Thomas Piketty’s book Capital in the Twenty-First Century is bestseller. But, according to Marshall Steinbaum the economics profession are ignoring Piketty. Steinbaum writes:
But despite Piketty’s resonance with public experience and apparent applicability to the economic environment of global finance, his book was mostly greeted with hostility by the academic economics profession. There was a sense among academic economists that the book was a hostile action from within, and aside from Nobel Prize–winners Robert Solow and Paul Krugman, who both published reasonably favorable reviews in the highbrow popular press, the reaction was, in general, quite harsh.
There are many reasons for this. Three are worth noting from the article:
1)Usefulness of grand pronouncements – Daron Acemoglu and James Robinson argue that like Marx, Pikettys “sweeping predictions” are unlikely to come true. They write:
If the history of grand pronouncements of the general laws of capitalism repeats itself—perhaps first as tragedy and then as farce as Marx colorfully put it—then we may expect the same sort of frustration with Piketty’s sweeping predictions as they fail to come true, in the same way that those of Ricardo and Marx similarly failed in the past.”
2) Undermining the egalitarian cause: Lawrence Blume and Steven Durlauf wrote,
“Capital is, nonetheless, unpersuasive when it turns from description to analysis. . . . Both of us are very liberal (in the contemporary as opposed to classical sense), and we regard ourselves as egalitarians. We are therefore disturbed that Piketty has undermined the egalitarian case with weak empirical, analytical, and ethical arguments.”
3) Silence: Steinbaum argues that:
But perhaps the greatest rebuke of Piketty to be found among academic economics is not contained in any of these overt or veiled attacks on his scholarship and interpretation, but rather in the deafening silence that greets it, as well as inequality in general, in broad swathes of the field—even to this day. You can search through the websites of several leading economics departments or the official lists of working papers curated by federal agencies and not come across a single publication that has any obvious or even secondary bearing on the themes raised by Capital in the Twenty-First Century, even in order to oppose them. It is as though the central facts, controversies, and policy proposals that have consumed our public debate about the economy for three years are of little-to-no importance to the people who are paid and tenured to conduct a lifetime’s research into how the economy works.
There are several alternative explanations to a rise in inequality that are discussed by Steinbaum. The criticism as I am beginning to understand it (somewhat simplified words) are that:
- Inequality is not rising because executives are taking home bigger and bigger paychecks. More importantly that assets in these firms are being created at a firm level but also allowing employees in firms to rapidly accumulate assets.
- Inequality is rather rising because some firms are able to pay much higher salaries, and increase salaries much more quickly than other firms (cue, the gigeconomy).
I am guessing that the next step for this argument around some firms paying more than others, will be to see what the assets of firms and the executives are. That is one interesting perspective.