Thomas Piketty's new book Capital In The Twenty-First Century is causing a revolution (small "r") among American economists. I'm sure this upheaval (small "u") will blow over soon, but I'm pleased as punch that Piketty (a Frenchman educated at MIT) is repeating so many of my DOTE themes. In a review of Piketty's book, economist Heather Bouchay covered a few of these splendid points.
Among other conclusions, the data lead Piketty to describe the popular argument that we live in an era where our talents and capabilities matter most as “mindless optimism.” The data also lead him to reject the idea that wage inequality has grown as technological change increased the demand for higher-skilled, college-educated workers.
Instead, Piketty’s evidence suggests it is the rise of what he calls the “supermanager” among the top 1 percent since 1980 that is driving the rise in earnings inequality.
It is here that Piketty takes his sharpest swipe at economists.
This next one is my favorite.
In his discussion of the thriving top decile, he points out that “among the members of these upper income groups are U.S. academic economists, many of whom believe that the economy of the United States is working fairly well and, in particular, that it rewards talent and merit accurately and precisely.
This is a very comprehensible human reaction.”
Piketty agrees that in the long run, investments in education are an important component of any plan to reduce labor-market inequalities and improve productivity. But on their own they’re not sufficient.
As I've written lately, academic (and working) economists are beneficiaries of the status quo. As such, they have what Mark Twain called "cornpone opinions" in which their self-interest guides their so-called "thinking" on economic matters. Thus the policy "choices" they recommend always rationalize (defend) the essential wonderfulness of the status quo. As Piketty remarks, "this is a very comprehensible human reaction"
I would only add that remuneration is not the only thing important to economists. Attaining high social status is important too.
In the post I Do Not Make This Shit Up, I illustrated this simple but profound point by considering what kind of economic advice the President gets from his White House Council of Economic Advisers and its chairman Jason Furman. Now Josh Barro, writing at the New York Times blog Dealbook, has spotted exactly the same shit I observed in that post.
After a long introduction in which he describes how Americans have been fucked up the ass, especially during "the recovery", Barro gets into stuff I'm most interested in today.
Our main economic policy debates still focus around what policies will improve overall economic growth, instead of the problem of growth not adequately translating into improvements in employment and wages. This is especially true among Republicans, but it also creeps into the Democratic perspective on the economy.
[image left — wage and salary component of U.S. GDP, from the FRED database, taken from the Dealbook article]
On Monday, Jason Furman, chairman of the White House Council of Economic Advisers, held a briefing about the Economic Report of the President, which features a chart showing how productivity has pulled away from wages since the 1970s.
I asked him what policies, other than raising the minimum wage, the president sees as useful for raising the share of G.D.P. that goes to wages.
To Barro's surprise...
To my surprise, Mr. Furman responded with a list of education and human capital policies, including expanded prekindergarten, improved access to higher education, holding colleges accountable for quality and better apprenticeship programs. He also promoted policies to raise overall growth, like corporate tax reform.
These policies might promote wage growth over the long run (or, in the case of prekindergarten, the very long run). But they are not policies specifically aimed at tightening the labor market.
The one period of really robust wage growth in the last 40 years was the late 1990s, when the labor market was tight and workers could effectively demand higher wages in exchange for their labor. Fiscal and monetary policies that aim to recreate that situation might finally get Americans to stop saying we’re in a recession.
Yet that’s not the focus of the conversation in Washington.
Right, that's not the focus of the conversation in Washington.
But kudos to Barro for knowing when someone is blowing smoke up your ass.
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