5 ms·

See also Thomas Piketty's Capital in the Twenty-First Century. TLDR: RoI (capital) > RoI (labor), with the expected consequences.

ChrisLomont 7y ago
Plenty of good subsequent research has shown this to be not supported. Go to google scholar and start looking through Econ papers citing Piketty.
- ridgeguy 7y ago
  Would you give me a link or two to start? I get that Piketty's work isn't without controversy or criticism. Summers and others have criticized it, but their critiques haven't seemed very strong. One article [1] (which discusses Piketty's shortcomings) claims the biggest reaction to Piketty is silence: "But perhaps the greatest rebuke of Piketty to be found among academic economics is not contained in any of these overt or veiled attacks on his scholarship and interpretation, but rather in the deafening silence that greets it, as well as inequality in general, in broad swathes of the field—even to this day." ... "The economics elite, it seems, answered by stonewalling Capital in the Twenty-First Century, so it would not have the impact on economics research agendas that it merits." Anyway, it's not clear to me that Piketty's fundamental thesis is wrong. Happy to follow a link or two, thank you. [1] http://bostonreview.net/class-inequality/marshall-steinbaum-why-are-economists-giving-piketty-cold-shoulder http://bostonreview.net/class-inequality/marshall-steinbaum-... edited for a typo
  - lotsofpulp 7y ago
    Even if it wasn’t wrong in the past, it can certainly be wrong going forward. With all the governments printing money to cause asset prices to inflate, of course ROI of capital will be > ROI of labor, since price increases for labor will always lag price increases of capital.
    - dnautics 7y ago
      > price increases for labor will always lag price increases of capital Let's also keep in mind that that is a policy choice, because it's necessary to dislodge workers off their sticky wages and some sort of mumbo jumbo about the Phillips curve.
    - spinchange 7y ago
      Piketty looked at like ~200 years of econ data (wages, asset values, rents) and allowed for inflation and even depreciation. His thesis is actually that r > g, wherein r = ROI of capital and g = the rate of economic growth (gdp). This has to be true, because rich people exist and we can measure that they get richer and richer faster than others. You can gauge faith in the likelihood that it will continue to work that way given that funds like Y Combinator exist and are successful, and because activities like buying and maintaining rental properties "works" in terms of creating personal wealth faster than the rate of economic growth.
      - ChrisLomont 7y ago
        The research has shown multiple other ways to reach the current results without r>g (housing stock is one method, if I recall) and authors have shown r>g leads to results we do not see. Thus it’s not true to claim existence of rich people implies r>g. If it were that simple people before Piketty would have reached that conclusion earlier. The papers linked in this thread show the flaws. It’s also the case the rich don’t get richer, if you mean a rich person gets richer. For any dataset where you can track rich individuals over time, pick a level you call rich, track everyone meeting that definition, and you find they get poorer, reverting to mean. That is why most millionaires are first gen. It’s why the Forbes 400 is mostly first gen; the rich that were top 400 lose wealth. It’s why St. Louis Fed has papers showing the majority of the top quintile or the top 1% are not there 10 years later, or from generation to generation. Sure some rich keep wealth. But for any level called rich, if you track all those in it, that group mostly falls out.
        spinchange 7y ago
        >If it were that simple people before Piketty would have reached that conclusion earlier. Perhaps you've heard the expression, "The rich get richer while the poor get poorer" What Piketty did was put extensive data and a pretty rigorous methodology to work to explain why. I've not read a critique that undermines his main conclusions in a meaningful way. It's no secret that if you already have a pile of money or capital assets you can put those to work for you which will also generate income and you will come out ahead and faster than someone without the same pile of money. Cf https://boingboing.net/2016/08/23/bill-gates-net-worth-hits-9.html https://boingboing.net/2016/08/23/bill-gates-net-worth-hits-...
  - barry-cotter 7y ago
    https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2543012 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2543012 > 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. https://www.cambridge.org/core/journals/social-science-history/article/one-percent-across-two-centuries-a-replication-of-thomas-pikettys-data-on-the-concentration-of-wealth-in-the-united-states/20F44C37D29070B205D5FF33B30131C1 https://www.cambridge.org/core/journals/social-science-histo... > I conclude that Piketty’s data for the wealth share of the top 10 percent for the period 1870 to 1970 are unreliable. The values he reported are manufactured from the observations for the top 1 percent inflated by a constant 36 percentage points. Piketty’s data for the top 1 percent of the distribution for the nineteenth century (1810–1910) are also unreliable. http://voxeu.org/article/piketty-s-housing-capital-results-new-us-facts http://voxeu.org/article/piketty-s-housing-capital-results-n... > A key observation in Thomas Piketty’s Capital in the Twenty-First Century (Piketty 2014) is that the share of aggregate income accruing to capital in the US has been rising steadily in recent decades. The growing disparity between the income going to wage earners and capital owners has led to calls for government intervention. But for such interventions to be effective, it is important to ask who the capital owners are. > Recent research has shown that the long-run rise in the net capital income share is mainly due to the housing sector (e.g. Rognlie 2015, Torrini 2016 – see Figure 1). This phenomenon is not specific to the US but has been evident in almost every advanced economy. This suggests that it is not entrepreneurs and venture capitalists that are taking an increasing share of the economy, but land owners. https://www.urban.org/sites/default/files/publication/99455/how_different_studies_measure_income_inequality.pdf https://www.urban.org/sites/default/files/publication/99455/... > The results from at least four studies were compared for three measures of income change: change in median incomes, share of growth captured by the top 10 percent, and the changing income share of the top 1 percent. In all cases, Piketty and Saez (2003) were the outlier, showing the most increased inequality. And in all three measures of income change , Piketty, Saez, and Zucman (2018) found much less growth in income inequality than Piketty and Saez (2003).
    - ridgeguy 7y ago
      Thanks for these. Got a couple of interesting evenings' reading ahead.
  - pasabagi 7y ago
    I don't really understand what was special about Picketty, though, so I can understand the silence. It's been recognized for a very long time, amongst certain economists, that capitalism rewards capitalists - that is, those who own things. Mainstream economics is mainstream because it ignores these economists. It doesn't matter how you come to this conclusion, no economics department is going to give it the time of day - and those that do can expect to become targeted by politicians, as hotbeds of 'left wing academic bias'. Which is a very good way to shrink your department. So amongst those that are not professionally immune to this kind of argument, Picketty get's a, 'well, duh'. Amongst the rest (mainstream economists) it gets a resounding silence. It isn't really relevant to the field, because the field is constituted by a kind of professional avoidance of politically charged topics.

ChrisLomont 7y ago

Plenty of good subsequent research has shown this to be not supported. Go to google scholar and start looking through Econ papers citing Piketty.

ridgeguy 7y ago
Would you give me a link or two to start? I get that Piketty's work isn't without controversy or criticism. Summers and others have criticized it, but their critiques haven't seemed very strong. One article [1] (which discusses Piketty's shortcomings) claims the biggest reaction to Piketty is silence: "But perhaps the greatest rebuke of Piketty to be found among academic economics is not contained in any of these overt or veiled attacks on his scholarship and interpretation, but rather in the deafening silence that greets it, as well as inequality in general, in broad swathes of the field—even to this day." ... "The economics elite, it seems, answered by stonewalling Capital in the Twenty-First Century, so it would not have the impact on economics research agendas that it merits." Anyway, it's not clear to me that Piketty's fundamental thesis is wrong. Happy to follow a link or two, thank you. [1] http://bostonreview.net/class-inequality/marshall-steinbaum-why-are-economists-giving-piketty-cold-shoulder http://bostonreview.net/class-inequality/marshall-steinbaum-... edited for a typo
- lotsofpulp 7y ago
  Even if it wasn’t wrong in the past, it can certainly be wrong going forward. With all the governments printing money to cause asset prices to inflate, of course ROI of capital will be > ROI of labor, since price increases for labor will always lag price increases of capital.
  - dnautics 7y ago
    > price increases for labor will always lag price increases of capital Let's also keep in mind that that is a policy choice, because it's necessary to dislodge workers off their sticky wages and some sort of mumbo jumbo about the Phillips curve.
  - spinchange 7y ago
    Piketty looked at like ~200 years of econ data (wages, asset values, rents) and allowed for inflation and even depreciation. His thesis is actually that r > g, wherein r = ROI of capital and g = the rate of economic growth (gdp). This has to be true, because rich people exist and we can measure that they get richer and richer faster than others. You can gauge faith in the likelihood that it will continue to work that way given that funds like Y Combinator exist and are successful, and because activities like buying and maintaining rental properties "works" in terms of creating personal wealth faster than the rate of economic growth.
    - ChrisLomont 7y ago
      The research has shown multiple other ways to reach the current results without r>g (housing stock is one method, if I recall) and authors have shown r>g leads to results we do not see. Thus it’s not true to claim existence of rich people implies r>g. If it were that simple people before Piketty would have reached that conclusion earlier. The papers linked in this thread show the flaws. It’s also the case the rich don’t get richer, if you mean a rich person gets richer. For any dataset where you can track rich individuals over time, pick a level you call rich, track everyone meeting that definition, and you find they get poorer, reverting to mean. That is why most millionaires are first gen. It’s why the Forbes 400 is mostly first gen; the rich that were top 400 lose wealth. It’s why St. Louis Fed has papers showing the majority of the top quintile or the top 1% are not there 10 years later, or from generation to generation. Sure some rich keep wealth. But for any level called rich, if you track all those in it, that group mostly falls out.
      - spinchange 7y ago
        >If it were that simple people before Piketty would have reached that conclusion earlier. Perhaps you've heard the expression, "The rich get richer while the poor get poorer" What Piketty did was put extensive data and a pretty rigorous methodology to work to explain why. I've not read a critique that undermines his main conclusions in a meaningful way. It's no secret that if you already have a pile of money or capital assets you can put those to work for you which will also generate income and you will come out ahead and faster than someone without the same pile of money. Cf https://boingboing.net/2016/08/23/bill-gates-net-worth-hits-9.html https://boingboing.net/2016/08/23/bill-gates-net-worth-hits-...
- barry-cotter 7y ago
  https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2543012 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2543012 > 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. https://www.cambridge.org/core/journals/social-science-history/article/one-percent-across-two-centuries-a-replication-of-thomas-pikettys-data-on-the-concentration-of-wealth-in-the-united-states/20F44C37D29070B205D5FF33B30131C1 https://www.cambridge.org/core/journals/social-science-histo... > I conclude that Piketty’s data for the wealth share of the top 10 percent for the period 1870 to 1970 are unreliable. The values he reported are manufactured from the observations for the top 1 percent inflated by a constant 36 percentage points. Piketty’s data for the top 1 percent of the distribution for the nineteenth century (1810–1910) are also unreliable. http://voxeu.org/article/piketty-s-housing-capital-results-new-us-facts http://voxeu.org/article/piketty-s-housing-capital-results-n... > A key observation in Thomas Piketty’s Capital in the Twenty-First Century (Piketty 2014) is that the share of aggregate income accruing to capital in the US has been rising steadily in recent decades. The growing disparity between the income going to wage earners and capital owners has led to calls for government intervention. But for such interventions to be effective, it is important to ask who the capital owners are. > Recent research has shown that the long-run rise in the net capital income share is mainly due to the housing sector (e.g. Rognlie 2015, Torrini 2016 – see Figure 1). This phenomenon is not specific to the US but has been evident in almost every advanced economy. This suggests that it is not entrepreneurs and venture capitalists that are taking an increasing share of the economy, but land owners. https://www.urban.org/sites/default/files/publication/99455/how_different_studies_measure_income_inequality.pdf https://www.urban.org/sites/default/files/publication/99455/... > The results from at least four studies were compared for three measures of income change: change in median incomes, share of growth captured by the top 10 percent, and the changing income share of the top 1 percent. In all cases, Piketty and Saez (2003) were the outlier, showing the most increased inequality. And in all three measures of income change , Piketty, Saez, and Zucman (2018) found much less growth in income inequality than Piketty and Saez (2003).
  - ridgeguy 7y ago
    Thanks for these. Got a couple of interesting evenings' reading ahead.
- pasabagi 7y ago
  I don't really understand what was special about Picketty, though, so I can understand the silence. It's been recognized for a very long time, amongst certain economists, that capitalism rewards capitalists - that is, those who own things. Mainstream economics is mainstream because it ignores these economists. It doesn't matter how you come to this conclusion, no economics department is going to give it the time of day - and those that do can expect to become targeted by politicians, as hotbeds of 'left wing academic bias'. Which is a very good way to shrink your department. So amongst those that are not professionally immune to this kind of argument, Picketty get's a, 'well, duh'. Amongst the rest (mainstream economists) it gets a resounding silence. It isn't really relevant to the field, because the field is constituted by a kind of professional avoidance of politically charged topics.