In the wake of my most recent musings on inequality, some of my critics, for once, were happy to identify themselves. One or two even wrote letters to the editor, a very old-fashioned occurrence , one that requires the correspondent to shed the cloak of anonymity that seems to permit so much online vitriol.
In one such letter I stood accused of 'fundamentally misunderstanding' the work of Thomas Piketty. That, plus other less polite ways of suggesting that I didn't know what I was talking about, prompted me to read, again, the eminent professor's latest magnum opus. I also took the opportunity to read what a lot of other economists and reviewers have been saying about the work. Unsurprisingly, the analysis and commentary spawned by the book is now rather extensive.
Most people seem to agree that Piketty and his collaborators have delivered a work of great scholarship. The broad consensus is that the major achievement is the creation of an enormous dataset that will serve other scholars for years to come. The data itself is not without controversy. Using alternative sources, some economists have produced different numbers. At least one prominent commentator, Chris Giles of the FT, poked holes in how Piketty's historical numbers have been put together.
Most people responded to this by arguing that Giles was exaggerating his case; even the alternative data put forward by the FT told the same basic story as Piketty’s numbers. In a reprise of the Reinhart-Rogoff controversy (another database, this one about whether or not high public debt is a problem), a very small minority argued that the flaws in Piketty’s methodology fatally undermined his whole enterprise.
The bigger debate is not over Piketty's numbers but about his explanations of why income inequality has evolved, where it is likely to go from here and what should be done about it. The correspondent to the editor of this newspaper who argued that Piketty's work was mostly about wealth inequality with direct implications for Ireland was wrong on both counts. The vast bulk of both the dataset and the book is about income inequality - not least because that is where most of the data exists. Wealth inequality doesn't get much of look-in until quite late on in the story (Chapter 10 in fact). And whatever Piketty has to say about global wealth inequality is neither here nor there for Ireland because neither he nor anybody else has any meaningful up-to-date numbers on the Irish distribution of wealth.
The debates are fascinating. Some argue that Piketty fails to adequately deal with the issue of property. In particular if proper adjustment were made for real estate prices in places like New York, San Francisco, London and Dalkey, a lot of wealth inequality is more apparent than real. Others suggest an even deeper dive into the property issue will take us back to the ideas of some of the classical economists. It used to be thought that capitalism would founder on ever increasing prices of agricultural land. Such arguments completely missed the subsequent two century old productivity explosion in farming. But maybe those same arguments should now apply to apartments in Chelsea: this is where people choose to live and play, places where the supply (and productivity) of land is really fixed, thereby allowing the owners of that land to extract ever increasing income (rents).
More generally, Piketty has lots to say about economic growth, the return on capital and how these relate to saving behaviour. None of his musings amount to a ‘model’ or substantive body of theory. His opinion that the return on capital is destined to stay forever above the rate of economic growth will come as a surprise to most of the capitalists I know. Piketty knows as much, if not more, about economic growth than anybody: but the truth is that it is as big a mystery as it ever was.
One idea I was trying to introduce was not that Piketty was wrong but that nothing he said would change anybody’s minds. It is a curiosity that empirical efforts like Pikettty’s never seem to settle any of the great debates; they rarely, if ever, cause any of the protagonists to say ‘gosh, I used think one thing, now, in the face of the evidence, I am now going to think another’. The Tweets, comments and letters that followed my article did not lead me to change my mind about other people’s ability to change their minds.
Different datasets often say different things. This is one reason why minds rarely change: we can always find some piece of evidence to back up our prejudices. The ESRI data mentioned in my article unequivocally states that income inequality in Ireland fell during the financial crisis.
My repetition of this simple fact enraged a number of commentators. It seems that we just ‘know’ that income and wealth inequality is rising and is way too high in Ireland and something - higher taxes of all and every kind - must be done about it. If any of this is being seriously debated, it certainly isn’t in online discussions prompted by newspaper opinion pieces.
