A year after the English-language edition of “Capital in the Twenty-First Century” dominated American bestseller lists, Thomas Piketty is trying to cover his retreat with an article aimed at academic economists who have largely rejected the book. In the new article, Piketty tries to guide people toward his tome’s stronger points and away from its weaknesses, which include his cavalier use and abuse of data.
Piketty reiterates, for example, that the rise of labor inequality in the U.S. has very little to do with his central thesis, which is that when the interest rate (“r”) is greater than the growth rate (“g”), wealth inequality rises.
Sections II and IV of Piketty’s article say that simple versions of economic models do not support the claims he made in “Capital.” He argues—without using enough math to be falsifiable—that the addition of some tweaks could make the models give the results he desires. He does not say that in his book he used simple versions of the models.
One important failure in Piketty’s book was that it relied on substitutability between capital and labor that is far beyond the range supported by data. In a 2014 paper, Brent Neiman and Loukas Karabarbounis offered a defense of high substitutability (though not necessarily as high as Piketty suggests it is), based on an economy with multiple sectors. In his new article, Piketty borrows their idea, which was not available when he wrote his book. Of the approach used throughout “Capital,” Piketty now writes that it is “not [his] favored interpretation of the evidence.”
In other ways, Piketty remains consistent. His argument for why the inequality “r > g” should increase wealth inequality is tweaked in Section II but still has a central flaw: He does not deal with the fact that “r” and probably “g” are outputs of the same economic processes that create wealth.
But even the predictive value of that famous inequality goes under the revisionist’s knife:
Piketty in 2015: “I do not view ‘r >’ gas the only or even the primary tool for considering changes in income and wealth in the twentieth century, or for forecasting the path of inequality in the twenty-first century.” (Page 1)
Piketty in 2014: “[T]here is every reason to believe that ‘r’ will be much greater than ‘g’ in the decades ahead . . . clearly all the ingredients are in place for the top centile and thousandth of the global wealth distribution to pull farther and farther ahead of the rest.” (Page 463)
“Capital in the Twenty-First Century” contained a lot of 19th- and 20th-century history, which Piketty now says was his primary topic. But the book also made strong claims about the future. If Piketty had wanted readers to take his predictions and policy recommendations less seriously, perhaps his book title should not have included the words “Twenty-First Century.”
Originally published in The Wall Street Journal
