This is an example of the sort of writing that I think serves only to isolate the left-wing blogosphere. Brad starts out innocently enough:
Piketty’s argument is detailed and complicated. But five points seem particularly salient:
1. A society’s wealth relative to its annual income will grow (or shrink) to a level equal to its net savings rate divided by its growth rate.
2. Time and chance inevitably lead to the concentration of wealth in the hands of a relatively small group: call them “the rich.”
Pointer from Mark Thoma. Read the whole thing. He then proceeds to heap scorn on Piketty’s critics. He does not cite any criticism of the second point, which is really the heart of the criticism that I have made. I think that many others have criticized point (2), also, but let me just speak for myself.
To reiterate my criticisms:
1. The distinction between capital income and labor income that underlies the forecast for wealth concentration is unrealistic. Most of “labor” income is a return to capital: human capital, social capital, institutional capital, and so on. Much of “capital” income is a return to risk. Brad himself has pointed out that the rate of return on private capital includes a huge risk premium.
2. Several critics (although I believe I was the first) have pointed out that if you believe r is greater than g, then social security is a giant rip-off and should be privatized immediately. Instead, in one of the most disingenuous arguments in the book, Piketty dismisses privatizing social security because of the high risk embedded in capital income. What is disingenuous is that this risk in private investment undermines Piketty’s main thesis.
3. I think it is pretty difficult to reconcile the risk component of investment with a model in which inherited wealth comes to dominate. Instead, given the relatively low rate of return on risk-free assets, my line is that the inheritors shall be meek.
The Capital Asset Pricing Model notwithstanding, it is idiosyncratic risk that makes you rich. People like Bill Gates and Mark Zuckerberg take large idiosyncratic risks that pay off. For wealth to become concentrated into an oligarchy, their heirs will have to invest in ways that outperform future idiosyncratic risk-takers. That strikes me as implausible.
Finally, I have to quote this from DeLong:
To be sure, everyone disagrees with 10-20% of Piketty’s argument, and everyone is unsure about perhaps another 10-20%. But, in both cases, everyone has a different 10-20%. In other words, there is majority agreement that each piece of the book is roughly correct, which means that there is near-consensus that the overall argument of the book is, broadly, right.
If I understand this paragraph, what Brad is saying is that unless a majority of Piketty’s reviewers harp on a particular fault, then there are no faults in the book. That is certainly a charitable approach to assessing someone’s work.
I think that taking the most charitable approach to people with whom you agree and taking the least charitable approach to those with whom you disagree is a path that leads to intellectual isolation.