The Need to Rethink Economics – Thomas Pinketty’s “Capital in the Twenty-First Century”

In a way, we are in the same position at the beginning of the twenty-first century as our forebears were in the early nineteenth century: we are witnessing impressive changes in economies around the world, and it is very difficult to know how extensive they will turn out to be or what the global distribution of wealth, both within and between countries, will look like several decades from now. The economists of the nineteenth century deserve immense credit for placing the distributional question at the heart of economic and for seeking to study long-term trends. Their answers were not always satisfactory, but at least they were asking the right questions. There is no fundamental reason why we should believe that growth is automatically balanced. It is long since past the time when we should have put the question of inequality back at the center of economic analysis and begun asking questions first raised in the nineteenth century. For far too long, economists have neglected the distribution of wealth, partly because of Kuznets’s optimistic conclusions and partly because of the profession’s undue enthusiasm for simplistic mathematical models based on so-called representative agents.

Piketty, Thomas. Capital in the Twenty-First Century (Kindle Locations 389-394). Harvard University Press. Kindle Edition.


2 thoughts on “The Need to Rethink Economics – Thomas Pinketty’s “Capital in the Twenty-First Century”

  1. Actually, the income inequality simply means we are at a Kondratiev trough, and getting ready to launch a Kondratiev acceleration phase Kuznets cycle. The income inequality comes out of the economy as capital and gets used to create infrastructure supporting technological progress. Nothing new here. Authors like Brian J. L. Berry predicted the Great Recession as far back as 1993 (see his book, Long-Wave Rhythms in Economic Development and Political Behavior).


    1. The combination of a negative ROI on capital used as such, i.e. to invest in production, or in economic verbiage a negative efficiency of capital,and the low capital investment required for new initiatives specifically in the technology fields compared with only 15-20 years ago, means that the “acceleration phase”, even if it happens, is likely to resemble a drag race between electric buses.

      Currently the Fed and the Bank of Canada are itching to raise interest rates, as with most managers of complex systems they rely heavily on intuition, and their intuition is pushing them to move the interest rate. But expected indicators that the time is right are showing an equivalent reluctance to the Messiah in terms of actually appearing.

      On the largest scale, most economic factors tend to cancel one another out, but our economy has been operating with a policy that would be genius if it weren’t absolute madness – the economics of the post 1970s west create a positive feedback loop, which is rare in actually existent systems for one reason, systems with positive feedback loops collapse rather quickly. One of the ways they do so (within economics) by creating what you might call “economic bosons”, variables that might be expected to have a negative correlate but in fact don’t, and thus exert an excessive influence on the overall system. The economic bosons that are the key issues currently are property values, since it is only property, specifically rentier property, that has attracted significant investment over the past quarter century, and a corresponding increase in private debt (including both private citizens and private companies) without a corresponding increase in either consumer spending or corporate reinvestment. It’s this latter that is make the Fed’s interest rate finger twitchy, but a significant increase in the interest rate could have a massive effect on property values, and that could easily bring about a repetition of 2008 but on an even larger scale.


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