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Thomas Piketty’s Different Approach To Economics

Before I got a copy of Thomas Piketty new book, Capital in the Twenty-First Century, I looked at the online technical appendix, and had this sinking feeling that comes with an overload of charts, graphs, tables, data and more data. Then I got the book and found it is nothing like that. It is a delightful and straight-forward explanation of the results of years of painstaking research. For starters, Piketty thinks we can learn a lot from novels, including those of Balzac and Austen. People know a lot more economics than we give them credit for, he says. From Chapter 1:

In the novels of Jane Austen and Honoré de Balzac, the fact that land (like government bonds) yields roughly 5 percent of the amount of capital invested … is so taken for granted that it often goes unmentioned. Contemporary readers were well aware that it took capital on the order of 1 million francs to produce an annual rent of 50,000 francs. For ninteenth-century novelists and their readers, the relation between capital and annual rent was self-evident, and the two measuring scales were used interchangeably, as if rent and capital were synonymous, or perfect equivalents in two different languages.

In the same way, most of us are fully aware of the ugly and growing inequality of wealth and income in the US, and understand that it is a bad thing to allow the concentrations of wealth that we are seeing, for example in the distressing story in the New York Times about the gathering of rich kids at the White House to discuss noblesse oblige and philanthropy (could I have another cup of soup?).

The defenders of spiraling concentration of wealth insist that it means nothing because the poor have refrigerators, or safety nets, but the rest of us know that this is a disaster for democracy. We see it every day, for example, in this story from Tennessee. Nashville is considering a bill to enable bus rapid transit. The Koch Brothers hate this idea and got the state senate to pass a bill to ban dedicated bus lanes in Nashville and Memphis. The bill was later modified to require the legislature to approve any such project involving dedicated lanes whether or not state funding is involved. The Koch brothers don’t live in Tennessee. They just hate rapid transit because it cuts into their gasoline sales. This kind of interference with the day-to-day legislative process is just the kind of thing a bunch of rich people do to make sure no one reduces their opportunity to make money. As we know from Jeffrey Winter’s book Oligarchy one of the goals of the filthy rich is wealth defense.

But that isn’t all we know without the help of economists. We know that economists are wrong most of the time. Piketty puts it this way in the introduction: “I did not find the work of US economists entirely convincing.”

I quickly realized that there had been no significant effort to collect historical data on the dynamics of inequality since [Simon] Kuznets, yet the profession continued to churn out purely theoretical results without even knowing what facts needed to be explained. …

To put it bluntly, 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. … [In France] economists are not highly respected in the academic and intellectual world or by political and financial elites.

The third thing I like is that Piketty cares about issues of social justice. The introduction starts with a quote from the Declaration of the Rights of Man and the Citizen, the fundamental document of the French Revolution: “Social distinctions can be based only on common utility.” This is reminiscent of A Theory of Justice by John Rawls. Piketty says:

… I am interested in contributing, however modestly, to the debate about the best way to organize society and the most appropriate institutions and policies to achieve a just social order. Furthermore, I would like to see justice achieved effectively and efficiently under the rule of law, which should apply equally to all and derive from universally understood statutes subject to democratic debate.

That’s something you won’t hear from any of the ideologues at the University of Chicago or the Mercatus Center, or from most other US-trained economists. They just don’t teach social justice in economics classes, and as far as I can tell, most of economists think efficiency as they define it is infinitely more important. Piketty practices a kind of economics we can all understand, a tool to help us construct a decent society.

Thomas Piketty’s Capital in the Twenty-First Century will be featured Sunday May 11, 2014 on FDL’s Book Salon.

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I read a lot of books.