- Chief theoretical thesis requires several indefensible axioms to animate and mobilize three economic 'laws' of which the first is a tautology (SB - Piketty himself admits this in his early pages), the second is based on an heroic assumption, and the third is a triviality
- Economic method employs the logically incoherent tricks that have allowed mainstream economic theory to disguise grand theoretical failure as relevant, scientific modeling
- Vast data confuses rather than enlightens the reader, as a direct result of the poor theory underpinning its interpretation
- Policy recommendations soothe our ears but, in the end, empower those who are eager to impose policies that will further boost inequality
- Political philosophy invites a future retort from the neoliberal camp that will prove devastating to those who will allow themselves to be lured by this book's arguments, philosophy and method.
Varoufakis' complete 18-page paper, which has some moderately involved math regarding Piketty's 3 main formulas, may be found here: http://www.paecon.net/PAEReview/issue69/Varoufakis69.pdf
Varoufakis details one of the most damaging charges against Piketty In both his writing and in interviews: that Piketty conflates too many things into Capital that shouldn't be there. There is more about this in the Piketty -- Varoufakis -- George Notes below, and in the later category (George, as in Henry George), many Georgists, whether formal economists or not (like me) almost immediately noted that Piketty's failure to disaggregate returns on non-capital Land is a major failing in his analysis, actually fatal to his opening 'Law' (Separately, Georgist professor Mason Gaffney writes in his own critique that this 'Law' does not even rise to the level of hypothesis, let alone theory, or 'Law'). But even beyond that, there is another area involving labor which both Piketty and Varoufakis overlook as a major contributor to wealth, albeit for a limited historical period, Varoufakis by omission, and Piketty by commission because it is Piketty that "folds in" slave labor from America during 1770-1860. He uses U.S. Census data to include the value of slaves during this critical period in our then-young country's history, concluding that in 1860, according to the last census before the Civil War that would end slavery, that slaves constituted 40% of the wealth in the South.
This is a big asterisk then, and while it shows Piketty's consistency, it also shows how willing he is to include virtually anything that is considered, however hideously, as Capital, in his calculations. This genuflection to a legal definition of capital over an economic one should give us serious pause when considering what other factors might be mislabeled "Capital."
What else has Piketty included as capital that shouldn't be? Land.
In a thorough critique of Piketty, "A note on Piketty and diminishing returns to capital" by Matthew Rognlie, the 26-year old MIT student argues that Piketty's return to capital is entirely due to Land appreciation, not capital, which in any case, loses its value faster than ever in today's rapidly changing technological environment (he cites the Apple iPod as one simple but instructive example). This is in sharp contrast to Piketty, who argues technological achievement is one of the things that gives modern "capitalists" greater returns on their investments than Laborers can get through wages.
Supporting this view further is former OMB Director under Obama, Peter Orzag's Bloomberg column "To Fight Inequality, Tax Land" in which he argues:
In the lasting debate over Thomas Piketty's book on outsized returns on capital, a significant fact has been obscured: If you exclude land and housing, capital has not risen as a share of the U.S. economy.
If you're surprised, you're not the only one. Intuition suggests this capital-output ratio should be higher today than it was in the early 1900s. Yet, in the U.S., capital excluding land and housing has been roughly constant as a share of the economy since the mid-1950s, and is lower today than at the turn of the 20th century.
What has skyrocketed over the past several decades is the value of land and housing.
Orzag has some pretty good backup too, citing former World Bank president and noble prize winner, Joseph Stiglitz"
Stiglitz also argues for imposing a land value tax, to directly address this source of increasing wealth inequality. Economists have long favored such a tax, because it does little or nothing to distort incentives: Since land is roughly fixed in supply, there's little one can do to escape a land tax. Indeed, from the perspective of economic efficiency, a land value tax scores higher than even a value-added tax, which is typically seen as the most efficient form of taxation.
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