The most powerful force pushing towards greater wealth inequality in the US since the 1970s is the gap between the after-tax return on capital and the economic growth rate.
This question is getting at whether “r > g” explains the recent rise in wealth inequality. Most of the economist said no. Thomas Piketty also would have said no.
After the poll released, many remarked that economists had rejected Piketty. Then, many others remarked that the economists just didn’t understand him. The poll, as it is, doesn’t actually tell us either of these things. It only tells us that whoever came up with this specific IGM question didn’t understand Piketty. The economists are not wrong to answer that “r > g” doesn’t explain things that nobody has ever said it explains. It’s just really odd that they were asked the question in the first place.
In response to the backlash saying these economists clearly don’t understand Piketty, Justin Wolfers conducted a poll of sorts that purportedly shows all of the economists in the IGM poll (except the 40% who didn’t respond to Wolfers) had engaged in some way with Piketty’s argument, even if they didn’t read the book entirely. He concludes thusly:
If you lined up all the economists end to end, we probably still wouldn’t agree about what to do about inequality. But many of us would have done the required reading to debate the issues seriously.
But here’s the problem. It’s not at all clear that many economists, even those who seem to have read the book, actually understand Piketty. Justin Wolfers is chief among the confused, and coincidentally, one of the economists in the IGM panel linked to Wolfers’ confused explanation of Piketty in his reasoning for why Piketty is incorrect.
I’ve already written about Wolfers’ clearly and indisputably wrong presentation about Piketty. Among other things, he conflates Piketty’s two separate inequality theories, claims “r > g” is supposed to explain the wealth-to-income ratio, and claims the wealth-to-income ratio can only rise when capital income is invested at 100% and labor income at 0%. Wolfers also quotes approvingly Larry Summers writing that Piketty argued that the wealth-to-income ratio increases forever so long as r > g and that wealth grows at the rate of return. All of this is wrong. I don’t mean to say “I think it is wrong.” I mean to say it is just objectively incorrect. It is not what Piketty says. Moreover, these mistakes are not trivial and reveal severe misconceptions about fundamental parts of Piketty’s book.
Economists who haven’t read the book directly are necessarily relying on what others have said about it. They may think they have done the “necessary reading” to get caught up, but that depends on which secondary description of Piketty they relied upon. Anil Kashyap, for instance, explicitly relied on Wolfers to tell him what Piketty said, but Wolfers has no idea. Wolfers appears to have heavily relied upon Larry Summers to tell him what Piketty said, but Summers has no idea either. With Piketty secondary literature, we have a little game of economist telephone going on where garbage in has produced garbage out.
Finally, there is a challenge in Piketty even for economists who may have read him. Piketty presents his arguments in a somewhat winding prosaic style that it’s not clear economists are good at digesting. He doesn’t lay it straight out for you in a page of equations; instead, it unfolds like a story almost, and you do have to do real work to piece it all together. I am not convinced economists are doing this well. Wolfers, if I recall correctly, explicitly remarked that he had a hard time putting it all together (I put it all together here if you’re like him, by the way).
For these reasons, I don’t think you should immediately assume an economist, whether they’ve read Piketty or claim to be familiar with secondary explanations of Piketty, actually know what Piketty argues. Some do and some don’t. If you want to be sure though, you really need to ask them what they think his argument is, not just assume they got it because they claim they got it.