Pastor Piketty

The story is told of a country vicar in England who was famous for the quality of his Sunday sermons.  A member of his flock asked him what his secret was.  The pastor thought for a moment and said, "First I tells them what I'm going to tell them, then I tells them, and then I tells them what I've told them".

It's unlikely that Thomas Piketty has heard that little tale, but he certainly grasps the message.  I'm now well into his best-selling "Capital in the twenty-first century" -- about 9% in, according to my Kindle -- and feel entitled to offer some first impressions.  A very long introductory section spells out in great detail what the book is going to be about, even providing a chapter-by-chapter breakdown.  And when you start the first section of the book proper, Piketty basically repeats that breakdown.  Some readers may not like where the author is taking them, but he's determined to make sure that none get lost along the way.

Piketty's policy recommendations -- a global capital tax, much higher marginal rates on higher incomes -- have been well covered in the media, and I'll come back to them later.  For now, though, I want to focus on Piketty's methodology, and what it tells us about how he sees the economics profession.  Short version: he's not impressed.

The great achievement of the book, recognized even by those who find its conclusions abhorrent, is in pulling together a database on capital and income that is huge both vertically (i.e. through time) and horizontally (i.e. across countries and regions).  Piketty's starting point is a major study of US wealth carried out more than half a century ago by Simon Kuznets.  With the help of a large number of colleagues, notably in the US, France and the UK, and by drawing on some of the earliest attempts at measuring wealth, particularly in Europe, he has been able to generate comparable data going back into the 19th century across a range of countries, and to bring the global wealth-and-income story up to date.

Piketty stresses that he sees his book as being a work of history as much as economics -- and it's evident that he regrets the way that the mathematization of modern economics has driven the two disciplines apart.  He chides academic economists for focusing on mathematical approaches that have little or no grounding in the real world, while ignoring the need to have good data on how things actually work.  If economics is to be regarded as a "social science", Piketty's emphasis is definitely on the first word.  

In keeping with this, there's very little math in the book, and much of what there is deals with just two variables: r, the rate of return on capital, and g, the rate of growth in national income.  Back when I was an undergraduate, I recall being presented with a growth theory in which r and g were assumed to be equal; this was known as a "golden age". Piketty's massive database allows him to conclude that this is something that rarely happens in the real world.  He demonstrates that r will tend to exceed g, especially in periods when growth is slow, and this will inevitably lead to inequalities of wealth.  His belief that precisely this is happening today leads directly to his controversial views on the need for a wealth tax.

In the book's introduction, Piketty avers that he is anti-Communist and a lover of America.  It's tempting to wonder whether those assertions were in the original French version of the book, or have been added for the English translation.  In any event, those avowals have not protected him from being demonized on the right as some kind of second coming of Marx.  Take, for example, this denunciation in the pages of the UK's Daily Telegraph,  which describes the book's policy prescription as "horrendously flawed".

I'll let you read the article for yourself, but I'm struck by the alternative solution summarized in the sub-headline: "A much better solution is to encourage an ownership society so that all can enjoy the returns from capital".  I think that's what Karl Marx was in favour of, so that can't be what the author (Allister Heath) has in mind, can it? It gets more incoherent from there: Heath wants to liberalize planning laws, so that the price of housing goes down (in cities like London, New York and San Francisco, which gives you an idea of the narrowness of his vision), but he also wants to "normalize" interest rates, which would only serve to make housing less affordable across the board.

"Envy is back, disguised as a concern about inequality", says Heath.  Maybe so, but Pastor Piketty, doubtless cognizant of the Seven Deadly Sins, can readily retort that the politics of envy may well be less destructive than the economics of greed.

More thoughts on Piketty's book will follow as I work my way through it.  Happily, though it's a bit pedantic and repetitive here and there, it's quite a sprightly read -- surprisingly so for a translated work.