Saturday, January 17, 2015

My advice on Piketty

1. Read him.

2. He is surprisingly sloppy on several points - most fantastically the tax history and the minimum wage history. Magness and Murphy provide a good overview of all this in pages 1 through 10 or so.

3. Stop reading Magness and Murphy at about page 10.

4. Keep in mind that Piketty is not some random lefty. He is at the top of the field in work on wealth inequality, long run inequality trends, etc. All the other top people in the field have co-authored with him and use his work. They trust him. So when Phil Magness - not in the field at all - tells you he can't figure out what Piketty is doing from the technical appendix your reaction ought to be "well this sounds right - no one would expect Phil Magness to really understand everything Piketty is doing from the appendix - this does not shift my priors at all about Piketty because I have been given no additional or surprising information."

5. Keep in mind my point 2. This should shift your priors about Piketty. But you have two options for forming a forceful opinion on the inequality: (1.) replicate his work yourself to understand what and why he did what he did, or (2.) wait for someone that knows this material better than you to do the same. Only then should you think anything like the inflammatory attacks that Magness and Murphy have leveled.

6. Until either option in my point 5 has transpired, get a broad sense of the literature and keep an open mind. Know where there is more disagreement (post-1980) and where there is less (1900-1980).

1 comment:

  1. This post seems like a bunch of appeal to authority. Are Magness & Murphy not allowed to analyze the data and let it speak for itself? They seem to have cited several relevant papers with big names on them. Certainly if there is some standard adjustment being made, it can be found in the articles of the big shots. If not, maybe there's a real problem here. I mean, I can understand that in a huge book (aimed, as it is, at a lay audience) your technical appendix might be a little sparse. However, in the individual papers M&M cite, these standard adjustments had better be pretty damn clear, right? Sort of like everyone citing Freund 1956 when discussing certainty equivalents and expected utility.

    Keep in mind here, I really don't care much what Piketty says about the inequality data. I'm concerned about causality and I don't think "r>g" is enough to justify an 80% wealth tax to "solve" the inequality problem. The real issue, as I see it, is theoretical. Bob has a lot of good stuff on this, but even basic sophomore-level finance sort of puts the kibosh on Piketty's flawed POV. (See here:


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