Piketty’s Capital21: why is inequality rising?

Thomas Piketty’s Capital in the Twenty-First Century is a great book.  It consists of the working out of the implications of a simple principle, namely, that if the return on investment is a higher percentage rate than economic growth, wealth and income will become more and more concentrated in the hands of a tiny minority.

He said there is nothing to prevent wealth from becoming as concentrated in the hands of a tiny elite as it was in France and England in the 18th and 19th centuries — which is not the same thing as saying this is certain to occur.   I’m now re-reading Piketty’s book, from which I’m learning a lot, but l think it is important to be clear on what he’s saying and not saying,

He says that historically return on investment has exceeded the rate of economic growth, or, as he puts it, r > g,ut, like most economists, he writes of this as if it were the impersonal workings of the economy.  He lumps all income-producing forms of property together, which is legitimate for his purposes, but I make a distinction between (1) innovators who create value, (2) inheritors and passive investors and (3) usurers and manipulators.  The first deserve rich rewards, the second deserve average rewards, the third deserve to be unemployed or maybe in prison.   I think the rise of people in the third category is a big reason for the upward distribution of income in the USA.

Extreme inequality of income is a bad thing because it gives a small group of people too much power over the rest of us.  But curbing the excessive power of the top 0.1 percent or top 0.01 percent of income earners will not, in and of itself, create economic growth or end poverty.   These are not Piketty’s topics.

His preferred solution to excessive concentration of wealth is a progressive tax on capital along with progressive taxes on incomes and inheritances.  I’m not opposed to this, but I think there are other, better ways to change the r > g equation.  Promoting economic growth is one way.  Empowering wage-earners, such as by stronger labor unions or higher minimum wage laws, is another.

Below are links for those who want to know more, but don’t have time to read the 585 pages of his book and 78 pages of end notes.

LINKS

Writings and lectures.

Capital in the Twenty-First Century: Introduction, from the book

Inequality & Capitalism in the Long-Run, a Power Point presentation.

Inequality in the Long Run by Thomas Piketty and Emmanuel Saez for Science. [Added 6/21/14]

Profiles and interviews

Capital Man by Emily Eakin for The Chronicle of Higher Education

Thomas Piketty doesn’t hate capitalism; he just wants to fix it by Matthew Yglesias for Vox.

Taking on Adam Smith (and Karl Marx) by Thomas Erlanger in the New York Times.

Q&A: Thomas Piketty on the Wealth Divide, an interview for the New York Times.

Thomas Piketty on capital, labor, growth and inequality, an interview by members of the Insitutute for Public Policy Research.

Piketty answers David Brooks: The best-selling economist sounds off to Salon [Added 6/21/14]

Economists for and against

Why We’re In a New Gilded Age by Paul Krugman in the New York Review of Books

Thomas Piketty Is Right: everything you need to know about ‘Capital in the Twenty-First Century’ by Robert Solow in The New Republic.

Studying the Rich: Thomas Piketty and his Critics by Mike Konczal for Boston Review.

Why a Global Tax on Wealth Won’t End Inequality by Tyler Cowen for Foreign Affairs.

Why I am not persuaded by Piketty’s argument by Tyler Cowen for Marginal Revolution.

Economic Policy in a Post-Piketty World by Dean Baker for TruthOut.

Kapital for the Twenty-First Century? by James K. Galbraith for Dissent.

 Thomas Piketty’s Capital in the Twenty-First Century: its uses and limits by Charles Andrews for Monthly Review.

Other reviews and comments

The short guide to Capitalism in the Twenty-First Century by Matthew Yglesias for Vox

Thomas Piketty and Millennial Marxists on the Scourge of Inequality by Timothy Shenk for The Nation.

The Most Important Book Ever Is All Wrong by Clive Crook for Bloomberg View

Bad Government and Central Bank Policy Are the MAIN CAUSE of Runaway Inequality by Carl Herman on Washington’s Blog.

In Praise of the Utopian Political Imagination by Kathleen Geier for The Nation.

Is Surging Inequalilty Endemic to Capitalism? by John Cassidy in The New Yorker.

Piketty’s Inequality Story in Six Charts by John Cassidy in The New Yorker.

Everything wrong with capitalism as explained by Balzac, “House” and “The Aristocats” by Tim Fernholz for Quartz.

My earlier posts on Piketty’s Capital21

Why the rich will probably get richer.   This is my summary of the book.

Piketty’s formula: its scope and limits.

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