Nicolas Goetzmann on Thomas Piketty

French market monetarist Nicolas Goetzmann kindly allowed me to reprint his email:

Dear Scott,

Perhaps you remember this post:

http://www.themoneyillusion.com/?p=14137

Piketty published a book this month in France “capital in the XXI century” (900 pages on inequality).

If you go back to your post, Piketty delivers an answer to your question:

“The main fact is that GDP per capita growth has been almost exactly the same in all “rich” countries from 70-80′s”

“Contrary to one might think in the US or in the UK, the truth from the numbers is that growth has not been stronger from 70/80′s in the UK and in the US, than in Germany, France, Japan, Denmark or Sweden”

(sorry for my translation which must be french style..) this is page 825.

But off course, per capita growth has been stronger starting 1980 in the US, in fact 40% stronger, which gives us a 25% difference between US and France.

Screen Shot 2013-10-02 at 11.35.02 AM

At the end, in a small note, Piketty said that this gap is due to the fact that US workers work more……which is the same answer he gave in the Bloomberg article you linked to…

Nothing more, but an abuse of the numbers….

I’ve made an article on this one, with the Prescott paper and the Alesina paper.

http://www.atlantico.fr/decryptage/piketty-au-pays-merveilles-fondement-theorique-taxe-75-francois-hollande-est-qu-erreur-raisonnement-nicolas-goetzmann-858477.html

I think that Piketty missed something which might be important: Capital is mobile, workers are not, and at the end we have this: Gini is reducing on a worldwide basis since 2005.

A few comments:

1.  When Piketty talks about growth being roughly the same in developed countries over very long periods, he obscures a lot of shorter term trends.  Thus Europe grew faster than America up until about 1980, partly due to catch-up after WWII. After the supply-side reforms of Reagan and Thatcher, the US grew faster. Similar comparisons are possible with countries like Australia and Sweden. Highly prosperous after WWII, then slower growing than other developed countries, then renewed vigor after supply-side reforms.

2.  It’s odd that Piketty explains away France’s lower income by pointing to lower hours worked, as that is precisely how taxes are supposed to reduce real output.  And don’t say it’s a cultural difference, when the French had lower tax rates back in the 1960s they worked just as long as Americans. Culture is endogenous.

3.  It’s true that supply-siders also focus on taxes on capital, but that is one area where US tax rates are fairly high by international standards. Thus the main difference between the US and Europe is hours worked, not capital.

4. I also like Goetzmann’s comment about global Gini coefficients.  Liberals should care about global welfare.  Are they closet nationalists?

PS.  Nicolas also sent me the following:

“Global inequality seems to have declined from its high 
plateau of about 70 Gini points in 1990–2005 to about 
67–68 points today. This is still much higher than inequality in any single country, and much higher than global 
inequality was 50 or 100 years ago. But the likely downward 
kink in 2008—it is probably too early to speak of a slide—
is an extremely welcome sign. If sustained (and much will 
depend on China’s future rate of growth), this would be the 
first decline in global inequality since the mid-19th century 
and the Industrial Revolution”
 
.
Puts all the talk about “growing inequality” into perspective, doesn’t it?

 


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29 Responses to “Nicolas Goetzmann on Thomas Piketty”

  1. Gravatar of Don Geddis Don Geddis
    2. October 2013 at 09:12

    Your links all now seem to redirect through Bentley. When I click on any of them, I get to an Bentley Outlook web app logon, instead of to the destination web page. I can manually copy the text of the links, and that works fine; but clicking on the links doesn’t seem to work.

  2. Gravatar of TravisV TravisV
    2. October 2013 at 10:28

    CNBC:

    “Pimco’s Bill Gross: For each shutdown week, 0.1% will be shaved off annual GDP”

    Someone needs to teach him the Sumner Critique! http://marketmonetarist.com/2013/09/05/there-is-no-fiscal-cliff-in-japan-a-simple-as-ad-analysis

  3. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    2. October 2013 at 10:55

    Let’s hear it for this Supply Sider;

    http://gutenberg.ca/ebooks/keynes-means/keynes-means-00-h.html#CHAPTER_III

    ‘Nor should the argument seem strange that taxation may be so high as to defeat its object, and that, given sufficient time to gather the fruits, a reduction of taxation will run a better chance, than an increase, of balancing the Budget. For to take the opposite view to-day is to resemble a manufacturer who, running at a loss, decides to raise his price, and when his declining sales increase the loss, wrapping himself in the rectitude of plain arithmetic, decides that prudence requires him to raise the price still more;—and who, when at last his account is balanced with nought on both sides, is still found righteously declaring that it would have been the act of a gambler to reduce the price when you were already making a loss.’

  4. Gravatar of Passing By Passing By
    2. October 2013 at 11:34

    Professor Sumner –

    Here are the growth rates in real GDP per capita at PPP:

    FRANCE USA
    1960-2011 +233% +179%
    1970-2011 +113% +108%
    1980-2011 +51% +68%
    1990-2011 +39% +35%
    2000-2011 +8% +5%

    Every comparison interval favors France over USA except the one interval that you’re dwelling on.

    Source: Penn World Tables 8.0

  5. Gravatar of ssumner ssumner
    2. October 2013 at 12:10

    Don, Sorry about that, they work fine for me.

    Travis, The shutdown will clearly hurt Q4 growth, but I doubt it affects growth over the next 12 months. Monetary offset is unlikely to offset sudden fiscal contraction.

    Patrick, Great quote.

    Passing By, Isn’t that what roughly what you’d expect based on the analysis in my post? In addition, your data differs from the St. Louis Fred data. Why is yours better?

    This post discusses the evidence in more detail:

    http://www.themoneyillusion.com/?p=5164

  6. Gravatar of W. Peden W. Peden
    2. October 2013 at 12:11

    Passing By,

    Are you saying that the problem with Scott’s argument regarding relative per capita growth of the US and France from 1980 onwards (i.e. when people tend to think, contrary to Piketty, that America’s supply-side reforms led to the US outperforming France economically) is that he focuses on relative per capita growth of the US and France from 1980 onwards?

    Patrick R. Sullivan,

    That supply-side economist sounds like a straight-up neoliberal plutocrat one-percenter stooge. I don’t know who he is, but based on that quote I’m sure I can safely ignore what he has to say about economics.

  7. Gravatar of Jim Glass Jim Glass
    2. October 2013 at 12:22

    Every comparison interval favors France over USA except…

    1) The last 30 years.

    2) Since 1990, FRED’s take on RGDP per capita, USA/France:

    http://research.stlouisfed.org/fredgraph.png?g=mZu

    3) France’s growth rate circa the 1960s era was mighty impressive compared to the USA’s.

    However, (a) what was the base level it was growing from, so shortly after WWII? (b) What was the level of taxation (and govt spending) in France then?

  8. Gravatar of W. Peden W. Peden
    2. October 2013 at 12:32

    Jim Glass,

    Yes, the growth differentials between France and the US, and indeed France and the UK, can be put down to classic catch-up growth between countries following broadly similar microeconomic and macroeconomic policies.

    (In the UK during the 1960s, there was a tendency to attribute French growth to indicative planning, despite the fact that West Germany also grew very rapidly and didn’t have indicative planning, for exactly the same reason that France grew so rapidly.)

    The interesting split is post-1980, when the US and UK went the way of Reagan and Thatcher, and France went the way of Mitterand and Chiraq. What does that prove? In itself, basically nothing, but it is one of many examples of the power of the market.

  9. Gravatar of Nicolas Nicolas
    2. October 2013 at 12:48

    In 80, Mitterrand gave one week more vacation for workers, and slash 40 hours a week to 39 hours a week. And marginal tax rate was up. The 80′s split is not so surprising.

  10. Gravatar of Greg Hill Greg Hill
    2. October 2013 at 13:21

    Scott, et al,

    Suppose we replace your graph showing real GDP per capita growth in the U.S. and France with a graph showing real GDP per capita growth leaving out the top 1% in both countries. Suppose we find that French “GDP per 99%” grew faster than U.S. “GDP per 99%.” Wouldn’t a utilitarian (Scott?), assuming diminishing marginal utility of income, prefer the French path all else equal?

    And rather than simply dismissing the fact that the French work less because they pay higher taxes, shouldn’t you count the value of all that the extra leisure time? Of course you could say that French workers would prefer to work more hours at lower tax rates than fewer hours at higher tax rates. But doesn’t this ignore the higher government expenditures that accompany the higher tax rates, and the possibility that these expenditures might make leisure more attractive?

  11. Gravatar of Gordon Gordon
    2. October 2013 at 14:07

    Hi Scott,

    The links that you provided go through a url wrapper at http://owa.bentley.edu because you copied and pasted the links out of your email. You can highlight the full url in your email and when you select it you should see two options in the sub menu that comes up: one will be “copy link location” (or something similar) and the other will be just “copy”. You should just select the “copy” option if you want to avoid your email system’s url wrapper.

  12. Gravatar of myb6 myb6
    2. October 2013 at 14:09

    Which population (cities, regions, countries)? Over which eras? Which indicator (GDP, HDI, giggles)? Which calculation (mean, median, maximin)? Given so many options, I would think the ideological (either side) could datamine and find whatever strength effects they want, yet both end up with pretty weak effects unless we’re talking truly murderous bastards like Mao or Kim. Seems to me neither Laffer nor Picketty have universal/generalizable answers.

    We’re looking in the wrong place.

  13. Gravatar of TravisV TravisV
    2. October 2013 at 16:00

    Ron Paul on CNBC:

    http://www.zerohedge.com/news/2013-10-02/ron-paul-country-bankrupt-people-are-being-bamboozled

    Video begins at 2:10.

  14. Gravatar of Lorenzo from Oz Lorenzo from Oz
    2. October 2013 at 16:36

    Policy regime complacency is cyclical. You do well in one period, you rest on your laurels, other folk start catching up or doing better, some crises happens, then there is a shift in policy regime, you surge ahead, and so it continues. (NB: talking decades-long cycles here.)

    Which means, of course, that one would expect fairly similar growth rates between similar types of countries over (very) long terms.

    Australia did very well 1854-1910 (Australians had higher average income than Americans), went for the risk-suppression system of the Deakinite Settlement (wage arbitration, trade production, white Australia, imperial benevolence, state paternalism), had a pretty ordinary 1910-1980 (income fell back to about 75% of US averages), went for supply side reforms, did rather better.

    The UK did very well 1820s-1870s, got hit by the expansion of the gold standard and later shocks, had a pretty ordinary 1880s-1920s, had relatively good 1930s but did rather better postwar, had bad 1970s, went for supply side reforms, did rather better.

  15. Gravatar of Lorenzo from Oz Lorenzo from Oz
    2. October 2013 at 16:40

    In other words, the pattern is dynamic. (Which is, btw, why I am sceptical about claims in two-party systems of one party being permanently or near-permanently “locked out” by, for example, demographic changes. The dynamism of competition will tend to create new arrangements of balancing coalitions: reputational effects strike me as more powerful–Civil War associations, Depression associations, etc.)

  16. Gravatar of Luis Pedro Coelho Luis Pedro Coelho
    2. October 2013 at 17:15

    Wrt point 3: since capital is mobile, tax-incidence falls mostly on the non-mobile elements: labour and land. A tax on capital is mostly borne by the workers (there is some empirical work too).

    A tax on high incomes may also be borne by consumers as high incomes are more mobile than average.

    *

    French workers work fewer hours, but there are also fewer french workers per capita.

    Unemployment is a persistent problem in France (only at the top of the last boom was it below 8% and is now above 10% again; 25% for young people). And that, more than a 25% GDP difference wrt US, is the real failing of the French economic system.

    (Anybody want to argue that the unemployed get all that nice leisure and I should stop making a fuss about them?)

    *

    To Greg, who said “But doesn’t this ignore the higher government expenditures that accompany the higher tax rates”

    No, because there are no higher government expenditures accompanying those higher tax rates!

    The French government has roughly equal expenditures to the US state (taking all levels of government, not just federal).

    It’s significantly larger as a share of GDP, but GDP is smaller. They roughly even out (on a PPP basis, the US might actually spend more).

    So Americans get the same amount of government. They just have more money in their pockets too.

  17. Gravatar of Greg Hill Greg Hill
    2. October 2013 at 18:52

    Luis, you write, “The French government has roughly equal expenditures to the US state (taking all levels of government, not just federal). It’s significantly larger as a share of GDP, but GDP is smaller.”

    I’m pretty sure your first sentence is mistaken. Govt. spending in the U.S. (all levels) is roughly $6 trillion, which is twice France’s GDP of roughly $3 trillion. So, even if the French state (at all levels) took over the entire French economy, and all spending in France became (in some sense) govt. spending, France’s govt. expenditures would still be less than U.S. govt. expenditures. (I leave aside the possibility that a 100% Govt. takeover of the French economy would double France’s GDP . . . at least right away.

  18. Gravatar of Steve Steve
    2. October 2013 at 20:22

    Lorenzo wrote: “I am sceptical about claims in two-party systems of one party being permanently or near-permanently “locked out” by, for example, demographic changes”

    Good points. Right now Republicans are on the ropes because of teaparty wingnuts, plus increasing young and minority population who vote Democratic.

    But, what happens if the US Population shifts to the middle of the country?

    And, what happens if Asians realize they are “payers” rather than “takers”???

  19. Gravatar of Lorenzo from Oz Lorenzo from Oz
    2. October 2013 at 21:13

    Greg Hill: per capita public consumption expenditure by government (in PPP terms) is pretty similar in US and NW Europe. However. a given level of expenditure is a bigger percentage of (smaller per capita) GDP’s. Possibly that is what Luis meant.

  20. Gravatar of Lorenzo from Oz Lorenzo from Oz
    2. October 2013 at 21:16

    Steve: And, what happens if Asians realize they are “payers” rather than “takers”??? Hasn’t helped Republicans to get the Jewish vote … Possibly for much the same reasons (hint: what do Jews and most Asians have in common? Not being … [starts with C]).

  21. Gravatar of Luis Pedro Coelho Luis Pedro Coelho
    3. October 2013 at 01:18

    Of course, I meant per capita.

  22. Gravatar of Morgan Warstler Morgan Warstler
    3. October 2013 at 04:34

    “Culture is endogenous.”

    needs its own t-shirt

  23. Gravatar of ssumner ssumner
    3. October 2013 at 05:21

    Greg, You asked:

    “Wouldn’t a utilitarian (Scott?), assuming diminishing marginal utility of income, prefer the French path all else equal?”

    No, for several reasons. First, it is consumption that matters, not income. And second, because it is the level of consumption that matters, not the growth rate. Income is a lousy proxy for consumption.

    Of course leisure should be counted, but taxes and government expenditures push people toward an excessive level of leisure, compared to the level they would freely choose.

    Also recall that lots of the extra “leisure” is an 11% unemployment rate. Liberals get outraged when conservatives say that disincentives cause unemployment, and that unemployment is essentially a vacation (a view I don’t accept, BTW). So then why do some on the left point to “leisure” in France?

    Thanks Gordon.

    myb, Good point.

    Lorenzo, good point.

    Thanks Morgan.

  24. Gravatar of John Papola John Papola
    3. October 2013 at 05:59

    “Liberals should care about global welfare. Are they closet nationalists?”

    Many (most) are most certainly. Look at Krugman’s writing about immigration and it’s impact on the welfare state.

    http://econlog.econlib.org/archives/2008/02/dan_klein_to_pa.html

    Keynesian interventionism is the economic religion of the mainstream left, which makes them highly mercantilist and nationalist. This isn’t new of course. Progressivism takes many cues from nationalist Prussia. Economic nationalism is just one of the many illiberalisms of American “liberals”.

  25. Gravatar of Greg Hill Greg Hill
    3. October 2013 at 12:07

    Scott, you write, “Of course leisure should be counted, but taxes and government expenditures push people toward an excessive level of leisure, compared to the level they would freely choose.”

    This seems to suggest that the level of leisure people “would freely choose” is the level they would choose if there were no taxes and no government expenditure. I doubt you meant this, but if not, I think you lack a standard for determining what’s “an excessive level of leisure.”

    The difference between average hours worked in the U.S. and France is not due entirely to different unemployment rates; French workers with jobs work fewer hours per week, and get longer vacations, than their American counterparts. And anecdotal evidence suggests many employed workers in the U.S. would prefer a few more days off even they were unpaid days off. Many City of Seattle employees were happy to be furloughed without pay for seven days, including this one.

  26. Gravatar of ssumner ssumner
    3. October 2013 at 16:08

    John, That’s a great post by Caplan.

    Greg, Yes, I meant the level of employment they would choose if there was no tax wedge in their earnings.

    I never said the difference was entirely due to unemployment rates.

  27. Gravatar of Floccina Floccina
    4. October 2013 at 13:42

    I also like Goetzmann’s comment about global Gini coefficients. Liberals should care about global welfare. Are they closet nationalists?

    IMHO they do not mind people being poor but they do hate to have to look at how the poor live. That is why they are so determined to get the schools to somehow turn the poor into the middle class.

    You will not hear anybody lamenting the poverty in the poorest county in the USA because it is not ugly. It is not sloppy and littered but make no mistake about it, IT REAL IS ONE OF THE POOREST COUNTIES in the USA.

    We all do it. It is like boxing gloves in boxing and helmets in football they allow more damage to done to long term health but we do not need to see that disgusting blood and gore. One needs to taught or at least think about it to not do it.

    So they do not care about real poverty in India because it is not seen.

  28. Gravatar of ssumner ssumner
    5. October 2013 at 04:24

    Floccina, Thanks, I’ll do a post.

  29. Gravatar of Financeroll English | Inequality: On important but irrelevant facts Financeroll English | Inequality: On important but irrelevant facts
    9. January 2014 at 10:33

    […] WRITING on Thomas Piketty’s new book, Nicolas Goetzmann notes: […]

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