## Monday, November 24, 2014

### Piketty/Poverty

So you've all forgotten who Thomas Piketty is, right? Recall that he is the author of the 685-page tome, Capital in the Twentieth Century, a bestseller of the summer of 2014, but perhaps also the least-read bestseller of the summer of 2014. I was determined, however, not to be like the mass of lazy readers who bought Capital. I have slogged on, through boredom, puzzlement, and occasional outrage, and am proud to say I have reached the end. Free at last! Hopefully you have indeed forgotten Piketty, and are not so sick of him you could scream. Perhaps you're even ready for a Piketty revival.

Capital is about the distribution of income and wealth. For the most part, this is a distillation of Piketty's published academic work, which includes the collection and analysis of a large quantity of historical data on income and wealth distribution in a number of countries of the world. Of course, data cannot speak for itself - we need theory to organize how we think about the data, and Piketty indeed has a theory, and uses that theory and the data to arrive at predictions about the future. He also comes to some policy conclusions.

Here's the theory. Piketty starts with the First Fundamental Law of Capitalism, otherwise known as the definition of capital's share in national income, or

(1) a = r(K/Y),

where a is the capital share, r is the real rate of return on capital, K is the capital stock, and Y is national income. Note that, when we calculate national income we deduct depreciation of capital from GDP. That will prove to be important. The Second Fundamental Law of Capitalism states what has to be true in a steady state in which K/Y is constant:

(2) K/Y = s/g,

where s is the savings rate, and g is the growth rate of Y. So where did that come from? If k is the time derivative of K, and y is the time derivative of Y, then in a steady state in which K/Y is constant,

(3) k/K = y/Y.

Then, equation (3) gives

(4) K/Y = k/y = (k/Y)/(y/Y) = s/g,

or equation (2). It's important to note that, since Y is national income (i.e. output net of depreciation), the savings rate is also defined as net of depreciation.

So, thus far, we don't have a theory, only two equations, (1) and (2). The first is a definition, and the second has to hold if the capital/output ratio is constant over time. Typically, in the types of growth models we write down, there are good reasons to look at the characteristics of steady states. That is, we feel a need to justify focusing on the steady state by arguing that the steady state is something the model will converge to in the long run. Of course, Piketty is shooting for a broad audience here, so he doesn't want to supply the details, for fear of scaring people away.

Proceeding, (1) and (2) imply

(5) a = r(s/g)

in the steady state. If we assume that the net savings rate s is constant, then if r/g rises, a must rise as well. This then constitutes a theory. Something is assumed constant, which implies that, if this happens, then that must happen. But what does this have to do with the distribution of income and wealth? Piketty argues as follows:

(i) Historically, r > g typically holds in the data.
(ii) There are good reasons to think that, in the 21st century, g will fall, and r/g will rise.
(iii) Capital income is more more concentrated among high-income earners than is labor income.

Conclusion: Given (5) and (i)-(iii), we should expect a to rise in the 21st century, which will lead to an increasing concentration of income at the high end. But why should we care? Piketty argues that this will ultimately lead to social unrest and instability, as the poor become increasingly offended by the filthy rich, to the point where they just won't take it any more. Thus, like Marx, Piketty thinks that capitalism is inherently unstable. But, while Marx thought that capitalism would destroy itself, as a necessary step on the path to communist nirvana, Piketty thinks we should do something to save capitalism before it is too late. Rather than allow the capitalist Beast to destroy itself, we should just tax it into submission. Piketty favors marginal tax rates at the high end in excess of 80%, and a global tax on wealth.

Capital is certainly provocative, and the r > g logic has intuitive appeal, but how do we square Piketty's ideas with the rest of our economic knowledge? One puzzling aspect of Piketty's analysis is his use of net savings rates, and national income instead of GDP. In the typical growth models economists are accustomed to working with, we work with gross quantities and rates - before depreciation. Per Krusell and Tony Smith do a nice job of straightening this out. A key issue is what happens in equation (2) as g goes to zero in the limit. Basically, given what we know about consumption/savings behavior, Piketty's argument that this leads to a large increase in a is questionable.

Further, there is nothing unusual about r > g, in standard economic growth models that have no implications at all for the distribution of income and wealth. For example, take a standard representative-agent neoclassical growth model with inelastic labor supply and a constant relative risk aversion utility function. Then, in a steady state,

(6) r = q + bg,

where q is the subjective discount rate and b is the coefficient of relative risk aversion. So, (6) implies that r > g unless g > q and b is small. And, if g is small, then we must have r > g. But, of course, the type of model we are dealing with is a representative-agent construct. This could be a model with many identical agents, but markets are complete, and income and wealth would be uniformly distributed across the population in equilibrium. So, if we want to write down a model that can give us predictions about the income and wealth distribution, we are going to need heterogeneity. Further, we know that some types of heterogeneity won't work. For example, with idiosyncratic risk, under some conditions the model will essentially be identical to the representative agent model, given complete insurance markets. Thus, it's generally understood that, for standard dynamic growth models to have any hope of replicating the distribution of income and wealth that we observe, these models need to include sufficient heterogeneity and sufficient financial market frictions.

Convenient summaries of incomplete markets models with heterogeneous agents are in this book chapter by Krusell and Smith, and this paper by Heathcote et al. In some configurations, these models can have difficulty in accounting for the very rich and very poor. This may have something to do with financial market participation. In practice, the very poor do not hold stocks, bonds, and mutual fund shares, or even have transcations accounts with banks in some circumstances. As well, access to high-variance, high-expected return projects, for example entrepreneurial projects, is limited to very high-income individuals. So, to understand the dynamics of the wealth and income distributions, we need to understand the complexities of financial markets, and market participation. That's not what Piketty is up to in Capital.

How might this matter? Well suppose, as Piketty suggests, that g declines during the coming century. Given our understanding of how economic growth works, this would have to come about due to a decline in the rate of technological innovation. But it appears that technological innovation is what produces extremely large incomes and extremely large pots of wealth. To see this, look at who the richest people in America are. For example, the top 20 includes the people who got rich on Microsoft, Facebook, Amazon, and Google. As Piketty points out, the top 1% is also well-represented by high-priced CEOs. If Piketty is right, these people are compensated in a way that is absurdly out of line with their marginal productivities. But, in a competitive world, companies that throw resources away on executive compensation would surely go out of business. Conclusion: The world is not perfectly competitive. Indeed, we have theories where technological innovation produces temporary monopoly profits, and we might imagine that CEOs are in good positions to skim off some of the rents. For these and other reasons, we might imagine that a lower rate of growth, and a lower level of innovation, might lead to less concentration in wealth at the upper end, not more.

Capital is certainly not a completely dispassionate work of science. Piketty seems quite willing to embrace ideas about what is "just" and what is not, and he can be dismissive of his fellow economists. He says:
...the discipline of economics has yet to get over its childish passion for mathematics and for purely theoretical and often highly ideological speculation, at the expense of historical research and collaboration with the other social sciences.
Not only are economists ignoring the important problems of the world, the American ones are in league with the top 1%:
Among the members of these upper income groups are US academic economists, many of whom believe that the economy of the United States is working fairly well and, in particular, that it rewards talent and merit accurately and precisely. This is a very comprehensible human reaction.
Sales of Capital have now put Piketty himself in the "upper income group." Economists are certainly easy targets, and it didn't hurt Piketty's sales to distance himself from these egghead ivory-tower types. This is a very comprehensible human reaction.

To think about the distribution of income and wealth, to address problems of misallocation and poverty, we need good economic models - ones that capture how people make choices about occupations, interhousehold allocation and bequests, labor supply, and innovation. Economists have certainly constructed good models that incorporate these things, but our knowledge is far from perfect - we need to know more. We need to carefully analyze the important incentive effects of taxation that Piketty either dismisses or sweeps under the rug. Indeed, Piketty would not be the first person who thought of the top 1% as possessing a pot of resources that could be freely redistributed with little or no long-term consequences. It would perhaps be preferable if economists concerned with income distribution were to focus more on poverty than the outrageous incomes and wealth of the top 1%. It is unlikely that pure transfers from rich to poor through the tax system will solve - or efficiently solve - problems of poverty, in the United States or elsewhere. My best guess is that our time would be well spent on thinking about human capital accumulation and education, and how public policy could be reoriented to promoting both in ways that have the highest payoff.

#### 28 comments:

1. "Economists have certainly constructed good models that incorporate these things, but our knowledge is far from perfect - we need to know more."

I think this is the key point, and the contradiction stands out. How can we construct "good models" without having the knowledge? Do they come out of thin air and musing with algebraic gimmick and artificial constructs with dubious empirical and even intuitive and ideological foundations?

The knowledge comes from looking at the data - that includes not only numbers but contextual historical analysis. That was the main achievement of Piketty's book. HIs point about engagement with other social scientists and humanities is also crucial. It is the only way we are going to get the whole picture.

1. Good economics involves an interplay between the theory and the data. I'm not sure what you mean by "contextual historical analysis," and how that fits into a sound research program.

2. Good practice in the social sciences, including economics, requires (1) theory, (2) data, and (3) interpretation of that data which requires knowledge of what that data means and where it came from. Of the three, theory (1) is by far the least important.

Think about how an historian (and most social scientists) work. They NEVER start with a model. If there is a model it comes at the end of the analysis.

Why?

You must start from the bottom up. You get raw documentation and data and then start researching how the target system (that may be an economy, a society, or a country at a certain point in time) operates/operated.

You may at the very end of your work just confirm what theory and conventional wisdom already knew. Good. That is plus for existing theory and means past researchers have been on the right track.

Very likely, however, he will find from starting from scratch and forming the framework as he goes along something completely different, which will stand out later as an elephant in the room that everyone had been missing.

Models (a pretentious word - I prefer analytical frameworks or theories) are reference points. They are to check against your own analysis once the hard searching and reflection on the evidence found has been done. They are not there to frame your analysis from the beginning.

Researchers must also think quite holistically. The micro-economic foundations of economics, even adjusted for things like the Second Welfare Theorem are on empirically very shaky ground. Much of the assumptions made about agent, social and societal behaviour would be totally unacceptable to a psychologist or sociologist. Neo-classical theory badly needs to be subject to their scrutiny, and economists need to tap into what other social scientists have found.

3. This is complete nonsense.

4. I'm not sure what you mean by "contextual historical analysis,"

I will give you a simple example of what I mean.

Say you are investigating whether there has been any crowding out effects from large increases in government spending. Your target system is post WWII Japan. Your "model" says that evidence of crowding out will be seen in the form of a rise in short term interest rates. You look at Japan 1955-1970 and see no impact on interest rates from large increases in government expenditure that occurred and conclude that there has been no crowding out.

A Japanologist however would approach this very differently. He would know something about the target system and would not start with abstract one-size-fits all theory. He would know, or would find out through investigation of documents, that the central bank and the government practiced credit rationing. A large increase in government expenditure was often countered with rationing of private sector credit allocation. This left interest rates (which in any case are not comparable with US ones) unchanged.

He would then try and go for a deeper understanding of how this system worked so successfully (or not) and why it was formed. He would learn that it was kept in place despite US occupational era reforms that attempted to create a conventional form of monetary policy. Understanding how these policies came about helps understand more about how they actually work and how they can actually form the basis of a highly effective (or ineffective) form of monetary policy. It would also force the subject (the researcher) to think more about the object (the study). Why is it we have come to look at the workings of monetary policy in a certain way? Such work will help us better deal with new problems, like the current ones, that we may now face.

5. "Think about how an historian (and most social scientists) work. They NEVER start with a model."

Of course, your assumption is that they are doing it right. I'd say this just opens the door to sloppy and unproductive research.

6. "Of course, your assumption is that they are doing it right."

That would happen in any case. In fact clearly before 2008 EVERYBODY was doing it wrong and it is open to question how productive RBC, rational expectations-based and other such research was.

I know why economics is defined by a singular standardised methodological framework - it is to keep out eccentricity. But by doing that it is putting all their eggs in the one basket. If the foundations of this framework are on dubious empirical ground (starting with the first one, unlimited wants, limited resources) that is a dangerous way to proceed. Very possibly the theory in question and its foundations may be completely wrong or just counterproductive and lead people in completely in the wrong direction.

By having eclectic approaches and being open to accumulated knowledge from other disciplines it is more likely that SOMEONE will get it right. It is also a good defence against group think, fads, and a general lack of critical thinking,

7. "I know why economics is defined by a singular standardised methodological framework..."

That's wrong. Economics, and macroeconomics in particular, is very eclectic. There are rules of the game of course.

"...unlimited wants, limited resources..."

Seems to me that's a very good place to start. What's wrong with that?

8. "That's wrong. Economics, and macroeconomics in particular, is very eclectic. There are rules of the game of course."

No it is not, it is based on classical (British Empire era) philosophical foundations that assume things like ...

...unlimited wants, limited resources"

that is people are greedy.

That is a controversial claim to make. Capitalism may have that impact (this is a Marxian view and is again controversial from a political science point of view), in which case it is a social construction. There is no definitive proof if it does exist in an agent that it is inherent or genetically determined.

Understanding where economic theory came from is an important part of understanding the object itself. Marxian theory for example is one riposte to such theories of comparative advantage that justified the opening of international markets (which the British Empire was aggressively pursuing, and some countries, such as China during the Opium Wars were desperately trying to fend off). Of course it does not mean classical theory is wrong, right, neither or both; it is just not the only possible explanation of reality. Classical economic theory of England at this time emphasised individual incentive effects rather than welfare that accrues from sharing, communities or social interaction. It was linked to the rise of the bourgeoisie class that was making a strong case against existing power hierarchies and the existing allocation of property rights and was making a case for the liberalisation of markets. To use political science language, classical economic theory was a form of soft power (an intellectual argument that accompanied more strategic action taken by Britain at the time.) You also need to understand how this economics reemerged in 1945 in the Cold War environment with the US as hegemon (and by no coincidence its domination by US economists).

Neo-classical theory is not a scientific construct. It is an ideological and highly political one.

Piketty's problem as I see it, and I admit I am yet to properly read the book, was that he put something which is essentially closer to Marxism in its conclusion into a neo-classical framework. It is pointless talking about steady states because essentially Marxian theory says that capitalism does not and cannot trend in such a way (and many historians would argue that things like steady states are an artificial construct which are meaningless in discussions of history and time). The good thing is though he did the bottom up primary documentation and data research first. And that is valuable. Juxtaposing his findings into a neo-classical theory was something that did not make sense, and the fact he felt he had to do that gives you some indicator of how uneclectic methodology in economics actually is. Who is making these rules of the game and why? Whether it is marginalising important avenues in the pursuit of the truth is what we have to worry about.

The interesting question is Keynes. This was never reconciled well with classical theory and has never really sat comfortably with it. Although Keynesian theory was important in a diluted form after 1945, it gradually became marginalised. Keynes argued that the "pretty and polite" techniques of classical economists while sufficient for explaining market behaviour, are not appropriate for analysing complex social systems like economies. And yet there is always this temptation to subsume it into classical constructs.

A truly eclectic approach to the subject would recognise that different views of reality are irreconcilable. All such depictions of reality however need to be evaluated as reference points and on their own merits, not gaged against hegemonic paradigms.

9. Unlimited wants, limited resources doesn't say anything about self-interest. Of course, much of what we do starts there. You see how far that goes, and then think about extending the theory to account for things the basic theory has trouble with. Why do people leave bequests? Why do we tip the waiter in the restaurant? People who think that modern economics is very restrictive or narrow don't know modern economics. But that doesn't say that anything goes, which seems to be your position.

10. "Why do people leave bequests? Why do we tip the waiter in the restaurant?"

I guess the point being made is that we need to consult widely in finding the answers to these questions and not always rely on the basic model which might frame your answer. That does not mean anything goes. BUt it should not mean that we have to start with things like limited wants and limited resources and indifference curves and budget lines. Ultimately what we are trying to find out is the truth with a view to finding a solution to poverty, and if relative rather than absolute gains are important, inequality. Not whether we can extend a basic model to explain it. Of course, especially with a lot of maths and abstraction, that can almost always be done.

In relation to Piketty's conclusion he seems to be saying that the winners should compensate the losers. In many ways there isn't a problem with that and neo-classical economic theory. But in any case when it comes to the initial empirical investigation, he seems to have worked as a good historian should, if not what is regarded as a good economist!

11. "...he seems to be saying that the winners should compensate the losers..."

You've hit on something important. Put that way, you can start to frame the issues. Why are the winners the winners and the losers the losers? Was it good luck and bad luck? Was it preferences - for example were the winners lucky, but only among the group of people who chose to take some risks whereas the losers just played it safe? Were the winners thieves - they stole from the losers? Were the losers just lazy? Are the winners high-ability and the losers low-ability? Which it is makes a big difference for how we think about the effects of redistribution. For example, if winners are winners simply because of good luck, why are there no private insurance markets to insure against this risk, and what role does social insurance have then? If the winners are high-ability and the losers low-ability, that's a form of good luck and bad luck, and perhaps we want some social insurance in response, but we don't want too much of it, as this will discourage the effort of the high-ability types - it's in society's interest that these people work hard.

12. I think all those questions you ask require engagement with the humanities and other social scientists. That is where the state of the art in our knowledge on these questions lies. Keynes refers to the "master economist", someone who is a jack of all trades, from history to philosophy to mathematics, rather than a master of one. I think that is still true, but the future lies even more in across-disciplinary collaboration and far less disciplinary tribalism than what we have become accustomed to.

Inequality is important. The reason is a democracy is unsustainable if a large group of people feel the system is not working for them and a major reallocation of resources, and therefore power, is called for. Piketty's observations about inherited wealth and capital might not be the full story, but he has presented enough at least for it to demand further investigation.

Something else to be considered is global inequality. Marx argued that in advanced international capitalism ("globalisation") we would see increasing trends towards concentrations of wealth towards certain countries (the core) and within certain groups within those countries. That has not all together happened - eg. emerging markets in East Asia. However, a closer look at what has happened reveals something much less rosy. China's reentry into the international system has raised average earnings worldwide, but the gap in between the wealthiest and poorest nations has widened. Further, while East Asia has moved from the periphery towards the core, Africa and the Middle East have been left behind, arguably in a worse position than ever. It was not talked about among economists much, but I feel the failure of the Arab Spring and the rise of Islamic Fundamentalists is really about the failure of these countries economically to provide productive work and sustaining work for the majority of their populations. They look at the rich countries and their own elites and see a failure in western capitalism and democracy to work for them. And it fuels resentment, envy, and plays to religious fundamentalists, and once they get their hands on WMDs, we all have a very big problem.

Feldman and Horioka, and Lucas have wondered why capital does not flow from rich to poor countries. Well the answers are not going to be found in abstract theory; they are to be found by consulting political scientists, anthropologists, historians, sociologists, psychologists and particularly with specific regional and country knowledge and linguistic skills. Likewise these people can learn a few things from economists.

Yours and a few other good reviews have shown how to sharpen Piketty's analysis. However the discussion it has got going has been brilliant. and in terms of starting the engagement on an important issue with knowledge outside the discipline and also getting the economics profession to engage with the general public, which is good for democracy, I feel this is likely to be an important book in the history of economic thought.

13. "Well the answers are not going to be found in abstract theory; they are to be found by consulting political scientists, anthropologists, historians, sociologists, psychologists and particularly with specific regional and country knowledge and linguistic skills. Likewise these people can learn a few things from economists"

I am not sure why you view these two as incompatible. Much of theory has been motivated by observations made by anthropologists and other social scientists. In "Growth without scale effects", Alwyn Young quotes extensively sociologist and museum curator S.C. Gilfillan. Paul Romer's interest in what drives economic growth was largely influenced by his physics background (undergraduate), which motivated the question of whether unbounded growth is possible in a universe where matter is finite. Theories, regardless of how abstract they are, do come from somewhere!

2. Nice summary of Piketty's book. And Williamson is "spot on" as the book it is a long slog. The data is interesting and very engaging. The ratio analysis is a new concept. However the simplistic nature of the equations is like watching a b-rated sci-fi movie....we give the author the benefit of literary leeway in order to enjoy the show.

What galls me is that Piketty's solution is more taxation when the root problem, as per his equations', is lack of growth in the Western economies. The book now become are siren song for the government class as government can now intellectually argue for higher taxes for redistribution. I am from Chicago and that argument can only mean the lining of political pockets. ﻿

3. "technological innovation is what produces extremely large incomes and extremely large pots of wealth"

Innovation is a constant. Are you implying that it has accelerated of late? Especially the past five years? What other signs point to that? I'm not sure productivity growth does, and economic growth has been lackluster. It seems more likely that declining competition is the answer, along with booming financial markets. Perhaps there is a connection between the two. After all, profits share (partly a function of competition) is at peak, which explains part of the market's advance. This produces both bonus and capital gains income for the top 1%. Given how many large tech companies lack profits (Facebook, Amazon, etc), it seems likely that this profits boom is not concentrated in the tech sector, but is instead broadly distributed.

So Picketty should be arguing for stronger competition, not redistribution.

1. Competition is important. One way I think this matters is in the health services sector. The American Medical Association does its best to restrict the supply of health care professionals, with the obvious effects on salaries. There is also excessive patent protection for prescription drugs. We have probably gone overboard, in general (i.e. in other sectors than health) on the protection of so-called intellectual property. I don't know what evidence we have about whether we are becoming more or less competitive.

2. I read somewhere that Milton Friedman wrote his thesis on how the AMA restricts competition in the health care sector. I could never verify it.
As for innovation and patents, Edmund Phelps says in his latest book on innovation: "But now the economy is clogged with patents. In the high-tech industries, there is such a dark thicket of patents in force that a creator of a new method might well require as many lawyers as engineers to proceed … Copyright has only recently seen controversy. … The passage by Congress in 1998 of the Sonny Bono Act lengthening copyright protection by 20 years — to author’s life plus 70 years — prevents wider use of Walt Disney’s creations and prevent wider use of performances copyrighted by the record companies. The length of the copyright term may be be deterring new innovation that would have had to draw on products at Disney and EMI. Members of Congress have a private interest in lengthening copyright and patent protections since they can expect to share in the big gains of the few without paying for the small costs borne by the rest of society."
The CBO has a new report on Patents and Innovation,https://www.cbo.gov/publication/49487.
Did not read it yet.

3. "Innovation is a constant."

Wow.

4. Science in the hard sciences proceeds from observation to hypothesis, then to testing to attempt negation. As long as negation does not occur and the hypothesis appears to hold, the hypothesis is accepted as a valid model. What Piketty is trying to do is more like the hard science process. I would posit that is enough economic data over long enough periods now that macro can begin do do real science rather than arm chair philosophizing.

1. "Science in the hard sciences proceeds from observation to hypothesis..."

Of course that's the ideal. The reality of course is a lot messier than that.

"What Piketty is trying to do is more like the hard science process."

It's not as if Piketty is unique among economists in collecting data. Far from it. And you shouldn't think that, once Piketty has done his work, we're done. What he's come up with may be the best we can do with historical sources, but it's pretty crude. Even in terms of measurement in modern economies, it's very hard to get good data. If you learn a bit about national income accounting, you'll be amazed that we treat small movements in GDP so seriously.

"...now that macro can begin do do real science rather than arm chair philosophizing."

If you think that's what we've been doing, you're misinformed.

2. "....now that macro can begin do do real science rather than arm chair philosophizing."

Mary - open any American Economic Review of the last 15 years or so, open any Journal of Monetary Economics, open any Journal of Economic Dynamics & Control, or Review of Economic Dynamics. What you are claiming is incredibly naive and misinformed.

3. Of all the places where empirics have disciplined economic research, income and wealth inequality has to be very near the top. Claims like the one Mary makes are frequently heard, and I'm unsure why. Here's a review article showing the sustained back-and-forth between facts and models: http://www.richmondfed.org/publications/research/economic_quarterly/2011/q3/pdf/guvenen.pdf

4. "Science in the hard sciences proceeds from observation to hypothesis"

To say that this is an unpopular view in science studies would be an understatement. I can't think of anyone in the philosophy of science, the history of science, the sociology of science, the economics of science, the psychology of science, or elsewhere that defends this model anymore. It's literally something you could get the most unrepentant positivist and the most committed social constructivist to agree upon. All knowledge starts with hypotheses, and how a hypothesis was formed is irrelevant to its justification.

"I would posit that is enough economic data over long enough periods now that macro can begin do do real science rather than arm chair philosophizing."

As has been noted, it's a dated stereotype that economists are still all about armchairs and blackboards. Furthermore, while in principle you obviously want larger samples, data quality is also important. It's not so long ago that it was widely believed that RGDP in 19th century in America was very unstable relative to the postwar period, or (to use an even more recent example) the hysteresis hypothesis was first popularised in part to explain an anomaly in UK unemployment data in the mid-1980s, but this anomaly vanishes if you adjust properly for the participation rate.

Ideal statistics involves (a) reliable data, (b) powerful tests, (c) large random samples, and (d) a sophisticated understanding of the theories under consideration. From what I've heard, Piketty's work is deficient in all of these respects (allegedly he can't even distinguish a shift in a curve from a move along a curve) but like most people who have talked about him, I haven't read his book and so I can't comment on his work in particular.

5. "We need to carefully analyze the important incentive effects of taxation that Piketty either dismisses or sweeps under the rug. Indeed, Piketty would not be the first person who thought of the top 1% as possessing a pot of resources that could be freely redistributed with little or no long-term consequences."

Yawn. One reason the incomes of the top 0,1% skyrocketed is precisely the reduction of top marginal income tax rates since the Reagan-Thatcher revolution. Last time I checked we had top marginal income tax rates above 0.95 under the well-known uber-communist Eisenhower and somehow these disincentive effects of taxation did not materialize and GDP growth was fairly normal.

When the facts change, I change my mind. What do you do, Sir?

1. Maybe our growth would have outstanding rather than normal if Eisenhower had reduced that 95% marginal tax rate at the top? How would you know? Sometimes I wonder how people as dumb as ^ don't become trapped in rooms, since they seem too stupid to correctly operate a doorknob. Maybe they live in houses with sliding glass doors?

2. Oddly enough, it's true that lower marginal rates increase pre-tax incomes, but that's because they make it less worthwhile to hide income.

The idea that anyone (except perhaps poor Joe Louis) ever paid 95% rates on their actual income in the US is astonishing.

6. If you don't see how wealth and income concentration at the very top and devastation for the poor go hand in hand you gotta live on another planet. Hedges Sacrifice Zones might be a good reading start for ignorant professors. Then again it is not as if right-wingers ever cared about the consequences of unlimited corporate power.