Sunday, November 23, 2014

The Right’s Piketty Problem

BERKELEY – In the online journal The Baffler, Kathleen Geier recently attempted a roundup of conservative criticism of Thomas Piketty’s new book Capital in the Twenty-First Century. The astonishing thing to me is how weak the right’s appraisal of Piketty’s arguments has turned out to be.

Piketty’s argument is detailed and complicated. But five points seem particularly salient:

1. A society’s wealth relative to its annual income will grow (or shrink) to a level equal to its net savings rate divided by its growth rate.

2. Time and chance inevitably lead to the concentration of wealth in the hands of a relatively small group: call them “the rich.”

3. The economy’s growth rate falls as the low-hanging fruit of industrialization is picked; meanwhile, the net savings rate rises, owing to a rollback of progressive taxation, the end of the chaotic destruction of the first half of the twentieth century, and the absence of compelling sociological reasons for the rich to spend their incomes or their wealth rather than save it.

4. A society in which the rich have a very high degree of economic, political, and sociocultural influence is an unpleasant society in many ways.

5. A society in which the wealth-to-annual-income ratio is a very large multiple of the growth rate is one in which control over wealth falls to heirs – what Geier elsewhere has called an “heiristocracy”; such a society is even more unpleasant in many ways than one dominated by a meritocratic and entrepreneurial rich elite.

Now, even in thumbnail form, this is a complicated argument. As a result, one would expect that it would attract a large volume of substantive criticism. And, indeed, Matt Rognlie has attacked (4), arguing that the return on wealth varies inversely with the wealth-to-annual-income ratio so strongly that, paradoxically, the more wealth the rich have, the lower their share of total income. Thus, their economic, political, and sociocultural influence is weaker as well.

Tyler Cowen of George Mason University, echoing Friedrich von Hayek, has argued against (4) and (5). The “idle rich,” according to Cowen, are a valuable cultural resource precisely because they form a leisured aristocracy. It is only because they are not bound to the karmic wheel of earning, getting, and spending on necessities and conveniences that they can take the long and/or heterodox view of things and create, say, great art.

Still others have waved their hands and hoped for a new industrial revolution that will create more low-hanging fruit and be accompanied by another wave of creative destruction. Should that happen, more upward mobility will be possible, thus negating (2) and (3).

But the extraordinary thing about the conservative criticism of Piketty’s book is how little of it has developed any of these arguments, and how much of it has been devoted to a furious denunciation of its author’s analytical abilities, motivation, and even nationality.

Clive Crook, for example, argues that “the limits of the data [Piketty] presents and the grandiosity of the conclusions he draws...borders on schizophrenia,” rendering conclusions that are “either unsupported or contradicted by [his] own data and analysis.” And it is “Piketty’s terror at rising inequality,” Crook speculates, that has led him astray.

Meanwhile, James Pethokoukis thinks that Piketty’s work can be reduced to a tweet: “Karl Marx wasn’t wrong, just early. Pretty much. Sorry, capitalism. #inequalityforevah.”

And then there is Allan Meltzer’s puerile accusation of excessive Frenchness. Piketty, you see, worked alongside his fellow Frenchman Emmanuel Saez “at MIT, where...the [International Monetary Fund’s] Olivier Blanchard, was a professor....He is also French. France has, for many years, implemented destructive policies of income redistribution.”

Combining these strands of conservative criticism, the real problem with Piketty’s book becomes clear: its author is a mentally unstable foreign communist. This revives an old line of attack on the US right, one that destroyed thousands of lives and careers during the McCarthy era. But the depiction of ideas as being somehow “un-American” has always been an epithet, not an argument.

Now, in center-left American communities like Berkeley, California, where I live and work, Piketty’s book has been received with praise bordering on reverence. We are impressed with the amount of work that he and his colleagues have put into collecting, assembling, and cleaning the data; the intelligence and skill with which he has constructed and presented his arguments; and how much blood Arthur Goldhammer sweated over the translation.

To be sure, everyone disagrees with 10-20% of Piketty’s argument, and everyone is unsure about perhaps another 10-20%. But, in both cases, everyone has a different 10-20%. In other words, there is majority agreement that each piece of the book is roughly correct, which means that there is near-consensus that the overall argument of the book is, broadly, right.

Unless Piketty’s right-wing critics step up their game and actually make some valid points, that will be the default judgment on his book. No amount of Red-baiting or French-bashing will change that.

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    1. CommentedAlasdair MacLean

      In France, Hollande's party is the SOCIALIST party. Royal was his rival. Piketty was her economic advisor in her campaign. What is the problem in using the word Socialist. Europeans do it all the time because it is a political and economic grouping. In Europe it is used to describe middle left redistributionists or soft Marxists. Far left, hard Marxists are called communists. So in France, say, there is also the COMMUNIST party. Some parties are broad church say the British Labour Party. It has socialists and social democrats. But when described as socialist rather than social democrat you know that he is more excessively redistributionist. The real issue is more the USA where socialism is alien to any main stream party and an uncomfortable label with some. The Democrats are in European terms more centre based social democrats. People need to understand that if you are a redistributionist like Piketty you are going to be called in European terms a Socialist. If you don't like it change your views but don't think the political correctness is going to change the use of the correct label however uncomfortable a person may be with receiving it.
      A further point is that the right could have gone down the road of highlighting the current rejection of the Socialist Party in France due to their failed economic policies. His book is of more interest in the USA than in France would be another line of thought. Why then the undue interest in American then would be the main line of thought and maybe they would end up with Socialists who don't like the label.

    2. CommentedDale Holmgren

      DeLong thinks that identifying a man with communist ideas of wealth redistribution as a communist is an attack; no, it's just correctly identifying him. Communists like DeLong do not like to be identified as such, because they know most Americans have a natural aversion to the word. Indeed, communists go out of their way to avoid the words communism and socialism, using the words "progressives" "liberals" "social democrats" and, most laughably, "center-left". Also, there's nothing wrong with pointing out France's embrace of socialism down through the ages, from Jean Jaurès and Leon Blum, to Mitterand and Hollande. I am not offended by Bill Gates' wealth, nor do I feel his wealth has prevented me from becoming wealthy. Why is it that the socialists feel that wealth congregated in a few people is dangerous, but power and wealth congregated in a few politicians in Washington is not. This comes down to one issue only, on which all socialists converge; they are envious of the wealth of others, and they want to use government to seize some of that wealth.

        CommentedEric Einhorn

        This is the kind of right-wing "McCarthyite" attacks that De Long refers to. Communism, at least since 1917, has referred to Marxist-Leninist regimes a la USSR and China (pre Dong). I guess every public program can be denounced as "socialist" and every redistribution from plutocrats may be "communist." But pursue these paranoid tendencies on a Fox News site, not a site for serious economic and policy debates.

    3. CommentedBen Leet

      Since 2008 wealth has increased by $23 trillion, not $223. But that's an increase of $185,000 per household.

    4. CommentedBen Leet

      Since 2008 wealth has increased by $223 trillion, from $57 trillion to over $80 trillion, while most households saw their incomes decline by 7%, and millions lost their homes in foreclosure, and national income in 2009 declined for the second time since 1934. The $23 trillion in new wealth increases the average per household net worth from $498,000 to $690,000, though maybe only 5% of households are average or above. The windfall in new wealth is contrary to expectations as the elite financial sector was the primary reason for the economic downturn, yet is now the beneficiary of a windfall. See Flow of Funds report from the FRB, latest iteration for data on the $80 trillion, page 2. Lawrence Mishel states that 59.9% of the economic gains since 1970 went to the top-earning 1% who now earn more income than the lower-earning 60% of households. It does not look like a stable arrangement, for many reasons, and now Piketty has made the case that it's a permanent deal. The newly minted $23 trillion is frosting on Piketty's cake.

    5. CommentedProcyon Mukherjee

      Comments on Piketty’s Capital from the Right is filled with a cynical view as expected, while from the Left is steeped in bias; chronicles against inequality however is embedded not in anthropological constructs but in the narratives of our make-believe world orchestrated by self-delusion. The penchant for self-seeking scientific inquiry, that which made all the progress happen, is now a far-cry, steeped in the neo-idealism that the modern world view has created and politics has nurtured that bars the questioning mind to go beyond what is thrust on us by the choices provided in this age of information explosion; Picketty is a noteworthy exclusion in his inquiry that dealt with growth of capital vis-à-vis growth in income and proved how the former moved into the stratosphere while the latter plateaued in most nations.

      But I would like to point out two areas, where we have further inquiry to be diverted, one is on circulating capital, which has grown out of proportion augured by the protracted period of near zero interest rates and nurtured by Central banks in particular and secondly how it had helped fuel over production and supply even with a non-existent demand. This contempt of fairness if I can call it is one of the reasons why on earth the stock of wealth could grow where access to such circulating capital was available; minus the circulating capital, the unfortunate have a hapless existence.

    6. CommentedChristian Frace

      I don't get all this promotion of this book. Seems an American thing and reflects the intellectual decline of the US.

    7. CommentedFrank O'Callaghan

      There is a growth industry in attacking those who point out the glaringly obvious (and odious) inequality and inefficiency of modern capitalism. There has always been a lucrative market awaiting those who have felt compelled to defend opulent wealth. Somehow, the media -owned by the wealthy- have found attacking such writers to be talented, entertaining and utterly indispensable. As John Kenneth Galbraith said: "The modern conservative is engaged in one of man's oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness."

    8. Portrait of Michael Heller

      CommentedMichael Heller

      Brad, it seems your article aged quickly (as in overnight). The Piketty phenomenon is immensely entertaining. For the benefit of Project Syndicate’s international readers, one simply must quote a snippet from Robert Shrimsley’s piece at the FT 30th April (same day as yours) about the Nine Stages of the Piketty Bubble:

      “Stage six – boredom: As Piketty references become ubiquitous, people begin to lament the overhyping of a book which, while impressive in its erudition, “doesn’t tell us anything we did not know”.

      In stage seven – disassociation even supporters begin to be embarrassed to refer to him. Conversations start to include phrases like: “Look, I know it’s a bit cliched to mention Piketty but . . . ” Reassured that nothing will actually change, opponents stop bothering to attack his proposals for a swingeing wealth tax.

      Stage eight – denial offers proof the bubble has burst as members of the thinking classes now feel it is chic to admit that they never read the work. The brand is further cheapened for intellectuals when his work is picked up by Russell Brand.

      Stage nine – relocation: People move Prof Piketty’s book from the living room to the lavatory, where it sits on a shelf sandwiched between Stephen Hawking’s A Brief History of Time and Francis Fukuyama’s The End of History.”

      I do believe that in the space of three weeks we may already have arrived at Stage Nine!

      To be more serious, there were in fact rapidly a number of good classical liberal or conservative critiques. If anyone was a wee bit childish now and then, it was justifiable. We were giggling so uncontrollably about the hysteria of the left’s response to Piketty! The Messiah etc. Piketty’s argument itself has actually been treated quite respectfully as an academic contribution, no more or less solid a contribution than many others. The 'problem' really lies with Piketty’s supporters among devotees of Paul Krugman in the USA, who chronically over-hyped Piketty and now have egg on their faces.

      You should perhaps read the latest *substantive* critique of Piketty’s thesis (brought to the Anglo-sphere today courtesy of Tyler Cowen at Marginal Revolution, who himself has written a valid and substantive critique of Piketty’s book).

      If people google this -- ‘Critical Remarks on Piketty’s ‘Capital in the Twenty-first Century’ by Stefan Homburg -- they will find the latest “substantive” and “valid” critique of Piketty’s tome.

      Finally I must admit to having a penned a Piketty Post myself (from the ‘right’, only very slightly puerile) called ‘The Bad Rentier’. I’m glad to say it has been remarkably popular. You can read it at my website:
      Heller Economic History Entertainments

        CommentedRobert Ley

        Ya' gotta' love it, don't ya'? This post reminds me of the weatherman who reports that it's sunny and bright, but if he'd look out his window he'd see that it was raining. And you all remember the jokes about economics making weather forecasting look like real science, right?
        Wages and income from labor are basically flat for 20 years. Income from capital has skyrocketed, with most of the new wealth going to the upper 0.1%. Yet conservative economists still argue that Piketty is wrong; their academic formulas from the 60s prove that it's still sunny outside. Open the window, guys!

        CommentedJon Rudd

        So the takeaway from this is that the substance of Piketty's work is of no account whatever and that it's all about hype.

    9. CommentedJames Edwards

      The way I see it, the right's attacks on Piketty's book is nothing more than trying to defend the status quo with pithy attacks just like Mr Pethokoukis eloquently noted in his hashtag. Even Bill Kristol noted that on the This Week which he stated that the right don't need to worry about about the book's stated conclusions.

    10. CommentedG. A. Pakela

      A thriving community is one where there are many employers and job opportunities, and thus a low level of unemployment and a high level of opportunity. The owners and/or senior management of those business may be defined as "rich," particularly if they reside in the "1%." Would the world be a better place if we began to tax away their wealth and admittedly high earnings? What would this do to the economic vibrancy of this community? Inequality is a fact of life, and nowhere is it as prevalent in academia itself. If we were to apply the Piketty/DeLong/Krugman/Stiglitz approach to academia, we would pass a low prohibiting universities from using test scores, schools and grades as a criteria for admissions and fill the slots with a lottery. All professors would be equally compensated just as their secondary school colleagues. Nobel prizes for economics would be eliminated or subject to a lottery.

    11. CommentedJose araujo

      It made me very interested in buying the book...

      I have one big problem with the stated logic, and it starts on number one.

      Savings in a monetary society don't represent hidle resources, they are just an abstraction. Actually the concept of savings IMHO doens't even exist because of the nature of savings in a monetary society.

      In the end, I can save resources but I cannot save money. Savings would be only the transformed goods or resources that we don't consume, not the money in bank accounts or stored gold, these are currency or in the limit services and goods..

      IMHO, since saving resources is not using them in consumption, but if I don't consume the resources they hold no real value, just potential value. Its like talking about energy, and stating the important is the total level of energy, kynetic and potential...

      What's more important, total energy or the energy released? its clear to me that what's is important is kynetic energy.

      Clearly IMHO in economy what's important is the consumption, the ammount of goods saved or produced is relative.If they are notcosumed they hold no value for society.

      For an oil country, what's the difference in having oil reserves, barrels or money in the bank...

    12. CommentedJonathan Lam

      Gamesmith94134: Reason and the End of Poverty
      United Nations General Assembly Open Working Group on Sustainable Development Goals has endorsed the Bank’s anti-poverty target, debate about how to achieve it has revived an old question: Will the benefits of economic growth trickle down on their own, reaching all, or will we need targeted redistributive policies?

      First of all, I would call the economic growth trickle-down theory is a myth that the data proved that the inequality have reached its epidemic that even in the developed nations. In fact, many found the wages on labor went down through the economic restrain and unemployment; in some cases, the basis of living expanded and savings is shrinking, especially in the low interest rate and low development. Therefore, I hope United Nations should not be fooled by the present system or development; and compromised on the political pressure that we do need a better welfare state application to solve the problem. It is because eradicate poverty is not applicable through the political system. In order to qualify, you must prove yourself poorer is not a well logic in most of the programs in the global forum.
      Perhaps, we would take India for the recent mishaps in promoting the program, more subsidies for the food and more expensive it will be, because rupees will be much cheaper “relatively” to any other currencies. This was a tragedy for India or Brazil which was fallen off the emerging market Nations, the BRICS crumbles. It was the struggle of power and powerless that the trickledown did not ring and was beyond the free market system as many suggested; because it was the proclivity of the wealthy one who would shift to the powerful one to sustain the level of comfort by undermine the market system to compensate their loss on the control of value.
      Perhaps, I would take the case in India in achieving the sustainable balance; it must return to its market system that is compatible to its cost of living. In a word, affordability that is free of governmental control and subsidies. Price control in the present mode as in buy food cheaper only cut production if the price is below its cost; it is why there is a secondary cause on inflation after imported more. Many of Indian would question if its government was promoting its plantation scheme on its farmers that turned them into slaves. It was what I heard in the seed exchange program with tremendous rules and regulations that strangled the small framer and workers with its unreal pricing and high cost to keep their production valid. If only government and rubber baron can set price on what they collect, why should Indian produce if their product is not marketable?
      Perhaps, there is another problem on the monetary system that inundated with foreign funds and subsidies made crisis more inevitable in turn of the rising cost to produce and less jobs is available. In the past, the micro-financing ended with a bang because it is cost more than credit cards and create shadow banking that so severe that shadow banker may dress in military or policeman kicking down your door at night to collect debt or your land. These are just information I got from hearsay from my charity workers; but If they are true only in the rural area, India should be awoke to enforce what law should applied and how the shadow banking could endanger the lives of India. Am I accusing monopoly in banking or institutionalization make the worst case in the financing system India allows? I hope not.
      Perhaps, I would recommend the co-op system in the thorough sense that UN and India would promote the real market system that the small farmer or middle class can survive by enforcing law and regulations that establishes access for them. Subsidies are tools of the powerful ones that price are not how it would balance the book in the procedures of accountings; but it is how they can create the access to the marketable and allow them to function in its value system that affordability can sustain both growth and prosperity. Therefore, UN and India must open its market system in trade and initiated the legal system to enforce what value can assist whom they failed. Rupees can be earned and it is not how value is restored through its audits in the capital goods or real estate. Advancement in trade is not a valid value system since only Indian can initiate its value through its own marketable events like affordability and sustainability.
      I am sorry if I would offend India for my single point of view, I would apologize, but these conditions are subjected to review, and I hope Mr. Rajan and Mr. Singh would rethink how subsidies and monetary policy are making the cracks in the value system that inflation will rise unstoppable till everything comes to a halt like recession. Seriously, I think recession would erupt through the present global financial system; and there is no escape to it. However, it is the nature of things that what goes up must come down. It is time to contemplate on what can we do to restore what a marketable system can reestablish it own sense of value that is affordable and sustainable. This is the cycle of life; even for economical growth.
      Systems revive themselves even regimes and revolutions, but one will never die------humanity and population.
      May the Buddha bless you?

        CommentedChristopher Goodwin

        In reply to Jonathan LAM
        What is this "free market" of which you fabulate ? There is the theoretical ideal of a "perfect market" - and numerous imperfections in all real markets. But the greatest imperfection, so great as to make the existence of any "free market" anywhere risible, is the destruction of money by President "Tricky Dickie" Nixon in 1971. Going off the gold standard - "just as a temporary measure, of course" (now where have I heard that before ?) - has allowed rampant dollar printing, so that the USA can buy up anything, anywhere, at no price at all: now what kind of market is that ? I can pay for something; you, Mr American, can have it for nothing. This is a MARKET ? Or a licence to steal?

    13. CommentedZsolt Hermann

      Unfortunately today many people if not most simply retreated into bunkers, under different flags symbolizing political preferences, cultural, religious or philosophical ideas, and they are not even willing to consider anything other people from other bunkers are saying, presenting.
      Today humanity lives in "faith below reason".
      I agree with the writer that at present it is more obvious for the "right" side of society (although after going deeper it is just as true to the "left side" as well) as any time someone raises a concern about the economy, finances, natural environment, social state of people, those raising the concerns are immediately labelled as "leftist", communist, Marxist and so on.
      Such divisions do not make much sense today when even in political parties it is very difficult to find true directions (although in the UK in the run up for next year's election the two main parties seem to create sharper images and directions about themselves than we have seen for a long time).
      But the bottom line is today the differences, directions do not mean anything when the whole of humanity has evolved into a globally inter-connected and inter-dependent system, where everybody is responsible and dependent at the same time.
      We are all sitting on the same boat, sailing under a single flag.
      And this is not some new "ism" or philosophy but a natural, evolutionary necessity.
      The time of playing games, sports with each other is over.
      Regardless of what is separating us, causing us to even hate each other, we have to rise above the disturbances and connect on that "next plane", in a mutual, common purpose of solving the crisis and building a sustainable future.
      Either we understand this global, integral system we evolved into and adapt, or we will not survive evolution.

    14. CommentedMike Huben

      Tyler Cowan does not provide a disclaimer that he has been employed for his entire career as an agent of the plutocrats (the Koch brothers) that Piketty is talking about. Knowing that, it's not surprising that he writes a highly critical review. Ethics, anybody? How many other authors are similarly funded and undisclosed?