I am inspired and bemused by the intense interest in Thomas Piketty’s book Capital in the Twenty-First Century. The formula for becoming the top-selling book (including fiction) in the modern era appears to include these core ingredients:
1. Load with rich, rock-solid historical data about something of keen interest along a political fault line. (In Piketty’s case this data is about income inequality, wealth inequality, and capital).
2. Write hundreds of pages about the data using tones of caution and care about interpretation.
3. Conclude with wild claims, both about things related to the data as well as things unrelated to the data.
What is bemusing is how the assertion that inequality is “dangerous” has been allowed to run wildly through educated discussion. Do a Google search and you find pamphleteering, not economic science (witness this DeLong link) Maybe it is true, and if it is true, sign me up to stop it. But is inequality actually important, dangerous, or significantly correlated with something, you know, real? How does inequality rank against very tangible and measurable ills in our world: child mortality, deforestation, AIDS, slavery, or poverty? Here’s a hint: according to Gallup’s classic “Nation’s Most Important Problem” question, inequality has a mere 3 percent score, and it seems to have been that way for many decades. Inequality just does not rate as a real problem compared to unemployment, growth, health care, education, and honest to God poverty.
Piketty and his apologists assume that inequality matters. Is there any evidence to support the assumption? Is there, say, a correlation in panel data of nations in Europe over a hundred years between wealth inequality and child mortality? Is it lagged, conditional on income levels and other things? Better yet: Is there a threshold to inequality, where it becomes dangerous above (or below) some Goldilocks zone?
Recall just last year when critics went ballistic over a Reinhart and Rogoff claim about the relationship between national debt and slower GDP growth. There was a 90% threshold claim, such that debt above that level was dangerous, and some scholars found an error in the data about that threshold (but not the linear relationship) which was then the basis for a full-on paranoid liberal freak-out. As RR noted, even their critics found the same negative relationship between debt and growth, but merely challenged the threshold.
Now contrast the RR debate with this one. Piketty doesn’t even pretend to establish a relationship between inequality and something real. Imagine Reinhart and Rogoff writing a massive tome and concluding with: “____ is desirable up to a point. But beyond a certain level it is useless.” or “History suggests that this kind of _______ level is not only useless for growth, it can also lead to a capture of the political process …” which is exactly the ambiguous kind of assertion Piketty gets away with in interviews.
I care deeply about poverty; it’s why I chose to study economics. Poverty is real. Inequality is a false idol. Those like Piketty who wish to make it the defining issue of our time have a burden to prove why democracy should shift resources away from other battles against disease, poverty, and pollution. It absolutely must be noted that one of the trade-offs a “war on inequality” will extract is a vast reduction in the number of legal immigrants — one million foreigners legally move to the U.S. under current law, but the Piketty war would drop that by 900,000. “Huddled masses yearning to breathe free? Sorry, no more space for inequality.” Piketty’s agitation fuels the nationalist sentiment.
If the inequality alarmists cannot substantiate the “danger,” then they stand guilty of empty ideological posturing.