Wednesday, July 2, 2014

Ec Inequality - Piketty - Milanovic Take Is Glorious and Short

The basic story is that World War II
redistributed wealth, because assets were
wiped out. Inequality is again rising. 
Achilles's mother (the sea-nymph Thetis), prophesied two futures for him. (1) If he took part in the Trojan War, his life would be glorious but short. (2) If he did not, his life would be long but inglorious. Achilles chose glorious but short.

I posted something short about Thomas Piketty's Capital in the Twentieth Century on April 12. Piketty has raised the issue of economic inequality in an interesting way.

Yesterday I received  the latest (June 2014) issue of the Journal of Economic Literature with a glorious review by Branko Milanovic of Piketty's book. Milanovic's review is the fourth and last featured article in the journal issue.

If you don't subscribe to this journal, a version of it was issued as a working paper by CUNY and is available here.

The review shows the ways in which Piketty's interpretation and message differ from those of many leading economists of the 20th century. The basic data for the United States (see chart upper left) show that World War II redistributed wealth, because assets were wiped out, and the egalitarian effects lasted until the 1970s. The trend toward greater income inequality returned starting with the Thatcher-Reagan years. Piketty has a theory, based largely on historical tax data, that links the level of inequality to  the relationship between return to capital (r) and economic growth (g). Milanovic warns in the last paragraph of his review:
[The] best compliment that the author of an almost 700-page-long economics book can ever expect to get [is - ] Don't take this book on vacation: it will spoil it. 
In other words, Piketty's book is glorious and long. If you take his advice, I suggest that in the meantime, if you haven't read the book, read Milanovic's glorious-and-short (15-page) review. If you accept the premise of Milanovic's last paragraph, the decision facing the vacation reader is unlike that facing Achilles. In this case there is no tradeoff between glorious and short.