7 Days of Piketty: Wednesday, or “Piketty’s Three Big Mistakes.”


I’m publishing seven days of links to web material about Thomas Piketty and his book, Capital in the Twenty-first Century.

Today, another critic.

Piketty’s Three Big Mistakes, by Noah Smith (Bloomberg View)

 … Rognlie has three observations that cast doubt on Piketty’s big thesis.

The first is that Piketty doesn’t take depreciation into account. As capitalists accumulate more and more machines, buildings and other hard assets they have to pay more and more to maintain that physical capital. Trucks need new tires. Offices need renovation. What Rognlie notices is that this upkeep cost has been increasing over time.

Nowadays, more than in the past capital goods are often in the form of computers, software and other high-tech products that go obsolete very quickly. That means that capitalists have to spend more money replacing these things. A lot of what looks like more money going into owners’ pockets is really just an increased cost of doing business.

Rognlie isn’t the first to make this point — it has been made by James Hamilton of the University of California-San Diego and by Benjamin Bridgman of the Bureau of Economic Analysis.

But Rognlie adds two other important points …