An Interview with Piketty

On NPR...and I chime in as well.

Do more lectures improve student performance?

Yes, finds a new experimental study, but the authors interpret the effects as modest in size.  One group of students in introductory microeconomics got a lecture twice a week (what the authors call the "traditional" format), and the other group of students got a lecture only once a week.  All the students had the same access to online resources and the same wonderful textbook. (You can guess which one.)  The results:

We find that students in the traditional format scored 2.3 percentage points more on a 100-point scale on the combined midterm and final. There were no differences between formats in non-cognitive effort (attendance, time spent with online materials) nor in withdrawal from the class.

First Thoughts on Piketty

I have been reading Thomas Piketty's "Capital in the 21st Century." It is truly an impressive work, and I am much enjoying it. I have recently organized a session at the upcoming AEA meeting (January in Boston), where David Weil, Alan Auerbach, and I will be discussing the book, followed by a response from Professor Piketty.

Let me offer a few immediate reactions.

The book has three main elements:

1. A history of inequality and wealth.
2. A forecast of how things will evolve over the next century
3. Policy recommendations, such as a global tax on wealth.

Point 1 is a significant contribution. I like this part of the book a lot.

Point 2 is highly conjectural. Economists are really bad at such things. In particular, the leap from r>g to the conclusion of a growing role of inheritance in society seems too large to me. Many capital owners consume much of the return on their capital, so wealth does not grow at rate r. This consumption ranges from fancy cars and luxurious vacations to generous charitable giving. In addition, unless mating is perfectly assortative, or we return to an era of primogeniture, wealth per family shrinks as it is split among children.  So, from my perspective, Piketty tries to draw way too much from r>g. (Quick Quiz for econonerds: (a) What does r>g tell you in a standard overlapping generations model?  (b) And what is the magnitude of bequests in that model?  Answers below.*)

Point 3 is as much about Piketty’s personal political philosophy as it is about his economics. As we all know, you can’t get “ought” from “is.” Like President Obama and others on the left, Piketty wants to spread the wealth around. Another philosophical viewpoint is that it is the government’s job to enforce rules such as contracts and property rights and promote opportunity rather than to achieve a particular distribution of economic outcomes. No amount of economic history will tell you that John Rawls (and Thomas Piketty) offers a better political philosophy than Robert Nozick (and Milton Friedman).

The bottom line: You can appreciate his economic history without buying into his forecast.  And even if you are convinced by his forecast, you don't have to buy into his normative conclusions.
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* Answers to quiz: (a) That the economy is dynamically efficient (that is, it has not over-accumulated capital).  (b) Zero.

Report from the Chair

Readers of this blog may have noticed that I have not been as active here over the past two years as I was previously. One of the reasons is that, about two years ago, I was appointed chairman of the Harvard economics department. That has been keeping me busy. But I am happy to report that the job is going well. One of the responsibilities of the chair is to oversee faculty hiring, and we have had some great results. Our new faculty hires include the following (in alphabetical order):

1. Gabriel Chodorow-Reich
2. Ben Golub
3. Robin Lee
4. Matteo Maggiori
5. Matthew Rabin
6. Gautam Rao
7. Neil Shephard
8. Stefanie Stantcheva
9. Elie Tamer

A pretty good list, if I say so myself!

The Many Determinants of Demand

Allen Sanderson sees them multiplying.

Solow on Piketty

A review in the New Republic.

Transitory Income and the One Percent

From today's NY Times:

Thomas A. Hirschl of Cornell and I [Mark Rank of Wash U] looked at 44 years of longitudinal data regarding individuals from ages 25 to 60 to see what percentage of the American population would experience these different levels of affluence during their lives. The results were striking. 

It turns out that 12 percent of the population will find themselves in the top 1 percent of the income distribution for at least one year. What’s more, 39 percent of Americans will spend a year in the top 5 percent of the income distribution, 56 percent will find themselves in the top 10 percent, and a whopping 73 percent will spend a year in the top 20 percent of the income distribution.... 

It is clear that the image of a static 1 and 99 percent is largely incorrect. The majority of Americans will experience at least one year of affluence at some point during their working careers. (This is just as true at the bottom of the income distribution scale, where 54 percent of Americans will experience poverty or near poverty at least once between the ages of 25 and 60).... 

Rather than talking about the 1 percent and the 99 percent as if they were forever fixed, it would make much more sense to talk about the fact that Americans are likely to be exposed to both prosperity and poverty during their lives, and to shape our policies accordingly. As such, we have much more in common with one another than we dare to realize.