TORONTO, ONTARIO--(Marketwired - Sep 18, 2014) - Capital in the 21st Century, the best-selling book from French economist Thomas Piketty, is fundamentally flawed, and its Euro-centric view does not apply to North America, says Philip Cross, former chief economic analyst for Statistics Canada.
In his review, published today by the Fraser Institute, Cross targets the major themes in Capital including Piketty's fixation on inequality and whether it's destined to increase significantly, and the pessimism engulfing most of Europe today.
"Piketty's arguments are based on an exaggerated view of the return on capital and a pessimistic view of economic growth. He's also heavily influenced by the current situation in Europe where, without growth, the public debate has shifted to a futile focus on redistributing income," Cross said.
"By comparison, sentiment about the U.S. economy has improved markedly of late, with central bankers now speculating about raising interest rates early in 2015 as growth improves."
Cross also notes that Piketty, like many European economists, focuses on historical wealth transfer, effectively ignoring the power of information technology in shaping the economy and society.
According to Cross, by ignoring technology's impact on economic growth and wealth distribution, Piketty risks making the same mistakes of Ricardo and Malthus, who Piketty rightly notes did not forecast "the importance of technological progress on industrial growth."
For example, Piketty points to bicycle commuting as a major economic adjustment to high oil prices, a point Cross disputes.
"The major adjustment or reaction to higher energy prices has been a revolution in fracking for oil and gas, a development little noticed in Europe but fundamental to the surge in fossil fuel output in North America over the past decade," Cross said.
While the book review features a lengthy technical analysis of Piketty's economic theories, Cross concludes that Capital, like Marx's Das Capital, generated excitement because it appears to offer a "scientific" explanation of rising inequality.
"It is always intoxicating to think you have the forces of both history and science behind you," Cross said.
Read the full book review here.
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The Fraser Institute is an independent Canadian public policy research and educational organization with offices in Vancouver, Calgary, Toronto, and Montreal and ties to a global network of think-tanks in 87 countries. Its mission is to measure, study, and communicate the impact of competitive markets and government intervention on the welfare of individuals. To protect the Institute's independence, it does not accept grants from governments or contracts for research. Visit www.fraserinstitute.org.