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May 13, 2014

"Thomas Piketty Gets The Numbers Wrong"

Louis Woodhall makes an interesting point:

Living requires income. In Piketty’s model, there are only two kinds of income: income from labor, and income from capital. Because Ms. Fuller didn’t work for the last 35 years of her life, she must have lived off income from capital. Ms. Fuller must therefore have owned significant capital (in the form of her claim on the Social Security Administration) when she retired in 1939. Because Piketty’s wealth distribution numbers do not take this form of capital into account, they are simply wrong.

But wait! Social programs are just promises by the government to pay, and they could be repudiated at any time.

Yes, but government bonds are also nothing more than government promises to pay, and Piketty counts them as private wealth. Government bonds can be (and have been) repudiated, both directly (Argentina, Greece) and via inflation (almost everywhere).

Comments

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Jim Lebeau

Louis Woodhill, once upon a time, my employer.

David Foster

Also, what about pensions? And company-paid retiree healthcare programs?

A government, university, or corporate employee with a defined benefit program may well have what is effectively an asset with a value of half a million dollars or more.

Michael Mace

"asset with a value of half a million dollars or more"

Actually at the current very low interest rates, perhaps the value is in multiple millions of dollars. Even for clerical employees.

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