On Piketty

I admit that I did not finish Piketty’s Capital in the 21st Century. If you did and liked it, you may want to stop here. I did get a bit further than the typical reader who, according to reports based on annotations on the Kindle version, made it to about page 26. I found it interesting but heavy going. French academics are often more concerned with impressing the reader with their erudition than with clarity. Even in translation, this annoying habit shines through. Fortunately, a colleague has pointed me in the direction of some superior alternatives. One is a lengthy review, the second a review of that review. They are critical but give a fair assessment of Piketty’s arguments.

If you are looking for an excuse for not reading the book at all, there is hope. A very recent article suggests that Piketty took some serious liberties with massaging his data. Given the importance that he places on data analysis, this is a most damaging accusation.

The first alternative is a review of the book by Deidre McCloskey. It is long (56 pages) but the author is a brilliant writer and an excellent economic historian. She is not exactly in the same political camp as Piketty and, if you are French, you may feel insulted. But it is a great piece of writing and you will get a good flavour of what Piketty’s book is all about and why you may or may not want to agree with some or all of his points. Here is a not quite randomly chosen excerpt from McCloskey:

The most fundamental problem in Piketty’s book, then, is that the main event of the past two centuries was not the second moment, the distribution of income on which he focuses, but its first moment, the Great Enrichment of the average individual on the planet by a factor of 10 and in rich countries by a factor of 30 or more. The greatly enriched world cannot be explained by the accumulation of capital — as to the contrary economists have argued from Adam Smith through Karl Marx to Thomas Piketty, and as the very name “capitalism” implies.

I should probably declare an interest here. When I arrived at the University of Chicago, decades ago, I had to take a microeconomics course (locally called Price Theory). Tradition required that Ph.D. students in the business school took that course in the Economics department. Two professors offered the course in that quarter: Milton Friedman and an obscure associate professor. I sampled both; it turned out that the associate professor stuttered. The choice would appear to have been easy and it was: I chose the young stutterer. He was the best professor I have ever had (and the sample includes a handful of Nobel laureates); you forgot about the stutter after a few minutes. He challenged us in class with his ideas and questions and ensured that we neglected all other classes pouring over his viciously complex, but fascinating weekly problem sets. The professor, Donald McCloskey, became Deidre McCloskey in the nineties but she and her writing remain an inspiration.

But some may feel that McCloskey’s review is still too long. Fortunately, John Cochrane, who writes a blog as the “Grumpy Economist”, has written a review of McCloskey’s review. The good news is that it is shorter than McCloskey’s piece (a printout runs to 6 pages). It still gives a reasonably good impression of what Piketty is about and summarizes the main points of McCloskey rather well. The bad news is that Cochrane’s comments reflect his politics, which may leave some readers unhappy.

Recently, I have also come across a somewhat disturbing paper Challenging the Empirical Contribution of Thomas Piketty’s Capital in the 21st Century by Magness and Murphy that attacks Piketty’s empirical work. The abstract gives a good impression of the bombshell hidden inside:

Thomas Piketty’s Capital in the 21st Century has been widely debated on theoretical grounds, yet continues to attract acclaim for its historically-infused data analysis. In this study we conduct a closer scrutiny of Piketty’s empirics than has appeared thus far, focusing upon his treatment of the United States. We find evidence of pervasive errors of historical fact, opaque methodological choices, and the cherry-picking of sources to construct favorable patterns from ambiguous data. Additional evidence suggests that Piketty used a highly distortive data assumption from the Soviet Union to accentuate one of his main historical claims about global “capitalism” in the 20th century. Taken together, these problems suggest that Piketty’s highly praised and historically-driven empirical work may actually be the book’s greatest weakness.

Even though the attack on Piketty by Magness and Murphy may be partially motivated by their politics, the charges are rather serious. If true, Piketty, like Reinhart and Rogoff not so long ago, may now have to be considered either a fool – if he did not understand that, e.g., “constructing” 150 years of data from six data points is not reasonable – or a villain – if he did understand. In either case, the controversy shows that empirical research is not meant to be an amateur sport.