So like many other fellow bloggers, amateur economists, savant economists, and Nobel laureate Paul Krugman, I have my copy of Capital. This time the author is Thomas Piketty and not Mr. Marx though. I am yet to read the book- not sure if I will ever get to it amidst semester ending, grading and fulfilling research requirements. So I wanted to get a quick take on what macroeconomists have to say about the book. Not surprisingly, Steve Williamson had a post- but he was yet to read the book. So I guess we will have to wait for his critical comments or not as he is more into figuring out what Fed should be doing! Meanwhile this following comment by Tony on Steve’s post provides a good critical view:
Piketty’s book does not contain explicit references (to the best of my knowledge) to the two-decade-old body of work on macroeconomics and inequality beginning with Huggett and Aiyagari. Neither does the book’s online appendix, but if you follow the links provided in this appendix to other papers that Piketty and co-authors have written you will find references to some of this work. (That does not count as a citation in my book but it shows at least that Piketty is evidently aware of some of this work.) But for reasons that are unclear to me Piketty does not seem persuaded by papers like Castaneda, Diaz-Gimenez, and Rios-Rull (JPE, 2003) which match most of the facts about U.S. income and wealth inequality with parameters calibrated more-or-less reasonably. Instead in his book (which I have still not yet finished) and in a very recent paper (April 2014) with Zucman he seems to favor fairly mechanical models with multiplicative shocks to individual wealth accumulation. These models generate power laws for the upper tails with coefficients that evidently depend on the now-infamous “r-g” (i.e., the difference between the interest rate and the growth rate). But he does not make much of an attempt to calibrate them as do Benhabib et al (Econometrica et al, 2011). My overall impression so far is that Piketty does not really engage the existing literature on income and wealth inequality. Maybe this is because he focuses almost exclusively on the upper upper right tail of the wealth distribution (not just the top 1% but the top 0.1%). Krusell and Smith and Castaneda et al and others do a pretty good job of matching the top 1% but perhaps (and I am not sure about this) less well on the top 0.1%. But then in his book he makes bizarre statements like “the profession [has an] undue enthusiasm for simplistic mathematical models based on so-called representative agents”. He knows this is not true! (He was even a discussant for Quadrini and Rios-Rull’s forthcoming chapter on “Inequality in Macroeconomics” in the Handbook of Income Distribution.) Inexcusable.
There is also this article from 2012 on VOX that might interest you. And as the famous econblogger Noah Smith once tweeted: stop spelling Piketty as Picketty 😉