Tuesday, August 26, 2014

Yes, Acemoglu and Robinson's review of Piketty is very strange

I'm only about two thirds done with Piketty - it's been very busy this summer between events, getting the dissertation proposal off the ground, and starting work again at the Urban Institute. But I just happened to get to one of the parts in Piketty that Acemoglu and Robinson quote, and it turns out to be an extremely dishonest rendition. They quote this to show that Piketty doesn't think institutions matter (from page 365): 

"The fundamental inequality r > g can explain the very high level of capital inequality observed in the nineteenth century, and thus in a sense the failure of the French revolution.... The formal nature of the regime was of little moment compared with the inequality r > g.". 

So what is in that ellipses? He explains that the revolution didn't change the course of inequality (relative to monarchical Britain) because the new institutions that were established were much closer to Britain than popular perception in France at the time suggested! It was NOT a big change in institutions, which was why the French revolution did not shift the parameters of the model. Immediately after this he goes on to discuss changes in institutions in the 20th century that WERE substantial enough to impact inequality, and he even reviews how inter-country differences in these institutions explain differences between (for example) Germany and France.

In other words, the real point of this section is that institutions matter a lot, regardless of what the hype and propaganda around the Revolution really said. And not only did A&R get that wrong - they deliberately removed the portion of the quote where he made the point.

I have always taken one of the central theses of Piketty's book to be that institutions are central in shaping wealth and income distributions. He says that over and over again. All of the explanations for the empirical changes in the distribution over time are either (1.) institutions, or (2.) shocks (which, given the nature of these shocks, inevitably also have institutional origin). Apparently it's not just Acemoglu and Robinson that missed this memo. I have since had conversations with people who suggest that discussion of institutional determinants of inequality is minimal and that Piketty is just "covering his butt" when he mentions it. But as far as I can tell that's the whole point - the analysis is grounded in inequality.

Piketty without institutions in the capital share of income section could probably survive. Piketty without institutions in the inequality section of the book simply wouldn't exist any more. I mean, you'd have the data I guess, but the analysis is entirely institutional until you get to the last third of the book where he brings some of the subsumed Solow model (all that r > g stuff) back in to talk about with institutions

"Cover your butt" for these people seems to mean "have as your main emphasis for several hundred pages". This is like saying Milton Friedman wasn't all that concerned with money!


  1. I have not been following this controversy, and have not read Piketty's book. But reading this post, I am confused by the framing. The first French Revolution went into a conservative period with the Thermidorian Reaction in 1794, then was formally ended as a popular movement by Napoleon's coup d'état in 1799, and finally was overthrown completely by the Treaty of Vienna that restored the Bourbon monarchy in 1815. Since it failed on the face of it to establish its more radical goals, and then even its more moderate ones, why would anyone expect the French Revolution to have been a turning point for income distribution in France?

    (Since "the French Revolution" in common usage means the one that started in 1789 and was widely debated in the US and elsewhere, I assume that's what Piketty, Acemoglu and Robinson are talking about. But if they were defying common usage and referring to the July Monarchy established in 1830, or the short-lived Second Republic of 1848, or the Third Republic that came out of the civil war in 1871, similar objections would apply, since all of these events failed to establish or even reversed radical participants' plans for changes in income distribution).


  2. The selective quoting is not limited to your example, it occurs throughout the review. As I posted over on Marginal Revolution:

    AR quote Piketty:

    “The reason why wealth today is not as unequally distributed as in the past is simply that not enough time has passed since 1945 (p. 372).”14

    In footnote 14, they say:

    “Capital is not always clear about the reach of this fundamental force (or general law). For example, the last sentence is immediately followed by “This is no doubt part of the explanation, but by itself it is not enough,” leaving the reader to ponder what else is required for the claim to be true.”

    Yet Piketty completes the relevant paragraph with:

    “[contemporary] top earned incomes (for a given distribution) roughly balance top capital incomes (we are now in a society of managers, or at any rate a more balanced society). Similarly, the emergence of a “patrimonial middle class” owning between a quarter and a third of national wealth rather than a tenth or a twentieth (scarcely more than the poorest half of society) represents a major social transformation.”

    In other words, the two major reasons for lower inequality are that (1) there has been significant redistribution and (2) labour incomes have become more important, both of which AR later reference as counterpoints to Piketty’s thesis.


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