Here Are The Two Most Serious Criticisms Of Piketty

This Q&A went out to subscribers of our "10 Things You Need To Know Before The Opening Bell" newsletter on Monday morning. Sign up here to get the newsletter and more of these interviews in your inbox each week.

BUSINESS INSIDER: What seem to you to be the most important critiques of Piketty's thesis?

BRANKO MILANOVIC: Leaving aside the critiques of Piketty's proposal for global taxation of capital (which are easy to make), the most serious critiques, in my opinion, are two: whether the rate of return on capital will remain higher than the growth rate of the economy despite a very large increase in the capital/income and capital/labor ratios, and Piketty's lack of attention to the rise of China, India and other emerging market economies that can, in my opinion, keep the global rate of growth at a rather high level for a century or so.

BI: Are there any misconceptions about his findings that have started floating up that need to be nipped?

BM: I believe that some of the left-wing critiques that question the definition of capital used by Piketty are misplaced. To me his definition that includes housing together with the "productive capital" makes lots of sense. Piketty clearly says that he treats all forms of assets that yield an explicit or implicit income (owner-occupied housing yields an implicit income) as capital. That's both sensible and simple. So I do not see the point in the critiques.

Similarly, the right-wing critique that Piketty's ideas are driven by some kind of distaste for capitalism, or envy towards the rich, are, to be a bit harsh, pure nonsense. It is also meaningless to defend high incomes by invoking supposed high productivity of extremely well-paid executives or financiers, or to argue that their spending is needed to maintain aggregate demand. Surely, if maintaining high aggregate demand were a key objective, redistribution in favor of those who are poorer would be good for it because the poor spend a higher percentage of their income than the rich.

BI: We've since been inundated with Piketty reviews. Whose have you been most impressed by?

There were many excellent reviews. The ones I remember in particular were reviews by Robert Solow in The New Republic http://www.newrepublic.com/article/117429/capital-twenty-first-century-thomas-piketty-reviewed,

Paul Krugman on his blog and The New York Review of Books http://www.nybooks.com/articles/archives/2014/may/08/thomas-piketty-new-gilded-age/,

Robert Skidelsky in the Prospect Magazine http://www.prospectmagazine.co.uk/magazine/book-review-capital-in-21-century-thomas-piketty/#.U2bsBCiHhac.

I also liked Doug Henwood's review published on Book Forum http://www.bookforum.com/inprint/021_01/12987.

A very nice review and discussion of some of Piketty's points is by Brad DeLong. http://equitablegrowth.org/2014/04/12/notes-finger-exercises-thomas-pikettys-capital-twenty-first-century-honest-broker-week-april-12-2014/

BI: You appear to have been the first to review Piketty in English. How did that come about? Was there much competition to capture that byline?

BM: I knew that his book was about to be published and when I was in Brussels last September, I remembered that, went to a bookstore and bought Piketty's book just a couple of days after it came out in Paris. It was very prominently displayed in the bookstore. Piketty was already then very well known economist, many of the ideas discussed in the book were in some ways presented by him earlier, and there was quite a lot of anticipation "in the air." I read the book very quickly, probably in less than 3 weeks. It was an extremely impressive piece of work; it went beyond the already high expectation that I had. There was no doubt in my mind that it is one key books of the last several decades. So I wrote the review very quickly. The first draft was ready I think by mid-October. There was not much competition because I read the book so early, in French, and the timeliness of my review "competed" with French reviews of his book, not with American.

However, having said all of that I must confess that I did not expect that the reception of the book and his ideas would be so overwhelming. I do not think Piketty himself expected it. I don't think that anyone could have imagined that within a month of its publication in the United States the book would be No. 1 of all books on Amazon.

BI: For the true Piketty devotee, what's the next work of his - translated or not - that they should seek out?

BM: I don't know what would be his next book. But it seems to me that his work will first extend in a policy area toward implementation of some form of international cooperation regarding taxation of capital, second, expand the already formidable database on top incomes that Piketty and his coauthors have created, and thirdly, do research on new topics like fiscal evasion. True worldwide inequality may be much greater than what we currently believe if we were able to account for hidden wealth.