Christmas reading: McCloskey on Piketty

It’s taken me a month to read it but Deirdre McCloskey’s essay on Piketty’s Capital is just as persuasive as you’d expect. Print it and read it with your family over Christmas!

The review doesn’t break any new ground but it is eloquent and engaging. Her central themes are:

1. The Industrial Revolution and Great Enrichment have increased incomes by 2,900% over the past two centuries. They have elevated the poor to a state of wealth, relative to their lot even fifty years ago. It is that increase in the absolute lot of the poor that we should be ethically concerned about, not the relative inequality that Piketty focuses on. Considering their capabilities and dignity, not simply incomes, is even more encouraging because of advances in, for example, access to education.
2. Piketty focuses on the accumulation of physical capital but the engine of growth for the past 200 years has been human capital. The exclusion of human capital from his calculations is particularly problematic because it is owned by the workers, not the capitalists. That growth has enriched the poor by magnitudes more than redistribution could achieve.
3. Wages and capital returns are important price signals that generate a response from supply. Stifling those signals damages the efficiency of the economy and retards the very growth that will help the poor.