Piketty backs down on his inequality thesis

When the French economist Thomas Piketty published his voluminous text arguing that the steady rise in economic inequality is inevitable under capitalism, his thesis and its supposed and empirical basis quickly gained support among leftists, who echoed Piketty's call for greater redistributive taxation.

Other economists have spent a lot of time studying the data and found significant problems, and now Piketty himself is making efforts to add new explanations and additions to his own thesis, financier and economist Robert Rosenkranz reports in an article for the Wall Street Journal.

picketty-stands-off-against-inequality

Rosenkranz, who is also a member of the national board of the American Enterprise Institute, explains that central to Piketty’s book is his r > g equation, which argues that “over time, the rate of return on capital (r) outpaces the rate of growth of the economy (g), leading inexorably to the dominance of inherited wealth. Left-wing intellectuals like Princeton University economist Paul Krugman use Mr. Piketty’s thesis to justify policies they have long advocated — namely, very high taxes on the rich.”

However, in a forthcoming publication for the American Economic Review, Piketty argues that his thesis has been taken to extremes by its ideological supporters.

“For example, I do not see r > g as the sole or even the primary tool for explaining changes in income and wealth in the twentieth century, or the path of inequality in the twenty-first century,” Piketty writes. “Institutional changes and political upheavals—which can largely be seen as intrinsic to inequality and to the development process itself—have played an important role in the past, and will likely continue to do so in the future.”

Piketty continues: “Furthermore, I certainly do not believe that r > g is a useful tool for discussing growing inequality of labor income: other mechanisms and policies are much more appropriate here, for example, the demand and supply of skills and education.”

In his Wall Street Journal article, Rosenkranz explains why Piketty's thesis has never seemed convincing to him or to many economists who object to the simplistic and imprecise formulations in the book, and calls for humility on the part of left-wing intellectuals who use Piketty's work as an ideological basis for their own political defense.

“Mr. Piketty is ready to stand up and say that the material in his book does not support all the possibilities attributed to it, and that Capital in the Twenty-First Century is primarily a historical work,” Rosenkranz writes. “That is certainly worthy. Now is the time for those who declare that we are headed for a new era of vast inequality to follow his lead.”

Read Robert Rosenkranz's full article " Piketty Corrects the Inequality Crowd " in the Wall Street Journal.

Read “ Challenging Piketty's inequality empirics.”

Прочетете “Challenging the Empirical Contribution of Thomas Piketty's Capital in the 21st Century,” на Phil Magness and Robert Murphy.

Read “ Defeating Piketty's Charge — A working paper,” by Brad Lips.

Прочетете “5 remaining problems for Thomas Piketty in the wake of the FT controversy,” на Phil Magness.

Read “ Join the Inequality Debate,” by Brad Lips.

Read “ What Piketty Misses,” by Herbert Grubel.

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