Source: Amazon

Any reader of this site has likely heard about the book currently setting the world of economics aflame. “Capital in the Twenty-First Century” was written by a French economist named Thomas Piketty. It is on the New York Times best-seller list and is currently sold out, with its publisher scrambling to print more copies.

If you haven’t heard of Piketty, he is director of studies at the École des hautes études en sciences sociales and associate chairman at the Paris School of Economics, where he specializes in the study of economic inequality. If you had heard of him before the book’s publication, it probably was for his now infamous chart of income inequality in the U.S. It was widely adopted by many, especially the Occupy Wall Street crowd.

The book has dominated the media like no other work of economics since the writings of Milton Friedman or even John Maynard Keynes. I won’t spend too much space recounting the reviews, but suffice it to say they have been spectacular. The book has so dominated the economic debate, that it is hard to compare it to anything in recent memory.

The data-driven demolition of trickle-down economics has the Ayn Rand crowd panicked. But what I find so fascinating about this debate (having not yet read the book, though I plan to) is the inability of the economic right wing to respond. Thus far they have been rendered impotent, unable to construct an intelligent counterargument. The strongest response so far — and I am not making this up — has been to give the book a single-star rating on Amazon.com’s website.

Alexander Kaufman at the Huffington Post collected some of the more amusing one-star reviews. There wasn’t a single verified purchaser of the book on the entire, absurd list.

Which raises a question about John Stuart Mill’s notion of the marketplace of ideas: Is the debate driven by the quality of ideas, or by the marketing, branding and PR behind it?

Ralph Waldo Emerson wrote “Build a better mouse trap and the world will beat a path to your door.” All tech entrepreneurs quickly learn that this isn’t true. The better mouse trap is merely the first step, which might get you some venture-capital funding if you have a good pitch book and a winning personality.

Regardless of your views on Piketty’s thesis, it raises an interesting epistemological question: Was Mill wrong? How could the “worse” idea win in the market place? If you believe trickle-down economics is a fraud, how did it dominate the world of economics for so many decades? If you think Piketty’s work is just so much nonsensical Marxism, why has it received so much acclaim from the economics profession and public alike?

Perhaps Mill’s marketplace of ideas suffers the same flaw as the efficient-market theory, or the idea that prices reflect all information and investors can’t beat the market over time. A decade ago, I called it “The kinda-eventually-sorta-mostly-almost Efficient Market Theory.” Markets are filled with all sorts of inefficiencies and friction. They eventually get it more or less correct, but along the way, they can deviate from the true path of efficiency. We just need to wait a decade or three for that efficiency to sort itself out.

Originally published here

 

 

Category: Books, Philosophy, Really, really bad calls, UnGuru

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

29 Responses to “Piketty vs John Stuart Mill’s Marketplace of Ideas”

  1. rd says:

    How could the “worse” idea dominate in the marketplace? That is a simple one to answer.

    These are the types of people who the Conservative Right and the Supreme Court believe have earned the right to spend unlimited amounts of money to influence lawmakers and public opinion: http://msn.foxsports.com/nba/story/donald-sterling-punishment-clippers-lifetime-ban-fine-racist-comments-adam-silver-042914?gt1=39002

    We are in one of those periods of history (hopefully relatively short), when wealth means that you have all of the desirable values in society. Historically, these periods tend to end abruptly, often violently, as the wealthy over-reach and cause society to topple over on to them.

    There is hope because the Supreme Court just recognized that EPA has the right to regulate upwind power plants spewing air pollution to downwind states. This is very important as there has been a trend in Congress and the courts where they have believed that privatizing profits and socailizing costs so that the wealthy become wealthier while the general public becomes poorer is a desirable state of affairs.

  2. WickedGreen says:

    Since right-wingers discovered the internets a few years ago (when they finally realized that BushCo propaganda was failing spectacularly online) it’s been really amusing to watch their pathetic attempts at trolling. They’re just not getting any better at it!

    These Amazon “reviews” are a great case in point.

    As are ALEC-written bills brought to compliant TP state legislators for unread pimping, or the fabulous recent example of Antonin Scalia’s reactionary screed against his own freaking opinion!

    Progressives can certainly be guilty of overthinking things.

    Contemporary repubs, not so much.

  3. ch says:

    I think the they have such a hard time responding to Piketty is the cognitive dissonance in their own brain.

    What I mean is it is hard to make a coherent argument for the US brand of capitalism which amounts to capitalism for the 99%, socialism for the 1%.

    Capitalism is supposed to be about allowing failures to occur. I don’t think many of the protesters like OWS are against capitalism. I think they are against what we have, where the middle class is allowed to fail while big corporations are not.

    An economy where politics dictates which corporations are not allowed to fail is not capitalism. This is another case where the media is being forced to have a discussion it doesn’t want so it is trying to control the discussion by framing it as capitalism v. socialism.

  4. san_fran_sam says:

    yes, people are buying the book, but how many of them are reading it? ;)

  5. cr says:

    Why is there such focus on taxes over fundamentals in the economy like investment in infrastructure and human capital? Taxes matter, but I would argue that the fundamentals are more important.

    Better regulation and quality capital allocation in the private and public sector would likely lead to higher levels of growth.

    The credit channels are highly inefficient and speculative via a private, fractional reserve system.

    Everyone seems to know we spend to much money for what we get in healthcare and defense.

    Trade policy. Can anyone honestly say that offshoring the US manufacturing base has been good for the country? Our leaders have made China the largest economy in the world on a PPP basis. WTF?

    Net investment in the US has collapsed which is evident when you travel through major metropolitan areas.

    Check out the Chicago Regional Transportation Authority white paper which compares Chicago infrastructure versus Paris. It ought to be embarrassing for Illinois officials to compare maps of their public transportation system versus the French or other American cities.

  6. RW says:

    Framing Piketty as capitalism vs. socialism is simultaneously* a ploy to avoid substantive comparisons such as capitalism vs crony capitalism or aristocracy and also an attempt to simplify (and thus render more amenable to sound bite and trivialization) what is actually a rather complex but deeply factual and substantive argument viz

    The Right’s Piketty Problem

    …the extraordinary thing about the conservative criticism of Piketty’s book is how little of it has developed any …arguments, and how much of it has been devoted to a furious denunciation of its author’s analytical abilities, motivation, and even nationality. …

    Combining …strands of conservative criticism, the real problem with Piketty’s book becomes clear: its author is a mentally unstable foreign communist. …

    …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.

    Unless Piketty’s right-wing critics step up their game and actually make some valid points, that will be the default judgment on Piketty’s book. No amount of Red-baiting or French-bashing will change that.

    NB: It is also a tacit admission on the part of most critics that they have either not read the book or, having read it, failed to understand it (I’m still working on both issues myself).

  7. Frilton Miedman says:

    chuckling @ John Stuart Mills name drop, a proponent of Eugenics for the working class & endorsed slavery – He’s one of the major influences for the Koch brothers takeover of the US government.

    It’s just awesome to see Picketty’s work sold out, just awesome.

  8. VennData says:

    The GOP Media Machine has been spewing out those crazy emails your dad keeps forwarding you for a couple of decades now.

    I’m glad people have jobs slaving away at their keyboards doing the GOP’s dirty work. Not sure what it will lead to except a lifetime doing the GOP’s dirty work. Then they die. Or maybe outsourced before that.

    • rd says:

      Do you have proof that those are real people sning out the e-mails? My suspicion is that the work as already been out-sourced to a computer programmed to randomly link key phrases and wordstogether to create a new thought for an e-mail.

  9. donna says:

    I am waiting for the book that points out our current problem is not inequality, or capital, but UNPRODUCTIVE capital. We have too many rich people who are not using that wealth to create jobs, pay other people more, etc.

    “Money is like manure, it’s no good unless it is spread around encouraging young things to grow.” Otherwise, it just sits there in big, stinking piles.

  10. Livermore Shimervore says:

    “How will the economists of today react to this book? Paul Krugman didn’t provide an encouraging sign in his blog a few days after the US edition appeared. First thing he did was to try to “understand” it by plugging TP’s data into another abstract 1950s-era mathematical model. The vast majority of mainstream economists didn’t see the 2008 crash coming, but after it happened they insisted that their models weren’t defective. If an historical event of that magnitude couldn’t make a dent in their worldview, one has to be a great optimist to believe that this book will. More realistic may be to hope that this book’s impact can be political. Luckily, that isn’t up just to economists, but to readers like us” – Amazon reviewer – T.J. Sutter.

  11. EAPoe says:

    I thought this piece by Scott Sumner on how the focus should be on consumption instead of income was insightful.

    http://econlog.econlib.org/archives/2014/04/theres_only_one.html

    Also, are you evaluating what is written in the book based on reviews and not reading it yourself? If so, then have you accounted for the potential bias included in those reviews?

    • EAPoe says:

      Also, while not necessarily “from the right”, this post was also interesting.

      http://updatedpriors.blogspot.com/2014/03/capital-in-partial-equilibrium.html

      My goal is not to debate the particulars of this book in the comments section of a blog, but to point out that there have been some thoughtful responses to the book and criticism’s of its conclusions. My fear is the point of the original post was not to study the arguments of this book, but to use that as an opportunity to say “hey, look at those people I disagree with, they are so stupid.” That type of writing seeks to close minds instead of open them.

    • Frilton Miedman says:

      In light of the explosion in consumer debt to income ratio, and the fact that wages are pretty much where they were in 1988, it’s a given that income would be the logical next step when factoring consumption.

      Broke people don’t buy stuff, especially when the credit cards are maxed and home equity is underwater.

      • EAPoe says:

        Yes, but the point is effectively evaluating income/wealth data is challenging. What types of income do you include? Do you include gov’t transfer payments? Pre-tax or post tax numbers? Do you factor in debt?

        For all those who want to strike down capitalism* because the market creates more inequality over time, is there an alternative that has been sustainable and successful anywhere else in the world? Are there any examples of when a country tried to make things more “fair” and it turned out to be a catastrophe?

        *Do people really think we have a free market capitalist system today? I think we overlook the destructive influence of large corporations who team up with gov’t to craft policies in their favor.

  12. efrltd says:

    Make Piketty rich! Buy his book. Fooled you once; fool you again, he says.

  13. Frilton Miedman says:

    EAPoe,
    Simply lobbing the word “consumption” into an economic discussion doesn’t magically make consumption occur – the consumer needs buying power.

    it’s not that daunting a task to factor income vs cost of living, and, as far as transfer payments are concerned, it’s a given they go down as income goes up.

    (millions of WMT & MCD employees that get a mere 10% increase no longer qualify for food stamps, and yeah, I’ll have to pay $10.25 vs $10 for a pair of jeans to wreck doing yard work, I don’t mind)

    As far as debt is concerned, that too is a given, as income increases debt will drop.

    The rise in household debt since 1980 almost identically matches the rise in stock market, while wages are flat since 1988 – consumption has been fueled by debt, not income, and at some point it’s going to be time to pay the piper or give ‘em a raise so they can afford to consume.

    The current bull market is only made possible via the Fed, millions of households have hundreds more per month to spend after refinancing mortgages & debt at substantially lower rates.

    I think we can both agree, that can’t last forever, nor can “consumption” without buying power.

    Or, as mom always said – “Money doesn’t grow on tree’s”

    • EAPoe says:

      While I do not agree with some of your points above, I do appreciate the discussion.

      However, I feel we are passing in the night here. I agree with your point about the Fed (how very libertarian of you), but think that is a separate discussion from the difficulties of accurately measuring inequality based on income or wealth.

      Consumption is certainly caused by income/wealth, but income is difficult to measure accurately. The point on transfer payments for example, if you make $30,000 per year, but get $10,000 in combined benefits between federal and state programs, do you make $30k or $40k or $39.1k after payroll taxes? If your kids get health-care subsidies does that count as income for the parent?

      The point is many people (I’m not saying this is you) seem to say, hey we’ve got a lot inequality, we’ve got free market capitalism (I would disagree), we need to a new system to make things more fair! I think that leads us in the wrong direction partially because the measures of inequality are questionable and partially because a central body focused on re-distributing wealth is doomed to corruption which creates more inequality.

      • Frilton Miedman says:

        EAPoe,

        Again, factoring income is NOT that difficult a problem as to be prohibitive for inclusion in the topic, atop the fact that as income increases, entitlement transfers decrease because social spending programs are means tested.

        As a business owner, I agree with your premise that Capitalism equates to ” … the market creates more inequality over time …”, it leads to a singular end, fewer wealthier customers, instead of more well paid customers, which equates to less business for me.

        In other words, wealthy people don’t buy a larger amount of food, clothes, housing, goods or services in proportion to their wealth. (Have you seen Fed charts of velocity lately?)

        Look at it from the perspective of stock market price discovery – It isn’t the decision of the issuer of stock what price it’s value will be, it’s the decision of the majority of buyers of that stock.

        Call that “economic Democracy”, where the buying majority decides which company stock to buy based on overall value relative to it’s peers, thus forcing competitiveness.

        In the Constitutional sense, once a Democratic majority feels a specific level of wage is inadequate, per the Constitution’s “Powers of Congress” “To regulate commerce …”, the same principal applies….notion so “tyranny of the majority” aside, there’s also the possibility of tyranny of the minority.

        Last, we won’t agree here, but Capitalism is a product of a free Democracy, not the other way around.

        I could similarly make the argument that other components of our Constitutional Democracy are the founding principle of our way of life, such as the post office, the 2nd amendment, the 4rth amendment, or free speech, but they’re only beneficial components of Democracy, as is Capitalism. (provided you believe in the bill of rights to begin with {Federalism})

        Each is subject to regulation, as the Constitution suggests in it’s preamble, for the general welfare of the whole, not just the few.

  14. LiberTea says:

    In the economic analysis of inequality,the population under study is ‘households’ broken down into quintiles or percentiles of income..
    Among the sociological transformations in the US over the last few decades, there is now a much greater fraction of households that are single-person-single-income with a corresponding reduction in proportion of traditional married households, many with two incomes.

    The economic effect is that in the multiincome households, the cost of the household are covered by more than one income source, and the costs in the expanding single income group are covered by one.
    The demographic change alone increases the trend of unequal wealth accumulation, in that a multiincome household will be more likely to exceed costs and to accumulate wealth.

    • Frilton Miedman says:

      While it’s true that single income households are on the rise, the average household size is 2.6 people, median household income is $52K – on a per-person basis, that’s not a lot of money, and, that’s “median” income, not majority.

      The bottom 3 quintiles (60%) are the real drag, both in consumption and entitlement outlays, food stamps alone account for 15% of all food purchased, that’s scary when you look at the bigger economic picture, where the snap program was cut without doing something about minimum wage.

      I’m not talking from the “hungry children” perspective, I’m talking from the small business perspective, that much money contributing to consumption effects us all, except the top 0.1%.

  15. EAPoe says:

    Frilton,
    I think we may have taken this as far as the Internet pipes can take this, but I do want to state for the record (because that’s important!) that while I do believe free markets create inequality over time, I do not think they do so to the point where the system becomes unsustainable. I think the free market enabled the creation of an enormous amount of wealth in this country in a relatively short amount of time and has created a standard of living very few could have dreamed of a couple hundred years ago.

    Capitalism/free markets are not perfect, there are losers and there is unfairness, but the overall effect is overwhelmingly positive in my opinion. I also think centralized government has a worse track record at re-allocating wealth than the market and breeds even more inequality as wealth becomes concentrated with political elites and their cronies.

    • Frilton Miedman says:

      I largely agree, the nature of Capitalism leads to unsustainable levels of disparity over time, however, history shows the remedy usually comes from (dare I say it) government once the majority of voters can’t be ignored.

      The problem I see in your statement is the assumption that corrupt government equates to a solution of no governance at all.

      We have corrupt cops, that doesn’t mean we abolish the police.

      The solution lies in transparency, accountability and a more direct Democracy (the threat of a recall does a lot to keep politicians in line)

  16. FrViper says:

    Ah yes, 20% do and 80% talk about it. Guess who should win? If that’s inequality, I vote for it.