Deirdre McCloskey offers a summary of her (earlier published) criticisms of Thomas Piketty’s Capital in the Twenty-First Century in the current issue of the Cato Policy Report: Here are two slices:
All the worries, from Malthus to Piketty, share an underlying pessimism, whether from imperfection in the capital market or from the behavioral inadequacies of the individual consumer or from the Laws of Motion of a Capitalist System. During such a pretty good history from 1800 to the present, the economic pessimists on the left have nonetheless been subject to nightmares of terrible, terrible faults. Admittedly, such pessimism sells. For reasons I have never understood, people like to hear that the world is going to hell, and become huffy and scornful when some idiotic optimist intrudes on their pleasure. Yet pessimism has consistently been a poor guide to the modern economic world.
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The technical flaws in Piketty’s argument are pervasive. When you dig, you find them. The fundamental problem is that Piketty does not understand how markets work. In keeping with his position as a man of the left, he has a vague and confused idea about how supply responds to higher prices.
More and more I am convinced that the single greatest difference separating economists whose support for free markets is strong from economists whose support for free markets ranges from tepid to non-existent is an understanding of basic microeconomics (what used to be called ‘price theory’). The former are adept at using microeconomic reasoning while the latter are not.
So many economists today spend more and more time mastering higher-level mathematics and econometric techniques that they simply never master basic microeconomics. These economists (from my reading of him, I judge Piketty to be among them) take their fluency in statistics and their skill at quantitative-data gathering for being a fluency in, and skill at doing, economics. They are mistaken. And while their error is too-often masked to the general public by their formal credentials as professional economists, their error is never hidden from genuinely skilled economists such as Deirdre McCloskey.
I boast – with a combination of pride in my home institution, embarrassment for my profession, mourning for my discipline, and sadness for the world denied as much economic wisdom as it would otherwise receive – that the Department of Economics at George Mason University is among the very few graduate-degree-granting economics departments in the world that focuses first and foremost, consistently, and rigorously on instilling in students the economic way of thinking – that is, instilling a mastery of price theory.
Such a mastery today is not sexy. It’s not sexy, in one part, because it does not clothe those who possess it in the costume of what people today widely (if wrongly) regard to be a true ‘scientist,’ and in another part because it does not open many doors for its possessors to the rooms where social engineers gather. Yet such a mastery is a necessary – and, I dare say, quite nearly a sufficient – condition to be a truly good economist.
Such a mastery inspires one to ask probing questions that others seldom ask; such a mastery instills in one a suspicion of grand schemes and of people with the power to carry out such schemes; such a mastery makes one humble because it reveals that the amount of knowledge that is necessary to make even the simplest social order possible is far greater than any one person or group can possibly assemble in one place, and much less comprehend.
One final observation about this mastery of microeconomics: it leads those who have it to counsel simple rules for our complex world. Such counseling is typically mistaken to be a counsel of simple solutions or of a simple set of actions. But a rule – at least one of the ‘thou-shalt-not’ variety – is neither a solution nor a proposed set of actions. Simple rules can, and often do, create the space for the emergence and growth of a web of detailed individual actions and interactions that is staggeringly complex. A lack of understanding of basic microeconomics – a lack of understanding of the microeconomics of economists such as Armen Alchian, Harold Demsetz, Fritz Machlup, Ronald Coase, James Buchanan, and Deirdre McCloskey – makes it much more difficult for one to appreciate the reality and role of the staggeringly complex and ever-changing web of individual actions and interactions that is called “the market.”
