Thursday, May 28, 2015

The failure to find the laws of capitalism

The Rise and Decline of General Laws of Capitalism


Acemoglu and Robinson provide the best review - to my knowledge- of Piketty's work in a recent article. Their conclusion is widely shared by many people:
Thomas Piketty’s (2014) ambitious work proffers a bold, sweeping theory of inequality applicable to all capitalist economies. Though we believe that the focus on inequality and the ensuing debates on policy are healthy and constructive, we have argued that Piketty goes wrong for exactly the same reasons that Karl Marx, and before him David Ricardo, went astray. These quests for general laws ignore both institutions and politics, and the flexible and multifaceted nature of technology, which make the responses to the same stimuli conditional on historical, political, institutional, and contingent aspects of the society and the epoch, vitiating the foundations of theories seeking fundamental, general laws. We have argued, in contradiction to this perspective, that any plausible theory of the nature and evolution of inequality has to include political and economic institutions at the center stage, recognize the endogenous evolution of technology in response to both institutional and other economic and demographic factors, and also attempt to model how the response of an economy to shocks and opportunities will depend on its existing political and institutional equilibrium.
They offer an easy proof of the most salient Piketty failure: his inability to provide any correlation between the rate of growth of the economy and the real interest rate and its impact on inequality. Acemoglu and Robinson do that and no conclusions arise.

I do have the impression that confirmatory bias is working hard. I could say, I really believe really that Piketty has provided the argument that people wanted to hear. This is precisely the root of his success. You may read additional rationale in The Guardian. Unfortunately, there is no clear, easy and successful measure to tackle inequality - like taxing the rich, as he proposes- . I have already explained it in a former post.






Piketty book illustration

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