AEI’s Kevin Hassett knew Piketty was wrong before he ever read him. There is no possible world in which Kevin Hassett did anything else but say Piketty was wrong. That’s fine, but what’s not fine is this shit:
If you look at what’s been going on in his data, then the share of income going to capital in the United States has gone up over time. And what he does is he gives a theory for why that is going to continue. And eventually capital is going to have everything unless we have 80 percent tax rates and so on.
As with Larry Summers, Justin Wolfers, and so many countless others, Hassett is just not accurately describing Piketty. Like those others, his confusions/misrepresentations are extraordinarily basic.
Here are the errors:
- Piketty does not argue that capital’s share of the national income will rise endlessly until capital has all of it. Piketty’s capital share argument is much more modest than that. He argues that declining growth rates will cause the wealth-to-income ratio to rise somewhat (not endlessly) and that the rate of return to capital will not fall enough. The net effet of this will be a higher (but stable) capital share in the future, not one that grows endlessly. Robert Solow understood this pretty basic argument. Hassett, apparently, did not.
- Piketty did not propose an 80 percent tax in order to reduce capital’s share or to combat wealth concentration. Some pollster on the Right apparently decided this eye-popping figure was the one that people would get real excited about, so it keeps getting crammed in anywhere it might plausibly go. In reality though, the 80 percent tax refers to a tax on very high labor income. The point is to check excessive executive pay by making it basically indefensible for firms to pay executives more income over a certain point. Whether you like the tax or not, it has nothing whatsoever to do with r > g, capital’s share, or capital concentration. It is a labor tax.
The parade of representational errors I keep seeing on Piketty from all camps is getting pretty ridiculous. But that’s how these things go, I guess, once the hacks get their wheels spinning. If you want a basic rundown of his actual argument, stick with my summary from May.