ultimately this is a chart book, with plenty of economic data but very little economics.
Pointer from Tyler Cowen. And lest you think that the quoted sentence is a compliment, earlier in the post Decker writes,
By referencing only charts (if even that) for many of his claims, he is feeding the sloppy and destructive “this one chart proves…!” fad that has spread in the blogosphere; a chart is never sufficient to make causal claims or demonstrate optimal policy. In this sense, Piketty does his readers a disservice. He should have asked them to think harder instead of just gazing at graphs.
Many economists, including Jamie Galbraith, Robert Solow, Brad DeLong, Matt Rognlie, and myself, automatically credit Piketty with having a neoclassical production function in the background, with some strong and and unconventional assumptions built in. Decker questions whether Piketty is using a model at all.
After reading Decker’s post, I searched Piketty’s book using Google booksearch for the phrase “production function.” It appears only 9 times, without much in the way of accompanying equations. So maybe Decker is right, although it is still possible that Piketty has some math in his back pocket that he can pull out for us.
I am a critic of the use of math in economics, and that includes a lot of macroeconomics as well as the production function. But at a deeper level, what I am against is making sweeping statements about phenomena that are too complex to be amenable to sweeping statements. Making sweeping statements that are backed up by mathematical equations is bad. Making sweeping statements that are not backed up by math is worse.
From Ryan Decker’s article …
“A key theme of [Piketty’s] book is that poor people don’t own productive assets, so they must rely entirely on labor for income. But is [increased] taxation and redistribution the only way to address this situation?”
It never ceases to amaze me that alleged “thinkers”, such as Piketty (and others like him) can conjure only one “solution” to any problem, irrespective of the size, complexity or even existence of the problem. That “solution” is always increased taxes. And it seems these folks gain attribution as “thinkers” by virtue of how well they frame and document “problems” such that new and increased taxes are always the sole “solution”. That does not demonstrate great thinking as far as I’m concerned. It demonstrates an inability to think.
Piketty is correct in one respect – poor people generally don’t own productive capital assets. And that certainly contributes to their “poor” status. But I find it incomprehensible that a “thinker” would propose and advocate increased (punitive) taxes on those who do own productive capital assets as any kind of remedy for that situation. Where are Piketty’s proposals to incentivize and encourage “poor” people (and everyone, for that matter) to own productive capital assets? Actually, he rejects that notion as a “solution” under the premise that owning productive capital assets is too risky and volatile for “poor” people to handle or tolerate. How convenient – for Piketty’s proposed (and only) “solution”.
Actually, the U.S. tax code was modified in an interesting (and incentivizing) way in December 2011, and the relevant change was retained in the January 2013 “permanent” tax code: Realized long-term capital gains and qualified dividend income is exempt from Federal taxes in the first two (10% and 15%) tax brackets. That is the first time in U.S. history that sort of exemption has been in place, and is one of the smartest things the U.S. government has done in terms of incentivizing (or even not penalizing) investing and gaining investment income for low-income people. My personal opinion is that the LTCG and QD exemption should be extended to the first 3 brackets (10%, 15% and 25%), if for no other reason than to further encourage productive capital investment – as a means of rebuilding middle class.
I certainly would not consider myself as disagreeing with the people you list (Galbraith, Solow, Delong, Rognlie, Kling), and indeed if I thought I was disagreeing with all of those names I would be terrified. I would not say I had thought of him ignoring a production function entirely, but now that you describe my review in that light…
If Piketty felt tied to any production function–the neoclassical one or any other–I think he would at least give some attention to the relationship between “capital” (however one defines it) and the wages of people who don’t own “capital”. Solow gave this item some attention, acknowledging that capital at least makes workers more productive. Piketty’s rhetoric struck me as very much us vs. them, where the entire game is about splitting the economy’s annual income endowment. So I guess you’re right… I don’t really recall ever thinking that Piketty was drawing inference from a production function.