Progressive economists strongly defend Piketty from criticism

A few days ago the Financial Times devoted most of its front page to criticizing a few empirical aspects of chapter 10 of Piketty’s book, “Capital in the XXI century”. This in itself is a sign of the importance of the book. Although the criticisms were in perspective minor and did not question the core of Piketty’s argument, they were sold as questioning the general message of increasing inequalities. Piketty himself has provided a timely and convincing response, and Paul Krugman among others have supported the French author’s claims here and here. A good thing from this empirical debate is that Piketty is absolutely transparent and allows everybody to share his data.

Others have more interestingly pointed out some weaknesses at Piketty’s theoretical arguments. For example, Debraj Ray has argued if I understand well that the inequalty r>g (the rate of capital gains being larger than the rate of economic growth) does not necessarily imply increasing wealth inequality. Milanovic has replied to Raj that it certainly does in a world (the world we’re in) where capitalists are the rich. In the same article Raj makes interesting points about economic growth and structural change creating non-linearities in the evolution of inequality, which Milanovic accepts, and which give a richer perspective on the issue.

Nobody seriously disputes that global wealth inequality is very high and is in an increasing trajectory. This phenomenon coexists with globalization and democracy, and it is the combination of the three (high wealth inequality, globalization and democracy) that must be dealt with. The empirical and theoretical criticisms of Piketty that we have seen so far do nothing to contradict the argument that these levels of inequality in a globalized world are incompatible with a well functioning democracy. And do nothing to contradict the argument that policy prescripctions must go beyond the nation-state, in the form of international  (initially European, ideally global) progressive capital taxation. These policies will only prevail if accompanied by institutional changes in a federalist direction. Although the defence of progressive economists such as Krugman or Milanovic has been very convincing, they do not put enough emphasis on the transnational, post-sovereignist dimension of the policy response to inequalities. The debate should go on.