Thomas Piketty’s new book, Le capital au XXIe siècle (which is supposed to be released soon in English as Capital in the 21st Century), is creating quite a stir. It is the subject of the latest column by Thomas B. Edsall and was recently reviewed by Branco Milanovic [pdf].
In fact, the chart above is taken from Milanovic’s review. It shows the growing gap between (as Piketty defines them) the rate of growth of world production (g) and the rate of return to capital (r) during the nineteenth century and, after the “special period,” from the mid-1970s onward. For Piketty, that gap is the source of growing inequality in both the functional (capital-labor) and size (top 1 percent) distributions of income.
I’ll refrain from further commentary until I’ve had a chance to read the book (which, if all goes well, I’ll probably end up adding to my Topics in Political Economy reading list in the fall). But, I’ll admit, I am both intrigued (by the model and data) and somewhat wary (especially concerning the definition of capital) of Piketty’s approach. Still, given Milanovic’s summary, Piketty’s methodological reflections alone warrant further attention:
Appropriately for such a wide-ranging book, Piketty closes his book with an essay on the method to be used in economics. He regards economics as a social science (where the emphasis is on “social”) that can flourish only if (i) it asks important, and not trivial, questions (so adieu Freakonomics and randomistas), and (ii) uses empirical and historical methods instead of sterile model-building. These issues have been debated ad nauseum by the economists, and Piketty has nothing new to add to that, except perhaps in a most important way—namely, by showing in his own work how these two desiderata should be combined to create economic works of durable importance.