Martin Wolf review of Piketty


22 replies on “Martin Wolf review of Piketty”

Piketty is getting a lot of attention but Monthly Review have been talking about inequality and the dangers of runaway financialisation for years.

I guess it must be about how power frames debates.

More great data today from the UK. Unemployment dropping like a stone, wages rising faster than inflation, growth spread evenly across the economy. Equality is already fading as a dominant meme in the UK, opportunity is where it’s at now. Pity the poor French, stuck with faded old leftist solutions and exporting their young to London.

Invest in something that will give you a decent return and also give you the satisfaction of knowing that you have assisted in the production of wealth. How about Tata Motors? Owners of Jaguar Land Rover? TTM?

With all the gains from your investment you can give the food banks as much as you like.


Yes, Piketty is getting a lot of attention but this is one of those cases where overnight success took just a couple of decades. He got his PhD at the age of 22 for work on wealth redistribution, so I’d say he had a head-start on Monthly Review.

The Guardian are curiously quiet about the news for some strange reason.

Might as well mention Krugman’s review as well? This bit seems worth quoting:

And yet there is one thing that slightly detracts from the achievement—a sort of intellectual sleight of hand, albeit one that doesn’t actually involve any deception or malfeasance on Piketty’s part. Still, here it is: the main reason there has been a hankering for a book like this is the rise, not just of the one percent, but specifically of the American one percent. Yet that rise, it turns out, has happened for reasons that lie beyond the scope of Piketty’s grand thesis.

Piketty is, of course, too good and too honest an economist to try to gloss over inconvenient facts. “US inequality in 2010,” he declares, “is quantitatively as extreme as in old Europe in the first decade of the twentieth century, but the structure of that inequality is rather clearly different.” Indeed, what we have seen in America and are starting to see elsewhere is something “radically new”—the rise of “supersalaries.”


There’s a lot to be said for [Piketty’s explanation for increasing CEO compensation], but it clearly lacks the rigor and universality of Piketty’s analysis of the distribution of and returns to wealth. Also, I don’t think Capital in the Twenty-First Century adequately answers the most telling criticism of the executive power hypothesis: the concentration of very high incomes in finance, where performance actually can, after a fashion, be evaluated. I didn’t mention hedge fund managers idly: such people are paid based on their ability to attract clients and achieve investment returns. You can question the social value of modern finance, but the Gordon Gekkos out there are clearly good at something, and their rise can’t be attributed solely to power relations, although I guess you could argue that willingness to engage in morally dubious wheeling and dealing, like willingness to flout pay norms, is encouraged by low marginal tax rates.

I can’t say much, partly because I haven’t read Piketty. Lisa Keister’s 2005 Getting Rich apparently found that a significant proportion of the US rich are entrepreneurs who cashed out successfully from businesses they built, rather than rentiers investing inherited money or employees like CEOs of existing businesses. But I don’t have access to Keister either.

@ anonym

‘You can question the social value of modern finance, but the Gordon Gekkos out there are clearly good at something, and their rise can’t be attributed solely to power relations, although I guess you could argue that willingness to engage in morally dubious wheeling and dealing, like willingness to flout pay norms, is encouraged by low marginal tax rates.’

Krugman is playing the innocent. The reality is that the 1% mostly take their rewards in the form of capital gains and financial asset inflation, thereby evading a very great deal of tax. They are also pretty good at wrecking democracy by funding their favoured political and media operators. That is not just morally dubious, it is tyrannical.

Wolf’s review of C21C seems to fit in with all the others, the book is a delight, the thesis is rock solid and the few weak spots in Piketty’s analysis are of less importance than his professorial reluctance to put the boot into the corruption that lies at the heart of modern financial capitalism and the danger it poses to democracy.

In other words Piketty is almost unassailably brilliant but too nice for his own good, or ours.

I look forward to getting my hands on a copy (Hodges Figgis on Dawson Street should have some in next week I think) and slowly getting through it but in the meantime JW Mason (of “The Slack Wire” blog) has pointed this resource out.

Also, I just saw that Krugman has gotten much more effusive about how good C21C is:

Piketty Day Notes

But let me conclude by saying something about why I was so bowled over by this book. Obviously I share the widespread sense that we’re learning something very important about the past and future of inequality. But there’s something else: this analysis isn’t just important, it’s beautiful…….And my admiration is only reinforced by my sheer, green-eyed professional jealousy. What a book!

This pretty much lays to rest the idea that the criticisms he had in his NYT reveiw of books piece on C21C were serious ones.

Now the question is can anything be done politically using this extraordinarily important work of social science? Is this the weapon against neoliberalism the world needs?

The Ft had a piece a while ago on Fed QE. $4tn printed, $35 tn increase in asset values. Much of that went to the wealthy who hold financial assets.40% of Americans hold none. US real economy still weak which is why interest rates are still low. Companies not investing. Same in ireland with capital spending btw. The Financial world is no longer linked to the real world. It looks like the real thing, it tastes like real thing, the fake plastic bourse.
Adelson the Sands king receives a string of Republican politicians looking for campaign funding for 2016, an updated trope.
The hedge funds are like canaries in the coal mine. At some stage valuations will take precedence over momentum. Plutocracy always crashes and the key is to manage it down but that is so difficult for a species given to myopic short termism, especially when the music is still playing.

fyi Polanyi heads – h/t

n November 1933, less than a year after Hitler assumed power in Berlin, a 47-year-old socialist writer on Vienna’s leading economics weekly was advised by his publisher that it was too risky to keep him on the staff. It would be best both for the Österreichische Volkswirt and his own safety if Karl Polanyi left the magazine. Thus began a circuitous odyssey via London, Oxford, and Bennington, Vermont, that led to the publication in 1944 of what many consider the 20th century’s most prophetic work of political economy, The Great Transformation: The Political and Economic Origins of Our Time.

Polanyi, with no academic base, was already a blend of journalist and public intellectual, a major critic of the Austrian School of free-market economics and its cultish leaders, Ludwig von Mises and Friedrich Hayek. Polanyi and Hayek would cross swords for four decades—Hayek becoming more influential as an icon of the free-market right but history increasingly vindicating Polanyi.


“Now the question is can anything be done politically using this extraordinarily important work of social science? Is this the weapon against neoliberalism the world needs?”

Well, he’s certainly giving the work a fighting chance of political relevance in the arena where it matters most:

Since touching down in Washington this week to promote his new book, “Capital in the 21st Century,” Mr. Piketty has met with Treasury Secretary Jacob Lew, given a talk to President Obama’s Council of Economic Advisers and lectured at the International Monetary Fund, before flying to New York for an appearance at the United Nations, a sold-out public discussion with the Nobel laureates Joseph Stiglitz and Paul Krugman, and meetings with media outlets ranging from The Harvard Business Review to New York Magazine to The Nation.


Ireland will take any of his insights on board approximately never.

One the scary things about the connection between wealth and political power is wealth’s ability to use political power not only to advantage itself but to protect itself. Schumpeter’s creative destruction stalled at its genesis.

Sean Quinn’s demise is actually an example of what can happen to wealth. In a modern economy its creation can be out of all proportion with “normal” incomes. But if it’s not protected its destruction can be very rapid too. The “Greenspan Put” is an example of unfair protection of wealth. As is, probably, the Central Bank focus on wages instead of asset prices. Over time it favors the rich.

Plus, at some level it’s likely that there’s a level of wealth that’s “enough for anyone”. Any suggestions where?

According to Krugman, the Piketty phenomenon (a bestseller in the US!) has got American rightwingers in a panic as the book risks taking away the precious frame they’ve used to contain discussion of such inconsequential matters as who gets what.

Here in Ireland, of course, it hardly registers (witness the dearth of activity in this thread). Academics, politicians and civil servants are far too preoccupied with justifying the next Reaganite tax cut for the wealthy (and further austerity for the public sector and those who depend on them) to be much concerned with unimportant matters like extreme wealth inequality or the capture of democracy by monied interests.

Piketty, whilst good, as in Dunphy “Good, but not great.”, needs to be placed within a specific context. The steady increase in the Financialization of western developed economies since the early 1970s – with a parallel decrease in their Production/Consumption sectors. Same rot seems to spread to the east. Though where do they ‘outsource’ to? The declining west? I wish them luck on that one.

The production of goods for export sale should create an economic surplus which is either saved or re-invested. The saved portion is lated used to create real local wealth. However, our PC sectors can no longer provide the expected economic surplus – so have been ‘off-shored’ using financial innovations. The financial sectors will surely follow this example.

Financial services are NOT productive, in the strict economic sense of generating a real economic surplus – they are used to transfer financial stuff between parties. Nothing is actually produced by financial services, except debts which can now be ‘out-sourced’ onto sovereigns and their taxpayers. Very nice that.

Funny thing. This problem with virtual wealth, and how it is created (and maintained) has been addressed by many authors. Its a problem which has been with us for several thousand years. This is just our version. Ho hum! Well, not so quick there. There is this nasty problem with populations. Been on a bit of a geometric uplift for last 200 years. Now, that IS a problem.

This is a more sober analysis of Piketty:

This is very hard hitting stuff about piketty getting his sums wrong in the FT:

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