April 2014) A very significant aspect of Galbraith's critique is the criticism he makes of Piketty's conflation of physical and financial capital. The former, he asserts, contributes to economic growth while the latter does not. This raises the issue of whether wealth inequality is not created equal (Econintersect suggestion). Is the problem of damage to society and the economy related to unequal financial wealth rather than unequal physical wealth? Too over simplify egregiously, can inequality of physical wealth be "generous" while inequality of financial wealth "selfish"? Is one "okay" while the other is not "okay"?
- Capital Punishment (Tyler Cowen, Foreign Affairs, May/June 2014) Cowen's central theme addresses the limits and undesirable consequences of high levels of taxation. Beneath that is a nuanced discussion of Piketty's oversimplification of what actually comprises capital. This goes in a completely different direction from Galbraith (above). Cowen says Piketty treats capital as a "growing, homogenous blob" which "ends up overshadowing other economic variables". Cowen says a more realistic view of capital comprised of winning and losing components (risk) might yield a different conclusion. He says that Piketty, like a 21st century David Ricardo (who focused on the economic risk of concentrated land rents in the 18th century) is thinking too narrowly of "the kind of sophisticated equity capital that the wealthy happen to hold today".
- Is Piketty’s ‘Second Law of Capitalism’ Fundamental? (Per Krusell and Tony Smith, GEI Analysis, 03 June 2014) This article casts a critical eye on Piketty's assumption about saving. Piketty assumes saving is a constant fraction of national income which is not supported empirically over long time periods. A consequence of this assumption is an ever-increasing requirement for investment at the expense of consumption, say the authors. In the case of zero population growth the requirement for investment drives toward 100% of national income. Thus a basic assumption by Piketty appears to be the reason he finds that, absent interference, capitalism leads to inexorable and unsustainable concentration of wealth.
- A Reflection on Capital in the21st Century (Philip Aresyis and Malcolm Sawyer, Triple Crisis) The authors maintain that Piketty's r>g condition is unsustainable because it can only occur under conditions of deflation and rising unemployment. If chronic, such conditions will be curtailed by social change (read that as revolution). The authors also criticize the use of a single value for r rather than considering the compostion of the components averaged. They say that implications for distribution can be important. Finally they criticize the failure to analyze the details of savings and investment. This would relate to the Econintersect concern discussed previously that "all wealth is not created equally". If increased wealth is "applied" in "economically productive" ways then is wealth inequality really a problem? But if it is is stored in the form of "golden bathtubs" while many people are repressed in poverty can it be tolerated? These are the important questions raised by Piketty's work and Econintersect suggests they are not being adequately addressed in the academic debate.
Piketty may be correct that the debate with the Financial Times is over. That will hopefully clear the deck for more worthwhile debates about his work.