Sep 28, 2014
Why be curious about “Capital in the Twenty-First Century”?
We are driven by curiosity, that’s what we say, and that’s exactly how we are — and we don’t shy away when this needs proving. This curious mind is what leads us to pay attention to the world around us, to sports, music, maps of London and everything else, food, quantum physics, energy, oceanic tides, public debate and politics or, in a word, to culture — and following the definition anthropologists give thereof, believe us, this makes us see impressive things, both in quantity and quality…
Piketty’s “Capital in the Twenty-First Century”
This curious mind accordingly led us to pay attention to one of the best selling books of the year overall (at the time of writing, it is ranked 10th in Amazon’s list for 2014), to one of the best selling economic works of the decade, one that deals with the most pressing issue of our time: inequality. This book has been praised by pundits and economists, among them Nobel prize winners such as Joseph Stiglitz or Paul Krugman: “It seems safe to say that “Capital in the Twenty-First Century,” the magnum opus of the French economist Thomas Piketty, will be the most important economics book of the year — and maybe of the decade. Mr. Piketty, arguably the world’s leading expert on income and wealth inequality, does more than document the growing concentration of income in the hands of a small economic elite. He also makes a powerful case that we’re on the way back to “patrimonial capitalism,” in which the commanding heights of the economy are dominated not just by wealth, but also by inherited wealth, in which birth matters more than effort and talent.”
Beyond Prejudice: Debating Facts
The issue of inequality unleashes passions, fuels never-ending quarrels and can sometimes go as far as cause revolutions. Ever since Karl Marx made it into a symbolic and economic culprit, capital has been a fixture of the inequality debate. Hence it did not come as a surprise that Piketty’s book drew as much criticism as it received praise, and that’s a good thing. As John Cassidy put it in his New Yorker article, whatever your initial views on the topic, this is “a book that nobody interested in a defining issue of our era can afford to ignore.”
We don’t aim to take a firm and definite stand for or against marxist theories, let alone formulate our own thesis about inequality — to be honest we could not, this would be beyond our ability or expertise. However we value the importance of a lively and substantial debate for the sake of advancing — even if a little — our understanding of mechanisms that drive inequality. As Daniel Patrick Moynihan, an American sociologist and U.S. Senator, said: “Everyone is entitled to his own opinions, but not to his own facts.” This is precisely why we took, from the start, a keen interest in this book and the field it covers. We did not have to wait beyond page 2 of his book to find that Thomas Piketty is a kindred spirit. As he adequately puts it: “Intellectual and political debate about the distribution of wealth has long been based on an abundance of prejudice and a paucity of fact.” In one of the numerous online appendixes, while rebutting an argument made by the Financial Times questioning the reliability of some of his data sets, Piketty adds: “We need more democratic transparency about wealth dynamics, so that we are able to adjust our institutions and policies to whatever we observe.”
A Bird’s Eye View of Inequality
The reason why Thomas Piketty’s work — of which his “magnum opus” is a cornerstone — may significantly accrue our knowledge of inequality dynamics is both simple and substantial, as the author says: “In large part, my work has simply broadened the spatial and temporal limits of Kuznet’s innovative and pioneering work.”
Kuznets, an economics Nobel prize laureate, took advantage of the advent of sound and reliable income tax records, owing to the implementation of universal progressive income taxes across the western world, at the turn of the 20th century. His work “Shares of Upper Income Groups in Income and Savings”, published 60 years before “Capital in the Twenty-First Century”, compiled and analysed the dynamics of income inequality in the USA from 1913 to 1948. Whereas previous authors and prominent figures in the field — Smith, Malthus, Ricardo or Marx to name a few — relied on piecemeal data, albeit wide-ranging and brilliantly leveraged at times, Kuznets benefited from the flow of reliable and consistent information that resulted from the levy of a universal income tax — actually this is an important narrative nugget of Piketty’s work, the fact that the establishment of universal taxes on income and capital is as interesting for financial purposes as for information and transparency ones, we’ll come back to this. Yet Kuznets focused on the United States and drew some of his main conclusions in a very peculiar historical context, that of the “30 Glorieuses” as they are known in France, the spectacular era of reconstruction that took place from the 1940s through the 1960s. Piketty’s work benefits from a wealth of data that was not available to Kuznets, thanks to the mere passing of time, the globalisation of universal taxes as well as to the development of robust digital data collection and processing tools. No economist — outside Piketty and the network of colleagues who’ve worked with him — had chosen to leverage this data trove in recent times. Thus “Capital in the Twenty-First Century’s” main theses and conclusions — whatever one ends up thinking about these — are based on the most comprehensive time series ever used in the field, both across Time & Space, as Piketty argues, but also across Variables, as CapitalViz 1, below, makes apparent.
Constructing CapitalViz 1
We felt it was important that the first Viz of “Designing Capital in the Twenty-First Century” should tell users why Piketty’s work is of the utmost interest, irrespective of its theses and of one’s agreement with his conclusions. We therefore needed to show how his research spanned a much broader spectrum than any other conducted so far. The main criteria we used to do so are Time and Space, leaving Variables in a secondary position for two reasons.
First, they are not as clear cut as Time and Space criteria. Indeed, we had to use a rule of thumb approach to determine what, in the works of Smith, Malthus, Marx and Kuznets, would fall in which category of indicators. The tables and graphs used by Piketty are all clearly labelled and readily available inside spreadsheets, which facilitated and in a way dictated our own breakdown of Variables. We then browsed through the other mentioned works, searching for tables and numbers (round thousands or millions, whether written in letters or numbers), and categorising them according to guidelines that emerged in a heuristic manner and that were thus refined as we progressed — for instance the Money, Savings & Inflation variable category was not present as such at the beginning of our data explorations. It is easy to determine whether one of the works contained data for the decade 1850 for instance, using — like Piketty — the round decade year as the decennial average for the following years ending in 1 to 9, when data, even if partial, were available for such years. In other words, whenever data were available for at least one of the years between 1850 and 1859, we checked the 1850 mark. When it comes to Variables however, things are less binary. First we had to decide, very empirically that is, if the data used were mere examples (such as the income of a factory in a large city) or larger indicators revealing a trend or pattern (such as the allocation of land, i.e. capital, among different socio-economic groups in a Prussian county). We decided that data of macro-economic interest (at the group or territory level, revealing trends and patterns) should be the only ones taken into account, as opposed to micro-economic calculations and theses (at a company level for instance). This is an important decision as some of the very local observations made by Smith or Marx, for lack of broader sources, are leveraged to formulate very sound calculations and theses that may have a more global bearing. However, in light of the universality of the Variables used by Piketty, we decided the comparison could only be valid like for like.
The second reason why we chose to shine the spotlight on Time & Space has to do with another important factor that time carries. However intense their data collection and processing efforts, and no matter how brilliantly built their hypotheses, economists before the 20th century could not leverage reliable and comprehensive data that only became available with the establishment of universal progressive income taxes throughout the western world. This is a major event that needed to be reflected.
As is apparent from the process and constraints exposed herein, the data used in this Viz are far from objective or self-telling. A lot of human judgement and interpretation has gone into the selection and the organisation of data, so much so that the Viz must both be faithful to the data-choices made by the author — i.e. putting the spotlight on Time & Space — and honest with the reader, making it clear that it offers a relative and subjective view of the issue at hand.
Sources of CapitalViz 1
- Malthus, “An Essay on the Principle of Population”, 1798.
- Smith, “The Wealth of Nations”, 1776.
- Marx, “Capital”, 1867.
- Kuznets, “Shares of Upper Income Groups in Income and Savings”, 1953.
- Piketty, “Capital in the Twenty-First Century”, 2013.
Variables of CapitalViz 1
- Output, GDP, Income: the production of agricultural or manufactured goods and services and the ensuing revenue and wages.
- Wealth & Capital: the stock and kind of properties held.
- Taxes & Public Spending: everything having to do with public budgets, debts and deficits — but not to public assets, recorded under capital.
- Money, Savings & Inflation: the monetary stock in circulation as well as the international flows thereof. Savings: How much of the monetary stock is saved vs. spent.
- Population: sociodemographic characteristics, volume and variations over territories, birth and mortality rates.
Making Piketty’s story Accessible
For the sake of advancing our understanding of inequality dynamics and improving decision-making with respect thereto, facts-based opinions are preferable to preconceptions. This is why it is in the public’s interest to make Thomas Piketty’s story accessible to a large audience. However well written and substantiated it is, and however successful it has been, it may be feared that the 700-page book remains somewhat too thick for many a reader. Even though wholly unscientific and prone to bias, the “study” conducted by the Wall Street Journal of the most unread best selling books indicates that most readers have not gone beyond page 10 of “Capital in the Twenty-First Century”, putting it at the top of this infamous class. Even journalists or decision makers such as Hillary Clinton, putative candidate in the 2016 U.S. presidential elections, or Michel Sapin, French Minister of Finance, have said they had not (yet) read the book or don’t intend to, an abstention that does not keep many pundits from expressing strong opinions, albeit with a caveat that often goes like “Although I haven’t read it, I can safely say…”
We’ve therefore decided we will do our best to help everyone understand the story told in “Capital in the Twenty-First Century,” to gain some insights on the subject-matter at hand, and to feel better armed in a debate that will certainly remain at the centre of the public space and in major upcoming political campaigns, in the USA for the 2014 mid-terms in November or in the UK for the May 2015 general elections. In a spirit of openness, according to our Lab’s common practice and to Thomas Piketty’s own “open data” approach, we will publish our work in various instalments, taking feedback and hopefully improving our work as we go, until we reach a final artefact — or series of artefacts — that faithfully tells the story in a comprehensive and comprehensible manner.
