DeLong on Piketty


Brad DeLong over at his blog (image from Wikimedia commons):

How to sum up the argument of and the reaction to Thomas Piketty?…

In the communities in which I live and work, everybody is very impressed with Thomas Piketty's Capital in the Twenty-First Century. We are impressed with the amount of work that he and his colleagues have put into data collection, data assembly, and date cleaning. We are impressed with the amount of thought that has gone into the caddies attempt to understand the issue. Very impressed with how skillfully he has written his book. We are impressed with how much Arthur Goldhammer has sweated blood with the translation. And we are impressed with the intelligence with which he is constructed as arguments.

Now everybody has their complaints.

Everybody has 10-20% of the argument that they disagree with, and perhaps another 10 to 20% that they are unsure about. But it is a different 30% for everybody. There is not consensus but majority agreement that each piece of the book is roughly correct. And so there is rough near-consensus that the argument of the book is, broadly, right.

What are the serious complaints?

1. That Piketty tacks back-and-forth between a market value–the capitalized current value of all claims on income that are not brow-sweat– and a physical quantity conception of capital in a way that is not legitimate. That leads his argument astray in places, particularly in that it hides the fact that the capital accumulation that makes the rich so much richer also strengthens, or ought to strengthen, the bargaining power in the labor market of the not-so-rich, and so increased relative immiserization of the masses goes along (or ought to go along) with increased absolute prosperity.

2. That Piketty's framework conceptualizes the issues in an unclear and counterproductive way by speaking of “tendencies” that can be counteracted, rather than doing the normal MIT economics thing–calculating a steady-state equilibrium growth path to which the economy converges over time, and then calculating how that equilibrium steady-state growth path can and does jump in a comparative-statics should the background economic conditions that determine where it is located shift.

3. That Piketty has no theory of what determines the rate of profit, and he badly needs one. And since he doesn't have a real theory of the rate of profit, he doesn't have a real theory of the rate of wages.

4. That Piketty wants to assume that the rate of profit has a floor below which it will not fall–and so increased capital accumulation certainly reduce the labor share of income and may lead to little or no trickle-down to real wages from the increased productivity that ought to flow from increased wealth accumulation–but this argument needs to be spelled out.

More here.