More Piketty Rebutty

John Rentoul

china 300x184 More Piketty RebuttyFurther to my post about Thomas Piketty yesterday, which mentioned that Prof James Galbraith was a doubter, he has been in touch to draw my attention to a new paper by a colleague of his, Wenjie Zhang, which suggests that income inequality in China peaked in 2008, as Simon Kuznets would predict (and Piketty would not).

The paper is based on data from the state statistical yearbook, which have limitations of coverage, but Galbraith says that these measures track survey-based measures well in practice, and are available much earlier. Using the same technique, Galbraith and Zhang detected declining inequality in Brazil and Argentina in 2006, some years before anyone else.

None of this proves the Piketty thesis wrong. As far as I can tell, this is that capital tends to accumulate faster than the rate of general economic growth, thus tending to concentrate wealth within advanced capitalist countries.

But Galbraith’s work does point out that other things are going on which might make the Piketty thesis an unreliable generalisation.

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  • newfriendofed

    Who knows whether the situation in China is an anti-Piketty moment. My sense is that he has sown serious doubt with regard to the new Labour thesis, circa Mandelson’s filthy rich comment. Basically: it is a problem if people become filthy rich (even if they pay their moderate taxes) because in being rich, they can pass it on to their children, thus thwarting aspiration which, of course, new Labour was all in favour of.

  • Pacificweather

    The rising middle class in a new economy leads to a statistical peak and downward trend but this does not mean the gap between the rich and the poor is not increasing. It just means there are more relatively rich people. In China, as in the USA, can be found some of the poorest people in the world.

  • Ciaran Goggins

    Hardly any inequality in UK at all eh John?

  • konaguy

    Picketty himself acknowledges that extremely high growth in developing countries can close the income gap for a period of time. In fact, income inequality at the beginning of the Industrial Revolution was extremely high, but tended to drop as the economy developed in the last third of the nineteenth century (before increasing in the early part of the next century). Kuznets prediction doesn’t even enter into the situation yet, as China remains a growing, but not fully developed, economy.

  • MrHarryLime

    What interests people in Britain about Picketty’s book is that it highlights the growing inequality most of us can see with our own eyes and puts it in a historical framework that suggests it will probably continue along the path it had been taking since the 1970s. I’m sure there’s plenty of scope for challenging Picketty’s assertions on matters like the date when inequality in China peaks. But frankly, few of his British readers will be interested in that anyway.

    The graph JR placed at the top of his Ricketty Picketty blog basically shows that Picketty is right, insofar as his theory relates to Britain: inequality has been rising steadily since the 1970s. It rose at a slower pace during the Blair government of which I, too, am a slavish admirer, but it still rose a bit, and the trend has been quite steady.

    David Smith in the Sunday Times says there are three flaws with Picketty. First, he says that he can’t prove that the rate of return on capital will always exceed a country’s economic growth. Readers of Picketty will say, ‘So what? That’s the way it is now and has been for a while and Picketty speaks to our worries that things won’t get better’. As someone in the Graun pointed out, normal people who own houses in London now make more from sitting on their property than they do in their jobs. This is straightforwardly wrong. (By ‘normal’ I mean those who bought a house to live in rather than as an investment and who earn salaries that don’t seem outrageous to the population at large).

    Second, Smith says that Picketty is guessing because he can’t prove that this trend will continue. This is really the same as his first objection, and is an argument that can be made about any theory that predicts the future. For example, no-one can prove that the world will get warmer in the next fifty years. We think it will because of current trends and the weight of evidence.

    Thirdly, Smith says that Picketty’s model does not explain the rise of mega-salaries over the last ten years. But look who the mega-salaries are going to. It’s just a case of the elite rewarding itself because it has seen that it can get away with it. One of our biggest banks recently announced it was setting aside three times as much for bonuses as for shareholder dividends. Neither the government nor the shareholders nor the regulator is stopping them, so they’ll do it as long as they can get away with it.

    It’s true that Picketty tells the left what it wants to hear, but the anti-Picketty arguments also tell the Right what it wants to hear, and attempt to disprove the big picture because of a misattributed footnote on p. 512. The fact is that there’s an obvious trend towards widening inequality and sensible people across the political spectrum will want to do something to stop this rather sit back and wait for The Market to sort everything out. (We’ve seen how that goes).

  • Pingback: Piketty and Green Eggs and Ham | John Rentoul | Independent Eagle Eye Blogs

  • perfectlyGoodInk

    That China paper is about inequality between provinces and sectors, so I think this merely argues that worker mobility exists. What is China’s trend of inequality between the rich and the poor?

  • Paetchee

    Piketty never says there couldn’t be situations where wealth inequality develops as Wenje (or Kuznets) describes.
    He rather says that there are several forces at work, depending on the situation a country is in, and that the historically strongest one is r>g.

    To refute Piketty, it is best to refute what he actually says, not what someone thinks he says.

  • JohnJustice

    Agreed Harry, there’s an awful lot of nitpicking going on about Piketty with many not seeing the wood for the trees.

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