Scott Sumner on Piketty

I haven’t started Thomas Piketty’s Capital In the 21st Century  yet.

In the meantime, I’ve been overwhelmed by reviews from economists (and others) who have finished it (well, hopefully, at least … I have some doubts about some reviewers).

So I’ve avoided commenting on the book, or on the comments to it; although, like the proverbial duck, I’m doing a lot of work on this that isn’t easily seen.

Anyway, Scott Sumner came out with his review today at EconLog, and I think he makes a number of salient points. I think Scott’s politics and economics are roughly similar to mine: fiscally conservative, socially liberal, and with macroeconomics background more firmly grounded in the mainstream of the 1970’s and 1980’s than academics of older or more recent vintage. Here’s what he said.

I recently completed reading Thomas Piketty's new book entitled Capital in the Twenty-First Century. Piketty explains why the distribution of capital is becoming increasingly unequal, why we need higher tax rates on upper income individuals, and also a wealth tax on the affluent.

That’s a good skinny to start out with. In this next quote, I agree with the first two sentences and while I believe the last sentence, I find the implication a bit appalling:

You probably won't be surprised to hear that I was not persuaded by his arguments. I didn't expect to be persuaded. But here's what did surprise me; the book made no real attempt to persuade me. [emphasis original]

Sumner then goes on to explain his position, and you can read that it in the original. Later, there’s more of the same:

Going into the book I expected Piketty to try to persuade people like me … But he didn't do so; indeed he didn't even make an attempt to do so. The book is aimed at thoughtful non-specialists who don't know about all the cognitive illusions in the public finance literature. [emphasis added]

In short, Sumner argues that the book is aimed at people who think they’re smart enough to avoid the pitfalls, but who are ignorant that they exist at all.

Then Sumner hits on one of my pet peeves:

… He repeatedly uses the term 'wealth' to refer to marketable wealth, when he actually should be talking about total wealth, including the present value of future government benefits like Social Security and Medicaid, as well as human capital. To be sure, there are some purposes for which singling out marketable wealth might be appropriate, but discussing changes in economic inequality over time is not one of those purposes.

My peeve is that we tend to worry most about inequality when it involves something that is both valuable, transferrable, and fungible.

• No one care that we have inequality in penmanship, because it was valuable once upon a time but isn’t valuable any more.
• No one cares about inequality in ball handling skills, because even with the best coaching they aren’t transferrable.
• No one cares about inequality in the tastiness of home cooking, because even recipes don’t make that very fungible.

To me, it’s a sign of real problems when we’re only worried about inequality in relatively liquid assets: like they’re big bags of cash that belong to the holder.

Sumner concludes:

… I am obviously not the intended audience for this book. And if I look beyond my annoyance, I can understand why many readers found the book to be impressive, even a tour de force. … Piketty's book is impressive in some ways. I like his approach to methodology. He might well be correct about some of his predictions. As we saw with the General Theory, a book can contain many individual arguments that don't hold up, and still be a milestone in the intellectual debate.