Sunday, April 20, 2014

Thoughts on Picketty's Capital in the 21st Century

A friend of mine asked my opinion of Picketty's Capital in the 21st century. I haven't read it but have read a bunch of reviews and interviews (here's a nice review by Krugman). I guess I agree with the facts he presents that a lot of money these days is focused in the 1%, and I wouldn't be opposed to his recommendation that we have higher taxes on the rich, but I do have a problem with the tone of the book.

1) In my own research , we find that even though money is more and more concentrated, everything else we care about (things economists call utility), seems less so, health outcomes are more equal, so is happiness, so is a lot of things we consume--Bill gates eats at the same McDonalds, and uses the same iPhone and plays the same Xbox as those at the bottom,

2) His image of the 1% being a bunch of  spoiled children of plutocrats is wrong (a sorta Austen-era gentry who talk about inheritance rather than salary). Most of the richest in the US these days entrepreneurs (see Kling's note), or sports starts or movie stars, the rest of the 1% are people that studied in school and became doctors and lawyers and bankers and top economics professors like Thomas Picketty.

3) The implication that money buys political influence is largely unsupported by data. The studies are admittedly not iron clad--strong evidence does not exist--but most studies by the likes of Levitt and Ansolabehere-de Figuereido-Snyder, find that money doesn't really change how politicians vote, and has only minimal influence on voters, and actually corporations spend far more money on things like soup kitchens than campaigns, so corporations don't even care that much, so I think our democracy is safe.


James Lin said...
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James Lin said...

I'm pretty certain that Bill Gates does not use an iPhone.

Also, do people "at the bottom" have iPhones and Xboxes? Or does "bottom" mean the lower 99% (which geometrically is pretty firmly the bottom, middle, and almost all of the top)?

Ben Ho said...

The attached study is pretty old but from data in 2005 those in the poverty line were equally likely to own things like a game console as the median American. I'm sure that's more true today. Yes the iphone is a bad example. Bill gates is more likely to own an inferior (windows) phone compared to those at the bottom.

Peter Muennig said...

Hey Ben, we have had this debate before, but the quality of the literature showing money does not buy influence is pretty bad, and the quality of the literature showing that money does buy influence is slightly better. There has been a slew of papers recently that improve on what has been done before showing both greater access and direct influence via legislation. There is already a much more developed experimental literature in public health and medicine showing how pharmaceutical companies influence doctors in a way that is not unlike political lobbying.

Even if the earlier evidence were the only thing available, I would not make the conclusion that you do. When there is a very intuitive/obvious linkage and very weak methodology, one needs to be quite skeptical.

Finally, for whatever it is worth, health disparities in the US are widening over time, not shrinking. There is a lot of attention to that in the literature, including economists.

Global convergence is probably also being hindered by increasing income inequality only because it is interfering with global economic expansion.

Ben Ho said...

Oh, if you have references for recent literature on money and politics I'd love to see them. Agreed that most of the literature is bad, so then it's all just based on priors and intuitions. Of course, as an economist, incentives definitely influence choices, but also having worked in Washington and having many friends who have, most of the people there are earnest and want to do right for their voters. The NRA is not powerful because of the money, they are powerful because they represent 100 million voters.

In terms of health disparities, we surveyed a lot of that literature in my paper with Sita Slavov, between group disparities are increasing, but if you ignore groups and just look at between people, inequalities are going down.

As for inequality and economic expansion, its not clear if inequality helps or hinders a priori.