In a recent interview with Piketty about his book Capital, the interviewer had some questions I found … strange:
Your book fits oddly into the canon of contemporary economics. It focuses not on growth and its determinants, but on how the spoils of growth are divided.
For much of the last century, economists told us that we didn’t have to worry about income inequality. The market economy would naturally spread riches fairly, lifting all boats.
Now Piketty does not suggest that economists haven’t been looking at the issue, his answers pretty clear and on point. My problem is with the myth being pushed by the interviewer.
One of the legends of the field of studying income inequality, Atkinson, wrote a paper for his presidential address to the Royal Economic Society in 1996 (the paper was in 1997 (REPEC) [Note: Atkinson kicked off the modern field of income inequality research in Atkinson 1970 (REPEC) – yes there was work before him, but this paper started the field in its current form]. In the paper he says that we need to bring the study of distribution back in from “out of the cold” – and he states that the events of the 1990s have led to just that. Since then there has been a lot of work on income distribution, with a recent author (I will update with a link later – I believe it is Jenkins, but the book is in the office. Update: Yar it was Jenkins and Van Kerm in Chapter three of the Oxford Handbook of Economic Inequality) claiming that much of the theoretical and direct measurement work was done – and that what we needed going forward was more data (Update: In their four recommendations there are three around data, and a final one on “explanatory models” for the distribution – with a focus on specific mechanisms. Can’t help but agree!).
However, even this overstates the claim that income distribution work was unloved. In the Atkinson 1997 paper he notes that there is literature on distribution at this point in time (although less than international economics) – but that literature was primarily on factor shares (the Ricardian approach), not household/individual level (the Paretian approach). His call to bring the discipline in the from the cold was largely about doing more on household data – rather than the factor share work which also gets significant play in macroeconomics and international economics, as well as income distribution.
In that way it is important to note that Piketty’s book is about factor shares!
Ultimately, the myth that economists haven’t been looking at the issue just isn’t true. Yes people who work in the field think more exciting work has value (and in this case I think it does) – but acting as if economists as a group have treated distributional concerns as inconsequential is so incredibly different to the work I’ve read and economists I’ve talked to that I had to call it out.
A “rising tide lifts all boats” is an assumption of politicians and ideologs, not economists. An economist asks “what sort of tide is it, how do the boats function in tide, and how may we infer how the boats subjectively feel about rising”.