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Acemoglu, Piketty, and Comparing Apples to Apples

Tyler Cowen at Marginal Revolution links to Daron Acemoglu’s paper refuting Piketty:

Thomas Piketty’s recent book, Capital in the Twenty First Century, follows in the tradition of the great classical economists, Malthus, Ricardo and Marx, in formulating “general” laws to diagnose and predict the dynamics of inequality. We argue that all of these general laws are unhelpful as a guide to understand the past or predict the future, because they ignore the central role of political and economic institutions in shaping the evolution of technology and the distribution of resources in a society. Using the economic and political histories of South Africa and Sweden, we illustrate not only that the focus on the share of top incomes gives a misleading characterization of the key determinants of societal inequality, but also that inequality dynamics are closely linked to institutional factors and their endogenous evolution, much more than the forces emphasized in Piketty’s book, such as the gap between the interest rate and the growth rate.

“South Africa and Sweden”???

To be a superstar economist these days, it helps to push your ideas past the point of self-parody.

 
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51 Comments to "Acemoglu, Piketty, and comparing apples to apples"

  1. Jim says:

    @Anonymous

    Isn’t Mexico itself pretty low-trust? Maybe not quite as low trust as a poisonous couldron like Lebanon but still pretty low trust. So Slim may not be exploiting the non-existent gullible trust of native Mexicans but Slim is probably well adapted to success in a devious Byzantine like society.

  2. Anonymous says:

    Botswana can hardly be taken as a serious example. Although having a huge land area it has a very small population, what’s more it has massive reserves of strategic minerals which are exploited by foreign miners paying huge royalties for the privilege hence resulting in a big GDP per capita that not even an African nation could f*ck up.
    Its rate of HIV is another story however.

  3. Anonymous says:

    When does North Korea v South Korea stop being about ‘institutions’ and about economic dogma?

  4. @Numinous

    Correlation is not causation.

    More facile tripe.

    Correlation requires explanation.

  5. @Numinous

    He is a big fan of the Swedish model and says Sweden is a successful country because their institutions are fair and inclusive. He is critical of the South African model, which has always been built on an explicit racial hierarchy; he calls that an exclusive institution and shows that concentrating all political and economic power in the hands of white people results in blacks getting poorer and black communities getting more dysfunctional. This is obvious and should be non-controversial, but I am not sure you see it that way.

    What is obvious to a poor thinker is usually not so to a better thinker.

    The alternative is that the Swedish model of inclusive institutions works well in Sweden when they were all white.

    Sweden seems to be conducting an experiment to see whether that model still works when you change the people. I guess we will know the result in perhaps another ten years.

  6. Numinous says:

    @Hard Line Realist (argumentative)

    What is obvious to a poor thinker is usually not so to a better thinker.

    To anyone who is not a part of the echo chamber that is this blog, the “thinking” that goes on here seems quite poor. To reduce everything to race and genetics is lazy and self-serving (i.e., for a white person who needs an ego boost.)

    Definitely the Swedish model model worked petty well for Sweden because everyone was white, had shared kinship, shared language, and shared culture. No one denies this. What I said about South Africa is perfectly consistent with this. White South Africans have always been extremely clannish and set up the institutions of their country to serve only whites, with blacks only allowed to serve cheap labor functions. It is no wonder that blacks didn’t end up well off. And in modern south Africa, trust between blacks and whites is almost nil, and it’s well-nigh impossible establish any kind of inclusive institutions. To the ambitious and smarter blacks, it makes much more sense to inveigle themselves into the white-controlled economy than to fight for inclusiveness, the result of which will be a much smaller share of the pie for everyone. All this is common sense. And it’s also all about race, with whites having high solidarity and clannishness but blacks being too large and tribally fragmented to think of doing anything other that which will benefit their near and dear ones.

  7. Numinous says:

    @Hard Line Realist (pensive)

    Correlation requires explanation.

    And explanations ought to be based on scientific, not magical, thinking.

  8. @Numinous

    And explanations ought to be based on scientific, not magical, thinking.

    I must have missed where you pointed out all the magical thinking. Perhaps you could run it by me again.

    In the mean time, I am reading this:

    http://arxiv.org/pdf/1408.3421v1.pdf

  9. Acemoglu et al say:

    But like Marx, Piketty goes wrong for a very simple reason. The quest for general laws of
    capitalismó or any economic systemó is misguided because it is a-institutional.

    and

    History cooperated no better with Marxís general laws.

    Perhaps someone in the future will get to write: History cooperated no better with Acemoglu’s Institutions Only explanation for the way things are.

  10. TGGP says:Website

    @Numinous

    “You see white people doing well (generally speaking) and black people doing badly (again generally speaking) at this point in human history, and you attribute it all to race, genetics, evolution, etc”
    It’s not just the present time, and Botswana really does seem to be atypical. Sub-saharan Africa seems to be a latecomer to large-scale agriculture, urbanization, etc. That’s what allowed it to be colonized in the first place.
    I also think Steve’s views are more sophisticated than you make out. He has never claimed that race/genes are everything. That’s why it’s correct to point out that he would probably agree with Acemoglu (unlike Piketty) if the two were discussing Carlos Slim.

  11. @pizza with liquid drano soaked salmon

    Until credit got really democratized in the U.S., i.e. banks forced to make cheap car loans to blacks, I never saw people driving with their passenger-side window down, inflicting their music on others (breakdown in rule of law). What Acemoglu should do is politely ask 50 black drivers to raise their windows so as to spare others the racket. Then see how many broken bones he suffers.

  12. I have read much of the paper now.

    1. I think that Steve was wrong in his statement above.

    2. I assumed that Economists would be able to give us numbers. Ie, with Institution Type 1 (10% racist, 90% inclusive) we will see X amount of inequality and the country will be bankrupt in N years, and with Institution Type 2 …

    However, They seem to regard Institutions as some sort of magic and not as something arising out of the competing interests of the various powerful factions within a country (although they hint at it.)

    I am left wondering, if we magically replaced all Swedes with Africans over night, would things stay the same, or would the country become an African shit-hole within a generation or two.

    I guess, as someone pointed out, Sweden is in the process of replacing Swedes, but it might take a couple of generations before we know the answer.

  13. White South Africans have always been extremely clannish and set up the institutions of their country to serve only whites, with blacks only allowed to serve cheap labor functions. It is no wonder that blacks didn’t end up well off.

    But Blacks did wind up well off. The entire Black population of South Africa consists of immigrants and the descendants of immigrants who chose to move to a society created by White settlers who preceded any Black migration to South Africa. The Black immigrants moved there to become “well off” by their standards.

  14. @ben tillman

    But Ben, you can’t expect people to remember facts that are contrary to the narrative.

    An additional question is: When have blacks ever set up such strong institutions that lots of whites were flocking to their countries to live.

  15. Numinous says:

    @Fourth doorman of the apocalypse

    Some facts:

    – The Bantu emigrated to northern South Africa before the Boers did. The Boers remained in the Cape Colony for more than 2 centuries until they trekked north to get away from British imperial rule. and that’s when they clashed with the Zulu and Xhosa tribes (and of course won, as their fighting technology was far superior). While the Boers were living in the Cape, the natives (Khoisan/Hottentots) either assimilated (to become the Cape Colored population) or died out. The Bantu did not emigrate to South Africa to be near whites, and definitely not to work as cheap labor.

    – In the 20th century, a lot of Africans have emigrated to South Africa, but they have come from further north (like Nigeria). South Africa is definitely the most advanced economy in all of sub-saharan Africa, and that owes a lot to the British, who connected that country to the global capital system in the early 20th century.

    In any case, what people desire is to be well-off relative to other people who live close to them. Even if the average black south African eats a better mean than the average Congolese, while being a low-wage laborer forced to live in ghettos and forbidden free movement (as was mandatory under apartheid), that does not imply he lives well.

  16. Robard says:

    @Numinous

    Most black immigrants came from countries immediately to the north. Even during apartheid illegal immigration was such a problem that an electric fence was erected on the northern border.

    It is not only that blacks ate better. They had improved life expectancy and as early as the sixties the apartheid state had more black medical students than the rest of the continent combined. Black South Africans had a higher rate of car ownership than Soviet citizens.

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