Piketty’s “Capital”, Link Round-Up

There’s a new big red political economy book in town! This weekend, I had the pleasure of reading the first few chapters of economist Thomas Piketty’s Capital in the Twenty-First Century. The book is impressive and interesting, if almost a bit out of time. Piketty’s analysis of the dynamics of capital and inequality feels like one part Karl Marx, two parts Simon Kuznets (both of whom he cites approvingly, if critically). This style of analysis, rooted in a long-run historical dynamic of reasonably simple aggregates, is intentionally in contrast with the dominant style of economics today. So far, it seems to be working out quite well, as everyone and their advisor is commenting on Piketty’s work. Below is a partial collection of links to blog posts and more formal reviews of the book, for my and your perusal. Even more than usual, linking here is not an endorsement. If I get a chance, I may go back through and pull interesting quotes. For now, here’s the list.

Forces of Divergence, John Cassidy, New Yorker.

Piketty’s Triumph. Short reviews by Jacob Hacker, Paul Pierson, Heather Boushey, Branko Milanovic at Prospect.org. Here’s a quote from Hacker and Pierson:

Piketty suggests that the pressures for change will eventually prove overwhelming. Either ever-richer capitalists will tear one another apart in the race for diminishing returns, or the rest of society will rise up and impose a fairer framework. For a book that insists on the primacy of politics, however, Piketty has relatively little to say about how—with organized labor weakened, moneyed interests strengthened, and anti-government forces emboldened—the kind of political movement necessary for a fairer future will emerge. (It was war, after all, not universal suffrage, that ultimately tamed inequality in the 20th century.)

Heather Boushey (and Me) on Thomas Piketty. Brad DeLong, blogging at the Washington Center for Equitable Growth, responding to one of the short reviews above. His conclusion:

Piketty says: sociologically, America today may be the worst of all worlds for those who are neither top income earners nor top wealth successors: you are poor, and depicted as dumb & undeserving: “nobody was trying to depict Ancien Régime inequality as fair”.

Reading “Capital”: Introduction. The first part of a reading group organized by the Free Exchange blog at The Economist. Several more parts are already posted, with more to come.

Capital in the 21 Century: Still Mired in the 19th. Dean Baker, blogging at the Huffington Post. A tidbit:

Rather than continuing in this vein, I will just take one item that provides an extraordinary example of the book’s lack of attentiveness to institutional detail. In questioning his contribution to advancing technology, Piketty asks: “Did Bill [Gates] invent the computer or just the mouse?” Of course the mouse was first popularized by Apple, Microsoft’s rival. It’s a trivial issue, but it displays the lack of interest in the specifics of the institutional structure that is crucial for constructing a more egalitarian path going forward.

Remind anyone of a similar critique of the last big red political economy bestseller?

[EDIT] Henry Farrell presents a strong argument that Dean Baker took the above quote out of context, and that the debate over Piketty’s small inaccuracies is both unfair and undermining the bigger conversation (where both tend to agree on, e..g, Piketty’s lack of institutional discussion). Here’s Farrell’s take:

What Piketty actually says (p.512 of the proofs version of the book, which I assume maps on to the final text):

As for Bill Gates and Ronald Reagan, each with his own cult of personality (Did Bill invent the computer or just the mouse? Did Ronnie destroy the USSR single-handedly, or with the help of the pope?)…

In other words, Piketty isn’t claiming that Bill Gates invented the computer, or the mouse, any more that he’s claiming that Saint Ronald went in there like Rambo with his missile launcher (with or without the help of trusty sidekick JP-II) to bring the Soviet Union to its knees. He’s engaging in sarcastic hyperbole to illustrate the ludicrous way in which popular wisdom attributes vast historical changes to the intervention of singular, godlike culture heroes.

Dean Baker on Piketty’s Capital: Or, How FDR Proved Marx Wrong. Steve Roth at Angry Bear, in dialog with Dean Baker’s post.

The Problem of “Capital in the Twenty First Century”. Peter Frase, writer for Jacobin, on his personal blog.

Q&A: Thomas Piketty on the Wealth Divide. An interview with Piketty by Eduardo Porter of the NYTimes’ Economix blog.

A Relentless Widening of Disparity in Wealth. Porter’s review of the book in the NYTimes proper.

Notes on Piketty (Wonkish). Paul Krugman, on his personal blog hosted by the NYTimes.

Krugman starts talking about labor share… Have hope middle class. Edward Lambert at Angry Bear, responding to Krugman’s post. Krugman continues here, Lambert responds to that here.

In Praise of the Utopian Political Imagination. Kathleen Geier writing for The Nation.

[Added 3/25]

The Top of the World. Doug Henwood’s review at Book Forum.

The Dead Are Wealthier Than the Living. Tim Noah at Pacific Standard Magazine. His critical conclusion:

It’s always dangerous to project current trends into the future, but here’s one extrapolation I’ll subscribe to: predictions about the future will usually prove wrong. With regard to r > g, lets remember that most of Piketty’s evidence comes from the pre-industrial economy. The industrial and post-industrial economies are only about 150 years old, and for nearly half that time g was greater than r. That almost certainly means we lack sufficient data to determine how, or whether, capital accumulation goes haywire in the coming years.

[Added 3/27]

Capital in partial equilibrium. A harsh review from the econ blog Updated Priors. The post concludes:

Capital is tremendously informative, and Piketty’s use of literary anecdote is a nice touch; but ultimately this is a chart book, with plenty of economic data but very little economics.

[Added 3/29]
Kapital for the Twenty-First Century?. James K. Galbraith critiques Piketty in Dissent, in part for glossing over the problems of aggregating different kinds of capital into a single measure, and thus implying that changes in the return on capital largely reflect the destruction of physical wealth rather than financial value:

Much of Piketty’s analysis turns on the ratio of capital—as he defines it—to national income: the capital/income ratio. It should be obvious that this ratio depends heavily on the flux of market value. And Piketty says as much. For example, when he describes the capital/income ratio plummeting in France, Britain, and Germany after 1910, he is referring only in part to physical destruction of capital equipment. There was almost no physical destruction in Britain during the First World War, and that in France was vastly overstated at the time, as Keynes showed in 1919. There was also very little in Germany, which was intact until the war’s end.

So what happened? The movement of Piketty’s ratio was largely due to much higher incomes, produced by wartime mobilization, in relation to the existing market cap, whose gains were restricted or fell during and after the war. Later, when asset values collapsed during the Great Depression, it mainly wasn’t physical capital that disintegrated, only its market value. During the Second World War, destruction played a larger role. The problem is that while physical and price changes are obviously different, Piketty treats them as if there were aspects of the same thing.

[EDIT] Brad DeLong response to Galbraith here. Key quote:

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. … Why does Galbraith think that Piketty is a neoclassical committed to the marginal productivity theory of distribution? I cannot figure that out.

[Added 4/1]
Trickle-up Economics. David Cay Johnson at Al Jazeera America.

The Return of “Patrimonial Capitalism” (pdf). Branko Milanovic published this long review of the book back in October (based on the French edition). It’s excellent, but lengthy, and I’m looking forward to revisiting it now that I have the English version of the book in hand. Two gems from the review:

What with Africa and India? Piketty does not say anything, but again, we can assume that in some more distant future, the same process will befall them too. This, however, opens a potential crack in Piketty’s argument—even if it is fully logically coherent—namely, that the period of high global growth (on account of convergence) may continue during the entire 21st century. And if it does, then the inequality r>g may be overturned as it was during “el periodo especial” and the bleak future described in the book may be postponed by at least another one hundred years.

And the last line of the review, perhaps my favorite praise for a book ever:

When reading Piketty’s book, it is indeed hard to go back to thinking about anything else: one gets totally absorbed in it. This is perhaps the best compliment that the author of an almost thousand-page long economics book can ever expect to get. Don’t take this book on vacation: it will spoil it. Read it a home.

[Added 4/8]
The short guide to Capital in the 21st Century. Matthew Yglesias over at the new Vox.com. A nice summary of a vulnerable assumption of the book:

Piketty says that r = 5 percent regardless of the rate of growth and provides fairly convincing empirical evidence that this has been the case in the past. But the theoretical basis for this pattern is unclear so it might not hold up. In principle, a permanent slowdown in growth could lead to a concurrent slowdown in the rate of return on capital leading to a stabilization in the wealth-income ratio. In that case, either everything would be fine or else if things weren’t fine it would be because the growth rate is too low not because the wealth-income ratio is rising.

[Added 4/11]
Why We’re in a New Gilded Age. Paul Krugman’s long-awaited (well, two weeks-awaited anyway) review in the NY Review of Books.

And that’s just what’s come through my newsfeed! Post your reactions to the book, or links to any other interesting discussions of it around the web, in the comments.

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  1. Charles A

     /  March 24, 2014
  2. Charles – Thanks for the link! I am very curious to hear what Marxists have to say about the book. This line struck me as a bit off, though:

    “Capital 21 makes a trenchant critique of the outlandish pay of corporate executives. (pp. 331-335, 510) Piketty approves, though, when you get a fat income because you are a genuine entrepreneur or a highly skilled professional. He accepts the bourgeois economic doctrine of the so-called marginal productivity of skilled labor, and with it a considerable amount of income inequality.”

    I think Piketty’s relationship to the idea of marginal product determining wages is a bit scattered. His whole model is premised on the idea that wages are *not* determined by marginal productivity, but rather that politics play an immense role in determining how growth is split between labor and capital (and thus, implicitly, how much of a return individuals see on their productivity). That said, I think Piketty does embrace marginal productivity as a normative doctrine, that is, he thinks the world would be better if people (especially the very rich) were only paid according to the marginal product (with a big safety net for everyone in case. So, I’m not sure I agree with the review here (though I think with a slight modification I would agree with the spirit of the point).

    Also, this strikes me as off:

    “And there is justified nostalgia today for the era after Piketty’s exceptional period. In the 1950s and 1960s life got better for a majority of the working people in the United States, Britain, and western Europe. The peak of working-class progress was 1973 – after Piketty’s focus and years before neoliberalism, financialization, and globalization. Since 1973, real median earnings in the U.S. have stagnated and fallen. That turning point is the fact that demands explanation and action.”

    Piketty precisely argues that 1945-1975 were the exceptional period. They were made exceptional by what happened in the preceding 30 years (World Wars, the rise of unions, etc.). But it’s the 40s-70s that are the outliers in terms of collapsing inequality, not the period before or after. So, I think the review misreads Piketty here.

    While I agree that Piketty is certainly far closer to mainstream (“orthodox”) economics than marxist economics (which I take to be the thrust of the review), he is making several breaks from the mainstream, and the review seems to misread them by imputing to him the very bits of orthodoxy that he is rejecting (on marginal productivity on the one hand, and on the proper reference point and historical precedent for the future being not the exceptional 40s-70s, but rather the periods before and after).

  3. Umut Koc

     /  April 22, 2014

    “Capital Punishment: Why a Global Tax on Wealth Won’t End Inequality” by Tyler Cowen. Seems to me a bit “in wonderland” but Cowen is always interesting.

  4. http://www.huffingtonpost.com/2014/04/25/piketty-amazon-reviews_n_5212386.html

    “How many times should a dollar be taxed that it satisfies The State?” — The author intends this as a Zen riddle, because The State can never be satisfied. However, unlike the author, I think there is a lot to be said for an economic system based on the principles of “Here’s your check. Don’t raise hell & don’t catch on fire.”

  5. Umut Koc

     /  May 1, 2014

    “Why Piketty’s Book Is a Bigger Deal in America Than in France” by Cowen and de Rugy. Isn’t it obvious?


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