01 May 2014

Yglesias Interviews Piketty

Austrian School, Capital & Interest, Economics 40 Comments

If you’re getting sick of the coverage, don’t worry: After I post my review (coming in a few weeks), I will probably be done with this topic.

In the meantime, Piketty says some interesting things in this interview with Matt Yglesias. For example:

I think what [economists are] doing wrong is that in order to distinguish themselves from other disciplines, in order to look like we all are scientists, they use too much complicated math just for the sake of it.

Math is fine. Math is very cool. But very often, they tend to push for more sophisticated math just to push off other people. It’s an easy way to have the appearance of scientificity. For a real mathematician or physicist, the math will not be terribly impressive but it’s enough to impress those economics departments that are less good at math and those social scientists who are less good at math.

When I do sum all these assets and their market value, I do not mean to suggest that this is an adequate summary of everything. I am very much aware that this operation of summing up everything as a single market value of all capital assets and call it K, and this is capital, it’s an incredibly abstract operation.

I think it can be useful for some purpose, as long as we have a critical eye and keep a critical eye on what it means. One should not put too much weight on this abstract operation, and on how much I believe in it.

I certainly do not believe in a model with a single form of capital. The one good model where we produce apples and capital is just a physical accumulation of apples is not an adequate model to describe any society at any period in time.

Inflation has proved to be very useful to reduce the large stocks of public debts that we had in the 20th century. Now the progressive wealth tax, in a way, is the same thing as inflation, but this is sort of a civilized form of inflation.

It’s like inflation, but you can make sure that people with limited wealth would not be hurt, and people with billions would pay more. With inflation you have chaos, in that you don’t actually know who’s going to pay for it.

Very often, not only do you destroy the public debt, but you also destroy the savings accounts of lower and middle class people. I think this is why Europe today, for instance, has a very hard time with inflation.

There is an alternate universe (similar to ours but different in key ways) in which Piketty is a hard-core Misesian.

40 Responses to “Yglesias Interviews Piketty”

  1. martin says:

    I’d say that economist know quite a bit of math even compared to physicist. Piketty is perpetuating a stereotype of economists as mathetamical illiterates.

    • Anonyblogger says:

      Innumerates, you mean?

      Sounds like you have math-envy, just as Piketty describes. What does it matter if economists are innumerate if economics doesn’t deal with math, as Piketty-Mises is claiming?

    • Bob Murphy says:

      I’d say that economist know quite a bit of math even compared to physicist.

      No way. Whether you take the mean or the top 1% in each field, I am very confident physicists are better at math than economists.

      It’s possible there are particular branches of math that the average economist knows better than the average physicist, but in general to say which is better at math? I think it’s not even close.

      And I do know for sure that the mathematicians know more math than the economists. I remember some guys in my program got stuck on a math point in their dissertation (it was a joint paper) and their advisor didn’t know how to solve it. He sent them across the street to the Courant Building (math school at NYU) and a prof there solved it during his coffee break and they were cherishing the scribbled notes like that scene from Goodwill Hunting.

      • martin says:

        I’d hope that the mathematicians would know more math :p. Physicists I’d doubt though. Then again I have no data to compare just some anecdotes.

        • Bob Murphy says:

          OK Richard Feynman versus which economist? Who’s better at math? Maybe you would say von Neumann but I don’t think he counts as an economist, I think he was a genius who dabbled in all kinds of stuff including economics.

        • Keshav Srinivasan says:

          I don’t think that’s remotely true. I’m not an economist, but as far as I know the most math you have to learn to become an economist is differential equations, calculus of variations (in the DGSE model for instance), and some linear algebra and basic set theory (in the context of social choice theory and Arrow’s theorem). That pales in comparison to the level of mathematics required to become a physicist. General relativity requires differential geometry and tensor calculus. Quantum mechanics at the graduate level requires functional analysis and partial differential equations. Quantum field theory requires representation theory of Lie groups.

          I should mention that I’m a theoretical physicist, so I may be biased. But I think that if you needed to do a Lebesgue integral, for instance, your best bet would be to consult a physicist over an economist.

        • Orlando says:

          what universe do you live in and how do you get internet access from there?

        • Tel says:

          Do Climate Scientists count as physicists?

      • Dan(DD5) says:

        But who are better logicians? I would say the physicists and mathematicians also. This is the problem!

        As far as applied math, I would say engineers (especially electrical engineers), are far better than all of the above.

    • andrew' says:

      I think you are getting his point backwards. He is saying physicists use the simplest math necessary. Other less mathematical fields use the most complicated math possible.

      I’m glad he is saying this because now someone might listen.

  2. Matt M (Dude Where's My Freedom) says:

    In mirror universe, Krugman obsesses over YOU!

    • Bob Murphy says:

      All right that was pretty good Matt M.

      • Matt M (Dude Where's My Freedom) says:

        I wanted to make a reference to that one episode of the original Star Trek where they travel to the mirror universe. I was sure you would get the reference, but I couldn’t think of a good joke for it 🙁

  3. Bob Murphy says:

    Somebody emailed me asking why his comments have been zapped: I’m not sure of the particular ones he has in mind, but sometimes what happens is that people argue with someone on something that is off-topic and in which one party is saying stuff that I zap. Then I don’t want to leave the other person there, arguing with a phantom.

    • guest says:

      Do you realize what you’ve done?

      You’ve just made replies to off-topic comments a little more cost prohibitive.


      • Matt G says:

        I think you mean #IntendedConsequences.

        (preparing for zap)

        • guest says:

          It’s his own thread; I don’t know what the protocol is for something like this.

          I think as long as we stick to the topic of comment zapping, we’ll be OK.

    • Major_Freedom says:

      Thanks for the clarification.

    • andrew' says:

      Bob, can you please go ahead for me right now and zap all the comments above that utterly misunderstood pikkety’s point on math?


  4. Bogart says:

    The whopper in the text is the statement that taxation is more civilized than inflation? Both are simply theft through direct threats to steal or harm the property or person in the former and latter just counterfeiting? How can either of these activities be civilized? Is the moral philosophy of these economists really that clueless? Don’t answer that.

    • Keshav Srinivasan says:

      I think Piketty probably subscribes to a utilitarian moral philosophy, rather than the kind of deontological libertarian philosophy that you presumably subscribe to.

    • Tel says:

      Taxation is more honest than inflation. Honesty implies laying down at least one weapon if not all of them.

      • Richard Moss says:

        Taxation is more honest than inflation

        Yes – this was Mises’s position.

        • Bob Roddis says:

          Making the voters pay for war and other hysterical statist emergencies in real time would tend to help focus the mind on whether there really is an emergency or not.

    • Matt M (Dude Where's My Freedom) says:

      It’s more civilized to hurt rich people than it is to hurt poor people, obviously.

  5. guest says:

    It’s like inflation, but you can make sure that people with limited wealth would not be hurt …

    Only, it doesn’t leave those with limited wealth unhurt, because the Progressive Wealth Tax disincentivizes the production and hiring that allow the poor to pull themselves out of poverty. And then people want to complain about outsourcing.

    As well, if the only way to make a desired amount of profit is artificially cut off because the government is sticking its nose where it doesn’t belong, then that provides the incentive to try to capture that bureaucracy. And then people want to complain about “businesses having too much influence in government”. If the government wasn’t creating regulating agencies, there’d be nothing to capture.

    It’s not the inequality of wealth that matters, because wealth creation is not a zero-sum game. Economic mobility is what matters.

    • Tel says:

      But so does income tax. The question of more tax or less tax remains the same, but the separate question of how to impose tax is still relevant.

      A wealth tax would encourage people to earn and spend, but not to save.

      An income tax discourages earning in the first place but those who do earn will tend to invest in hard assets of one sort or another to avoid the inflation tax.

  6. Dan(DD5) says:

    “It’s like inflation, but you can make sure that people with limited wealth would not be hurt, and people with billions would pay more.”

    What nonsense! I have two words: Capital consumption! and it’s the worst of its kind. It’s consumption of existing capital, not future capital like an income tax. I said this before, he does not understand where income of labor comes from. There is no way you can claim people with limited wealth would not be hurt AND understand that capital, i.e., wealth, pays for their wages.

    Bob, I don’t know what parallel universe you’re talking about, and even if you believe in the infinite parallel universe string theory of whatever, he is not an economist in any of them. Except here.

    • Tel says:

      Think of it this way: suppose there were no tax and my personal preference is to spend the money in my hand right now, unless someone offers me 5% return on investment (and presuming I trust the offer) or better.

      Thus, my personal “natural” rate of interest would be 5%.

      But with a 1% wealth tax, if I get offered 5% nominal return I know I will only really be getting 4% after tax (or round about, depending on how the tax is implemented) so in order to satisfy my personal preference, government has put pressure on the borrower and the offer would need to be at least 6%. Thus the overall effect is that it raises interest rates for borrowers, and forces them to look for projects that will make a return more rapidly.

      Or government is basically saying, “If you sit on capital for a long time at low returns, we are going to tax you for that and gradually take the capital away.”

      Piketty is demanding the razing of unproductive capital.

  7. Andrew_M_Garland says:

    Piketty: “I am very much aware that this operation of summing up everything as a single market value of all capital assets and call it K, and this is capital, it’s an incredibly abstract operation.”

    So abstract that no reliable conclusion can be drawn from that sort of setup. But, Piketty is brave enough to do it, because he sees the result he wants to reach, and with some effort, reaches it.

    Motto of Macro Economics: We just don’t know, but we are willing to guess. And, we must guess, for otherwise how could we plan the society?

    Motto of Marxists: The world has many inequalities. This must in some way be due to the work of capitalists. I propose a system which will help the poor and smite the villians. I only require that I be given power and be well paid for the work.

    Here is some math which you do not understand. Therefore, I get to tell you what to do for your own good. I’m smart, so I should be rich. You are not so smart, and clearly don’t deserve what you claim to have produced.


  8. Garrett M. Petersen says:

    In the universe where Piketty is a hardcore Misesian, he’s probably very frustrated that his books never make the top spot on Amazon. What does that tell us about incentives?

  9. Keshav Srinivasan says:

    Bob, Krugman’s latest post mentions the Cambridge Capital Controversy:
    “And what’s going on here, I think, is a fairly desperate attempt to claim that the Great Recession and its aftermath somehow prove that Joan Robinson and Nicholas Kaldor were right in the Cambridge controversies of the 1960s. It’s a huge non sequitur, even if you think they were indeed right (which you shouldn’t.) But that’s what seems to be happening.”

    • Bob Murphy says:

      Yep I saw that. Keshav but once again, there’s no argument here. Krugman refers to someone who thinks the CCC has relevance to Piketty, and Krugman merely responds, “Nuh uh, does not.”

      • Keshav Srinivasan says:

        I get the impression that Krugman thinks that there are fairly well-known arguments that the neoclassical side was right in the Cambridge Capital Controversy and that marginal productivity theory can be valid when you have heterogeneous capital, so he doesn’t even bother spelling them out. Do you have any idea what the arguments are that Krugman has in mind?

        • Bob Murphy says:


          I am familiar with the MIT response in the CCC, yes. I am not going to bother speculating on whether Krugman is familiar with the arguments. When he makes one of them, we can evaluate it.

          You are misreading Krugman I think. He hasn’t been defending marginal productivity theory when it comes to interest/profit. Instead, he has been saying, “Who cares if the capitalists get paid the marginal product of their contributions to output? Whether they do or don’t, either way it’s fine for the government to tax the crap out of them.” Not exact quote of course.

          • Keshav Srinivasan says:

            I think he’s been saying both. I linked to this post before:
            “There are a few economists on the left who seem to believe that:
            1. You need to believe in the existence of a perfectly well-defined aggregate measure of capital to believe in the marginal productivity theory of income distribution;
            2. If you believe in, or even use, marginal productivity theory, you are conceding that capitalists deserve their income.
            Neither of these things are true. Nothing about marginal productivity theory depends on the exact truth of a simple aggregate production function with capital defined by a single number. And saying that capital gets its marginal product in no way says that the people who own that capital deserve what they get.”

            • Bob Murphy says:

              OK right, sorry I shouldn’t have said “you are misreading him.” What I should have said is, “I don’t want to speculate on what Krugman has in mind for why the CCC is good or bad, because he has already said he doesn’t care whether it was good or bad for the matter of taxing wealth.”

  10. andrew' says:

    I assume destroying “public” debt is a good thing…

  11. Dan (DD5) says:

    ” I am very much aware that this operation of summing up everything as a single market value of all capital assets and call it K, and this is capital, it’s an incredibly abstract operation.”

    Can anybody here point to a single example, and only one will do, where a physicist or a mathematician adds up different quantities/totals of explicitly different units into one single value and this is not considered to be total nonsense?

    • guest says:

      You might think that performing operations on ordered pairs using real numbers would be an example of this, but really the underlying assumption is that the “real number” is also an ordered pair:

      Defining Complex Numbers

      So you can see that pairs of the form (a,0) behave just like the real numbers – it’s just that I’ve attached this extra “0”.

      In other words, this “extra attachment” does *NOT* have the same properties as the real numbers …

      I didn’t read the whole thing. I just remembered ordered pairs pissing me off when they tried to operate on real numbers (As if.), and looked for something that said what I was thinking.

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