Inequality has been rising, and to see it well, one should study “top incomes,”: those of the top 1% or even, in a variant which we might call SuperOccupy, the top 0.1% or 0.01%. This is an extremely important observation. There are lots of people in the top 1% (more in India, for instance, than in a good-sized European country), and they cast a long and enviable shadow...Even a large sample survey will often fail to pick these people up, so Piketty’s meticulous examination of tax records (along with co-authors) in different countries is to be applauded. This is data work at its best, with a well-defined reason for doing it, and when I read the papers with Emmanuel Saez and Tony Atkinson that put these findings together, I felt I had learnt something.--D. Ray, on Piketty's Capital. [HT Hülya Eraslan]
One of the most important economists today that you probably have never heard of, Debraj Ray,* wrote a careful, amusing, and -- as one ought to expect -- very insightful response to Piketty's Capital. Ray matters in economics: he is the co-editor of the leading journal. Ray is one of the intellectual leaders of the new generation of 'theorists' that combine mathematical sophistication and data with a focus on policy relevance.* Ray is also an important figure in development economics, which he has helped move to the center of the discipline. You might think such sociology is irrelevant, but as Ray notes, Piketty's Capital has a self-presentation and narrative which is a form of "positioning" that appeals to his once-inside now purported outside-status in the profession. Part of Piketty's rhetoric is to rail against "simplistic mathematical models" (16; 574, and, especially, the autobiography on p. 31-2 culminating in an indictment against "petty mathematical problems.") This is not just a matter of mere positioning within economics; for, -- and Ray does not comment on this -- at crucial junctures, Piketty relies on a contrast between the esoteric mathematical models of the experts and democratic decision-making under conditions of transparency (e.g., 480, 513; recall also this post; Vallier also picks up on this [3E/3P] and will blog about in the future). But it is also a matter of positioning oneself as being the privileged expert with the public. Even if Ray's irritation were wholly self-interested, he has put his finger on on a non-trivial feature of Piketty's rhetorical strategy. (Don't get me wrong lots of economists become such privileged experts with worse strategies: i.e., they are bought by some interested party, or they get chosen by a politician who likes what s/he hears, etc.)
That Piketty's is, in part, a rhetorical strategy is clear from two facts: first, when it suits him he, too, relies on fairly simple mathematical models (often he is disarmingly upfront about this, e.g. 364). Second, he relies in non-trivial ways on existing economics. I had pointed to this in my second post on Piketty, but I am really an amateur and Ray's post adds a lot more detail, insight, and depth to what I had said. In particular, what becomes clear is that in some non-trivial respects Piketty is working with commitments that are found in the old economics work-horses (that is, the descendants of the "models of Harrod and Domar") and some so-called "dynamic efficiency" assumptions (see Ray's slightly more technical appendix here.) Piketty is a world-class economist, so this should not surprise. But as I pointed out before, it is unclear what constraints are driving his partial appropriation of existing economic theory.
Now, the core of Ray's piece is actually applied philosophy of science: