In his bestselling book, "Capital in the Twenty-First Century," Thomas Piketty analyzes historical data on wealth and income inequality in some of the world's economically advanced countries. The data show that inequality, after having fallen from heights reached in the 18th and 19th centuries, fell to lows during the middle 20th century and is now high and rising again. Piketty thinks the causes are fundamental to the workings of capitalist market economies, the major culprit being a rate of return to capital that is almost always higher than the general rate of economic growth.
Is Piketty right?
Not according to how Harper's magazine is promoting an article in its September issue, just now on the newsstands. Harper's introduces the article by a Nobel Prize winning economist with these words on its cover, "Joseph Stiglitz: Piketty Is Wrong."
Stiglitz is professor of economics at Columbia University.
Does Stiglitz in his Harper's article really say Piketty is wrong?
In his book, Piketty traces the share of income that goes to owners of capital compared to income from working. The trajectory of these shares is important, since the larger the capital share, the larger inequality is likely to be. The capital share of income in the advanced countries has been rising recently. Piketty thinks capital's share could continue to increase as we get further into the twenty-first century, so that "... capital's share of global income could amount to 30 or 40 percent, a level close to that observed in the eighteenth and nineteenth centuries, and it might rise even higher." [p. 233 Piketty's book].
Stiglitz's piece is not a review of Piketty's book. Nor is it in any way a rebuke of Piketty's main arguments. Rather, it's a presentation of tax policies Stiglitz proposes to combat income inequality in the United States. It's a shorter version of a Stiglitz white paper published in May by the Roosevelt Institute. The white paper never mentions Piketty. So the shorter piece, with a few words added about Piketty, may simply be an attempt to capitalize on the popularity of the book, and to expound on what Stiglitz believes should be the policy response to inequality.
Stiglitz doesn't directly address the fundamental arguments by Piketty about the rate of return to capital and the capital share of income. So what is Stiglitz's beef with Piketty? Does he really say Piketty is wrong? Well, no; not exactly. The words "Piketty is Wrong," on the cover of "Harper's" magazine are most likely not Stiglitz's words. Here are Stiglitz's exact words in the "Harper's" piece,
"But while Piketty is right about the severity of the problem, he is not completely right about its cause - and how to fix it."
Stiglitz then adds, "If Americans take the wrong lessons from his [Piketty's] work, we may fail to make the changes that could actually address our inequality problem." Notice Stiglitz never says, "Piketty is wrong."
About his own tax proposals, which include a more progressive income tax, estate and corporate tax reform and a carbon emissions tax, Stiglitz concludes that "Taken together, these proposals would make real inroads into reducing inequality, returning us to an economy more like that of the post war years."
Does this differ in any substantial way with Piketty? Nowhere in his book does Piketty express opposition to any of the tax proposals that Stiglitz puts forth. It's not the purpose of the book to analyze various tax proposals. Piketty does say that a global tax, or even regional taxes on wealth, would help limit inequality, but he recognizes the political obstacles to such a tax.
In his concluding paragraph, Stiglitz says getting back to less inequality doesn't require eliminating capitalism, it requires eliminating market distortions. But nowhere in the Piketty book is there a suggestion to eliminate capitalism. To be sure, as the serious economist that he is, Piketty would undoubtedly concur that eliminating market distortions such as preventable monopolies, where possible, is a worthy goal, one that would improve efficiency and reduce inequality. But the main point of Piketty is that he thinks he has uncovered a tendency for a capitalist market economy to gravitate towards a state with lots of inequality that "cannot be resolved by a dose of additional competition [p. 423, Piketty's book]."
Stiglitz never addresses that premise.
So, tell me, is Stiglitz just being picky, picky, picky about Piketty?