Capital in the Twenty-First Century

Economic debates remind me of theological ones.  Where do the souls of babies go? Limbo or the bosom of Abraham?  Free will or predestination?

Keyensianism or neo-classicism? 

Let's leave economics aside for a bit. Have you ever heard of proponents of Einstein arguing with Newtonians? Neither have I.  What we recognize is that Newton had part of the story and Einstein added to it. He did this with observation and data. Physicists and astronomers have an advantage over economists when it comes to observation and data.  Every time there's a refinement in instrumentation, they can look at the same phenomenon again and find new data. Economists need to wait in real time for new data to accumulate.  Since they've been observing--about 200 years--there haven't been a statistically significant number of economic cycles.  Therein is the reason they sometimes sound more like astrologers than astronomers.

Introducing Thomas Piketty.  He's already somewhat known for coining the term "the 1%", referring to the world's richest. His recent book Capital in the Twenty-First Century attempts to explain the growing numeric divide between the 1% and the rest of us. Based on 200 years of data, Piketty posits that historically, wealth has grown about three times faster than productivity.

Predictably the left and right have taken opposing positions.  They've proceeded to attack or defend him based on those positions.  My interest in this is not to take sides.  My interest is in his approach.  He didn't try to find the data that supported his initial premis.  In fact, he criticizes Carl Marx for doing exactly that.  Instead, he collected all the data he could find and looked for what was in it.  

This is a key point for anyone who wishes to criticize Piketty.  It's a key point for understanding why his approach is more science than theology.  His own brief account of his life illustrates the point.  After getting his doctorate in France, Piketty accepted a university position outside Boston. After only a few years, he left.  As he tells it:

I realized that that there had been no significant effort to collect historical data on the dynamics of inequality since [Simon] Kuznets, yet the profession continued to churn out purely theoretical results without even knowing what facts needed to be explained. And it expected me to do the same

My jaw hit the floor when I read this.  My impression of economic debates could easily be dismissed.  I'm not an economist.  I could never be sure that my impression wasn't an artifact of the way economic issues are reported.  Here's a similar idea stated by a top member of the profession.  It's hard to imagine a clearer confirmation of a hypothesis.

It throws down the gauntlet to anyone who wants to challenge Piketty's conclusion.  Any criticism of Piketty has to do it with the same or larger data set. 

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Update: I should have pointed out when I originally published that Piketty has put his data set on line.  What's more, every chart in the book is accompanied by the web address of the data set. This is in the spirit of what real science calls peer review.  Reviews of this data have already generated some criticism, which I hope to write about in the coming week.  If you have the expertise, you can get Piketty's data here. (5/30/14)