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Piketty will be to the 21st century what Keynes was to the 20th century.

Starting to wade through Piketty, and what is jumping out early on is his constant equivocation between absolute and relative levels of wealth. I.e. his statements are repeatedly ambiguous as to whether he means that (a) inequality is rising; or (b) the lower half of the distribution is actually becoming more poor.

He even commits this error on the first page, by referring to Marx's claim about the "immiseration" of the working class as a claim about relative levels of wealth. He also mentions early on that Marx's problem is that he didn't have enough data, and omits that fact that his core theoretical claims (labor theory of value, surplus value) are at best highly questionable.

"A rise in the price of labour, as a consequence of accumulation of capital, only means, in fact, that the length and weight of the golden chain the wage-worker has already forged for himself, allow of a relaxation of the tension of it....

The rise of wages therefore is confined within limits that not only leave intact the foundations of the capitalistic system, but also secure its reproduction on a progressive scale. The law of capitalistic accumulation, metamorphosed by economists into pretended law of Nature, in reality merely states that the very nature of accumulation excludes every diminution in the degree of exploitation of labour, and every rise in the price of labour, which could seriously imperil the continual reproduction, on an ever-enlarging scale, of the capitalistic relation. It cannot be otherwise in a mode of production in which the labourer exists to satisfy the needs of self-expansion of existing values, instead of, on the contrary, material wealth existing to satisfy the needs of development on the part of the labourer"

Immiseration thesis isn't strictly about declining absolute wealth.

MLTV is a proto-subjective theory (what do you think *socially necessary* abstract labor time is?)

Nothing particularly problematic with surplus value per se.

Ryan Decker's is the only review of Piketty I've seen that seems to have been written by an actual economist, and it is actually kind of scathing.

(Anyone who's read the book: does Piketty's model actually assume that the return to capital r is the same as the growth rate of capital? That seems to be implied in Branko Milanovic's review.)

To be precise, I'm not a real economist. Just an PhD candidate. I didn't mean for it to be scathing, though it did come off that way. I really enjoyed the book, but as you can see I had a lot of complaints.

What Piketty assumes is that r is greater than g, permanently. He devotes a few pages to defending this, but the bulk of the book assumes that it holds.

But what does he assume about what determines the growth of K? I can't tell from any reviews, which is strange since this seems to be the main point of the book.

He focuses not so much on K but on K/Y, the capital/income ratio. He characterizes this using the Harrod-Domar model (though he doesn't say that, nor does he provide the derivation in the text). In the long run, K/Y = s/g, where s is the savings rate, or portion of income that is saved (taken to be constant and exogenous) and g is the growth rate.


He doesn't provide a derivation of his key model in a 400 page book?? No wonder reviewers are confused.

I believe s in his model is savings net of depreciation, which seems kind of strange.

My economic classes are too far behind me. Can you explain in short why K/Y should be equal to s/g?

This is something that bugs me about macro-economic models. They usually give a pretty heavy role to r, interest rates or s, saving rates. But, imho, they have little to do with real output in a modern economy with fiat money.

Frederic: K/Y need not equal s/g, even though Piketty calls this a "law". It's a heuristic that comes from the Harrod-Domar model. If you assume a constant growth rate of output, constant saving rate (net of depreciation), and constant K/Y, you can derive this result from the standard savings=investment equation. See

I'm not sure I follow your comment about modern macro models and s.

Good read, Ryan. I think this other post from your blog is apropos:

Thanks Andrew! Yes the Karl Smith posts had me thinking for weeks.

I take yours and Smiths posts as fairly strong evidence for a land-value tax funded universal basic income, as opposed to what (I think?) Picketty is proposing.

#2 Because the empirical evidence doesn't lend itself to the Marxist's capitalism being self-limiting prophecy, piketty's conclusion is the most likely outcome: growing inequality is permanent and there's noting anyone can do to reverse it. Furthermore, inequality is optimal to economic growth, or a byproduct of an economy running optimally.

#7 too big to fail policy was a success. some institutions are to big to let fail

"Furthermore, inequality is optimal to economic growth, or a byproduct of an economy running optimally."

Check the studies by Berg & Ostry at the IMF (2011, 2014) Models are models. And there may be (surely is?) a non-linear relationships between inequality and growth.

Apparently Piketty is getting mostly negative reviews in France, LOL.

Why should we care about the reviews it gets in France? Just because he's French? Specious... Besides, "cheap Marxism" sounds like lazy name calling.

#4 is broken

Disagree with with the part about “patrimonial capitalism,”

"Six of the 10 wealthiest Americans are already heirs rather than self-made entrepreneurs…. "

That's because the Walton family skew the list. I can think off the top of my head dozens of self-made billionaires. Mathematically, the wealth will still even out. If a billionaire has a kid he will inherit 1billion. This can continue indefinitely, but there is still only one billionaire on the roster provided there are no costly divorces or multiple progeny per generation. If parents have multiple kids and divorces, the wealth will be diluted, which is the most likely outcome. Iterated over a couple centuries and there probably won't be much left.

Honestly, based on the original #4 link, I'd like to hear more about the "Austrian, Virginia, and Bloomington schools of political economy" that are discussed as part of the Adam Smith Fellowships.

And because Krugman counts the Koch brothers, although according to Wikipedia they expanded the business they inherited by a factor of 2,600. The way he writes you'd think they were like Lord Grantham from Downton Abbey. (Somehow I doubt he'd make this mistake if they were giving their money to Democrats instead of Republicans.)

If you actually look at how the Forbes 400 has changed over the years, you see it's now less dominated by inheritance, the opposite of what Krugman claims. See Kaplan and Rauh here:

Krugman is so dishonest it makes me sick. And I favor a larger inheritance tax!

"according to Wikipedia they expanded the business they inherited by a factor of 2,600."

As they say, the first billion is the hardest.

To call Krugman dishonest is an insult to dishonest people....
Actually, I think he's incompetent, which magnifies his dishonesty.

You're acting as if that $1 billion is static. It's not. Let's say that kid manages to get a 10% rate of return on that billion. That's $100 million the first year, and assuming they don't spend all that, even more the second. It'll be less than a decade before that $1 billion becomes $2 billion. Even with a lower rate of return, the fortune is going to grow at a decent clip. Yes, the per person fortune will likely shrink over time, but at a slower rate than you're imagining (if at all). After all, the Rothschild family is still going strong and there are still some pretty well-off people with last names like Carnegie, Rockefeller, Vanderbilt, etc. Sure, the $80 million that a great-grandchild of a robber baron may pale in comparison to their great-grandfather's fortune (adjusted for inflation), but they're still able to make millions a year from interest alone. On the other hand, had such families not engaged in so much philanthropy over the last century, they'd command much higher fortunes.

Plus, you're forgetting that rich families tend to marry into rich families precisely to prevent this.

8. Rampell's departure was one of the grievances mentioned in that Observer piece about the NYT opinions page: “It would never even occur to [Andy] to take a 33-year-old economics reporter and make her an op-ed columnist, but it’s just the kind of jolt his page needs.” When Broder made the same move 40 years ago, it caused a lot of soul searching.

#3(b) is a market for custom printing, not "a" product.

And I'm surprised Prof Mankiw covered it in his blog , after the poster gathered just 4 votes. I tried " KEEP CALM AND REVOLUTIONISE MARGINALLY" , but ran out of space/

5. In my state (Florida) the general rule is that restrictive covenants in employment agreements are enforceable (if necessary to protect a legitimate business interest and reasonable as to duration and geographic scope). However, there's a wide variation among trial judges in the way they are enforced, some judges taking a freedom of contract approach (you signed it, you abide by it), others a hostile approach (it's un-American!). As a result of the uncertainty over enforcement, almost all restrictive covenant cases are settled, so there's not that many reported cases. My legal practice is in health care, where restrictive covenants are common in employment agreements with physicians. Again, the general rule in Florida is that restrictive covenants are enforceable against physicians. However, the trend is not to enforce geographic covenants and to limit enforcement to poaching (i.e., the former employee can open her practice next door but cannot poach her former employer's patients or contracts). My experience is that the existence of a restrictive covenant combined with the belief that it's enforceable discourages physician employees from changing jobs. Is that a good thing? In an industry, such as health care, that is going through rapid changes, public policy might suggest that greater freedom for employed physicians to move from job to job would accelerate the changes and improve the overall delivery of care and efficiency in the industry. That's not to downplay the significance of training, which is a factor that court's apply in determining whether to enforce the restrictive covenant (i.e., if the employer provides specialized training, the covenant is more likely to be enforced by the court), but to acknowledge the competing considerations.

#6. The world’s highest wind turbine.

How does the economics work out? They sell at $0.18 per kilowatt-hour. Even with a super generous capacity factor of 0.6 they are barely making $30,000 every year.

Is that enough to pay for the turbine + blimp + steel tethers + winch + power equipment + controls etc? Plus it must cost money to move it to site & fill it up etc.

They company says they expect to be able to sell electricity at 18 cents a kilowatt-hour, so I guess they think that in the future they will be able to produce these at under $200,000 per 30 kilowatts. And these predictions don't always pan out. It's an interesting idea, but I think they'll be in for a lot of competition from solar plus batteries (or other energy storage) for remote/emergency power. Small ground based wind turbines will also provide competition.

Can someone please tell me what system where power/wealth does not accumulate in the 1% or very top? Do you think you saw a lot of equity under the Pharaohs? Or under a Ceasar or King? Under Stalin or Mao? Among tribal nomads?

Why would someone criticize capitalism for not producing something that no human system has produced? Indeed, under capitalism at least I have a chance.

Pretty much any society that's larger than a few hundred people is going to see inequality and hierarchy - it's just too difficult to manage directly beyond that level, even if they have a strong tradition of direct democracy.

Few would quibble with your characterization. But while it may not bother you, many are concerned with the undue influence that accumulated wealth increasingly exerts on what is supposed to be a democratic political system.

Is the concentrative tendency inherit to capitalism itself though or to the centralized banking system lording over it?

Accumulation itself isn't the problem, it's the extent of that accumulation. We're at a point now where some make $8/hr and some make $1,500,000 / hr. A world where someone makes $8 / hr and another makes $1,500 / hr is still hardly equitable, but it is less severe.

I was surprised at where the Economist landed on the hitler-o-meter. What does that say about its quality? Has it gone up or down?

Regarding Christensen's work, I have an improvement on the equation of exchange, motivated here:

... that gives some quantitative forecasting results (we'll see how accurate they are):

1. I read Piketty's book this past weekend. Since he takes aim at marginalists in the final chapter, I don't believe he will be invited to Cowen's house for the holidays. It would improve the debate if the issue of inequality is addressed as an economics issue rather than a fairness or moral issue. Alas, it's not to be. I view inequality as an economics issue, and in that vain, here are my comments from reading Piketty's book. First, Piketty does a good job in distinguishing inequality in income and inequality in wealth, and, within income, the differences in inequality in income from capital and inequality in income from wages; it's the creation of inequality in wealth resulting from excessive inequality in income that over a relatively short period of time can cause overall inequality to increase very rapidly, as more and more income (i.e., the income from capital) insures to the already wealthy, ultimately leading to social chaos and economic collapse (Piketty's prognosis). Second, his is mostly a European perspective (Piketty is French), which is most apparent in his explanation for the decline in inequality (mostly in wealth and income from capital) in Europe during the period 1915 to 1945: the physical destruction of capital in the two wars. Third, due in part to this perspective, Piketty doesn't believe financial crises alone will mitigate inequality (he assumes governments and central banks will intervene as they did in 2008-09 in the event of another financial crisis), and promotes tax policy as the primary (only?) means of mitigating rapidly rising (and economically and socially destructive) inequality (in the form of a progressive wealth tax). My observation is that the precipitous decline in inequality in America following the financial collapse in 1929 (inequality in wealth and inequality in income from capital fell precipitously, but inequality in income from wages declined hardly at all in America following 1929) was attributable to the destruction in the value of capital, not its physical destruction, which might suggest that excessive inequality (i.e., so high that it causes unacceptably low rates of return on capital, excessive speculation, and financial instability) alone is self-correcting. Of course, another world war would do the trick.

#2. I subscribe to both the Times and Economist and I'm surprised the Economist wins Hitler references by a landslide. Perhaps the Times is now slacking. Back in the 1990s, I noticed an unusually high number of Hitler references in the Times. I started to count consecutive days of Hitler references. I hit 80+ straight days when I finally gave up.

If you're going to discuss an issue with any sort of intelligence or credibility, you need to address the main research on that issue. Picking One Study and throwing it out like you've won your argument is asinine, unless you really don't care about studying the issue, in which case your just revealing your biases. If you think revealing your personal biases is of some great import to the world, then, by all means, do so. I need a few good laughs every day. And, yes, I am guilty of this too, but I hope I don't mind being corrected...too much.

As for Piketty's book, I realize it's long and possibly a bit of a chore to get through, but people might try actually reading it. G-d forbid you learn something that makes you reconsider or, at the very least, question your beliefs about an issue.

"case your just" should be "case you are just." I made a mistake, and would not have minded being corrected.

"Because serious trouble—demonstrations, strikes, insurgent political movements—is what it will take to derail capitalism’s inevitable tendency toward concentration. Short of that, it looks like we’ll be continuing our journey along the road to a new serfdom."

Does capitalism possess an intrinsic inevitable tendency towards concentration?

In nearly every instance of capitalistic systems, concentration seems to occur at the point of some exogenous limiting factor leading to monopolistic formations: land (property rights, utility companies), zoning, IP, professional licensing and accreditation... central banking. A single giant centralized faucet pours currency into the financial sector where it slowly trickles down (or not) into the rest of the economy, and the problem with this picture is the unfettered market?

The source of the problem is more capitol than capital.

Returns to capital that can be massively networked are very high. Returns to labor that cannot be as effectively networked will lag. Layer on a reduction in quality of the labor force and the overall effects are not surprising. For a while (forever?) there are positive feedbacks to the capital networking effect, so the returns don't get reduced that much by increasing capital investment. This is kind of what is going on with the information based economy. The solution is to pay people in capital or redistribute capital ownership. Who will own the Matrix? Another idea is for labor to refuse to participate in the Matrix without being fairly compensated. But they won't. The argument that this requires a new type of political economy is not completely silly.


Its pretty obvious that state-capitalism tends towards a world with a greater stratification of wealth. Its just as obvious, however, that state socialism likewise leads to at least a similar stratification and an even greater stasis of class structure and a decline of mobility and wealth creation.

The alternative that was never given a real hearing in the twentieth century, after it had achieved a very great deal of development and technical sophistication towards the end of the nineteenth, is anarchism.

Markets are not equivalent with capitalism. The creative destruction and tendency towards equilibrium that classical economics predicted as emerging from true markets are still as valid as they ever were. What has interfered with such processes has been heavy state interference in the form of subsidies and patent law. Remove these, allow the formation of true mutual aid societies and the creation of real forms of unionization and self-employment, and we might just finally find a way past these very old problems.

At least we'd be trying something new instead of just rehashing the same old failed ideas.

Ryan's blog and comments are good Piketty.
I strongly favor more land value taxation, and even progressive land value taxes with an initial exemption of 5 times the prior year's median tax payer's income (in all countries with an income tax), the "median annual income".

I also favor a limit on IP (= govt monopoly) protection for sale to 20 times (years) of median annual income per book, movie, sw game or other digital entertainment, with a 100 years maximum protection per creator. This limit ends govt enforcement against digital sharing. A related alternative is to have an increasing tax on IP digital products based on their prior sales so that at the limit, a "$10" DVD or CD might include $9 in tax for a sale price of some $12-15, reducing sales and especially returns to the already proven rich & successful.

The "wealth" based on IP is govt directed monopoly protection, in support of greater creative endeavors and allowing the market to more clearly reward the most desirable IP products. Income inequality that doesn't address govt monopoly support for digital product artists is missing quite a lot.

Inheritance taxes should include some similar exemption, like 100 years of median income (about $5 million now), with taxes on amounts over that, and possibly even progressive taxes.

Finally, house buying payments should be 50% deductible (or 30%?), up to the 20 times median income (about $1 mil) per lifetime per person -- but NOT just interest. The interest deduction value over time accrued more to the banks than to the house buyers, so that the amount of equity wealth owned by home owners is far less than it would have been with the house buying payment deductible above.

Note that when given a choice of increasing their equity capital by not borrowing, or using house equity to borrow and consume more, a huge number of Americans chose current consumption over capital accumulation. It's extremely unrealistic to expect any policy that allows freedom of choice between capital increase with less consumption, or more current consumption, to favor increasing capital for those who prefer more buying today.
I don't know if Piketty looks at the numbers of middle class Americans who bought and paid off their homes, rather than consuming more with less capital appreciation (and reviews haven't noted it).

The only realistic way to reduce wealth concentration at the top is to increase govt supported incentives for capital increases in the middle, including less current consumption. It's unrealistic to expect much capital saving for the absolute poor, but having Chile like retirement required savings books instead of just Soc Sec would be helpful.

6. Seems a likely competitor especially for remote islands.

Here is the worlds biggest turban:

@ dave smith: "Tribal nomads" were obviously much more egalitarian. Agriculture needed to be invented to create real "Stored Value" which started the inequality curve.

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