RIP Jasay
“It is strange that Piketty, a mathematician by training, did not immediately see that his model necessarily produces this absurdity. It is even stranger that none of the star-studded economists who reviewed his book (“Nobel material,” as one of his most eminent critics has judged it) seems to have noticed this elementary and decisive mistake. Most of the criticisms, such as they are, introduce qualifications or escape clauses, which all amount to suggesting — without openly saying so — that if the theory were different than the one Piketty presented, it might be correct.
”There is, however, more to reject in Piketty’s opus than the fairly obvious blunder of putting both a large and a small exponent, r and g, in the same exponential function and expect them peacefully to coexist. Here, we are dealing with elementary logic and not with method or judgement. Yet a particular method permeates the work and must leave any economist readers ill at ease. Economists may well admit that some people are irrational some or even all the time, yet they build theories in which people purposefully seek to serve their preferences and interests — i.e., they maximize. This is how economics deals with orderly minds whose choices make sense within “incentives and resistances.” In Piketty’s book about the ogre of capital and its victims, however, the objective of maximising a desired result seems to play no role in behavior. Incentives are absent or too well hidden to be perceived.
“This absence, felt throughout the book, becomes quite striking when Piketty reaches what his title declares to be his central subject, the 21st century. Albeit with caution and modesty, he makes forecasts about this century with the central feature that economic growth will be slower than at present, and the capital intensity of the economy will just about double. This means that workers will have twice the productive help as before, in terms of equipment and other capital, but will turn it to only half as much productive use. It also means that, despite the manifest failure of additional capital to elicit greater productivity, capitalists will furiously accumulate capital until the capital:output ratio in the 21st century is about twice as high as the average from the 20th. Mercifully, we are not asked to think about how this story would continue in the 22nd century, but it promises to be very strange indeed.”
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