Sunday, March 29, 2015

What Makes a House a Home

Since the publication of Piketty's Cspital in the 21st Century, mainstream economists have been falling all over themselves to deny the empirical reality of the unabated increase in inequality following World War II.

There have been largely two fronts to this campaign. The first is to insist that this empirical reality is theoretically impossible. The second is to attack Piketty's measure of capital.

The former attack is rather boring in that it largely rests on supposed laws of production, which are in fact laws of distribution. This is done largely for the purpose of arguing that any inequality is merely reflective of the contribution of the endowments of different strata of society. Call it C.R.E.A.M.-washing.

One of the more amusing fronts of this attack has been the nitpicking around Piketty's measurement of capital. On the one hand, it's too narrow for the stalwarts of neoclassical/neoliberal economics. They want to cram human capital as well as expected retirement pensions and transfers.

Nevermind that whatever qualifies as human capital and retirement earnings are likely to be as unequally distributed as any other measure of capital. But retirement account can earn interest, and human capital has capital in the name! Sure you can't borrow against your retirement account, or employ someone to work your human capital for you.

And yet, another common gripe is the inclusion of housing in the measure of capital. Even according to these trolls' own estimates, the percentage of capital that housing accounts for in the US is at most 30% of total capital. Except around 35% of that housing is not owner occupied - in the hands of banks or landlords, earning a return on a physical asset in the possession of another.

Certainly, it's exciting that neoclassical economists finally want to go about defining exactly what they mean when they say capital. It's a shame that this is the direction that they've chosen.