Piketty, WSJ, and the Grain of Salt

Author of Capital in the 21st Century writes a brief clarification. WSJ publishes a disingenuous claim that he’s backtracking.  Lesson emerges.

One of the sensations in the economic world last year (if economists can, in fact, be sensational) surrounded the book Capital in the 21st Century by Thomas Piketty.

If you haven’t read the book, keep in mind that I do recommend it, while I realize it’s not for everyone. Piketty explores historical government data to reach a few very basic conclusions about the accumulation of capital in a market economy.  His main conclusion is that the rate of return on capital typically outpaces the rate of growth of any given economy (which he summarizes with the formula r>g) thus creating a long term wind of accumulation that creates unsettling wealth disparities.  In the book, he also is very clear that the long term wind can easily be overcome by shorter term shocks; and, he refers to the world wars and their effects on old line wealth in Europe as an example.

Piketty’s book implies that, instead of relying on global conflict and political upheaval, it might be better to have a policy answer to leveling wealth disparity.  It’s not a bad idea.  It might not ever get out of the economist’s classroom, but still…

It’s an interesting read; and, Piketty’s proposal of a tax on wealth is actually quite compelling in theory.  It does, however, have a sort of “belling the cat” feel to it when one looks at the world as it is.

However, this article isn’t about reading, it’s about being a discerning listener even when you don’t read.

The case…

This week, I came across an opinion piece in the Wall Street Journal by Robert Rosenkranz.

Here is your LINK to Rosenkranz’s piece.  I encourage you to read it…with a grain of salt (I’ll explain).

In it, Rosenkranz states that Piketty, who drafted and released a paper in December essentially restating his conclusions but ensuring that popular discourse didn’t caricature them improperly, is “backtracking.”

Here is your LINK to that paper (beware the link opens a PDF of an academic paper…Don’t open it if such things burn your eyes).  It’s an interesting read and actually a fine distillation of many of the conclusions of the book.

The issue…

I do not know Mr. Rosenkranz or his profile; but something struck me…To anyone who reads this stuff and has a sense of the backstory, Rosenkranz’s article is fantastically disingenuous.

Mr. Rosenkranz, like so many others with a microphone these days, is depending on the probability that very few of his readers have actually read Piketty’s book.  So, he takes a paper where Piketty restates the fundamental conclusions of Capital and comes up with this (my emphasis added):

“Now in an extraordinary about-face, Mr. Piketty has backtracked, undermining the policy prescriptions many have based on his conclusions. In “About Capital in the 21st Century,” slated for May publication in the American Economic Review but already available online, Mr. Piketty writes that far too much has been read into his thesis.”

He also takes a statement in Piketty’s “new” paper and positions it as a “new” conclusion.  To wit:

“Instead, Mr. Piketty argues in his new paper that political shocks, institutional changes and economic development played a major role in inequality in the past and will likely do so in the future.”

Nevermind that Piketty is simply restating arguments of his book.  Rosenkranz, who doesn’t even link to Piketty’s “new” paper, seeks to discredit the economist by claiming he has “backtracked” and “consigns his famous formula to irrelevance” and that Piketty is “walking back” his views.

Piketty is doing nothing of the sort.  His paper is simply a reminder that the book had a lot of angles and to take only one angle and politicize it would be malpractice.  Unfortunately, Mr. Rosenkranz takes that exact tack.

So what?

Sleight of hand such as that employed Mr. Rosenkranz brings to the forefront a major issue in the popular press today:  The dependence of writers and speakers on the ignorance of their audience.

One need only look at the comments on the article to see that (1) very few people have actually read Piketty and (2) all Rosenkranz really did was engage in an extended ad hominem.

That, my friends, is demagoguery at its finest; and if it’s in the Wall Street Journal, imagine what others are doing.

The lesson on this is not “be a fan of Thomas Piketty” or “Piketty is right.”

I, personally, believe that massive intergenerational wealth is something to beware of. To engage in a little demagoguery of my own:  Any red-blooded American ought to have the same wariness.  

The lesson is that intermediary authors like Rosenkranz can and do distort and attack in order to provoke.  They do so even when the provocation is actually detrimental to healthy discourse.

These distortions happen on all sides of any argument, which, I suspect, is why Piketty felt the need to publish a few pages of “clarification.”

Click Here if You Know How to Read

If you enjoy connecting the dots and thinking critically about the world around you, read on.

Below is a list and some discussion on ten books every executive should know.

Some of the books I’ve listed are all about how to “play offense” (that is, to build and execute on a philosophy of leadership effectiveness). Some, however, are very much about how to play defense (that is, to understand some disordered twists on philosophies and personalities that you might want to avoid).

Two things before the list:

First, I use the term “know” as opposed to “read,” since simply reading a book is not sufficient. Lots of people “read” (past tense) Animal Farm back in junior high or high school. Few can really internalize the implications at that age.

I’d argue it’s important to know these books’ content at a practical level. Many people will tell you they’ve read one of these books, and then go on to bastardize the philosophy. In fact, several items below are in the list because they are popularly twisted (hello, Hayek!).

I may even do the same thing in my notes below.

You’ll never know unless you know the books. I encourage you to know what you believe.

Second, this is a list of books that take on politics, philosophy, economics, change leadership, and human nature.

What you don’t see in the list is a set of business books.

I’d much rather encourage the world to think critically about their situation than to look at books that encourage them to emulate others’ situations. True, you don’t have to reinvent the wheel, but it’s good to know whether a wheel is what you really need.

That’s where critical thinking comes in.

But, I digress…Onward.

Ten Books Every Executive Should Know

1. Atlas Shrugged, by Ayn Rand

What it is: A rambling screed of a novel written against statism, cronyism, and bureaucracy everywhere. Atlas Shrugged has stood the test of time. Sadly, it is, in the end, a caricature of philosophy and good writing all at the same time. Still, after reading Rand, the next time you are in a meeting with a bureaucratic leader who dissembles with vision-less imprecision, you’ll ask yourself “Who is John Galt?” with warm self confidence.

Why read it: Because Rand is every 25-year-old budding executive’s favorite author; and unfortunately between the ages of 25 and 45, few budding executives read very much.

Know this: Befriend anyone who embraces Rand’s fundamental premise (essentially, you can’t conjure individual well being out of thin air or by force and theft / can’t have your cake and eat it too). Beware anyone who thinks “Shrugged” is great literature or airtight philosophy (they are more likely to be one of Rand’s “moochers” or “mystics” than they will ever realize).

Extra Credit: Read Rand’s The Fountainhead for a better read and a more concise understanding of Rand’s super-individualist point of view.

2. Animal Farm, by George Orwell

What it is: An anti-communist allegory. It has great messages for leaders everywhere, particularly in organizations undergoing transformational change (watch out for those animals who grab power for themselves and deceive others). Ultimately, it’s a dark story, but it’s also a warning relevant to many leaders and groups.

Why read it: Because too often Orwell’s little book is ascribed solely to political systems when it really can be applied to organizational systems as well. As a leader, you should know your constituencies well. Pigs who espouse equality, transparency, and performance but who are just ever-so-slightly more equal than others exist in every organization.

Know this: Too often, it’s the “Boxers” (the hardworking, loyal draft horse in Animal Farm) in your organization that make it go. Get to know your Boxers. Keep in mind the anecdote of the cat “re-educating” the sparrows to perch on the cat’s paw next time you think you can fool people into changing their behavior when your own behavior doesn’t engender the trust necessary for them to change.

3. The Road to Serfdom, by F.A. Hayek

What it is: Hayek’s classic warning of the perils of central planning and actions that obscure price.

Why read it: Because you probably have read some Smith, Keynes, and Friedman, but you’ve probably only heard second hand regurgitations of Hayek. Go to the source. It’s applicable to you as a leader in an organization. The more you confuse your people as to who has what incentives and as to what actions have what costs, the more you push your organization down the road to serfdom…

Know this: The favorite poster child of Libertarians everywhere was a proponent of social services and safety nets in wealthy societies.

4. Better, by Atul Gawande

What it is: A collection of essays on improvement in surgery and medicine, written with a heartfelt focus on both incremental and tansformational improvement. As a book, it’s as close to a safe haven of reflection for change leaders that I have found.

Why read it: Gawande’s essays, centered on three virtues of diligence, doing right, and ingenuity, are useful to any leader who really wants his organization to do…better.

Know this: Getting better in any pursuit does require diligence, values, and ingenuity. Gawande’s book is a good set of examples.

5. Capital in the 21st Century, by Thomas Piketty

What it is: If you don’t know at least the caricature of the book, you must not read the news much. Depending on your point of view, The book is either about how Piketty wants world governments to confiscate and redistribute all wealth OR how he wants to save capitalism from its own structural instability. My read is that Piketty has posed an intellectually honest and largely fact-based outline of real structural deficiences of “run rate” capitalism (read that: Capitalism without world wars or other significant dislocations of capital holdings), with a probably-right-but-probably-impractical taxation scheme as the cure.

Why read it: Because so few people with opinions on Piketty’s writing have actually read Piketty’s writing; and Piketty’s writings are relevant to global economics and politics.

Know this: As popular as an economist can get, Piketty has pricked the finger of capitalism in ways that few writers have since early in the 20th century. You’d best know what his premise is (Fundamentally: That economic growth cannot over the long run outrun return on capital, leading to capital structurally accumulating in fewer and fewer hands without intervention) so you don’t get misled by people who think they know what it is (“he’s a raging socialist” is my favorite ad hominem).

6. The Signal and the Noise, by Nate Silver

What it is: A engrossing but dense read on managing through the noise and moving forward in the face of ambiguity. Silver’s experience predicting elections is extrapolated to many different arenas (including poker).

Why read it: Applying Silver’s (essentially Bayesian) approaches to management takes “decision making” from a once a year budgeting process to a constantly updated, probabilistic approach to “leadership.”

Know this: Even if you are right, you might be wrong (and vice versa). Randomness can still beat you. But, there are methods that can help minimize the risk. Silver’s book outlines how.

7. The Sociopath Next Door, by Martha Stout

What it is: Stout’s treatise on the prevalence and malevolence of disordered personalities in your community and the workplace.

Why read it: While Stout’s estimates of the population prevalence of sociopaths (~4%) are higher than other experts’, the fact that these personalities self select into and thrive within corporate environments means her estimates are probably conservative when applied to your office. The next time someone stabs you in the back and then takes you out to lunch and asks you to pity them for the situation that made them stab you, this book will ring a bell.

Know this: People who lack conscience are out there. They are dangerous to you if you espouse a values set of any sort. And, they thrive in political organizations. Know, especially, how to spot them over time (Silver’s Bayesian approaches are helpful). Try to inoculate yourself as a leader from the charms and methods of these particular animals above and below you in the organization. If you don’t know they are there, others around you do and are feeling the pain of their machinations.

8. Into Thin Air: A Personal Account of the Mount Everest Disaster, by Jon Krakauer

What it is: A story of the May 1996 disaster on Everest. It’s also a gripping read with lots of action.

Why read it: Under the surface of this popular nonfiction narrative is an amazing web of case studies and lessons on decision making. The pressure to succeed, whether it comes from within an individuals (“my life goal is to summit Everest”) or from commercial interests (the guides made a lot of bad decisions with a lot of money on the line), has to be managed.

Know this: In rare environments, it takes rare skill to evaluate one’s circumstances effectively and make the right decisions. Executives who are confronted with deal fever (“let’s just get this thing closed”) should go back and re-read this book. Sometimes, when you are 100 feet from the summit, it’s the right answer to turn around and go home.

9. The Selfish Gene, by Richard Dawkins

What it is: A deep, logical dive into the notion that we are all just carriers for our genes.

Why read it: Because ideas travel like genes, and Dawkins was one of the first to realize and discuss it. He invented the notion of the Meme. As leaders, you and I trade in ideas.

Know this: Dawkins’ summaries of population genetics, memetics, and game theory (his “Evolutionarily Stable Strategy” concept still fascinates) have amazing applicability to change leaders everywhere. Unless you understand why people behave in an organization they way they do and what it takes to change, you can never really effect change as a leader.

10. Deep Survival, by Laurence Gonzales

What it is: A scorching examination of why and how people survive in many different life threatening circumstances.

Why read it: As with so many things in life, the art of survival is sometimes counter intuitive. Gonzales provides a view of extremely valuable traits that you might otherwise overlook. He boils down survival to a set of guidelines that are directly applicable to the life of any reader: Stay calm, be humble, don’t rush, have a plan but don’t fall in love with the plan, enjoy nature, do it for others. If you and I did these things every day, we would be much more effective than we are.

Know this: Gonzales’ examination brings into question what traits we really need in people who are leading themselves and others through harrowing circumstances. The next time you are looking for a prototypical talent, think about the survivors in Gonzales’ book and look again. Sometimes the best survivor isn’t the endurance athlete, it’s the pudgy guy who moves slow and continually examines the world around him.

There you have it.

This is just a list of ten books. I could make a list of 5 or 20 and it would be equally incomplete. There are insights everywhere. Go find them.

I’d love for you to add your “must know” books to the comments section. I (and other readers) might learn something.