Yet Piketty seldom does in his book what good economists do routinely. Rarely does Piketty look for unintended consequences. Hardly ever does he reveal an awareness of human creativity or craftiness (unless it’s the craftiness of some rich people to exploit poorer people). Piketty is blind to the nuances of human action and to the complex functions of economic institutions — nuances and functions explained by acclaimed economists such as Armen Alchian, James Buchanan, Deirdre McCloskey, Joel Mokyr, Douglass North, Julian Simon and Vernon Smith. He cites none of these towering scholars. Had he consulted their works, Piketty’s narrative would perhaps be very different.
Consider Piketty’s argument that “wealthier people obtain higher average returns (on their investments) than less wealthy people.” He correctly notes that exceptionally good wealth-management consultants and financial advisers command higher fees than do mediocre consultants and advisers. But Piketty wrongly concludes that only the wealthy can afford the services of exceptionally good financial consultants and advisers.
Small and medium-size investors can pool their funds to create larger funds; it then pays to hire top talent to manage these funds. Mutual funds are an example. A worker with only, say, $15,000 to invest can, by purchasing shares of mutual funds that hold billions of dollars, arrange for his small puddle of investable wealth to be managed by some of the best wealth managers in the business.