Pyrmonter: Picketty and Saez?

Thomas Picketty is the poster-boy of a certain sort of left-wing, numerate social scientist: the author of at least one thick book (which may not be much read at p 3) and many articles on income distribution, making arguments that flatter the views of many contributors to Fairfax/Nine, ABC, Guardian and Conversation threads, and not a few of the content producers.

Picketty has re-packaged some familiar, and fairly old-fashioned ideas: chiefly, that income and wealth has been concentrated in the hands of the few.  This is something which has been the conventional wisdom on the left since the days of Marx, Engels and the Webbs.  More surprisingly, it has now spread to become the conventional wisdom of many of those calling themselves ‘National Conservatives’, as well as other discontents such as Patrick Deneen, on the Right: one might have thought them less likely to be attracted to such arguments, but then it fits a certain ‘policy elites’ v’s ‘the ordinary people’ (Quiet Australian?) narrative.

Picketty himself is appealingly accessible, even if his books aren’t: fans of EconTalk may recall this talk.

The problem with this sort of thing, as with so much argument in economics, is that however good, the arguments tend never to be entirely settled, and that as time passes, odds are someone else looks at the data and comes to a different conclusion.  And so it would appear to be with Picketty.

Greg Mankiw has linked to an interesting paper which suggests that Picketty’s ‘laws of history’ may not be quite as robust as has been suggested.  Now, of course, Auten and Splinter could be wrong; but their work shows that, when picking ‘laws of history’, it is worth checking your data first.

Link to the underlying paper.

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7 Responses to Pyrmonter: Picketty and Saez?

  1. sfw

    Picketty does see something wrong, however his focus on capital blinds him to other explanations but probably gets him the friends he wants. I believe that there has been a massive increase in the value and volume of assets held by the top few %. It has always been so, but since the GFC their holdings have increased exponentially.

    When Central Banks print money that money has to find its way into circulation, those who get the money first have an advantage over those who are further down the list. They can buy assets before the increased money supply inflates the price of assets. It’s always been like this but the massive money creation since 2007 has of course massively increased asset prices. Our piss poor and badly designed inflation indexes completely miss this, ( I believe a deliberate measurement fault). Anyway, I ask who gets their hands on the new money first? Answer that and you will see who really gets richer, and trust me it’s not 90% of the population.

    Why Picketty and his lefty friends can’t see this, I guess is that to them the narrative is a deflection as just as many (if not more) wealthy lefties as wealthy righties at the top of the food chain like the setup and the proles can eat cake.

  2. max

    Socialist are envious people

    Life Isn’t Fair

    Pareto principle, or “80-20 rule”, and is sometimes called the “Matthew principle”. This rule states that, for example, 80% of the wealth of a society is held by 20% of its population.

    most things in life are not distributed evenly:
    20% of the input creates 80% of the result
    20% of the workers produce 80% of the result
    20% of the customers create 80% of the revenue
    20% of the bugs cause 80% of the crashes
    20% of the features cause 80% of the usage

    But be careful when using this idea! First, there’s a common misconception that the numbers 20 and 80 must add to 100 — they don’t!
    20% of the workers could create 10% of the result. Or 50%. Or 80%. Or 99%, or even 100%. Think about it — in a group of 100 workers, 20 could do all the work while the other 80 goof off. In that case, 20% of the workers did 100% of the work. Remember that the 80/20 rule is a rough guide about typical distributions.
    Also recognize that the numbers don’t have to be “20%” and “80%” exactly. The key point is that most things in life (effort, reward, output) are not distributed evenly – some contribute more than others.

    For example, through the 2015-2016 season in the National Basketball Association, 20 percent of franchises have won 75.3 percent of the championships.

    Furthermore, just two franchises—the Boston Celtics and the Los Angeles Lakers—have won nearly half of all the championships in NBA history.

    The numbers are even more extreme in soccer. While 77 different nations have competed in the World Cup, just three countries—Brazil, Germany, and Italy—have won 13 of the first 20 World Cup tournaments.

  3. Colonel Crispin Berka

    With regards to the investing of newly minted moolah…
    The world is awash with money, there is no shortage of cashed-up rich folk looking to make more.
    What the world is short of is good new ideas to invest in. What Peter Thiel calls “going from 0 to 1 of something, instead of from 1 to n of something.”

  4. John Bayley

    …but the massive money creation since 2007 has of course massively increased asset prices. Our piss poor and badly designed inflation indexes completely miss this, ( I believe a deliberate measurement fault)

    That’s a feature, not a bug, of the fiat ‘flexible’ money system where commercial banks can create credit ‘ad nihilo’ without fear of a bank run – thanks to the central banking back stop and the TBTF (too big to fail) syndrome.
    It’s not like we don’t have the appropriate methodology to measure inflation – the classical economists well knew that it’s all about the sum total of money and credit in circulation, not some BS called ‘CPI index’, which is about as accurate and relevant as the ‘global average temperature’.
    Alas, nobody wants to do anything about this situation because, apart from making the very rich even richer, it empowers politicians to promise what they know they can’t deliver. Furthermore, and dishearteningly so, there seems to be no shortage even here at the Cat of people who think that the ‘economy’ somehow needs to be ‘managed’ via a ‘monetary policy’ by a cabal of supposedly wise men.
    Who in reality have no clue, because it’s not possible to be any other way.

  5. Hasbeen

    Surely what is important bis not what the other bloke has, but what you have. It doesn’t matter a damn what someone else has, provided you have enough to live well, & there has been no other place or time where the majority had as great a life than in today’s western world.

    Anyone who has a smattering of intelligence, & puts in a little effort can live better than a king just a century or two ago. I don’t know about others, but I can only sleep in one bedroom, it doesn’t make much difference if my car coat $20K or $2 million & it wouldn’t matter how rich I was, I’d still want a good stake for dinner, not pheasant.

    It really is ridiculous when very comfortable university professors have to become jealous on behalf of others to justify their miserable existence.

  6. Pyrmonter

    Supplement: topical post from Marginal Revolution on the related proposal for a wealth tax. It gets interesting from the 60 minute mark, as Summers lays into Saez and , Mankiw is challenged to remain composed.

    https://marginalrevolution.com/marginalrevolution/2019/10/summers-on-the-wealth-tax.html#comments

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