So, along with everyone else, here's my tuppence worth about Piketty. This is probably reckless on my part as I've actually not read the book yet (thanks Amazon), as indeed I suspect many other people sounding off about it haven't. But I've already spent hours thinking about his arguments so I may as well get my thoughts down somewhere. So here is what I think about what I think Piketty says in the book, based on what a bunch of other people think he says in the book (amongst the many reviews, I recommend Solow, Krugman and Milanovic). I get to hear him speak on Wednesday, so I'll post again if I've got him wrong.
And the point is this: it's all about the politics. Piketty actually pays a fair bit of attention to politics, and like Hacker and Pierson he is concerned that the concentration of income and wealth at the top is affecting the distribution of power in the political system. But, as an economist, in the end it appears that Piketty believes that market economies have a kind of underlying dynamic that leads to the concentration of capital independently of whatever political forces may be dominant. Politics can only come along to disturb this dynamic through thing like wars, revolutions, organised labour.
This is not surprising, as the economists' ontology, even for someone as critically minded as Piketty, still posits markets as a kind of state of nature. But the problem is that there is no such thing as a pre-political market, a point powerfully made in a recent book by Murphy and Nagel: The Myth of Ownership. Markets are sustained by institutions, and these institutions are political artefacts, albeit influenced by raw economic forces. Nowhere is this more obviously the case than in the definition of returns on capital, especially in our financialized age. Almost nothing about Piketty's r is meaningful unless we consider the various rules and regulations governing property rights, credit, taxation, and permitted behaviours in formalised markets.
All of which implies that there is a social and political foundation to the kind of capitalism in which r tends to > g. That social and political foundation has to be explained, and even where economic forces powerfully influence policy and institutions, we still need to understand the political sources of the property rights which allow economic forces to do what they do.
In other words, we need a political theory of how the conditions under which r > g can come about. The rise and fall of the labour movement, and indeed the rise of fall of 'populist' democracy more generally, is the historical backdrop to this, and Piketty indeed may be right that the mid-twentieth century was a blip and that patrimonial capitalism is the norm over the past three centuries. But to explain this we need to know how people act politically to tame capital (including unintentionally, given that the Second World War probably wasn't on anyone's wish list), and economics, in the end, can't answer this question on its own.
The irony of ironies is that Piketty's work itself seems to be having a major political impact, at least for now - how sustained it will be is anyone's guess. The ink spilled over this 'rockstar economist' may be a sign of the fickleness of the media, but there is no getting around the fact that inequality is emerging as a political issue, finally. What happens next depends on a lot of variables, but those variables are social, cultural and political, rather than economic. Piketty's work is important for economics, but it should also alert political scientists that there is a big political story to be told about how capitalism got to where it is today.