21 ms·

Thomas Piketty’s Capital in the 21st Century, in 20 minutes (2014) [video]

279 points by based2 10y ago

VodkaHaze 10y ago
In the interest of giving the fuller discussion: Picketty's book has been out for a while now. It is good economics. It deserves rightful praise, and scrutiny. Acemoglu and Robinson's answer[1] is also good economics. Digestible podcast form here [2]. It purports that Picketty's "r>g" model is flawed. It also deserves a reading. All of this is part of a larger discussion, which C21 started. r > g doesn't seem to explain nearly as much as Picketty presents in the book, but that doesn't mean his larger idea is fundamentally invalid, or that he didn't introduce something valuable. [1] http://economics.mit.edu/files/10422 http://economics.mit.edu/files/10422 [2] http://www.econtalk.org/archives/2014/11/daron_acemoglu.html http://www.econtalk.org/archives/2014/11/daron_acemoglu.html
- roflc0ptic 10y ago
  I'm a third of the way through C21. Skimming the beginning of Acemoglu and Robinson, feels like they are criticizing points that Picketty raises - specifically that politics plays a substantial role in inequality, and r vs g. Maybe it's just a question of degree. Probably worth more than a cursory glance. Anyways, since you linked to such a relevant C21 response, do you know if there's a team-piketty response to Acemoglu? No longer have access to JSTOR etc, and am not necessarily well equipped to analyze the quantitative claims.
  - VodkaHaze 10y ago
    Picketty's re-response[1]. It gets rather technical from there on. It's not my area of expertise, either, so I won't come with my opinion on the matter. Acemoglu is a giant, and so is Picketty, so I watch the fight from afar. The first two levels of discussion (C21 and Acemoglu's immediate answer) are digestible, though. What's important to understand is that this is all part of a larger discussion on inequality, which has gained a lot of momentum in the last few years in economics (in all fronts -- wealth, income, education, etc.) It's fine to take the position of "I'm not sure" for the moment being, while informing yourself. [1] http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.29.1.67 http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.29.1.67
    - roflc0ptic 10y ago
      Safe to say I have no opinion I take seriously, for the reasons you mention. It's interesting as all get out, though. Thanks for the links.
      - VodkaHaze 10y ago
        I'd like to add that there seems to be more of a consensus in education inequality. That is, noncognitive skills developed very early (age 0-4) are a huge factor in educational outcome and early childhood intervention is pretty close to agreed upon to be a necessary thing to improve the outcomes of children who grow up in a poor environment. James Heckman's work on the topic might be worth reading.
- LeanderK 10y ago
  One also has to keep in mind that we try to approximate or explain reality. I currently do a lot of maths and we can prove theorems from our axioms. Something is a certain way and not the other, here is my proof! End of discussion. Economics doesn't have axioms and therefore no provable proof. If somebody has a good idea and data to support it it's an good argument, but it doesn't mean it will repeat or even that we now have solved the problem. If somebody has a better idea backed by better (or even the same!) data he also has a good argument and we now have a bad time with no best argument, but 2 conflicting.
- beefield 10y ago
  I wonder whether it is considered good or bad behaviour to point out incorrect spelling, but it is Piketty, not Picketty
  - 0xcde4c3db 10y ago
    This was kind of bugging me. It's one thing for one person to make the mistake once, but there's something like a 4:1 ratio of Picketty:Piketty in these comments. On one hand it seems like a nitpicky thing to point out, but on the other hand, to paraphrase Lieutenant Commander Data: one is his name; the other is not [1]. [1] https://www.youtube.com/watch?v=nqwx2XFb1fQ https://www.youtube.com/watch?v=nqwx2XFb1fQ
    - dvdplm 10y ago
      Surely you mean "nitpicketty"? :)
  - VodkaHaze 10y ago
    This is the second time it's been pointed to me this month and I'm incorrigible. Piketty looks weird to me because I pronounce it "Pike-etty" instead of "pique-etty" in my head.
- jvm 10y ago
  Rognlie also makes important critiques of Piketty's argument.[1] Piketty makes strong claims resting on declining labor share of capital. This is true, but is driven largely by an increase in owner-occupied rents in real estate, which suggests interpretations very different from Pikettys; namely that redistribution in the form of zoning and development restrictions has been the key driver rather than changes in the relative value of productive capital. From Rognlie's abstract: >>> Overall, the net capital share has increased since 1948, but when disaggregated this increase comes entirely from the housing sector: the contribution to net capital income from all other sectors has been zero or slightly negative, as the fall and rise have offset each other. When decomposed into a return on fixed assets and a residual share of pure profits, the fall and rise of capital income outside the housing sector in the US owes mostly to the residual: it is not paralleled by fluctuations in the measured value of non-housing capital. This observation—combined with the theory of factor substitution, and simulation results from a multisector model—casts doubt on explanations of changes in the net capital share that rely on changes in the value of capital. There is greater support in the data for narratives that emphasize cyclical and trend variation in market power. For a summary in layman's terms, I'd suggest Noah Smith in [2]. Note that Noah has Keynesian sympathies and is not particularly right leaning. [1] https://www.brookings.edu/wp-content/uploads/2016/07/2015a_rognlie.pdf https://www.brookings.edu/wp-content/uploads/2016/07/2015a_r... [2] https://www.bloomberg.com/view/articles/2015-03-27/piketty-s-three-big-mistakes-in-inequality-analysis https://www.bloomberg.com/view/articles/2015-03-27/piketty-s...
  - js8 10y ago
    This is perhaps a bit controversial, but I just can't take seriously any critique of Piketty that doesn't look at least 150 years back like he did. He (and his coworkers) did a lot of legwork on about 200-300 years of history, it's just amazing. You cannot dismiss his theory just on the basis of 50 years. As you write: "redistribution in the form of zoning and development restrictions has been the key driver" - how do you know that without looking further back in time? It's like criticizing Galileo by saying "speed of fall of most objects is influenced by air resistance". It's a true statement, in a limited context (the Earth), but it doesn't disprove first Newton's law.
- om2 10y ago
  One thing that always puzzles me about r > g is that it's comparing a first derivative to a second derivative. How can this be meaningful? To explain further, r is return on investment, which approximately means rate of growth of wealth of capital. That is, it is a the first derivative of a stock, or equivalently a flow. g is the rate of growth of income, where income itself is a flow. So it's the second derivative of a stock. How does it even make sense to compare these two quantities when they don't have the same units?
  - tome 10y ago
    > How does it even make sense to compare these two quantities when they don't have the same units? They both have units T^-1, don't they? For example, they could both be measured in "Percentage increase per year".
    - om2 10y ago
      It doesn't really make sense to take "percentage increase" as dimensionless, because it leads you to compare growth rate of incomparable things. One of the most basic rules of economics is that you can't compare stocks and flows. Why would it be meaningful to compare their % increase per year? Let's say that for construction company A, the total number of houses it has built increases by 10%. (This is comparable to an r of 10%). And let's say that, each year, construction company B builds 5% more new houses than it built the year before. (This is comparable to a g of 5%). No matter how much of a head start A starts with, under these assumptions, B will always eventually have more total houses built. Or to put it more generally, a stock growing at fixed rate grows linearly, but a flow that grows linearly implies a stock growing at a quadratic rate. O(N^2) will always outpace O(N). It seems to me that all the hoopla about r > g is based on an elementary mathematical error. Or really, more honestly, assumptions about savings rate are doing all the work, and r and g really have almost nothing to do with it.
      - tome 10y ago
        > Or to put it more generally, a stock growing at fixed rate grows linearly, but a flow that grows linearly implies a stock growing at a quadratic rate. O(N^2) will always outpace O(N). I see what you're getting at, but surely you've got the rates wrong. A stock growing at a fixed rate grows exponentially, and O(exp N) will always outpace O(N^2).
debt 10y ago
This is perfect. That book Capital is like 700 pages.
- VodkaHaze 10y ago
  The fact that the book is a best seller when its intended audience is really people with a graduate education in economics tells me that most people bought is as a signal of smartness (or as an honest effort to inform oneself, but without actually slogging through the book)
  - bko 10y ago
    > The five most-highlighted passages in the Kindle edition of the text occur before page 26, just over two-thirds of the way through the introduction, according to Amazon's 'Popular Highlights' data http://www.telegraph.co.uk/finance/economics/10951407/Has-anyone-finished-Thomas-Pikettys-Capital-in-the-21st-Century.html http://www.telegraph.co.uk/finance/economics/10951407/Has-an...
    - louhike 10y ago
      For most of the books I read on Kindle it was the case. This statistic will make sense only compared to other books, and not by itself.
  - deleted 10y ago
    [deleted]
  - justin66 10y ago
    How many pages have equations on them? I'm inclined to view your comment as cynical, but if it's more than 10 I'd admit that you've got a point.
    - AimHere 10y ago
      Very few. Plenty of graphs and tables, but there are no obvious equations. What equations there are are inlined in the text, so that people wouldn't notice them while cursorily skimming the book, and they're very simple ratios of two properties.
bko 10y ago
Suppose r > g as Picketty claims. What would be the implications? One I could think of is that rather than investing in human labor (e.g. education), it would make more sense to invest in capital (e.g. stock market) since that would yield you higher returns. Also, all the talk about wealth inequality uses percentages like the top 10%. However, the top 10% is not stable. In fact, the turnover is very high, much higher than it has been in the past. For instance: > Over the past 30 years, the origin of the wealth of the richest people in the United States has shifted away from old, inherited money. Our new metric, the self-made scores developed for the Forbes 400, shows that increasingly we find self-made billionaires among the ranks of the richest people in the country. This has accompanied the incredible increase in wealth of the members of the Forbes 400, which has jumped 1,832% times since 1984, when the total net worth of our list was $125 billion, compared with $2.29 trillion today [0] And just a casual look through the richest lists, you don't see a lot of old money. Most are first generation wealth. So my question is, how is it possible that there is high turnover in the wealthiest while wealth inequality is always much higher than income inequality as Picketty claims? When Bill Gates generated great wealth by founding Microsoft, was that considered income or capital appreciation? I think it would be capital appreciation since he sold stock and the stock appreciated. But is this really "capital" in the sense that its passive investment like a money printing machine that was passed down generation to generation? Or if his wealth would be considered income, then how is wealth inequality always so much higher than income inequality considering the richest Americans created their wealth in a similar means to Gates? [0] http://www.forbes.com/sites/afontevecchia/2014/10/03/there-are-more-self-made-billionaires-in-the-forbes-400-than-ever-before/#21c2355ae0a5 http://www.forbes.com/sites/afontevecchia/2014/10/03/there-a...
- VodkaHaze 10y ago
  r > g doesn't actually explain that much in terms of wealth inequality. See Acemoglu and Robinson paper in my other reply. There is evidence that intergenerational mobility is going down, but not so much at the tippy top of the ladder. More on the "if you are born from lower class parents, you are likely to be lower class at 40" side. Early childhood education is shown to help with the lower rungs of the ladder; most of the damage in a child's noncognitive skills is done before the age of 4 by bad environment (absentee parents, stressed parents, etc.) This lack of noncognitive skills effects outcomes everywhere starting with educational achievement. I am not as well read in the mobility between the middle and upper classes, so I won't comment there.
trapperkeeper79 10y ago
Wonderful talk. One thing he called for was a wealth tax, which is something that makes complete sense but is going to be very unpopular. On the otherhand, he also calls for progressive income taxes (something that is reported by the media and an easier pill to swallow) - in my country, Canada, progressive income taxes are not the answer IMHO. We didn't have as much inequality for education (i.e. lots of decent Universities, not terribly expensive). The problem is wealth in the form of housing has exploded for a large fraction of the population (typically older people) and has left young people (well, anybody without a house) in the dust. In major cities like Toronto and Vancouver, average detached houses cost well over a million bucks. This is also happening because of bone-headed environmental policies (I'm all for the environment, I just don't understand why people without homes are punished for having a green belt while people with homes are rewarded). Our current PM (I'm a fan) has done many good things but he doesn't get this. We had something called the child tax credit, which families with children would get unconditionally - this became something you'd get based on income. Now, young people who are desperately saving for downpayments are hampered even more ... buying a home is just out of reach. In my humble opinion, a wealth tax is the way to go and young people should make their voices heard to our representatives. In summary, people need to understand the difference between income inequality and wealth inequality. I argue the problem is NOT income inequality - it is wealth differences.
- eldavido 10y ago
  I'm tempted to blame ultra-loose monetary policy, but I'm not so sure. I live in the Bay Area where house prices are also out of control, but I'm not sure why we focus on prices (rather than monthly debt payments) since what, 90% of the market is payment buyers? In any case, I do believe the current interest rate environment has distributional consequences that haven't been well-studied. It seems the biggest beneficiaries of this environment will be people with lots of debt-financed assets who manage to sell for high nominal prices. On the other hand, a lot of people think rates aren't coming down any time soon (check the yield curve on US treasuries, the 30-year rate is like 3.4%) so maybe this will be a one-time shock where people who took on a ton of debt ca. 2008 will reap big one-time profits as cheaply-acquired assets realize big capital gains. In any case, I think it's naive to assume holding rates so low, for so long, doesn't have major wealth transfer effects.
patrickg_zill 10y ago
My problem with this book is that he doesn't deal at all with the gold standard. During the timeline of his survey, the currencies were almost all gold-backed and by the end, are all fiat currencies. He completely ignores it, yet at the least he should have explained why it was not relevant.
- rosser 10y ago
  I think the question of what's backing the units used to denominate wealth is pretty orthogonal to that of inequality, itself.
- metaphorm 10y ago
  what is the importance of that? can you inform me of any historical instances of currency being redeemed for its face value of gold?
  - smallnamespace 10y ago
    It wasn't very long ago. Up until 1968, dollars were convertible into gold and pegged at $35 / oz [1], meaning the government intervened to keep it at that price. From 1968-1971, the US still honored that rate with other countries, but stopped intervening in the private gold market [2]. Then the US left the gold standard, and everyone else followed suit. [1] https://en.wikipedia.org/wiki/History_of_the_United_States_dollar#The_Gold_Reserve_Act https://en.wikipedia.org/wiki/History_of_the_United_States_d... [2] https://en.wikipedia.org/wiki/Bretton_Woods_system https://en.wikipedia.org/wiki/Bretton_Woods_system
    - metaphorm 10y ago
      well, that's not at at all what I asked for an example of. I know the history of the gold standard and when/how/why the dollar was taken off gold backing. I would like to know of a historical example of when a significant (meaning large quantity, high economic impact) exchange of dollar denominated treasury notes were redeemed for their face value in gold metal. did that ever even happen? I'm unaware of any instances of that, but then, I'm not a scholar in the field.
aminok 10y ago
Compelling counter-evidence to Picketty's C21: https://medium.com/the-ferenstein-wire/a-26-year-old-mit-graduate-is-turning-heads-over-his-theory-that-income-inequality-is-actually-2a3b423e0c#.cdpw0fizt https://medium.com/the-ferenstein-wire/a-26-year-old-mit-gra...
- ebalit 10y ago
  Why would it contradict Piketty's theory? Housing is capital. This post seems to respond to the theory that wealth inequality is caused by the rise of automation. That has nothing to do with Piketty's theory.
  - eru 10y ago
    Capital and land are different: you can make more capital to compete against existing capital, you can't really make more land.
    - wojcech 10y ago
      How do you make capital?
      - eru 10y ago
        Is that meant to be a trick question? Wikipedia says: "In economics, capital goods, real capital, or capital assets are already-produced durable goods or any non-financial asset that is used in production of goods or services." (https://en.wikipedia.org/wiki/Capital_(economics) https://en.wikipedia.org/wiki/Capital_(economics)) So, you just produce it in a factory or at home etc. See also http://www.investopedia.com/ask/answers/051115/what-capital-relation-factors-production.asp http://www.investopedia.com/ask/answers/051115/what-capital-... and https://en.wikipedia.org/wiki/Capital_formation https://en.wikipedia.org/wiki/Capital_formation
    - ptaipale 10y ago
      To some extent, you actually can make more land (by reclaiming it from sea). Major cities do this everywhere; for most prominent examples, see https://en.wikipedia.org/wiki/Land_reclamation_in_Hong_Ko https://en.wikipedia.org/wiki/Land_reclamation_in_Hong_Ko ng http://basementgeographer.com/reclaimed-land-in-singapore-nation-building-in-the-most-literal-sense/ http://basementgeographer.com/reclaimed-land-in-singapore-na... This still doesn't really work as a counter-point for what you mention; capital and land are different.
betolink 10y ago
Now we just need a 20 minutes version of Marx's Capital.
necessity 10y ago
And threads like this is why I ignore HN for non tech-related stuff.
softwarelimits 10y ago
what is the best open source software for doing oeconomic simulations?
- js8 10y ago
  I don't think this is what Piketty used, but I would look at Minsky: http://www.ideaeconomics.org/minsky/ http://www.ideaeconomics.org/minsky/
jernfrost 10y ago
I wish more people could have Thomas Piketty's balanced view on capitalism. Too often it is treated as some sort of game where you have to pick sides whether you are for or against capitalism. Especially in America there seems to be a kneejerk reaction to any calls for regulations or moderations of the effects of the free market. Usually it is dismissed without further discussion with "look what happened in the east block countries!" But I think Thomas Piketty has a very good point in his book that if you in fact favor capitalism, you ought to be open to regulation of it. The alternative is what we have seen again and again in history, inequality gets so bad that we get uprisings and revolutions. Inequality is breeding ground for radical ideas like communism. Otto von Bismarck understood that and gave Germany the beginnings for a welfare system. Not because he really cared about workers but because he understood the dangers of inequality with respect to radicalization of the poor. Today we can see the same thing starting to play out in America. The US have now been on a path towards ever higher inequality for many years and we can see it reaching a breaking point. Politics is getting ever more radical. Donald Trump and Bernie Sanders would never had gotten the support they got without the economic fundamentals having shifted so much. We already know what high inequality leads to in modern times, because we have seen it play out in South America again and again. They oscillate between one political extremist or populist after another. I think if the US doesn't actually seriously try to reduce inequality, the US risks ending up with its own Hugo Chavez character, or alternatively a right wing authoritarian. And if inequality doesn't cause revolutions, there seems to be a good case for it causing asset bubbles. We saw this in 1929 which market the end of a dramatic wealth inequality increase, just as 2008. I think it will happen again because the fundamental problems have not been solved.
- tomcam 10y ago
  Where in the USA is the market not regulated?
  - ebalit 10y ago
    I don't think GP meant that the market should have rules but that capitalism should be regulated (as an organism is) to maintain inequality at the sweet spot where it is efficient, instead of letting it rise and getting fever.
damptowel 10y ago
Alternative view on r > g http://www.notesonthenextbust.com/2015/06/why-was-r-greater-than-g-will-it.html?m=1 http://www.notesonthenextbust.com/2015/06/why-was-r-greater-...
idanb 10y ago
I'm a huge fan of Piketty, and have been slogging through his terrific (but long) book and it's change my perception on a lot of things. I don't want to challenge capitalism - competition drives innovation, and the need to survive and to make a better life for oneself is at the core of that. However, we need to admit that not all people are driven by this, and in our world (at least in the United States) it's not about survival in terms of life and death and hasn't been for some time. The people on our streets are not there because they deserve to be, neither are many of the people in the boardrooms. Today, there's a disparity between the have and have nots and it has less to do with capitalism than the reality of growth which Piketty outlines really well in his book that's definitely changed the way that I look at it. It's hard to see value in supporting the status quo when it's only going to return 1-2% year after year - especially after an excessively long period of unprecedented growth due to the devastation and rebuilding through the 20th century. However, this results in a lot of the wrong things being valued in my opinion. I feel like we're at a pivotal point in human history. We're at income disparity levels second only to countries scourged by ISIS, we're at wealth concentrations comparable to Europe pre-world war one. Marginal income increases have little to do with marginal productivity increases of either companies or employees. I feel like the fundamental definition of value needs to be re-evaluated. I really think that the nature of capital/wealth have really changed. When cost of living dominates anyone's ability to be a productive member of society, that's when we should reconsider how to go about either distribution of wealth that's leading to that (that hardly ever works) or instead how we quantify and define wealth. Shifting this balance in favor of what we as a society value, I think is the best way to start to really change things.
- hash-set 10y ago
  All that you said is right--we have allowed a monster to grow. And killing that monster is going to require sacrifice now. It never comes any other way.
  - idanb 10y ago
    yes - either we need to find a new "source of value" or some form of tear down needs to take place. I think historically tear downs have been at a core of human growth and progress, so I think that will happen before people are forced to change their minds.
selarkin 10y ago
This article and video are from 2014: shouldn't the post title reflect that?
nyokodo 10y ago
Thomas Piketty is not without major critics so here are some. Short pieces: https://www.youtube.com/watch?v=aL90pISm7Y8 https://www.youtube.com/watch?v=aL90pISm7Y8 https://www.youtube.com/watch?v=yqIGnPw3Qkg https://www.youtube.com/watch?v=yqIGnPw3Qkg https://mises.org/library/thomas-piketty-inequality-and-capital https://mises.org/library/thomas-piketty-inequality-and-capi... Longer scholarly piece: https://papers.ssrn.com/sol3/Papers.cfm?abstract_id=2543012 https://papers.ssrn.com/sol3/Papers.cfm?abstract_id=2543012
nathan_f77 10y ago
Serious question: How much more information do you typically retain by reading all 696 pages, versus watching a 20 minute summary? The linked webpage talks about that, saying that it needed to be condensed into a TED talk because the book scared of many people (myself included). But for all the prodigious evidence, how much do you really remember? Does any of it come up in conversation at a dinner party? > Piketty predicted (correctly) [that it] ... would attract vicious assaults from the mainstream of economic thought. Ah, so is this more of an academic thing. Not just for the layperson, but for the economist. Like a dissertation that needs to be backed up with a ton of evidence and references. Ok, I think I answered my own question. I also just changed my own attitude towards reading books like this. It's not entertainment, it's knowledge.
- lnanek2 10y ago
  Reading the whole thing is more in the entertainment realm. He advises some things that aren't acceptable in the US like government control of CEO salaries, but also some things that aren't acceptable anywhere, like confiscatory taxes. I.e. he states that there wouldn't be government benefit to taxing the super rich so heavily they are no longer rich because there are too few of them to contribute meaningfully to large state projects, but he still states they should have confiscatory (his term) taxes applied to them just to remove their wealth so that there is less income inequality. When people talk about the book or summarize they often stick to the more factual stuff, like the fact that income equality is real and growing, but they often skip over the other parts that no one would actually agree with like the above.
- therealdrag0 10y ago
  I listened to it on Audiobook and definitely didn't retain crap. But it's interesting. There were a lot more moments of "pause and reflect" probably listening to tens of hours of audio-book instead of a 20min video.
throw2016 10y ago
I think the US culture of exceptionalism puts individuals in 2 simple buckets, winners and losers. I think everyone wants to be a winner and then not improve the overall system but to look down on the 'losers' and signal 'success' status. The idea that they won't be able to validate themselves and their 'specialness' in this way makes them subservient to the status-quo, vulnerable to hubris and immune to the problems of inequality. Do we have a social identity because we seem to predominatly seek validation and identity from our work. This in group out group is an integral part of US culture and this base survival of the fittest 'superman' ideology is inherent in a frontier type economy exploiting new resources. The system is fine tuned to exploitation but what happens when there are no resources to exploit. The US problem goes way beyond mere capitalism and communism. At some point you would need to build a society that values people independently of their work, success or money or you run the risk of creating a modern exploitative unfeeling dystopia. A lot of these discussions especially here are marked by a distinct lack of emphathy, dehumanization and blame the victims mentality that a quick reading of the evolution of political, social and economic systems from feudalism till now will quickly dispel. Power concentrates itself.
timtas 10y ago
To those who desperately want free markets proven inherently unjust, Piketty is a prophet. But he's a false prophet. He's pretty much a hack of a social scientist. "We find evidence of pervasive errors of historical fact, opaque methodological choices, and the cherry-picking of sources to construct favorable patterns from ambiguous data." [1] [1] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2543012 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2543012

279 points by based2 10y ago

In the interest of giving the fuller discussion: Picketty's book has been out for a while now. It is good economics. It deserves rightful praise, and scrutiny. Acemoglu and Robinson's answer[1] is also good economics. Digestible podcast form here [2]. It purports that Picketty's "r>g" model is flawed. It also deserves a reading. All of this is part of a larger discussion, which C21 started. r > g doesn't seem to explain nearly as much as Picketty presents in the book, but that doesn't mean his larger idea is fundamentally invalid, or that he didn't introduce something valuable. [1] http://economics.mit.edu/files/10422 http://economics.mit.edu/files/10422 [2] http://www.econtalk.org/archives/2014/11/daron_acemoglu.html http://www.econtalk.org/archives/2014/11/daron_acemoglu.html

roflc0ptic 10y ago
I'm a third of the way through C21. Skimming the beginning of Acemoglu and Robinson, feels like they are criticizing points that Picketty raises - specifically that politics plays a substantial role in inequality, and r vs g. Maybe it's just a question of degree. Probably worth more than a cursory glance. Anyways, since you linked to such a relevant C21 response, do you know if there's a team-piketty response to Acemoglu? No longer have access to JSTOR etc, and am not necessarily well equipped to analyze the quantitative claims.
- VodkaHaze 10y ago
  Picketty's re-response[1]. It gets rather technical from there on. It's not my area of expertise, either, so I won't come with my opinion on the matter. Acemoglu is a giant, and so is Picketty, so I watch the fight from afar. The first two levels of discussion (C21 and Acemoglu's immediate answer) are digestible, though. What's important to understand is that this is all part of a larger discussion on inequality, which has gained a lot of momentum in the last few years in economics (in all fronts -- wealth, income, education, etc.) It's fine to take the position of "I'm not sure" for the moment being, while informing yourself. [1] http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.29.1.67 http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.29.1.67
  - roflc0ptic 10y ago
    Safe to say I have no opinion I take seriously, for the reasons you mention. It's interesting as all get out, though. Thanks for the links.
    - VodkaHaze 10y ago
      I'd like to add that there seems to be more of a consensus in education inequality. That is, noncognitive skills developed very early (age 0-4) are a huge factor in educational outcome and early childhood intervention is pretty close to agreed upon to be a necessary thing to improve the outcomes of children who grow up in a poor environment. James Heckman's work on the topic might be worth reading.
LeanderK 10y ago
One also has to keep in mind that we try to approximate or explain reality. I currently do a lot of maths and we can prove theorems from our axioms. Something is a certain way and not the other, here is my proof! End of discussion. Economics doesn't have axioms and therefore no provable proof. If somebody has a good idea and data to support it it's an good argument, but it doesn't mean it will repeat or even that we now have solved the problem. If somebody has a better idea backed by better (or even the same!) data he also has a good argument and we now have a bad time with no best argument, but 2 conflicting.
beefield 10y ago
I wonder whether it is considered good or bad behaviour to point out incorrect spelling, but it is Piketty, not Picketty
- 0xcde4c3db 10y ago
  This was kind of bugging me. It's one thing for one person to make the mistake once, but there's something like a 4:1 ratio of Picketty:Piketty in these comments. On one hand it seems like a nitpicky thing to point out, but on the other hand, to paraphrase Lieutenant Commander Data: one is his name; the other is not [1]. [1] https://www.youtube.com/watch?v=nqwx2XFb1fQ https://www.youtube.com/watch?v=nqwx2XFb1fQ
  - dvdplm 10y ago
    Surely you mean "nitpicketty"? :)
- VodkaHaze 10y ago
  This is the second time it's been pointed to me this month and I'm incorrigible. Piketty looks weird to me because I pronounce it "Pike-etty" instead of "pique-etty" in my head.
jvm 10y ago
Rognlie also makes important critiques of Piketty's argument.[1] Piketty makes strong claims resting on declining labor share of capital. This is true, but is driven largely by an increase in owner-occupied rents in real estate, which suggests interpretations very different from Pikettys; namely that redistribution in the form of zoning and development restrictions has been the key driver rather than changes in the relative value of productive capital. From Rognlie's abstract: >>> Overall, the net capital share has increased since 1948, but when disaggregated this increase comes entirely from the housing sector: the contribution to net capital income from all other sectors has been zero or slightly negative, as the fall and rise have offset each other. When decomposed into a return on fixed assets and a residual share of pure profits, the fall and rise of capital income outside the housing sector in the US owes mostly to the residual: it is not paralleled by fluctuations in the measured value of non-housing capital. This observation—combined with the theory of factor substitution, and simulation results from a multisector model—casts doubt on explanations of changes in the net capital share that rely on changes in the value of capital. There is greater support in the data for narratives that emphasize cyclical and trend variation in market power. For a summary in layman's terms, I'd suggest Noah Smith in [2]. Note that Noah has Keynesian sympathies and is not particularly right leaning. [1] https://www.brookings.edu/wp-content/uploads/2016/07/2015a_rognlie.pdf https://www.brookings.edu/wp-content/uploads/2016/07/2015a_r... [2] https://www.bloomberg.com/view/articles/2015-03-27/piketty-s-three-big-mistakes-in-inequality-analysis https://www.bloomberg.com/view/articles/2015-03-27/piketty-s...
- js8 10y ago
  This is perhaps a bit controversial, but I just can't take seriously any critique of Piketty that doesn't look at least 150 years back like he did. He (and his coworkers) did a lot of legwork on about 200-300 years of history, it's just amazing. You cannot dismiss his theory just on the basis of 50 years. As you write: "redistribution in the form of zoning and development restrictions has been the key driver" - how do you know that without looking further back in time? It's like criticizing Galileo by saying "speed of fall of most objects is influenced by air resistance". It's a true statement, in a limited context (the Earth), but it doesn't disprove first Newton's law.
om2 10y ago
One thing that always puzzles me about r > g is that it's comparing a first derivative to a second derivative. How can this be meaningful? To explain further, r is return on investment, which approximately means rate of growth of wealth of capital. That is, it is a the first derivative of a stock, or equivalently a flow. g is the rate of growth of income, where income itself is a flow. So it's the second derivative of a stock. How does it even make sense to compare these two quantities when they don't have the same units?
- tome 10y ago
  > How does it even make sense to compare these two quantities when they don't have the same units? They both have units T^-1, don't they? For example, they could both be measured in "Percentage increase per year".
  - om2 10y ago
    It doesn't really make sense to take "percentage increase" as dimensionless, because it leads you to compare growth rate of incomparable things. One of the most basic rules of economics is that you can't compare stocks and flows. Why would it be meaningful to compare their % increase per year? Let's say that for construction company A, the total number of houses it has built increases by 10%. (This is comparable to an r of 10%). And let's say that, each year, construction company B builds 5% more new houses than it built the year before. (This is comparable to a g of 5%). No matter how much of a head start A starts with, under these assumptions, B will always eventually have more total houses built. Or to put it more generally, a stock growing at fixed rate grows linearly, but a flow that grows linearly implies a stock growing at a quadratic rate. O(N^2) will always outpace O(N). It seems to me that all the hoopla about r > g is based on an elementary mathematical error. Or really, more honestly, assumptions about savings rate are doing all the work, and r and g really have almost nothing to do with it.
    - tome 10y ago
      > Or to put it more generally, a stock growing at fixed rate grows linearly, but a flow that grows linearly implies a stock growing at a quadratic rate. O(N^2) will always outpace O(N). I see what you're getting at, but surely you've got the rates wrong. A stock growing at a fixed rate grows exponentially, and O(exp N) will always outpace O(N^2).

debt 10y ago

This is perfect. That book Capital is like 700 pages.

VodkaHaze 10y ago
The fact that the book is a best seller when its intended audience is really people with a graduate education in economics tells me that most people bought is as a signal of smartness (or as an honest effort to inform oneself, but without actually slogging through the book)
- bko 10y ago
  > The five most-highlighted passages in the Kindle edition of the text occur before page 26, just over two-thirds of the way through the introduction, according to Amazon's 'Popular Highlights' data http://www.telegraph.co.uk/finance/economics/10951407/Has-anyone-finished-Thomas-Pikettys-Capital-in-the-21st-Century.html http://www.telegraph.co.uk/finance/economics/10951407/Has-an...
  - louhike 10y ago
    For most of the books I read on Kindle it was the case. This statistic will make sense only compared to other books, and not by itself.
- deleted 10y ago
  [deleted]
- justin66 10y ago
  How many pages have equations on them? I'm inclined to view your comment as cynical, but if it's more than 10 I'd admit that you've got a point.
  - AimHere 10y ago
    Very few. Plenty of graphs and tables, but there are no obvious equations. What equations there are are inlined in the text, so that people wouldn't notice them while cursorily skimming the book, and they're very simple ratios of two properties.

bko 10y ago

Suppose r > g as Picketty claims. What would be the implications? One I could think of is that rather than investing in human labor (e.g. education), it would make more sense to invest in capital (e.g. stock market) since that would yield you higher returns. Also, all the talk about wealth inequality uses percentages like the top 10%. However, the top 10% is not stable. In fact, the turnover is very high, much higher than it has been in the past. For instance: > Over the past 30 years, the origin of the wealth of the richest people in the United States has shifted away from old, inherited money. Our new metric, the self-made scores developed for the Forbes 400, shows that increasingly we find self-made billionaires among the ranks of the richest people in the country. This has accompanied the incredible increase in wealth of the members of the Forbes 400, which has jumped 1,832% times since 1984, when the total net worth of our list was $125 billion, compared with $2.29 trillion today [0] And just a casual look through the richest lists, you don't see a lot of old money. Most are first generation wealth. So my question is, how is it possible that there is high turnover in the wealthiest while wealth inequality is always much higher than income inequality as Picketty claims? When Bill Gates generated great wealth by founding Microsoft, was that considered income or capital appreciation? I think it would be capital appreciation since he sold stock and the stock appreciated. But is this really "capital" in the sense that its passive investment like a money printing machine that was passed down generation to generation? Or if his wealth would be considered income, then how is wealth inequality always so much higher than income inequality considering the richest Americans created their wealth in a similar means to Gates? [0] http://www.forbes.com/sites/afontevecchia/2014/10/03/there-are-more-self-made-billionaires-in-the-forbes-400-than-ever-before/#21c2355ae0a5 http://www.forbes.com/sites/afontevecchia/2014/10/03/there-a...

VodkaHaze 10y ago
r > g doesn't actually explain that much in terms of wealth inequality. See Acemoglu and Robinson paper in my other reply. There is evidence that intergenerational mobility is going down, but not so much at the tippy top of the ladder. More on the "if you are born from lower class parents, you are likely to be lower class at 40" side. Early childhood education is shown to help with the lower rungs of the ladder; most of the damage in a child's noncognitive skills is done before the age of 4 by bad environment (absentee parents, stressed parents, etc.) This lack of noncognitive skills effects outcomes everywhere starting with educational achievement. I am not as well read in the mobility between the middle and upper classes, so I won't comment there.

trapperkeeper79 10y ago

Wonderful talk. One thing he called for was a wealth tax, which is something that makes complete sense but is going to be very unpopular. On the otherhand, he also calls for progressive income taxes (something that is reported by the media and an easier pill to swallow) - in my country, Canada, progressive income taxes are not the answer IMHO. We didn't have as much inequality for education (i.e. lots of decent Universities, not terribly expensive). The problem is wealth in the form of housing has exploded for a large fraction of the population (typically older people) and has left young people (well, anybody without a house) in the dust. In major cities like Toronto and Vancouver, average detached houses cost well over a million bucks. This is also happening because of bone-headed environmental policies (I'm all for the environment, I just don't understand why people without homes are punished for having a green belt while people with homes are rewarded). Our current PM (I'm a fan) has done many good things but he doesn't get this. We had something called the child tax credit, which families with children would get unconditionally - this became something you'd get based on income. Now, young people who are desperately saving for downpayments are hampered even more ... buying a home is just out of reach. In my humble opinion, a wealth tax is the way to go and young people should make their voices heard to our representatives. In summary, people need to understand the difference between income inequality and wealth inequality. I argue the problem is NOT income inequality - it is wealth differences.

eldavido 10y ago
I'm tempted to blame ultra-loose monetary policy, but I'm not so sure. I live in the Bay Area where house prices are also out of control, but I'm not sure why we focus on prices (rather than monthly debt payments) since what, 90% of the market is payment buyers? In any case, I do believe the current interest rate environment has distributional consequences that haven't been well-studied. It seems the biggest beneficiaries of this environment will be people with lots of debt-financed assets who manage to sell for high nominal prices. On the other hand, a lot of people think rates aren't coming down any time soon (check the yield curve on US treasuries, the 30-year rate is like 3.4%) so maybe this will be a one-time shock where people who took on a ton of debt ca. 2008 will reap big one-time profits as cheaply-acquired assets realize big capital gains. In any case, I think it's naive to assume holding rates so low, for so long, doesn't have major wealth transfer effects.

patrickg_zill 10y ago

My problem with this book is that he doesn't deal at all with the gold standard. During the timeline of his survey, the currencies were almost all gold-backed and by the end, are all fiat currencies. He completely ignores it, yet at the least he should have explained why it was not relevant.

rosser 10y ago
I think the question of what's backing the units used to denominate wealth is pretty orthogonal to that of inequality, itself.
metaphorm 10y ago
what is the importance of that? can you inform me of any historical instances of currency being redeemed for its face value of gold?
- smallnamespace 10y ago
  It wasn't very long ago. Up until 1968, dollars were convertible into gold and pegged at $35 / oz [1], meaning the government intervened to keep it at that price. From 1968-1971, the US still honored that rate with other countries, but stopped intervening in the private gold market [2]. Then the US left the gold standard, and everyone else followed suit. [1] https://en.wikipedia.org/wiki/History_of_the_United_States_dollar#The_Gold_Reserve_Act https://en.wikipedia.org/wiki/History_of_the_United_States_d... [2] https://en.wikipedia.org/wiki/Bretton_Woods_system https://en.wikipedia.org/wiki/Bretton_Woods_system
  - metaphorm 10y ago
    well, that's not at at all what I asked for an example of. I know the history of the gold standard and when/how/why the dollar was taken off gold backing. I would like to know of a historical example of when a significant (meaning large quantity, high economic impact) exchange of dollar denominated treasury notes were redeemed for their face value in gold metal. did that ever even happen? I'm unaware of any instances of that, but then, I'm not a scholar in the field.

aminok 10y ago

Compelling counter-evidence to Picketty's C21: https://medium.com/the-ferenstein-wire/a-26-year-old-mit-graduate-is-turning-heads-over-his-theory-that-income-inequality-is-actually-2a3b423e0c#.cdpw0fizt https://medium.com/the-ferenstein-wire/a-26-year-old-mit-gra...

ebalit 10y ago
Why would it contradict Piketty's theory? Housing is capital. This post seems to respond to the theory that wealth inequality is caused by the rise of automation. That has nothing to do with Piketty's theory.
- eru 10y ago
  Capital and land are different: you can make more capital to compete against existing capital, you can't really make more land.
  - wojcech 10y ago
    How do you make capital?
    - eru 10y ago
      Is that meant to be a trick question? Wikipedia says: "In economics, capital goods, real capital, or capital assets are already-produced durable goods or any non-financial asset that is used in production of goods or services." (https://en.wikipedia.org/wiki/Capital_(economics) https://en.wikipedia.org/wiki/Capital_(economics)) So, you just produce it in a factory or at home etc. See also http://www.investopedia.com/ask/answers/051115/what-capital-relation-factors-production.asp http://www.investopedia.com/ask/answers/051115/what-capital-... and https://en.wikipedia.org/wiki/Capital_formation https://en.wikipedia.org/wiki/Capital_formation
  - ptaipale 10y ago
    To some extent, you actually can make more land (by reclaiming it from sea). Major cities do this everywhere; for most prominent examples, see https://en.wikipedia.org/wiki/Land_reclamation_in_Hong_Ko https://en.wikipedia.org/wiki/Land_reclamation_in_Hong_Ko ng http://basementgeographer.com/reclaimed-land-in-singapore-nation-building-in-the-most-literal-sense/ http://basementgeographer.com/reclaimed-land-in-singapore-na... This still doesn't really work as a counter-point for what you mention; capital and land are different.

betolink 10y ago

Now we just need a 20 minutes version of Marx's Capital.

necessity 10y ago

And threads like this is why I ignore HN for non tech-related stuff.

softwarelimits 10y ago

what is the best open source software for doing oeconomic simulations?

js8 10y ago
I don't think this is what Piketty used, but I would look at Minsky: http://www.ideaeconomics.org/minsky/ http://www.ideaeconomics.org/minsky/

jernfrost 10y ago

I wish more people could have Thomas Piketty's balanced view on capitalism. Too often it is treated as some sort of game where you have to pick sides whether you are for or against capitalism. Especially in America there seems to be a kneejerk reaction to any calls for regulations or moderations of the effects of the free market. Usually it is dismissed without further discussion with "look what happened in the east block countries!" But I think Thomas Piketty has a very good point in his book that if you in fact favor capitalism, you ought to be open to regulation of it. The alternative is what we have seen again and again in history, inequality gets so bad that we get uprisings and revolutions. Inequality is breeding ground for radical ideas like communism. Otto von Bismarck understood that and gave Germany the beginnings for a welfare system. Not because he really cared about workers but because he understood the dangers of inequality with respect to radicalization of the poor. Today we can see the same thing starting to play out in America. The US have now been on a path towards ever higher inequality for many years and we can see it reaching a breaking point. Politics is getting ever more radical. Donald Trump and Bernie Sanders would never had gotten the support they got without the economic fundamentals having shifted so much. We already know what high inequality leads to in modern times, because we have seen it play out in South America again and again. They oscillate between one political extremist or populist after another. I think if the US doesn't actually seriously try to reduce inequality, the US risks ending up with its own Hugo Chavez character, or alternatively a right wing authoritarian. And if inequality doesn't cause revolutions, there seems to be a good case for it causing asset bubbles. We saw this in 1929 which market the end of a dramatic wealth inequality increase, just as 2008. I think it will happen again because the fundamental problems have not been solved.

tomcam 10y ago
Where in the USA is the market not regulated?
- ebalit 10y ago
  I don't think GP meant that the market should have rules but that capitalism should be regulated (as an organism is) to maintain inequality at the sweet spot where it is efficient, instead of letting it rise and getting fever.

damptowel 10y ago

Alternative view on r > g http://www.notesonthenextbust.com/2015/06/why-was-r-greater-than-g-will-it.html?m=1 http://www.notesonthenextbust.com/2015/06/why-was-r-greater-...

idanb 10y ago

I'm a huge fan of Piketty, and have been slogging through his terrific (but long) book and it's change my perception on a lot of things. I don't want to challenge capitalism - competition drives innovation, and the need to survive and to make a better life for oneself is at the core of that. However, we need to admit that not all people are driven by this, and in our world (at least in the United States) it's not about survival in terms of life and death and hasn't been for some time. The people on our streets are not there because they deserve to be, neither are many of the people in the boardrooms. Today, there's a disparity between the have and have nots and it has less to do with capitalism than the reality of growth which Piketty outlines really well in his book that's definitely changed the way that I look at it. It's hard to see value in supporting the status quo when it's only going to return 1-2% year after year - especially after an excessively long period of unprecedented growth due to the devastation and rebuilding through the 20th century. However, this results in a lot of the wrong things being valued in my opinion. I feel like we're at a pivotal point in human history. We're at income disparity levels second only to countries scourged by ISIS, we're at wealth concentrations comparable to Europe pre-world war one. Marginal income increases have little to do with marginal productivity increases of either companies or employees. I feel like the fundamental definition of value needs to be re-evaluated. I really think that the nature of capital/wealth have really changed. When cost of living dominates anyone's ability to be a productive member of society, that's when we should reconsider how to go about either distribution of wealth that's leading to that (that hardly ever works) or instead how we quantify and define wealth. Shifting this balance in favor of what we as a society value, I think is the best way to start to really change things.

hash-set 10y ago
All that you said is right--we have allowed a monster to grow. And killing that monster is going to require sacrifice now. It never comes any other way.
- idanb 10y ago
  yes - either we need to find a new "source of value" or some form of tear down needs to take place. I think historically tear downs have been at a core of human growth and progress, so I think that will happen before people are forced to change their minds.

selarkin 10y ago

This article and video are from 2014: shouldn't the post title reflect that?

nyokodo 10y ago

Thomas Piketty is not without major critics so here are some. Short pieces: https://www.youtube.com/watch?v=aL90pISm7Y8 https://www.youtube.com/watch?v=aL90pISm7Y8 https://www.youtube.com/watch?v=yqIGnPw3Qkg https://www.youtube.com/watch?v=yqIGnPw3Qkg https://mises.org/library/thomas-piketty-inequality-and-capital https://mises.org/library/thomas-piketty-inequality-and-capi... Longer scholarly piece: https://papers.ssrn.com/sol3/Papers.cfm?abstract_id=2543012 https://papers.ssrn.com/sol3/Papers.cfm?abstract_id=2543012

nathan_f77 10y ago

Serious question: How much more information do you typically retain by reading all 696 pages, versus watching a 20 minute summary? The linked webpage talks about that, saying that it needed to be condensed into a TED talk because the book scared of many people (myself included). But for all the prodigious evidence, how much do you really remember? Does any of it come up in conversation at a dinner party? > Piketty predicted (correctly) [that it] ... would attract vicious assaults from the mainstream of economic thought. Ah, so is this more of an academic thing. Not just for the layperson, but for the economist. Like a dissertation that needs to be backed up with a ton of evidence and references. Ok, I think I answered my own question. I also just changed my own attitude towards reading books like this. It's not entertainment, it's knowledge.

lnanek2 10y ago
Reading the whole thing is more in the entertainment realm. He advises some things that aren't acceptable in the US like government control of CEO salaries, but also some things that aren't acceptable anywhere, like confiscatory taxes. I.e. he states that there wouldn't be government benefit to taxing the super rich so heavily they are no longer rich because there are too few of them to contribute meaningfully to large state projects, but he still states they should have confiscatory (his term) taxes applied to them just to remove their wealth so that there is less income inequality. When people talk about the book or summarize they often stick to the more factual stuff, like the fact that income equality is real and growing, but they often skip over the other parts that no one would actually agree with like the above.
therealdrag0 10y ago
I listened to it on Audiobook and definitely didn't retain crap. But it's interesting. There were a lot more moments of "pause and reflect" probably listening to tens of hours of audio-book instead of a 20min video.

throw2016 10y ago

I think the US culture of exceptionalism puts individuals in 2 simple buckets, winners and losers. I think everyone wants to be a winner and then not improve the overall system but to look down on the 'losers' and signal 'success' status. The idea that they won't be able to validate themselves and their 'specialness' in this way makes them subservient to the status-quo, vulnerable to hubris and immune to the problems of inequality. Do we have a social identity because we seem to predominatly seek validation and identity from our work. This in group out group is an integral part of US culture and this base survival of the fittest 'superman' ideology is inherent in a frontier type economy exploiting new resources. The system is fine tuned to exploitation but what happens when there are no resources to exploit. The US problem goes way beyond mere capitalism and communism. At some point you would need to build a society that values people independently of their work, success or money or you run the risk of creating a modern exploitative unfeeling dystopia. A lot of these discussions especially here are marked by a distinct lack of emphathy, dehumanization and blame the victims mentality that a quick reading of the evolution of political, social and economic systems from feudalism till now will quickly dispel. Power concentrates itself.

timtas 10y ago

To those who desperately want free markets proven inherently unjust, Piketty is a prophet. But he's a false prophet. He's pretty much a hack of a social scientist. "We find evidence of pervasive errors of historical fact, opaque methodological choices, and the cherry-picking of sources to construct favorable patterns from ambiguous data." [1] [1] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2543012 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2543012