Economics before human capital

As part of my last big dissertation push, I’ve spent the last month reading through introductory economics textbooks published 1890-1960. The variety and content of these textbooks has been very interesting*, and in addition to many relevant passages for my own work on the history of economic statistics and macroeconomic thinking, I’ve also come across other tidbits. Today I found one that I thought I’d share because it shows just how radically a field can shift in some of its basic conceptions in a few decades, and because I think it reads like sociology which fits into a little narrative I have that economic sociology now is very resonant with (the old) institutionalist economics from the 1920s-1940s. The quote comes from Lutz and Stanton (1923, p.11) An Introduction to Economics and shows just how radical the human capital revolution was, at least for some:

Human attributes, talents, and qualities are also scarce, but we must be careful not to regard them as wealth. The reason for the distinction is that the person who possesses the unusual gift or talent is first and last a human being, whose personality is to be respected and whose well-being is the goal of all economic activity. If we class the talents of the gifted as wealth, it is a short and easy step to regard the possessors of these gifts as existing mainly for the services which they render, and not as free and independent persons. Under slavery, the talents of the slave might have been regarded, properly enough as part of the wealth of the owner. It is inconsistent with the principles of human freedom, which we now hold sacred, to confuse man as a means for the production of wealth with man as the end of economic action. No person should be degraded to the position of a mere means to the enjoyment of others. We might be in danger of doing this if we regarded human qualities as wealth, scarce though they might be.

The first author, Lutz, was no crazy radical, but rather a respected tax economist who worked on various government committees and taught at Oberlin, Stanford, and Princeton. And yet it’s hard to imagine a more strident rejection of human capital as a metaphor than calling it “inconsistent with the principles of human freedom.” A different economics for a different time.

* If you’re into that sort of thing, at least.

Funk and Hirschman (2014) “Derivatives and Deregulation”

I am very pleased to announce that Administrative Science Quarterly has just posted the online version of my forthcoming article with Russ Funk, Derivatives and Deregulation: Financial Innovation and the Demise of Glass–Steagall. Here’s the abstract:

Regulators, much like market actors, rely on categorical distinctions. Innovations that are ambiguous to regulatory categories but not to market actors present a problem for regulators and an opportunity for innovative firms. Using a wide range of primary and secondary, qualitative and quantitative sources, we trace the history of one class of innovative financial derivatives—interest rate and foreign exchange swaps—to show how these instruments undermined the separation of commercial and investment banking established by the Glass–Steagall Act of 1933 even as overt political action failed to do so. Swaps did not fit neatly into existing product categories—futures, securities, loans—and thus evaded regulatory scrutiny for many years. The market success of swaps put commercial and investment banks into direct competition and, in so doing, undermined Glass–Steagall. Drawing on this case, we theorize that ambiguous innovations may disrupt the regulatory status quo and shift the political burden onto parties that want to maintain existing regulations. Our findings also suggest that category-spanning innovations may be more valuable to market participants if regulators find them difficult to interpret.

Many readers of this blog gave us helpful advice over the past four years; thank you all very much! And let us know what you think of the paper.

RSVP for the Junior Theorists Symposium!


The 2014 Junior Theorists Symposium is just three weeks away! Below, please find an updated schedule. JTS 2014 will be held at the University of California Berkeley in 60 Evans Hall. A complete list of paper abstracts is available here (pdf link). If you have any questions, please contact Jordanna Matlon and myself at

Junior Theorists Symposium
University of California (Berkeley)
60 Evans Hall
August 15, 2014

8:30 – 9:00 | Coffee and Bagels

9:00 – 10:50 | Culture, Action, and Difference
* Michael Halpin (University of Wisconsin – Madison) – “Science and Sociodicy: Neuroscientific Explanations of Social Problems”
* Ellis Monk (University of Chicago) – “Bodily Capital: Capturing the Role of the Body in Social Inequality”
* Daniel Sherwood (The New School) – “Acting Through the Margin of Freedom: Bourdieu as a Social Movement Theorist”
Discussant: Omar Lizardo (University of Notre Dame)

10:50 – 11:00 | Coffee

11:00 – 12:50 | Measures of Worth
* Alison Gerber (Yale University) – “Tradition, Rationalization and Worth: A Theory of Decommensuration”
* Katherine Kenny (University of California – San Diego) – “The Biopolitics of Global Health: Life and Death and Neoliberal Time”
* Brandon Vaidyanathan (Rice University) – “A Cultural Theory of Differentiation”
Discussant: Marion Fourcade (University of California – Berkeley)

12:50 – 2:00 | Lunch

2:00 – 3:50 | Place and Perspective
* Hillary Angelo (New York University) – “From the City as a Lens to Urbanization as a Way of Seeing: Refocusing Social Categories for an Urban Planet”
* Jennifer Carlson (University of Toronto) – “Citizen-Protectors: Guns, Masculinity and Citizenship in an Age of Decline”
* Victoria Reyes (Princeton University) – “Global Borderlands: A Case Study of the Subic Bay Freeport Zone, Philippines”
Discussant: Saskia Sassen (Columbia University)

4:00 – 5:30 | After-panel: The Boundaries of Theory
* Stefan Bargheer (University of California – Los Angeles)
* Claudio Benzecry (University of Connecticut)
* Margaret Frye (Harvard University)
* Julian Go (Boston University)
* Rhacel Parreñas (University of Southern California)

5:30 – ? | Theory in the Wild: Beer, wine, and good conversation (off-site)

The Junior Theorists Symposium is an open event. In order to facilitate planning, please RSVP by sending an email to with the subject line “JTS RSVP.” We suggest an on-site donation of $20 per faculty member and $10 per graduate student to cover event costs.

“The Case for Reparations”, Ta-Nehisi Coates

In case you haven’t seen it already, you should go read Ta-Nehisi Coates’ new, lengthy essay, The Case for Reparations. Rather than trying to summarize it, I’ll just post a few of many choice quotes. On the overall argument:

Having been enslaved for 250 years, black people were not left to their own devices. They were terrorized. In the Deep South, a second slavery ruled. In the North, legislatures, mayors, civic associations, banks, and citizens all colluded to pin black people into ghettos, where they were overcrowded, overcharged, and undereducated. Businesses discriminated against them, awarding them the worst jobs and the worst wages. Police brutalized them in the streets. And the notion that black lives, black bodies, and black wealth were rightful targets remained deeply rooted in the broader society. Now we have half-stepped away from our long centuries of despoilment, promising, “Never again.” But still we are haunted. It is as though we have run up a credit-card bill and, having pledged to charge no more, remain befuddled that the balance does not disappear. The effects of that balance, interest accruing daily, are all around us.

On how redlining and segregation were about public policy, not just individual preference:

When terrorism ultimately failed, white homeowners simply fled the neighborhood. The traditional terminology, white flight, implies a kind of natural expression of preference. In fact, white flight was a triumph of social engineering, orchestrated by the shared racist presumptions of America’s public and private sectors. For should any nonracist white families decide that integration might not be so bad as a matter of principle or practicality, they still had to contend with the hard facts of American housing policy: When the mid-20th-century white homeowner claimed that the presence of a Bill and Daisy Myers decreased his property value, he was not merely engaging in racist dogma—he was accurately observing the impact of federal policy on market prices. Redlining destroyed the possibility of investment wherever black people lived.

On fatherhood, and misplaced criticisms of black family values as the root of social ills:

From the White House on down, the myth holds that fatherhood is the great antidote to all that ails black people. But Billy Brooks Jr. had a father. Trayvon Martin had a father. Jordan Davis had a father. Adhering to middle-class norms has never shielded black people from plunder. Adhering to middle-class norms is what made Ethel Weatherspoon a lucrative target for rapacious speculators. Contract sellers did not target the very poor. They targeted black people who had worked hard enough to save a down payment and dreamed of the emblem of American citizenship—homeownership. It was not a tangle of pathology that put a target on Clyde Ross’s back. It was not a culture of poverty that singled out Mattie Lewis for “the thrill of the chase and the kill.” Some black people always will be twice as good. But they generally find white predation to be thrice as fast.

I can imagine using this in a variety of undergraduate classes. Both historians and sociologists figure prominently, as Coates addresses the different regimes of oppression that have created and maintained black-white economic inequality (and especially the wealth gap) over the past 400 years, up to the 21st century racial disparities in subprime mortgage lending.

Coates also posted an addendum on his blog, tracing his intellectual journey from opposing to supporting reparations. I was especially interested by Coates’ connecting the current debate about affirmative action to the failure of a conversation about wealth and reparations:

I’m thinking about it with the Supreme Court set to dismantle Affirmative Action. Isn’t the “diversity” argument actually kind of weak? Isn’t the recompensation argument actually much more compelling? Except this was outlawed with Bakke. What I am thinking is right now, at this moment, American institutions (especially its schools) are being asked to answer for the fact that country lacked the courage to do the right thing. In the wake of the Supreme Court’s decision coming down, in the wake of (what looks like) a second Obama term, we could make a really strong case that now is the time renew a serious discussion about Reparations.

This narrative is a small one in the final piece, but an important one.

The ever brilliant Tressie MC has an excellent follow-up post, further connecting Coates and the push to address wealth inequality to the impossibility of higher ed fixing contemporary racial inequality:

No matter what black college grads do, they are more sensitive than non-blacks to every negative macro labor market trend. They are more likely to be unemployed, underemployed, and hold low quality jobs even when they have STEM degrees. I point out that last bit because apparently STEM will save us all or something.

When we allow education to be sold as a fix for wealth inequality, we set a public good up to fail and black folks that do everything “right” to take the blame when it goes “wrong”.

Read it all, if you can. This is what happens when history and sociology get taken seriously in the public sphere, and it’s both wonderful and depressing.* As it should be.

* This quote from Coates’ follow-up post is especially touching:

… I became convinced that an unfortunate swath of popular writers/pundits/intellectuals are deeply ignorant of American history. For the past two years, I’ve been lucky enough to directly interact with a number of historians, anthropologists, economists, and sociologists in the academy. The debates I’ve encountered at Brandeis, Virginia Commonwealth, Yale, Northwestern, Rhodes, and Duke have been some of the most challenging and enlightening since I left Howard University. The difference in tenor between those conversations and the ones I have in the broader world, are disturbing. What is considered to be a “blue period” on this blog, is considered to be a survey course among academics. Which is not to say everyone, or even mostly everyone, agrees with me in the academy. It is to say that I’ve yet to engage a historian or sociologist who’s requested that I not be such a downer. [emphasis added]

Real Dystopias: Dispatches from the Grim Meathook Future

Occasionally, I get the idea for a course I’ll probably never teach. This week’s idea is a course on real dystopias. A couple years ago, then-president of the American Sociological Association Erik Olin Wright unveiled a big collaborative project on “real utopias”. Real utopias are actually existing utopic projects, like cooperatives and Creative Commons. This of course inspires a whole mental 2×2 table of real vs. unreal utopias vs. dystopias (for a bit of humor at the time, see this old post). The category that most interests me is not so much Wright’s real utopias, but rather the actually existing, or plausible and predicted, dystopias. And then I thought, wouldn’t it be fun to teach a whole class about these things?

Following from the writing of Warren Ellis and Joshua Ellis, let’s call these “dispatches from the Grim Meathook Future.” Each week or sub-unit would cover a different real dystopia, ideally with a guest lecturer who could speak to the underlying science or politics of the particular kind of dystopia. A lot of them connect to climate change, but that’s almost too broad so we have to disaggregate, and I’ll just focus on one possibility. Here are some example units and ideas for guest lecture topics:

1. Antibiotic resistant infections. Guest lecturers: a historian of medicine to talk about the world before antibiotics, a microbiologists or epidemiologist to talk about the problems of antibiotic resistance, the lack of new antibiotics in development, and the already high prevalence of resistant bugs (e.g.). Here’s an essay from Medium that could serve as a primer.

2. Widespread droughts and massive disruptions of the food supply connected to climate change. Guest lecturers: a social scientist to speak about the current system of water provisioning, agriculture and the wacky politics thereof (e.g. Steve Jackson at Cornell), an environmental scientist to speak about draining of the aquifers, difficulties of desalination, and growing drought conditions in much of the world.

3. The dominance of the patrimonial super-rich. If we believe Thomas Piketty, absent some kind of major political realignment, revolution, or widespread war, the next century will see a continued increase in both income and wealth inequality, and especially the return of a class of super-rich inheritors who will dominate political and social life. Guest lecturers could include a historian or literary scholar to talk about the last gilded age and the cultural dominance of the super rich then, as well as an economist to walk through Piketty’s data and model and/or a political scientist or sociologist to talk about the improbability of enacting policies likely to stem the growing wealth of the super-elite (cf. Gilens and Page).

4. The Player Piano dystopia. In his optimistic vision of the future, outlined in Economic Possibilities for Our Grandchildren, Keynes argued that in the future, the economic system would be so productive that most people could live lives of relative leisure, working perhaps 15-hour weeks to share the reduced workload widely and make sure all have some meaningful labor. Kurt Vonnegut offered an alternative vision in his debut novel, Player Piano, in which a relatively small clique of engineers built and maintained the machines, while a large class of unemployed workers lived lives of aimless poverty. Modern version of Vonnegut’s argument focus on the inability of society to come up with ways of distributing resources equitably outside of the labor market. Class could focus on these literary texts, and/or the economics of automation.

5. The Surveillance state dystopia. A nice place to start, because it’s so personal and yet so vivid, might be the recent debates over big data and privacy, such as the story about Target predicting a teen girl’s pregnancy before her parents knew, and the recent (sort-of) follow-up about the lengths sociology professor Janet Vertesi had to go to to prevent automated surveillance systems from sussing out her own pregnancy. From there you could move to literature (Charles Stross’s Halting State, perhaps?), discussions of the NSA, and so on.

What do you think? And what real dystopias – social, political, environmental, etc. – would you want to teach?

Piketty’s Patrimonial Capitalism and the Racial Wealth Gap

Although I’ve been following the broad discussion of Piketty’s Capital in the 21st Century quite closely, I haven’t really decided where I stand on the book yet. I’m reading it with an interdisciplinary group of social science graduate students, and thus far the economists have had a lot of interesting reactions on technical grounds, while the rest of us are excited about the project but a bit disappointed that Piketty spends a lot more time praising other social sciences than actually engaging with our work.[1] I’m not sure we’ve yet come to any consensus on what it all means.

While pondering the book, and the ongoing discussion it has generated, I had a random thought that I don’t think I’ve seen elsewhere and so I thought I’d try it out on you nice folks here. One of Piketty’s central arguments is that we are seeing the return of the “patrimonial capitalism” that dominated for most of the last 200 years. Patrimonial capitalism here means that the economic elite mostly attain their fortunes through inheritance rather than entrepreneurship or innovation. When the returns to capital (r) exceed the real growth rate (g), the rich get richer faster than they tend to spend their money, and faster than new fortunes can be created. These inherited fortunes produce a class of rentiers who dominate politics with all sorts of (mostly implied, but very plausible) negative consequences.

The US looks, at first glance, like a bit of an outlier because the incomes of very high earners (the top 1%, .1%, .01%…) contain a relatively high share of labor income, and not just returns to capital. These incomes are traceable largely to the explosion of executive pay and the ridiculous incomes of top finance employees at hedge funds, investment banks, and the like. This income counts as labor income, although there are good reasons to believe that politics plays as much of a role as, say, marginal productivity in determining the wages of executives and the compensation of hedge fund guys.[2] But, even so, Piketty argues that the US is seeing the same trend towards inheritors having the largest fortunes. As many have pointed out, of the 10 richest Americans, four are Wal-Mart heirs, and two are the Koch brothers, all of whom inherited their money. And when the current crop of top finance employees and CEOs die, their children will join the Kochs and Waltons as next generation’s economic elites.

What interest me about this story, at least for the purpose of this post, is what it means for the dynamics of racial inequality. As far as I can tell, no one has picked up on this angle, perhaps because I’m missing something that complicates the analysis or perhaps because it’s too obvious to be worth highlighting. In general, Piketty and his admirers tend to blur traditional distinctions and focus on the biggest economic cleavages, e.g. “We are the 99%”. And there’s real value to that. But let’s stop for a moment and ask what happens if the US turns into society increasingly dominated by inherited wealth. Families who managed to make their fortunes in the relatively equal era of the 1940s-1970s, or in the increasingly unequal era of the last 30 years, will get to lock in those gains. Families who end this period with little wealth will have few opportunities to make new fortunes (a consequence of the low growth rate, implying little turnover, little economic disruption, etc.).[3]

So which families have the wealth? Well, white families. Not all white families of course, but the racial wealth gap is one of the staggering facts of contemporary inequality. Worse even than racial income gaps, racial wealth gaps have grown tremendously in the past few decades. Here’s a summary of recent research on the topic[4]:

A recent Urban Institute report finds that the racial wealth gap — measured as the difference in wealth accumulated by white Americans and black and Latino Americans — is the largest it has ever been since the Federal Reserve started tracking it. In 1983, for every dollar held by the average black or Latino family, the average white family had five. In the aftermath of the financial meltdown and the Great Recession that figure today has increased to six dollars. The figures for the median post-recession family — a measure less skewed by America’s handful of superrich — are even further apart: in 2010, for every dollar held by the median black or Latino family, the median white family had eight.

This coverage emphasizes the gaps for typical families. My guess is that the gaps at the right tail are even more extreme. Similarly, we know that CEOs of large companies are disproportionately white, with just six of the Fortune 500 companies having a Black CEO, and just eight are Latino – and none of those minority CEOs are among the highest paid.[5] I’m not finding good numbers on employment in investment banking, hedge funds, and the like by race, but those occupations also skew heavily white (if you know of a good source for racial wealth gaps at the very top, or for employment in haute finance by race, please post a link in the comments!).

Put together Piketty’s story on the return of inherited wealth with the current massive racial wealth gaps in the US, and the white dominance of “supermanager” positions that are currently producing new fortunes to be inherited, and we get a recipe for continued economic dominance by (a small group of) white families. Black and latino families didn’t have time to catch up in the era when inequality was decreasing (the mid-20th century), nor in the era when new fortunes could be made (the past few decades), and thus in Piketty’s grim, dystopic future, not only will elites dominate the economic and political sphere, but those elites will be almost entirely white.[6]

I suppose it’s not especially surprising that the future will continue to be dominated by rich white people, but it still seems worth talking about as one of the many consequences of the return of patrimonial capitalism.

[1] Michele Lamont gets a nice shout-out, though!

[2] At a minimum, politics explains why such pay is now taxed so little compared to 30 or 40 years ago. And reducing taxes on high earners increases their wealth in the following years, and thus increases the amount of labor income that turns into wealth and inherited fortunes. See also the elimination of the estate tax.

[3] This is, I think, one of the most questionable predictions. Even if we see low measured growth rates, it’s hard to imagine there being the same kind of stagnation associated with next 50 years that was associated with the pre-19th century economy, or even the relatively slow pace of change of the 1800s. That said, the wealthy may find plenty of ways to weather the storms of economic change in a world of massive disruptions but little overall growth, while labor, as usual, is left to bear risks on its own.

[4] Note, I’ve not studied wealth statistics or wealth gaps nearly as much as income. I’d love suggestions for the best contemporary research on wealth data, apart of course from Piketty and co-author’s work (which cannot see racial disparities due to the limitations of the sources, I believe).

[5] These CEOs are almost all men as well, but that matters a bit less for the analysis of inheritance (though not for other important questions around inequality).

[6] Not to mention the 17th and 18th centuries, but that’s before the modern era of economic growth and etc. where Piketty’s analysis gets interesting.

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 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 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.

Chicago-Bound for SSHA!

Dear Readers,

This week is the annual Social Science History Association meeting. I’m excited to be presenting a preliminary overview of my dissertation, “Inventing the Economy (or, How We Learned to Stop Worrying and Love the GDP)” at a panel on Saturday at 10:15am called “Making Things with Social Science.” The panel also features Lisa Stampnitzky talking about torture and human rights experts, and Joseph Harris on the role of experts in the expansion of universal healthcare across the world. Our discussant will be philosopher of science and blogger Dan Little.

I hope to see some of you there! And drop me a line if you’re interested in grabbing coffee, etc.

Annemarie Roeper, 1918-2012, and the Polanyian Fact of Human Interdependence

This week, two of my favorite children’s educators passed away. More famously, Maurice Sendak passed away. Sendak believed in the radical idea that you don’t need to lie to children and shield them from every scary thing. Stephen Colbert did a wonderful interview with him this year, a bit more of the interview was released this week (available here).

The second educator was Annemarie Roeper, who died today. Annemarie* was a fascinating person – for example, she was accepted by the Freuds to study psychoanalysis but was forced to flee Europe before she could begin her training (see her obituary here for more details). Most important to my life, Annemarie also co-founded the Roeper School with her husband George back in 1941. I attended the school from 7th to 12th grade (as I mentioned in a previous obituary post). One of the most exceptional aspects of Roeper was the existence of a strong philosophy that guided the school. This philosophy was an abstract idea, a series of written documents, and a constant debate. The Roeper Philosophy was, in a sense, an “endless meeting.”** 

The content of the philosophy has shifted over time. It’s currently embodied in a short version hosted on the school’s website that reads a bit too much like standard educational boilerplate for my tastes. An older iteration, authored by George and Annemarie in 1981, is considered by many the best expression of the full philosophy. Having fled persecution in Europe and inspired by the ongoing Cold War, the Roepers felt that educational philosophy was not simply a matter of student learning, but rather of making possible a better world free from the horrors of world war. Reading it now, the most striking parts are those emphasizing deep human interdependence. The Roepers read a bit like Karl Polanyi’s somewhat cryptic, but beautiful, final chapter in The Great Transformation, “Freedom in a Complex Society.” Like Polanyi, the Roepers argue that we must paradoxically acknowledge the reality of society, and thus of interdependence, if we are to sustain individual freedom:

Actually, the fact of interdependence, of human ecology, becomes more and more apparent in today’s world.  All parts of the globe depend on each other economically, culturally and emotionally.  All this, if followed through logically, translates into the compelling need for cooperative action.  Yet most of our skills and beliefs are based on confrontation and competition.  Most people function as though there were a hierarchy of human rights and human life-structures.  There is a top to be reached by the few, built on a hierarchy supported by the many.  Therefore, people feel justified and safe to use each other as stepping stones to success.  Their value is measured in terms of their usefulness to those in apparent power.  This state of affairs soon becomes intolerable to those at the bottom and they become aware of the bottom power of the many as opposed to the tower power of the few.  And so the battle never ends.  We live in a dog-eat-dog world, where might-makes-right.  It is obvious to all that this has brought us to the brink of destruction.  We are teetering at the edge of it and yet we continue to teach children to live in the same way.  We are raising children to function in a manner which has created our present state of life.  Why?  Because we use our real ability of cooperation only in certain areas of endeavor.  We have not yet incorporated in our emotions and thoughts a belief in mutual responsibility or a concept of basic human interdependence or ecology.  We believe in victory and our perceptions are short-term.  We are aware of the consequences of the moment, not the long-range chain reaction of our behavior.  We do not remember that if we accept stealing as a way of life we have to guard against others stealing from us.  If we kill, we create the possibility of being killed even if we do it for justice or revenge.  All of this is obvious and yet we have not found other methods of dealing with each other.

A philosophy which tries to develop the skills of cooperation and looks at this as the ultimate moral and realistic, not illusionary (sic.), goal, may be the only true approach that might keep the world from destruction.  Of course, we are aware that we will not be able to change the world but we might make a slight impact and at least help the members of this community to live a different life.  It may also serve as a model for others.  It shows that it can be done.

Thank you Annemarie – and George – for your philosophy and your school. We miss you, and hope that we can carry on your legacy in ways small and large.

* At Roeper, everyone went by their first name, students, teachers and school founders alike.

** Sometimes a bit literally. In the wake of the school shootings in Columbine, for example, we held a two-day town hall meeting for the entire upper school where we discussed the shootings and our reactions to them. 

Blogger Party in Vegas!

Dear Readers!

My June travels are nearly over, and I have a pipeline of posts that should be coming in the next few days on such exciting topics as Milton Friedman vs. Gary Becker and the perennial favorite of markets & politics. Until then, I want to note the announcement of the annual ASA ScatterPlot Blogger Party! Details here. Short story: Sunday, August 21, 4:30pm at the Seahorse Lounge at Caesar’s Palace. I hope to see many of you there!