Updated Priors (Ryan Decker) reviews Piketty

by on April 27, 2014 at 9:54 am in Books, Economics | Permalink

Here is one good part of a consistently good and interesting review:

Most of the analysis in the book is more about accounting than economics. Piketty takes nearly everything as exogenous then divides things arithmetically. His ubiquitous r > g heuristic takes both sides of the inequality as given for almost the entire book. Lines like “the richest 10 percent appropriate three-quarters of the growth” (297) enable lazy readers to avoid thinking about what actually determines income. Language about “appropriation” suggests that we live in an endowment economy, as does the claim that post-World War I wealth inequality fell “so low that nearly half the population were able to acquire some measure of wealth” (350). Endogeneity, anyone? Taking income as exogenous leads to other large problems with inference, such as the claim that “meritocratic extremism can thus lead to a race between supermanagers and rentiers, to the detriment of those who are neither” (417). Piketty does not consider the possibility that this race results in more income than otherwise, nor does he consider the notion that an increase in the bargaining power of elite executives could actually come at the expense of capital owners rather than workers. I’m not making an argument for either here; I’m simply suggesting that Piketty’s ideological quips don’t deserve the certainty with which he delivers them. Models with endowment economies have their purposes, but a 600-page book should be able to relax such strict assumptions. His criticisms of mathematical economics (32, 574) are not surprising given that he relies so heavily on assumptions and mechanisms that would be highly vulnerable to criticism if they were forced into the transparency of a formal model.

Hat tip goes to Angus.

Rich Berger April 27, 2014 at 9:58 am

You would think that Piketty would be a little less lazy, but considering his credulous fans, why should he bother?

Just another MR Commentor April 27, 2014 at 12:08 pm

Exactly. If he were honestly serious about reducing inequality he would have devoted much of the book to how we can achieve open borders. The solution to inequality is already there fore those brave enough to support this truly radical, yet truly effective policy.

Cliff April 27, 2014 at 1:34 pm

Of course that would reduce inequality, but I guess even socialists agree that inequality in and of itself is not really a concern?

Rich Berger April 27, 2014 at 2:08 pm

Hard to tell if your comment is tongue-in-cheek.

TMC April 27, 2014 at 2:33 pm

Rich, who were you asking?

Just another MR Commentor April 27, 2014 at 2:41 pm

Exactly my point, they are hypocrites only concerned with empowering narrow factions within their own countries. How can we talk about reducing inequality when we have plumbers, electrification, engineers, hairdressers and the like making vast fortunes due to artificial barriers to entry.

leftistconservative April 27, 2014 at 8:19 pm

yeah, right, open borders is gonna help americans a whole lot.

Are you serious? Or just brainwashed?

Willitts April 27, 2014 at 10:59 pm

They’re on drugs.

Even if it were true that open borders would be unambigously welfare enhancing, i.e. everyone gets better off and no one gets worse off, this would arguably INCREASE income inequality.

P April 28, 2014 at 4:09 am

Neither. He’s being sarcastic.

Peter Metrinko April 27, 2014 at 9:58 am

An amusing (to me) side note. The text of Piketty’s book is 577 pages (there are many page of end notes though). The text of the owner’s manual for my new Accord is 588 pages. We shall see which turns out to be more useful.

Z April 27, 2014 at 11:12 am

There’s no question as to which one will have a greater impact on your life. My bet is you will never make a repair to your car and therefore have no use for the manual. The people running your country and therefore your life, will be working from Piketty over the next decade. The great debate of the coming decades will be over how to bring the great families of the tech revolution to heel.

derek April 27, 2014 at 11:45 am

Don’t worry. It won’t last a decade. Any government who implemented Pikettyesque policies would be in serious fiscal difficulty within a couple of years, and be forced towards liberalizing their economy by circumstances.

Does anyone here believe that the US could run seemingly endless trillion dollar deficits if they started wealth seizures as suggested here? I don’t. They would see an utter collapse of revenues caused by a collapse of economic activity. If they persisted, they would be seizing assets of anyone owning a home worth more than $100k. The second amendment would become less than a theoretical legal debate.

Just another MR Commentor April 27, 2014 at 12:01 pm

Once the wealthy convert all of their assets into Bitcoins (which should be complete by the end of the decade) the government will collapse and we can get away from all this statist nonsense once and for all. Piketty’s book and the reviews of his supports are merely the death throes of the old order.

Z April 27, 2014 at 1:23 pm

You and I will not be a part of the debate. The great debate will be among the members of the Billionaire Boys Club and the managerial class that tends to their affairs.

Just another MR Commentor April 27, 2014 at 11:57 am

Bring them to HEEL? You mean people like Mark Zuckerburg whom have made your life and the lives of billions infinity better? By a single stoke he has brought the world closer together and vastly improved and civilized discourse across the globe. He’s done more to improve communication then any in history before and you want to bring him to heel?
There have not been more deserved fortunes in history than those of the tech giants.

Z April 27, 2014 at 1:19 pm

Mark Zuckerberg, peace be upon him, does not like your sarcasm. You now have zero friends.

Jared April 27, 2014 at 10:11 am

We are starting to get how you feel about the book Tyler.

I can sum up this review for everyone. Ryan Decker likes Piketty’s empirical work, but wishes he’d written a 600 page journal article instead.

It’s really annoying to have this view recommended by a man famous for publishing 20,000 words of speculation on the downward bending of the Solow residual, ie a single graph. The Great Stagnation was useful, just like Capital is very useful.

wiki April 27, 2014 at 10:57 am

No, it’s Piketty who wants readers to think all his speculations are backed by sound, rigorous research. But in fact, his empirics are solid, it’s the various interpretations and inferences he draws from his research (in journals his discussions are more qualified than in the book) which are in question. You can’t make a technical point about r > g, draw out implications from an overly simplified theory that most readers have no clue about, and then jump to totally unsupported policy conclusions. Of course, leftists will just say, See, we need more redistributive taxation. Why? Because, Science!

In fact, there is little in Piketty that changes the fundamentals of the inequality debate people have been having since it became clear that income inequality in the US has been rising for a few decades.

Nattering Nabob April 27, 2014 at 11:16 am

If non-libertarian neoliberals are leftists, what are you guys? Fascists?

derek April 27, 2014 at 11:47 am

It was french Fascists who seized the wealth of rich people.

Jonathon Martin April 27, 2014 at 11:32 am

To give Piketty his due, he also values the historical part of his book the most. He says himself that it is far easier to describe the past than predict the future and he also states that the final part of his book is essentially “food for thought”; that everyone should write their final section. Economists are terrible at predicting the future yet to some extent everyone tries to have a go (including Tyler). I don’t know why Piketty should be singled out for criticism.

Just another MR Commentor April 27, 2014 at 12:15 pm

Piketty is trying to bring back the failed doctrine of Marxist-Leninism. I think someone who advocates returning to a genocidal system should maybe be singled out for criticism? I mean I might be a little old fashioned.

The Objective Historian April 27, 2014 at 11:03 am

What about globally? I think while the ultra rich are breaking away globally, there is more equality generally and DEFINITELY more prosperity at the lower levels in absolute terms due to the rise of the middle-income in the Third World.

Also, I think government redistribution is the REASON for inequality in the West, i.e., the poor and middle income and coast and live luxuriously by international standards while the rich, generation after generation, work hard and depart from the coasting bottom 25% astronomically.

Just another MR Commentor April 27, 2014 at 11:59 am

Exactly why we need massive influxes on immigrants from poor countries to shake up the fat and complacent middle class. They drift through life without a worry in the world while the rich live dreadful lives of endless pain and stress. MORE IMMIGRANTS to get the lazy poor back to reality.
Luckily with the arrival of BitCoin government will be completely unable to raise any revenue whatsoever by the end of the decade so he whole edifice is about to collapse.

msgkings April 28, 2014 at 2:47 pm

He’s getting more shrill now…he’s gonna blow!!

Well, in a manner of speaking, he already blows.

Jan April 27, 2014 at 11:16 am

I’ll echo a question to Tyler that Andrew asked in the last anti-Piketty post.

“I would be interested to read your take on the recent yglesias interview of piketty. For example I hadn’t realized that he has suggested using revenue from a tax on net wealth in order to lower property taxes (which would also be considered a capital tax?). In that case there would be no net rise in the tax on capital, simply a change to make current capital taxes more progressive.

http://www.vox.com/2014/4/24/5643780/who-is-thomas-piketty

Sleazy P. Martini April 27, 2014 at 2:19 pm

Yglesias is the intellectual equivalent of a Seattle burrito.

Jan April 27, 2014 at 3:22 pm

You’re an intellectual heavyweight ;-)

prior_approval April 27, 2014 at 11:28 am

‘nor does he consider the notion that an increase in the bargaining power of elite executives could actually come at the expense of capital owners rather than workers’

Why would one think that the executives and capital owners aren’t members of the same club?

And here is Dean Baker – ‘The specific context is the pay of the CEO and other top executives at Coca Cola.

The company has recently been in the news since an activist investor calculated it had set aside $24 billion for management bonuses over a two-year period. An amount that came to $2 million for each person in the pool. Nocera focused on the reaction of Warren Buffett to this news. As a result of his control over Berkshire Hathaway, Buffet is effectively one of the company’s largest shareholders. Buffett has repeatedly complained publicly about outlandish CEO pay packages.

For this reason it seemed reasonable to expect that Buffett would use his shares to vote no when the pay package for Coke’s top executive was put to a vote. However Nocera reports that he chose to abstain. Buffett’s rationale, as relayed through third parties, is that it would have been too confrontational to vote down the package. Essentially Buffett said that he thought the pay was too high, but that he didn’t want to make waves. He also acknowledged supporting other pay packages as a director that he felt were too high in order not to make waves.

This beautifully illustrates the dynamics of CEO pay. This is not a market relationship, it is a deal between friends.

When it comes to the pay of ordinary workers, whether clerks in a Walmart or factory workers in the auto industry, the question is always whether the company can get away with paying less. If lower pay means lobbying against minimum wage hikes or shipping work overseas, it will be done in a second, no apologies made. The story is that the goal is to maximize profits.

Yet, the same corporate board members who tell us about representing shareholders’ when it comes to the pay of ordinary workers, somehow get all touchy feely when it comes to the pay of CEOs and other top management.’
http://www.cepr.net/index.php/blogs/beat-the-press/outlandish-ceo-pay-is-a-matter-between-friends

Keith April 27, 2014 at 1:50 pm

You do realize that your example from Dean Baker actually reinforces Tyler’s point, right? In Baker’s example, Buffett is a capital owner who lost money to executive compensation.

If you fail to see that this demonstrates Tyler’s point, then I infer that you are likely falling back on tribal identification at the expense of logic.

Sleazy P. Martini April 27, 2014 at 2:23 pm

Actually the point, which you’re too dense to grasp apparently, is that Tyler’s point is in fact a giant red herring.

Just another MR Commentor April 27, 2014 at 2:43 pm

Actually that’s just mood affiliation on your part

chuck martel April 27, 2014 at 5:48 pm

They’re obviously not representing shareholders, since profits that should be turned into dividends are going into executive compensation. What this means is that it’s foolish to own common stock in such companies because the stockholders are being cheated. Nobody seems to care about this as long as stock prices move up.

BC April 27, 2014 at 11:33 am

First, it seems to me that Piketty is correct that r>g. Rate of return has to be greater than g if people have finite wealth. (In valuing an asset, one must discount future cash flows at a rate that is larger than the growth rate of those cash flows if the asset has finite value. However, if r must be greater than g, then the fact that r is greater than g can’t by itself tell us anything about inequality or the growth of inequality.

Second, it seems to me that there is something fundamentally flawed with the way we measure wealth inequality. Suppose, two people, A and B, have the same wealth (including all human capital) of $10k, i.e., the present value of all their future consumption is $10k. Now, suppose after 20 years, A has consumed most of his wealth and has only $100 left. B has saved more wealth and has $900 left. The way we currently measure wealth, we would say that in year-20, B has 90% of the wealth and A only has 10%. But, how can that be if they started with equal wealth in year-0, and their was no new information in the ensuing 20 years that would cause us to reassess their year-0 wealth? (I’m assuming risk-free case.) We knew their planned consumption path in year-0 and agreed that they had equal wealth. Nothing changed in the ensuing 20 years, so how can they now be unequal?

Year-0 consumption is exchangeable with year-20 consumption through borrowing/lending at rate r. So, if r=5%, then if one as $100 in year-0, one can exchange it for 100*(1.05^20) = 265.33 of consumption in year-20 by lending $100 for 20 yrs. Conversely, if one expects to receive 265.33 in year-20, one can exchange that for $100 of immediate consumption by borrowing $100 for 20 years. Year-0 consumption is like an apple and year-20 consumption is like an orange. The relative price of apples to oranges is the interest rate.

In the example, A and B started with 10k apples. A exchanged 100/(1.05^20) = 37.69 apples for 100 oranges. B exchanged 900/(1.05^20) = 339.20 apples for 900 oranges. It would make no sense in year-0 to measure their wealth only in oranges while neglecting their apples, nor would it make sense to look only at apples while neglecting oranges. For example, in year-0, we would never claim that A is wealthier than B because A can consume 10k-37.69 = 9962.31 apples in 20 years while B can consume only 10k-339.20 = 9660.80 apples. The same is true in year-20. Wealth is measured by consumption across *all* time, just as it is measured by consumption across all goods (apples *and* oranges).

It seems, then, that our measurements of wealth distribution suffer from some sort of cognitive illusion caused by the passage of time. I have some more comments about inequality illusion along with an explanation of why r>g wouldn’t seem to tell us anything about inequality here [http://marginalrevolution.com/marginalrevolution/2014/04/assorted-links-1116.html#comment-158172585]

BC April 27, 2014 at 1:50 pm

More fruity observations. Think of immediate consumption as apples, near-future consumption as oranges, and far-out consumption (perhaps left to heirs) as limes.

(1) “Growing inequality” means that rentiers own relatively more limes than oranges than apples. Partly (mostly?) this may be because Piketty, or at least his reviewers, seem to *define* rentiers as those who prefer limes over apples (use of terms like “supermanagers”). Non-rentiers may have good reason to hold almost all their wealth as apples. For example, some might say that non-rentiers can’t “afford” to exchange apples for oranges and limes.

(2) If one cares about wealth distribution, the distribution of overall fruit ownership, the obvious remedy is a consumption tax or other *fruit-neutral* tax. The global “wealth tax” proposed by Piketty is mis-named because it actually taxes *relative* holdings of fruit, not total ownership of fruit. Limes are taxed more heavily than oranges, and oranges are taxed more heavily than apples.

(3) I don’t understand claims that a wealth tax will not encourage rentiers to hold more of their wealth as apples. Isn’t that the point of the tax, to “correct” the relatively higher rentier ownership of limes over oranges over apples???

(4) All fruit must be consumed by someone and all wealth must be held in the form of some fruit. If non-rentiers prefer apples over oranges and limes (1), then penalizing rentiers for owning oranges and limes *will also penalize non-rentiers for holding apples*. Every apple that a rentier refuses to exchange for an orange or lime is one less apple that can be held by a non-rentier.

(5) On r>g. g determines the amount of oranges and limes produced. r is determined by global consumption preferences. The more people prefer apples, the higher r must be to get them to hold oranges and limes. g is the lower limit for r. When people like limes so much more than apples that they are willing to give up an infinite number of apples for limes, then r=g. (See [http://en.wikipedia.org/wiki/Dividend_discount_model].)

BC April 27, 2014 at 3:27 pm

One more point on (4), I have taken the quantities of all fruit as given. That’s equivalent to assuming fixed “g”. The orange-lime tax (“wealth tax”) decreases demand for oranges and limes and shifts demand curve for apples out. So, we might very well have more apples (current consumption) at higher prices. “Price” in this case is r, the relative price of apples to oranges and limes. That’s the sense in which the orange-lime tax would be felt even by apple consumers: higher r. (Higher r is felt by non-rentiers either when they borrow to get more apple consumption or, equivalently, firms borrow against future orange and lime production to pay non-rentiers’ apple wages.) Since demand for oranges and limes would decrease, then fewer resources would be allocated to orange and lime production, i.e., less investment and lower “g”.

BC April 27, 2014 at 4:10 pm

I hate to keep responding to myself, but…from what I just said, the tax increases r and lowers g. It’s possible, as some claim, that g won’t be lowered very much. That would mean that the supply curves for apples, oranges, and limes are quite vertical. One can’t really produce more apples (current consumption) by giving up orange and lime production. A vertical apple supply curve, though, means that the same shift in demand causes a larger increase in r (price of apples in terms of oranges). So, whether r increases a little and g decreases a lot or r increases a lot and g decreases a little, r-g increases. But, doesn’t Piketty argue that large r-g is bad?

BC April 27, 2014 at 5:27 pm

Here is the conflict that Piketty and his fans face. The value of capital is actually *inversely* proportional to r-g, i.e., high r-g actually means that rentiers’ capital is worth less. See [http://en.wikipedia.org/wiki/Dividend_discount_model]. High g raises capital’s value by increasing the output produced by capital (growing dividend stream), and high r *lowers* the value of capital by increasing the rate at which such output is discounted. (Bond values and r move in opposite direction, for example.)

Piketty sees all the capital owned by rentiers and wants to decrease its value, e.g., increase r-g by taxing such capital. However, non-rentiers implicitly increase their immediate consumption by selling capital (giving up oranges and limes for more apples). They do this either by directly borrowing or, indirectly, through their employers. This last point is probably less appreciated: employers either borrow or issue equity, i.e., sell claims against future consumption (oranges and limes) to pay higher wages (apples) than they otherwise would have to non-rentiers. So, the more that Piketty decreases the value of capital, the harder it becomes for non-rentiers to increase their current consumption by selling capital. This point seems to have been lost so far.

Beefcake the Mighty April 27, 2014 at 7:45 pm

@BC

Please, shut the fuck up.

DD April 27, 2014 at 11:42 am

The gist of Piketty: Interesting data plus naïve curve extrapolation on steroids.

Lord April 27, 2014 at 1:11 pm

Talk about ignoring what “r > g” means.

Lord April 27, 2014 at 1:35 pm

This work is primarily a collection of data. Before anyone thinks his theory may be wrong they should ask themselves whether theirs is consistent with the data because all I am reading is a lot of stories that aren’t.

Yancey Ward April 27, 2014 at 1:59 pm

What good is r if it isn’t eventually converted into consumption? I asked this on another blog, but who would accumulate 10,000 oil rigs if he was the only one consuming oil? Even if r > g is true, it seems to have non-serious limitations in reality, even if you assume the wealth isn’t dissipated by heirs.

derek April 27, 2014 at 9:13 pm

Or owning real estate assets. How does it appreciate? Paying yourself rent? No, there is demand for space that someone is willing to pay for.

Or any income producing assets. If nobody was buying ice cream, Buffet’s investment in Dairy Queen would be worth nothing.

This silliness reminds me of a conversation a friend had with a neighbor. My friend was a businessman, worked very hard and collected assets. His neighbor worked for the government, and was saying how good business people have it, being able to make all this money and collect all these assets. My friend asked him how old was he when he retired, and what income did he have including benefits, for how long? My friend then informed him that to have the equivalent for himself he needed about $3,000,000 dollars in cash and assets when he retired.

So I’ll make a deal. You take my assets, but in return all government employees relinquish their pensions. Let them live on Social Security. For Equality!

Floccina May 11, 2014 at 7:45 pm

This silliness reminds me of a conversation a friend had with a neighbor. My friend was a businessman, worked very hard and collected assets. His neighbor worked for the government, and was saying how good business people have it, being able to make all this money and collect all these assets. My friend asked him how old was he when he retired, and what income did he have including benefits, for how long? My friend then informed him that to have the equivalent for himself he needed about $3,000,000 dollars in cash and assets when he retired.

Very true. I am part owner of the business that I work for and after many years I began to make high income but my brothers who both work for the federal government had much better lives overall and have more secure and valuable retirement assets than me (no one in the Fed Gov. offered me a job) but one brother thinks I am rich and should be taxed more. Their pensions are worth a lot.

BTW: The assets that the lower half (by life time income) own like SS, Medicare, cars are usually not included in measures of wealth

Lord April 28, 2014 at 7:02 pm

What is more desired than consumption? Power.

Thomas April 29, 2014 at 3:39 pm

When the government-crowd is clamoring about the power of businessmen, projection.

lonelyLibertarian April 27, 2014 at 1:24 pm

For some reason this whole Piketty kerfuffle brings back memories of that great classic that proved so true in predicting our current state – “Limits To Growth” – [I still have my original copy-a first edition] Economists are so good at prescribing and predicting – we need them to do more of this sort of thing ;-)

Rich Berger April 27, 2014 at 2:07 pm

I was thinking along the same lines as I walking my dogs this morning – this is similar to the global warming, sorry “climate change” scare. If we don’t do x, doom will follow. Coincidentally, the solution is more government power.

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Just another MR Commentor April 27, 2014 at 2:42 pm

Finally some insightful commentary

Martin April 27, 2014 at 3:32 pm

What do you mean? Neither was “Limits to Growth” written by economists, nor did economis think it was a good piece of work. Here is William Nordhaus on the book:

http://ideas.repec.org/a/ecj/econjl/v83y1973i332p1156-83.html

Here is Nordhaus again, with comments by Stavins and Weitzman, revisiting the debate – and also making the point that “[b]ecause boys have mistakenly cried “wolf’ in the past does not mean that the woods are safe.”
You will also find that greenhouse gas emissions (and environmental impacts of economic activity in general) do already figure in his debate:

http://ideas.repec.org/a/bin/bpeajo/v23y1992i1992-2p1-60.html

Of course, it was exactly Nordhaus who quasi invented Integrated Assessment Modelling – the very tool that allows us to calculate Social Costs of Carbon. Kerfuffles about its quantity – the assessments of which differ considerably – aside, there is not much doubt that it is indeed a cost, not a benefit:

http://ideas.repec.org/a/eee/dyncon/v37y2013i5p911-928.html

So, I do not quite get the connection between Limits to Growth and the call for a carbon tax when it comes to economits: it seems to me that economits dismissed the first, but are calling for the second. These are very different debates.

Ray Lopez April 27, 2014 at 1:38 pm

Piketty–didn’t Jim Carrey do a movie with this theme? Lemony Snicketty.

As for the review, it is unsound, since the reviewer states: “I’m not making an argument for either here; I’m simply suggesting that Piketty’s ideological quips don’t deserve the certainty with which he delivers them. Models with endowment economies have their purposes, but a 600-page book should be able to relax such strict assumptions. His criticisms of mathematical economics (32, 574) are not surprising given that he relies so heavily on assumptions and mechanisms that would be highly vulnerable to criticism if they were forced into the transparency of a formal model. -”

1/ The reviewer is not making an argument for “either” yet simply cautions Piketty may be wrong. You can say that for anything.

2/ Simply putting a model into mathematics, with the assumptions stated clearly (“transparency”), does not make the model sound (or unsound). Hence again the reviewer fails to point out where Piketty is clearly wrong.

triclops April 27, 2014 at 1:57 pm

You missed the point of those criticisms. Both the points you take issue with are just ways of saying “prove your assertions”. If Picketty’s data don’t prove his assertions, then the criticism is valid, whether one has alternative theories or not. Unless the point of criticism is just mood affiliation.

Ray Lopez April 27, 2014 at 2:47 pm

@triclops- don’t be ridiculous triclops. If the data was unambiguous, and the issues were cut and dried, then there would be no debate. Does anybody debate anymore whether the earth travels around the sun? Picketty has proved his assertions, in his tome, as best he could, and now the critic of Picketty must prove he is wrong.

BTW just to show my bias, I think Picketty is wrong for the reasons set out by the reviewer in REASON magazine: wealth dissipates over time even if capital is more valuable than economic growth, so the inequality issue is a red herring to a degree. But the problem is: ‘over time’ may not satisfy many people. After all, most horizontal cartels dissipate over time say economists, due to cheating by cartel members, yet this fact did not stop the US from adopting, due to muckrakers back in the Progressive era, the onerous Sherman Antitrust acts that broke up many arguably beneficial natural monopolies.

Jay April 27, 2014 at 4:14 pm

Reading left-wing reviews one can conclude this… Picketty either makes NO ASSUMPTIONS in his work or any ASSUMPTION he does make has a 0.000000000000000000000000000000000000000000000000% chance of being incorrect.

lonelyLibertarian April 27, 2014 at 4:19 pm

I have found that I differ from my fellow Libertarians – hence part of why I am “Lonely” very much on the issue of inheritance taxes.

I am fully in favor a confiscating all wealth not distributed at the time of death – up to that point I am fine with donations – family gifting [with some limits]
and perhaps some other tax favored ways to take care of special needs – family member with chronic condition – high health care needs/expenses.

I believe that the current exemption is $5 Million – I would reduce it to $1Million.

So Piketty and I are in agreement on one thing at least.

I did not feel this way for a long time – but was convinced after reading Warren Buffet’s rationale for how he is treating his children.

Jimmy Alteri April 27, 2014 at 5:21 pm

If the desire is to go after the 1 percent and prevent great generational feudalism, 5.34 million is plenty low. Anything substantially over that is impossible to hide from the estate tax. i doubt Piketty even knows the basic law in the united states.

If your desire to saddle small business or closely held companies heirs with massive tax bills and destroy the productive capital, 1 million is great. Not to mention every estate lawyer in us would love it because it creates substantial business for them by creating massive legal compliance-related costs. Generally such behavior is not consisted productive uses of capital.

lonelyLibertarian April 27, 2014 at 5:50 pm

I am more than willing to learn and rethink my POV on this…

BUT – can’t small businesses and closely held companies find ways to preserve themselves without having to make Johnny and Susie millionaires – and as for the estate lawyers – go for it – but you won’t be passing on anything to little Stevie and Jane.

I am honestly asking – point me to something that you think makes the case for passing on wealth to those who have done little or nothing to earn it – other than being born to the right parents – in the right country.

I am not a big fan of either genetic or geographic lotteries.

The first thing I tell all my inequality idiot friends is that if you make more than $10,000 a year you should be sending the excess to Mali or Somalia if you really think income inequality is a serious problem that needs to be addressed.

Mark V Anderson April 27, 2014 at 9:14 pm

Lonely Libertarian is absolutely correct. If a business person wishes for his business to survive his death without passing it to heirs he simply creates a corporation and issues stock. When he dies his stock goes to his heirs, and the business itself is preserved. If most of his estate is taxed away, then the stock ends up in the hands of the government. I don’t particularly like the idea of the government running businesses, but there are ways to get that stock back into the marketplace.

You aren’t quite so lonely, because I am mostly libertarian, but I do think that the estate tax is the best tax there is because it is a tax on dead people. Unlike all other taxes, what distorting incentives does it create? An incentive to stay alive? And it has the additional benefit of not creating lazy heirs, and taking away the best argument that socialists have against the free market.

Beefcake the Mighty April 27, 2014 at 11:36 pm

It’s probably an alien concept to you, but you might want to consider why people should have to defend passing on their wealth to their offspring.

Thank God you’re lonely.

prior_approval April 28, 2014 at 2:02 am

‘why people should have to defend passing on their wealth to their offspring’

So, you hate anyone with a “We are Spending our Children’s Inheritance” bumper sticker?

Thomas April 29, 2014 at 3:44 pm

PA illustrates that he doesn’t know the difference between choice and compulsion.

Turkey Vulture April 28, 2014 at 11:59 pm

I am some form of libertarian that favors, in the abstract, substantial inheritance taxes to reduce hereditary wealth. However, the more seemingly-all-encompassing the tax, the more those with wealth will be willing to pay accountants/lawyers to find ways around the tax, and pay lobbyists to keep such loopholes in place or create new ones. Because even a fairly low threshold (like $1 million) would only affect a tiny portion of the population, most voters wouldn’t care a whole lot about the existence (or growth) of these loopholes, so they would tend to last for a long time. Maybe there would be wide support for the initial institution of a lower threshold and higher tax rate, but the tax’s effectiveness will quickly be whittled away.

Thomas April 29, 2014 at 3:46 pm

One problem is that you cannot adequately account for value. What, for instance, is the value of being born to Bill and Hillary Clinton? Isn’t Chelsea Clinton’s 5.34 million dollar threshold already met by virtue of who her parents are?

Ethan Glover April 27, 2014 at 4:45 pm

With all the reviews rushing out, there’s no need for me to waste time on such a book. ;)

Jimmy Alteri April 27, 2014 at 5:16 pm

Arent Piketty preferred policy already implemented in France (socialist leadership, wealth tax, measures against inequality). How exactly is France doing at this point? Why would those policies be any better on a world wide scale?

Willitts April 27, 2014 at 11:09 pm

It must be America’s fault.

Todd K April 27, 2014 at 5:57 pm

When this goes to audio format, it will be abridged to cover maybe a fourth of the book. Guess which parts will be cut way back and which will be the main parts?

Tom April 27, 2014 at 6:51 pm

This website seems to only want to post (predictable) libertarian reviews of Piketty’s book; I’m sensing an number of these authors haven’t really read the whole book.

Wheelchair Fred April 27, 2014 at 7:47 pm

yer mama gave me krabz

Kaleberg April 27, 2014 at 8:51 pm

“Most of the analysis in the book is more about accounting than economics.”

That’s very insightful. Most of modern economics makes NO sense from an accounting point of view. People are supposed to save money rather than buying food. Businesses are expected to provide goods and services that no one has money to pay for. It’s totally weird. Any theory of economics that doesn’t produce sensible accounting is essentially bogus.

Beefcake the Mighty April 27, 2014 at 11:01 pm

Why?

Otto Maddox April 27, 2014 at 9:56 pm

The reason that the Left is celebrating Piketty’s book is they can now discard the tired old ideas of a dead, white European male for the tired new ideas of a live, white European male.

Dr. Heathen Scum April 27, 2014 at 11:03 pm

Your wife needs to shave her back.

Roger McKinney April 27, 2014 at 10:06 pm

Nice review. I liked Cowen’s review in Foreign Policy, tool. But I think everyone is missing the truth about how millionaires in the US got their wealth. According to Dr. Tom Stanley of “The Millionaire Next Door” 85% earned their wealth over 30 years by growing a business. Only 3% inherited their wealth.

Oderus Urungus April 27, 2014 at 11:26 pm

┌∩┐(◣_◢)┌∩┐

Todd K April 27, 2014 at 10:58 pm

But we are talking about billionaires here. Or at least those worth $50 million.

Alan April 28, 2014 at 2:19 am

I confess genuine lack of knowledge and understanding here.

Writers who make superficially plausible criticisms of capitalism are a dime a dozen and their books fall dead born from the press every week. Why does Piketty, amongst all these, arouse such fear and rage?

whatsthat April 28, 2014 at 2:20 pm

eh what, Picketty is doing accounting not economics? What sort of criticism is this? What else is benefit and cost apart from accounting?

might I remind everyone of McCloskey’s “Schelling’s Five Truths of Economics”

“Schelling figured out that what economists truly know, and non-economists do not, are matters of accounting.”

peter April 29, 2014 at 9:25 am

Economics takes endogeneity into account. Accounting just looks at the budget constraints.

Nathan W April 29, 2014 at 10:16 am

Has anyone here ever seen real world data which actually respected all the rules required to satisfy step ONE of many mathematical empirical processes?

If so, it’s rare, no?

The discipline of mathematical modelling too-often hides a multiplicity of theoretical weaknesses which are disregarded every step along the way.

However, Piketty would presumably do well to weigh his more “reasoning-based” arguments against formal mathematical constructions to see where he needs to get his thinking cap on, and how he should confront (or accept the value of) those differing conclusions/processes.

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