Posts Tagged New Institutional Economics
I’ve been dragged back into the Piketty melee by a review of Piketty from ‘New Institutional’ superstars Daren Acemoglu & James Robinson. Unsurprisingly, they focus on the institutional aspects of Piketty’s work, charging that his framework doesn’t pay much attention to institutions. I disagree:
The claim that Piketty’s work is ahistorical and ainstitutional is an odd one which is easily belied. For a start, Piketty states that the truth of r > g “depends, however, on the shocks to which capital is subject, as well as on what public policies and institutions are put in place to regulate the relationship between capital and labor.” Piketty’s obvious awareness of institutions is presumably the reason he spends four chapters documenting the kinds of political institutions that might be put in place to counteract a rise in inequality.
They dispute Piketty’s use of ‘general laws’, but they misinterpret the laws in numerous ways – the biggest mistake is the idea they are even supposed to be ‘general laws’, rather than empirically established tendencies:
[Piketty] is simply not seeking to uncover general laws of capitalism. What he is doing is identifying the conditions under which inequality will tend to increase, asking whether they are empirically reasonable, and making predictions based on this framework. His first law is just an identity; his second law is an “asymptotic law”, subject to a number of qualifiers, which describes the direction in which the capital/income ratio will evolve at any one time. As for r > g, he himself states that it “is a contingent historical proposition, which is true in some periods and political contexts and not in others.”
I’ve been a vocal critic of people who do not read Piketty or read him poorly, and I don’t want to be a hypocrite with AR’s book Why Nations Fail, which I have not yet read. But I am pessimistic that it follows the theme of their review: posit a theory in which institutions take centre stage; repeat a superficial history of a series of countries in turn, interpreted from that viewpoint; stick some econometrics in. Or, as Branko Milanovic called it, “Wikipedia entries with regressions”. I’m genuinely asking people who’ve read the book to persuade me that this is not the case.