Thomas Piketty's new book is kicking up a storm. It brings the Distribution of Wealth and Income back into the center of economic discourse, where it was in the 18th and 19th Centuries -- the era of "classical political economy". From the 1890s the "Neoclassicals" slowly and slyly redefined the subject as the study of allocating limited resources among competing ends. The new thrust was to maximize, and then to grow total output, never mind who gets it, or why, or how it is measured. Policies to help the working poor would only obstruct the new priority. By coincidence or design, neoclassical views took over economics discourse shortly after Progress and Poverty kicked off the original "War on Poverty", and outsold all other books on economics.
Piketty's book is timely and will do a lot of good. We itemize below its good elements and then, sadly, its failings. The most basic of these is his conflating land with capital. Piketty's policy conclusions, the bottom line of it all, feature a revival of the property tax, but in a totally impracticable form. Capital in the 21st Century will fuel cocktail party chatter for a year or two and then be nitpicked to death. Meantime, for Georgists, it opens a new entry into the public dialogue. Let us enter!
A. Good elements
1. Brought distribution of wealth and income back into the public dialogue (or at least the academic one)
a. However, classical economics dealt with FACTOR distribution, while Piketty conflates land and capital, spiting and misquoting Ricardo.
b. There has been a steady drumbeat in the background for years, including work by Piketty and Saez, including Gaffney's publications on concentration of farmland, including Oxfam, and many others. It's just that leaders of "the conventional wisdom" have relegated this work to little insulated boxes hidden deep under the "commanding heights" they control and flaunt.
c. Through some mixture of good timing, mystique, and voluminous research, Piketty has thrust distribution back into the limelight. This is partly due to his immodest claims (itemized in Section B, below), given some credibility by voluminous research.
d. Piketty himself says that today distribution of income and wealth is already a most widely discussed issue, so he does share credit with some others, e.g. Oxfam, which has been saying this for some time. In lower tiers of the academic hierarchy "heterodox" and "radical" economists, e.g. Pizzigati, may harp on this theme continually, but popular Nobelists and journalists who are the face of the profession to the media and the lay world say little about it.
2. Piketty agrees with Kuznets that economics should be quantitative and data-based, but at the same time he faults the "balanced growth" models of Kuznets and Solow. Piketty sees capital "accumulation" overtaking GDP and/or income, so the capital/income (K/Y) ratio keeps rising. He does not, like Hirschman, see Unbalanced growth as a key to successful development. He disputes Kuznets and Solow, who said that growth of K need not lead to higher concentration of ownership or of income. He is right to note that the Kuznets-Solow view ranks high in today's "conventional wisdom", but he overstates the novelty of this finding. Piketty should give credit to Turgot with his denier, generations of stock and r.e. traders with their P/e ratios, Austrians with their emphasis on capital structure, Case-Shiller with their warnings based on irrational expectations, Clyde Chambers, Ag Ecst of the 1920s, who warned of overpriced farmland, or Philip Cornick's analysis of land pricing, 1934.
3. Supports his case with mountains of data going back more than 200 years, from many nations.
a. But many of his data are from government sources, which he then warns are a "chaste veil" over the awful truth.
4. Notes drop in K/Y ratio during and brought on by two world wars.
a. Fails to see this was a product of Gt Depression, 1929-50, and then The Cold War, and not just the two major shooting wars
b. Fails to see this as a regular cycle, e.g. during Hoyt's cycles of 19th Century
c. Fails to see that a big element in his "K" is land, and land prices depend on expectations, and on i.r.s, giving different values to same quanta of land and capital. The writer has shown that raising the i.r. actually DOES lower the real quantum of capital in durables, because a higher fraction of the cash flow now goes for interest, leaving less for capital recovery (or Capital Consumption Allowance, "CCA"). To a lesser extent it lowers the rentability of land, hence its "quantity" when measured in money. That kind of financial insight is missing from Piketty's work.