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.
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