Saturday, June 7, 2014

Piketty's Introduction - Part II

This is a four part series going through Thomas Piketty's Capital in the 21st Century the parts can be found here:
Part I, Part II, Part III, Part IV

After only suspecting it from press accounts, picking up Piketty's Capital in the Twenty-First Century has convinced me by the second paragraph of its introduction that it desperately needs a thorough fisking. I'm picking up here from page 7 on the introduction.

Wages are not hard linked to economic growth in capitalism. Wages are an epiphenomenon of the supply and demand of labor. With the countryside emptying out in a rush during the early industrial revolution, capital and labor became strongly unbalanced. The reasons for this were good. Increased yields from new technology led to less starvation and less need for farm labor. Unsurprisingly this led to low and stagnant wages at the urban receiving end until this huge wave of labor was absorbed and capital pools grew to a level that led to the bidding up of wages as capitalists had to start to compete for workers in a more serious way. Nobody who has gotten past undergraduate economics should be surprised, yet Professor Piketty seems surprised writing about the period "[t]his long period of wage stagnation, which we observe in Britain as well as France, stands out all the more because economic growth was accelerating in this period." This seems to be coming from a milieu of social justice and not economics. That would be fine if this were not an economics book. Or is it?

On page 9, Piketty passes over one of the greatest failures of Marx, the pretense that his vision of communism was scientific. A scientific communism is a communism that runs an experiment and when the experiment fails, it stops. Marxism never stops. It just gets new excuses.

It's only page 10 and Piketty seems to be undermining one of his previous statements that inequality inevitably leads to violence with the observation that inequality still was increasing in WW I but since wages were catching up, the spectre of proletarian revolution was receding in the advanced industrialized world. Is this what he means by "modern" economic growth? There's nothing particularly modern about absorbing and correcting a surplus of labor with the creation of new enterprises to occupy them.

Piketty is once again unduly kind to Marx by excusing his failure on a lack of statistical information. "If only the [great man] had known" is the cry of suckers who believe in failed systems and Piketty is engaging in that a bit here. It is particularly relevant to note that Marx's labor theory of value does not work. Marx raised important questions. So can a five year old. Such an act, unaccompanied by correct answers is not the stuff of greatness. Here Marx, have a cookie for asking an interesting question. Now go stand in the corner of historical villainy for making the gulag possible. Piketty has lousy taste.

Accumulated wealth is ultimately of two sources, gathered and/or maintained by violence or gathered/maintained by skill. The former is to be condemned and fought against. The latter is intergenerationally unreliable (ie over the scale of time that generates social instability). Societal measures should target only the first. Piketty's preferred solution to the problem targets both. People do not go out into the streets to fight against Bill Gates riches in relevant numbers because manifestly he is doing a world of good, as do many of his peers. The Democrat party's obsession with the Koch brothers is relevant here. Explaining both why the Democrats have made them their great white whale and why ultimately it's not giving them the political traction they hoped.

Piketty is in love with statistics and so I see why he might think that income tax is "useful for establishing classifications and promoting knowledge as well as democratic transparency" in his discussion on Kuznets. The usefulness of this information is a bit counterbalanced by the enabling effect on envy and the almost inevitable reduction of societal solidarity. Pity he doesn't mention those effects. They must not fit his narrative. In a book devoted to the ill effects of inequality, it's a little surprising that he's overlooking this contribution to those ill effects.

Kuznets, with his eponymous curve, seems to be the big elephant that Piketty is aiming at. He calls it "magical", a term not usually professionally complimentary. Kuznets must be discredited for Piketty's thesis of dangerously growing inequality to have a chance. The Kuznets curve was "a product of the Cold War" which implies but does not say that it is wrong. The moon landing was a product of the Cold War. Does Piketty cast doubt on that because of its provenance too? Let's try it on for size, the "magical Kuznets curve" matched by the magical moon landing? I think not.

The Kuznets curve will stand or fall as we end up in a sufficiently long period without huge exogenous shocks that mask the effect if it's present. Piketty's snark doesn't move the conversation along.

Once again this is getting too long for a blog post. If I keep up this pace of analysis, I will be posting another 81 posts on this book. I may have to take lessons from Stephen Green towards the end. I don't think I'm going to make it in six more days. As annoying as finding these problems in Piketty's work, the thing is intellectually stimulating, probably in ways that Piketty didn't intend. For instance, it seems like under Piketty's analysis of global inequality, communism was anti-egalitarian. Now that would be an interesting interview question for Piketty but unlikely one that he would face.