Thomas Piketty Unsuccessful Attempted Smackdown Watch: I Find Myself Disappointed by the Usually-Reliable James Galbraith and Pethokoukis
Two pieces on Thomas Piketty that I do not like so much.
The first is the almost always reliable and very sharp James K. Galbraith, who--for some reason I don't understand--thinks that Piketty intends his Capital to be a book about production rather than about distribution. And as a result I think his review goes awry: James K. Galbraith
Considerably worse is James Pethokoukis, who seems to have no arguments at all. It appears to be an attempt to shore up his wingnut street-cred by throwing some red meat to the base, and to shore up his pop-culture street-cred via gratuitous Galaxy Quest references. I cannot speak to how well the first works. The second, however, is an absolute flop: he reveals that he does not remember Galaxy Quest very well, and does not talk to any friends he may have who do: James Pethokoukis
...the buzz-generating (at least on the left)... économiste célèbre Thomas Piketty.... By the 1980s, capital, much like Tolkien’s phantasmal villain, Sauron, “began to reconstitute itself” according to Piketty.... American inequality is now back to where it was before global war and depression....
This "according to Piketty" tick is doing one of two things: (1) clueing NR readers into the fact that there is another story according to which American inequality is not as high as it was in 1929, or (2) allowing deranged NR readers to believe that there is another story according to which American inequality is not as high as it was in 1929. If the first, Pethokoukis is wrong. If the second, Pethokoukis is being a coward.
According to Piketty, if we don’t have another global conflagration or collapse, we’ll enter an “endless egalitarian inegalitarian spiral” of ever-greater wealth concentration, right out of the pages of Karl Marx’s Das Kapital.... Now recall the 1999 comedy Galaxy Quest, which parodied the original Star Trek television series... its fervent fans... fail to distinguish fantasy from reality. In the film, the Trekkers, I mean Questers, include a race of aliens who have no concept of fiction. They kidnap the cast of the canceled Galaxy Quest TV series...
In Galaxy Quest the Thermians do not--repeat NOT--kidnap the crew of the canceled Galaxy Quest TV series. When you replace your substantive arguments with pop-culture references that you are too lazy to get right... well, what can anyone say?
Pethokoukis goes on:
Thanks to Piketty, the Left is now having a Galaxy Quest moment. All that stuff their Marxist economics professors taught them about the “inherent contradictions” of capitalism and about history’s being on the side of the planners — all the theories that the apparent victory of market capitalism in the last decades of the 20th century seemed to invalidate — well, it’s all true after all. In their progressive hearts, they always knew it, knew it, knew it! The era of big government is back! Let the redistribution commence!
Who is "the Left"? Which "Marxist economics professors"? Not a single quote. Not a single citation. Laziness personified...
But the neo-Marxists might want to contain their enthusiasm.
Who are these "neo-Marxists"? Not a single quote. Not a single citation. Laziness personified...
At the heart of the Piketty thesis is the forecast that the age of fast economic growth is over.... Like noted techno-pessimist Robert Gordon of Northwestern University, Piketty sees slowing population growth and anemic productivity gains as growth killers.... But faster economic growth is an antidote.... Piketty’s anti-inequality agenda, including wealth taxes and top tax rates of 80 percent, could make slow growth a self-fulfilling prophecy. Piketty seems untroubled by this possibility. Nor does he explore solutions to turn more workers into capital owners. It’s the part about innovation and economic growth that really undermined Marx’s prediction of a capitalist apocalypse. And it may also undermine the prediction of his would-be successor.
This simply seems to me to be analytically wrong. America did not grow itself out of Gilded Age inequality: in America it was the enormous hit to asset values from the Great Depression and then the progressive tax-and-transfer system to finance World War II, the Cold War, the New Deal, and the Great Society (plus government subsidies to education that allowed it to win its race with technology for a while) that created our sometime middle-class society. In Western Europe post-WWII catchup growth--the "thirty gloriouses"--did play a role, but not a huge one.
Pethokoukis has done better in the past.
But this is a bad omen for him for the future.
...explicitly (and rather caustically) rejects the Marxist view... sees capital (in principle) as an agglomeration of physical objects, in line with the neoclassical theory. And so he must face the question of how to count up capital-as-a-quantity.
No. Piketty doesn't. Piketty uses "capital" to refer to a distribution category: command over resources.
Hence what follows from Galbraith seems to me at least to be irrelevant for Piketty's argument:
[Piketty] conflates physical capital equipment with all forms of money-valued wealth, including land and housing, whether that wealth is in productive use or not.... This, I fear, is a source of terrible confusion. Much of Piketty’s analysis turns on the ratio of capital—as he defines it—to national income.... It should be obvious that this ratio depends heavily on the flux of market value.... The problem is that while physical and price changes are obviously different, Piketty treats them as if there were aspects of the same thing....
But from Piketty's distributional perspective, wealth is wealth--whether it comes from more structures or from higher value of centrally-located and scarce Parisian apartments.
Piketty wants to provide a theory relevant to growth, which requires physical capital as its input.
Again: Piketty's book is about distribution and social power, not about accumulation and productivity growth. I don't know where Galbraith gets the idea that it was.
And yet he deploys an empirical measure that is unrelated to productive physical capital and whose dollar value depends, in part, on the return on capital. Where does the rate of return come from? Piketty never says.... The basic neoclassical theory holds that the rate of return on capital depends on its (marginal) productivity. In that case, we must be thinking of physical capital....
Why does Galbraith think that Piketty is a neoclassical committed to the marginal productivity theory of distribution? I cannot figure that out.
But the effort to build a theory of physical capital with a technological rate-of-return collapsed long ago, under a withering challenge from critics based in Cambridge, England in the 1950s and 1960s, notably Joan Robinson, Piero Sraffa, and Luigi Pasinetti. Piketty devotes just three pages to the “Cambridge-Cambridge” controversies, but they are important...
But they are not important for Piketty's argument precisely because Piketty does not "conflate" physical capital equipment with all forms of money-valued wealth--he is interested in capital-as-wealth, not capital-as-buildings-plus-machines-plus-inventories-in-process. Hence the CCC peal of changes on the index-number problem has no relevance here that I can see, at least.