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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.

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).

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).