Brad DeLong wrote a lengthy review of Piketty's Capital, paraphrasing in the title the famous ISLM (ISLL in Hick's original terminology) paper by John Hicks, which deserves a review by itself. In particular the discussion of Piketty's analytical model, which is, as noted before, incredibly problematic. It is worth noticing that Brad argues somehow that there two kind of reviews, namely: those that are useful and worth reading, in which he includes Tyler Cowen's review (which I've only indirectly alluded to here and here), and the ones that are wrong and are 'distracted by irrelevances,' which include Galbraith and Palley's reviews.*
Brad's idea is not bad, I mean of a taxonomy of the reviews of Piketty, but his take is neither useful to understand the differences, nor constructive for dialogue. So here is my very brief taxonomy.
There are only a few that I included, not because these are the more important necessarily, but because they seem to be representative. I made two analytical distinctions. Mainstream and Heterodox, which is based on the theoretical background, and whether the authors accept the Neoclassical paradigm or not (Murphy and Austrians do, in a confused way). Also, reviews are classified as favorable or critical of the policy prescriptions in Piketty's book. Basically, one distinction is theoretical and the other is policy oriented.
Note that the interesting thing that emerges is that there are NO, at least to my knowledge, Critical Heterodox views, that is, heterodox authors that are against higher taxes and wealth taxes.
The basis for the mainstream critiques (Cowen and Murphy) is that taxes create distortions and lead to lower growth making things worse. After all greed is good, or something like that. This comes from the more radical fringe of the pro-markets are efficient wing of the profession. The conventional defense of Piketty is basically based on New Keynesian (or old in the case of Solow) views, and it suggests that market imperfections are sufficiently large that there is space for redistribution, and tax policy is the main way to go to redress the increase in inequality of the last 30 years.
Finally the Heterodox views (Galbraith, Palley and Lance Taylor), and here I included a non-economist, David Harvey that follows a distinctly Marxist view,** which all suggest that Piketty raises and important point, which has been discussed by heterodox economists forever, that the empirical analysis is also an addition to our understanding of inequality, but that there are theoretical flaws, which both mainstream groups (Piketty would be closer to a New Keynesian, and he is a Socialist, or at least supported Holland in the last election) share, and that this limits, but does NOT disqualify the argument for redistribution.
This illustrates also a point made in this blog for a while. On the one hand, heterodox groups are politically closer to some New Keynesian authors, which, however, remain firmly based on the orthodox notion that markets unimpeded by imperfections produce optimal outcomes. Once, the New Keynesians get rid of some of the limitations of their theoretical framework, the essential being the natural rate (of interest or unemployment), their political argument would be more coherent and stronger.
* The ones that are wrong or distract point to the logical flaws in Piketty's theoretical model, by the way.
** I didn't include Cassidy's good review, simply because as a journalist the mainstream/heterodox distinction doesn't quite apply, but his views are fundamentally favorable. By the way, the Financial Times, also would not fit that dichotomy, but it certainly fits more clearly the political one, and has come clearly against Piketty for his empirical mistakes (here). For a response see Branko Milanovic here (h/t Daniele Tavani).
Brad's idea is not bad, I mean of a taxonomy of the reviews of Piketty, but his take is neither useful to understand the differences, nor constructive for dialogue. So here is my very brief taxonomy.
Note that the interesting thing that emerges is that there are NO, at least to my knowledge, Critical Heterodox views, that is, heterodox authors that are against higher taxes and wealth taxes.
The basis for the mainstream critiques (Cowen and Murphy) is that taxes create distortions and lead to lower growth making things worse. After all greed is good, or something like that. This comes from the more radical fringe of the pro-markets are efficient wing of the profession. The conventional defense of Piketty is basically based on New Keynesian (or old in the case of Solow) views, and it suggests that market imperfections are sufficiently large that there is space for redistribution, and tax policy is the main way to go to redress the increase in inequality of the last 30 years.
Finally the Heterodox views (Galbraith, Palley and Lance Taylor), and here I included a non-economist, David Harvey that follows a distinctly Marxist view,** which all suggest that Piketty raises and important point, which has been discussed by heterodox economists forever, that the empirical analysis is also an addition to our understanding of inequality, but that there are theoretical flaws, which both mainstream groups (Piketty would be closer to a New Keynesian, and he is a Socialist, or at least supported Holland in the last election) share, and that this limits, but does NOT disqualify the argument for redistribution.
This illustrates also a point made in this blog for a while. On the one hand, heterodox groups are politically closer to some New Keynesian authors, which, however, remain firmly based on the orthodox notion that markets unimpeded by imperfections produce optimal outcomes. Once, the New Keynesians get rid of some of the limitations of their theoretical framework, the essential being the natural rate (of interest or unemployment), their political argument would be more coherent and stronger.
* The ones that are wrong or distract point to the logical flaws in Piketty's theoretical model, by the way.
** I didn't include Cassidy's good review, simply because as a journalist the mainstream/heterodox distinction doesn't quite apply, but his views are fundamentally favorable. By the way, the Financial Times, also would not fit that dichotomy, but it certainly fits more clearly the political one, and has come clearly against Piketty for his empirical mistakes (here). For a response see Branko Milanovic here (h/t Daniele Tavani).
In my opinion, your taxonomy also says a lot about DeLong and to what extent a priori considerations trump policy: he may lambast conservatives to no end on policy matters, but they still share a lot of common ideological ground.
ReplyDeleteIt is the heterodox economists who are, ultimately, the "enemy" and basic agreement in policy makes no difference.
So much for pragmatism.
Agreed. It is also part of NOT being kicked out of the profession. That's why Brad, Krugman, Rodrik and others, still use neoclassical concepts like the natural rate.
Delete"El peligro no está en la acumulación de deuda, una vez que el crecimiento genera un aumento de los ingresos tributarios, sino en el posible cambio del patrón de consumo de las clases con menores ingresos y el aumento de las importaciones."
ReplyDeleteSe me cae un lagrimón. Era el consumo privado y no tanto los insumos industriales lo que chupaba dólares a lo loco. Un paso gigante acabás de dar, me alegro mucho.
Fuera de lugar, pero bue. Una cosa, es lo mismo el consumo privado y los insumos industriales flaco. Si consumis más, necesitas más insumos para producir y más importación. Es producción de mercancias por medio de mercancias. No si ningún paso. Ahora, pq no das vos un pasito y estudias un cacho?
DeleteOne weird thing with Piketty is that he acknowledges several times in his book that the post-war era was characterized by strong pro labor policies and that the decline in the share of labor is at least partly due to the neoliberal pro-capital agenda but that doesn't enter his model.
ReplyDeleteOne french marxist entitled his review "wealth of data, poverty of theory", I think that's it. Piketty is primarly a data gatherer, not a theorist.
Post-war era had full employment policy's, governments used fiscal and monetary policy's to achieve that. That shift bargain power to labor, promote growth and so on. A short period of some economic democracy. Neoliberal counter revolution change that albeit is using the same economic policy tools to keep unemployment high.
DeleteHelpful taxonomy Matias. You missed some interesting notes by Rowthorn (heterodox), Krusell and Smith (orthodox), and Debraj Ray (orthodox). The second one dressd up in Neoclassical garb. Ray is much more an overall review. Rowthorn is indeed a quite interesting constructive critique. You may donwload all these here https://ucv.academia.edu/LeonardoVera/On-Piketty's-Capital
ReplyDelete"and he is a Socialist, or at least supported Holland in the last election"
ReplyDeleteOne can hardly characterize today's european social democrats as socialists.