Clive Crook writes: Piketty’s Capital was certainly the book of the year in its timeliness. It sold over 500,000 copies. The subject of inequality has come to the fore worldwide. In the US, it is sure to be a central topic in the 2016 presidential campaign.
Whether or not Piketty’s analysis is correct is a subject of hot debate among economists. The basic formula, which argues that the rate of return on capital is greater than the rate of economic growth, The fact that r is greater than g, he says, tends to give owners of capital an increasing share of national income; unless this is offset, by global warfare or other interruptions, it serves to widen inequality.
This formula has been contested and recently Daron Acemoglu (MIT) and James Robinson (Harvard) took the book to task. One problem with this, as Acemoglu and Robinson explain, is that g and r aren’t independent, as Piketty’s reasoning requires. Piketty’s view about the future gap between r and g is a conjecture not a deduction, and one that’s at odds with most of the empirical evidence. Even if r did perpetually exceed g, many other factors — including a relatively modest amount of social mobility — would be capable of offsetting the effect on income inequality.
The point is, what Piketty calls laws of economics aren’t, in fact, laws. They aren’t even well-established empirical regularities. Acemoglu and Robinson:
The reader may come away from these data presented at length in Piketty’s book with the impression that the evidence supporting his proposed laws of capitalism is overwhelming. However, Piketty does not present even basic correlations between r-g and changes in inequality, much less any explicit evidence of a causal effect. Therefore, as a first step we show that the data provide little support for the general laws of capitalism he advances.
The obsession with inequality demanded, so to speak, an academic testament, and that’s what “Capital” provided. Piketty’s economics leaves a lot to be desired, but his timing was fantastic.
