Can I have my life back now, please? I've finally finished Thomas Piketty's "Capital in the 21st century" and am in urgent need of some light relief. I've offered some comments on the book in previous postings, but here are some final thoughts.
The most impressive thing about Piketty's book is the way he has managed to assemble a huge database on international, intergenerational trends in the distribution of income and wealth. What's more, he's put all of the information on line, in the stated expectation that others will be able to improve on it. Needless to say, this has opened the way for those viscerally opposed to Piketty's views (i.e, mainly, the international business press) to try to discredit his work. The London FT, for example, has claimed that Piketty's data are full of errors, but as this article on Slate demonstrates, the paper is wildly overstating its case.
Publishing in a city overflowing with Russian and Middle Eastern billionaires, the FT actually seems not to believe that wealth inequality is growing. Like others who have taken issue with Piketty, it argues that the growth in owner-occupancy of housing has led to a more equal distribution of wealth. This is flawed in so many ways:
(a) anyone making such a comment has almost certainly not read the book, since Piketty talks regularly about the rise in owner occupancy as a factor that mitigated the rise in inequality during the 20th century. His data take that into account.
(b) In any case, in the UK in recent years, the proportion of people able to afford their own homes has actually been declining slightly.
(c) There's a respectable argument, advanced by Willem Buiter amongst others, that the value of the housing stock isn't really part of the national wealth anyway. There can be little argument that financial wealth, as opposed to real estate, is distributed very unequally.
Once he moves beyond the data and into the policy prescriptions, Piketty's book becomes a lot less impressive. His call for an international tax on capital has won him considerable notoriety, and it's a case he makes with both passion and logic. But he must surely realize that it's never going to happen, barring a revolution. He likes to take potshots at economists who devote their time to constructing elaborate mathematical universes that have no relevance to the real world, but one could respond: what's the use of gathering all the data in the world if at the end of it, you produce wildly improbable policy ideas?
The policy section of the book, tucked away right at the end, also includes some off-topic thoughts on the Euro and even a few comments on climate change. These comments are very Euro-centric, which makes it an even bigger surprise that the book has attracted such a following in the United States, where not-invented-here syndrome is usually so strong.
Because it peters out so much in the end, Piketty's tome winds up being slightly disappointing. However, it may still prove to be an important landmark if it succeeds in bringing economics back toward the other social sciences, after a long and largely fruitless march toward becoming a branch of pure mathematics. I was always drawn much more to economic history than to the arcane modelling, and I'm reasonably sure that if I were to apply to read undergraduate economics today, I wouldn't be accepted by any respectable school. If Piketty succeeds in steering the discussion back toward the real world, he'll be doing everyone a big favour.
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