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'Capital in the Twenty-First Century' by Thomas Piketty, reviewed | New Republic http://www.newrepublic.com/article/117429/capital-twenty-first-century-thomas-piketty-reviewed[4/27/2014 5:53:41 AM] POLITICS CULTURE THE MAGAZINE SUBSCRIBE NOW International Orders | Give a Gift SIGN IN PHOTO BY CHARLES PLATIAU/Reuters/Newscom Sign up now to get your dose of politics, culture, and big ideas with our free TRENDING BY ROBERT M. SOLOW Thomas Piketty Is Right Everything you need to know about 'Capital in the Twenty-First Century' APRIL 22, 2014 BOOKS I Capital in the Twenty-First Century by Thomas Piketty, translated by Arthur Goldhammer (Belknap Press) ncome inequality in the United States and elsewhere has been worsening since the 1970s. The most striking aspect has been the widening gap between the rich and the rest. This ominous anti-democratic trend has finally found its way into public consciousness and political rhetoric. A rational and effective policy for dealing with it—if there is to be one— will have to rest on an understanding of the causes of increasing inequality. The discussion so THOMAS PIKETTY IS RIGHT
Transcript

'Cap

ital i

n th

e Tw

enty

-Firs

t Cen

tury

' by

Thom

as P

iket

ty, r

evie

wed

| N

ew R

epub

lic

http

://w

ww

.new

repu

blic

.com

/arti

cle/

1174

29/c

apita

l-tw

enty

-firs

t-cen

tury

-thom

as-p

iket

ty-r

evie

wed

[4/2

7/20

14 5

:53:

41 A

M]

POL

ITIC

SC

UL

TU

RE

TH

E M

AG

AZ

INE

SUB

SCR

IBE

NO

WIn

tern

atio

nal O

rder

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e a

Gift

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N IN

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fpo

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ith o

ur fr

ee

TR

EN

DIN

G

BY

RO

BE

RT

M. S

OL

OW

Tho

mas

Pik

etty

Is R

ight

Ever

ythi

ng y

ou n

eed

to k

now

abo

ut'C

apita

l in

the

Twen

ty-F

irst

Cen

tury

'

APR

IL 2

2, 2

014

BO

OK

S

ICap

ital

in t

he T

wen

ty-F

irst

Cen

tury

by

Thom

as P

iket

ty,

trans

late

d by

Arth

ur G

oldh

amm

er (B

elkn

ap P

ress

)

ncom

e in

equa

lity

in th

e U

nite

d St

ates

and

els

ewhe

re h

as b

een

wor

seni

ng s

ince

the

1970

s.

The

mos

t st

rikin

g as

pect

has

bee

n th

e w

iden

ing

gap

betw

een

the

rich

and

the

rest

. Thi

s

omin

ous

anti-

dem

ocra

tic t

rend

has

fin

ally

fou

nd i

ts w

ay i

nto

publ

ic c

onsc

ious

ness

and

polit

ical

rhe

toric

. A r

atio

nal

and

effe

ctiv

e po

licy

for

deal

ing

with

it—

if th

ere

is to

be

one—

will

hav

e to

rest

on

an u

nder

stan

ding

of

the

caus

es o

f inc

reas

ing

ineq

ualit

y. T

he d

iscu

ssio

n so

THO

MA

S PI

KET

TY IS

RIG

HT

'Cap

ital i

n th

e Tw

enty

-Firs

t Cen

tury

' by

Thom

as P

iket

ty, r

evie

wed

| N

ew R

epub

lic

http

://w

ww

.new

repu

blic

.com

/arti

cle/

1174

29/c

apita

l-tw

enty

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t-cen

tury

-thom

as-p

iket

ty-r

evie

wed

[4/2

7/20

14 5

:53:

41 A

M]

daily

new

slet

ter.

SIG

N-U

P

RE

AD

LA

TE

R

FON

T S

IZE

EM

AIL

PRIN

T

AL

ICE

RO

BB

Mul

tilin

gual

s H

ave

Mul

tipl

ePe

rson

alit

ies

TIM

OT

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aini

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xtre

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illO

nly

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mph

if R

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ey, C

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ives

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ma

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rolli

ng Y

ou o

n th

e A

CA

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hav

e re

ad:

1/8

free

artic

les

in th

e pa

st 3

0da

ys.

ALR

EA

DY

A

far

has

turn

ed u

p a

num

ber o

f cau

sal f

acto

rs: t

he e

rosi

on o

f the

real

min

imum

wag

e; th

e de

cay

of la

bor u

nion

s an

d co

llect

ive

barg

aini

ng; g

loba

lizat

ion

and

inte

nsifi

ed c

ompe

titio

n fr

om lo

w-

wag

e w

orke

rs i

n po

or c

ount

ries;

tec

hnol

ogic

al c

hang

es a

nd s

hifts

in

dem

and

that

elim

inat

e

mid

-leve

l job

s an

d le

ave

the

labo

r mar

ket p

olar

ized

bet

wee

n th

e hi

ghly

edu

cate

d an

d sk

illed

at

the

top

and

the

mas

s of p

oorly

edu

cate

d an

d un

skill

ed a

t the

bot

tom

.

Each

of

thes

e ca

ndid

ate

caus

es s

eem

s to

cap

ture

a b

it of

the

truth

. B

ut e

ven

take

n to

geth

er

they

do

not

seem

to

prov

ide

a th

orou

ghly

sat

isfa

ctor

y pi

ctur

e. T

hey

have

at

leas

t tw

o

defic

ienc

ies.

Firs

t, th

ey d

o no

t spe

ak to

the

real

ly d

ram

atic

issu

e: th

e te

nden

cy fo

r the

ver

y to

p

inco

mes

—th

e “1

per

cent

”—to

pul

l aw

ay f

rom

the

rest

of

soci

ety.

Sec

ond,

they

seem

a li

ttle

adve

ntiti

ous,

acc

iden

tal;

whe

reas

a fo

rty-y

ear t

rend

com

mon

to th

e ad

vanc

ed e

cono

mie

s of

the

Uni

ted

Stat

es,

Euro

pe,

and

Japa

n w

ould

be

mor

e lik

ely

to re

st o

n so

me

deep

er fo

rces

with

in

mod

ern

indu

stria

l cap

italis

m. N

ow a

long

com

es T

hom

as P

iket

ty, a

forty

-two-

year

-old

Fre

nch

econ

omis

t, to

fill

thos

e ga

ps a

nd th

en s

ome.

I h

ad a

frie

nd, a

dis

tingu

ishe

d al

gebr

aist

, who

se

pref

erre

d ad

ject

ive

of p

rais

e w

as “

serio

us.”

“Z

is a

serio

us m

athe

mat

icia

n,”

he w

ould

say,

or

“Now

that

is a

serio

us p

aint

ing.

” W

ell,

this

is a

serio

us b

ook.

It is

als

o a

long

boo

k: 5

77 p

ages

of c

lose

ly

prin

ted

text

and

seve

nty-

seve

n pa

ges

of n

otes

.

(I c

all

dow

n a

pain

ful p

ox o

n pu

blis

hers

who

put

the

foot

note

s at

the

end

of

the

book

inst

ead

of th

e bo

ttom

of

the

page

whe

re th

ey

belo

ng, t

hus

mak

ing

sure

that

read

ers

like

me

will

ski

p m

any

of t

hem

.) Th

ere

is a

lso

an

exte

nsiv

e “t

echn

ical

ap

pend

ix”

avai

labl

e

onlin

e th

at

cont

ains

ta

bles

of

da

ta,

mat

hem

atic

al

argu

men

ts,

refe

renc

es

to t

he

liter

atur

e, a

nd li

nks

to c

lass

not

es f

or P

iket

ty’s

(ev

iden

tly e

xcel

lent

) le

ctur

e co

urse

in P

aris

.

The

Engl

ish

trans

latio

n by

Arth

ur G

oldh

amm

er re

ads v

ery

wel

l.

'Cap

ital i

n th

e Tw

enty

-Firs

t Cen

tury

' by

Thom

as P

iket

ty, r

evie

wed

| N

ew R

epub

lic

http

://w

ww

.new

repu

blic

.com

/arti

cle/

1174

29/c

apita

l-tw

enty

-firs

t-cen

tury

-thom

as-p

iket

ty-r

evie

wed

[4/2

7/20

14 5

:53:

41 A

M]

SU

BS

CR

IBE

R?

LOG

IN H

ER

E

sign

up

for

unlim

ited

acce

ss fo

r ju

st

$34.

97S

IGN

ME

UP

Pike

tty’s

stra

tegy

is to

sta

rt w

ith a

pan

oram

ic r

eadi

ng o

f th

e da

ta a

cros

s spa

ce a

nd ti

me,

and

then

wor

k ou

t fro

m th

ere.

He

and

a gr

oup

of a

ssoc

iate

s, m

ost n

otab

ly E

mm

anue

l Sae

z, a

noth

er

youn

g Fr

ench

eco

nom

ist,

a pr

ofes

sor

at B

erke

ley,

and

Ant

hony

B. A

tkin

son

of O

xfor

d, th

e

pion

eer

and

gray

em

inen

ce o

f m

oder

n in

equa

lity

stud

ies,

hav

e la

bore

d ha

rd t

o co

mpi

le a

n

enor

mou

s da

taba

se t

hat

is s

till

bein

g ex

tend

ed a

nd r

efin

ed.

It pr

ovid

es t

he e

mpi

rical

foun

datio

n fo

r Pik

etty

’s a

rgum

ent.

It al

l beg

ins

with

the

time

path

of t

otal

—pr

ivat

e an

d pu

blic

—w

ealth

(or c

apita

l) in

Fra

nce,

the

Uni

ted

Kin

gdom

, an

d th

e U

nite

d St

ates

, go

ing

back

to w

hene

ver d

ata

first

bec

ome

avai

labl

e

and

runn

ing

up t

o th

e pr

esen

t. G

erm

any,

Jap

an,

and

Swed

en,

and

less

fre

quen

tly o

ther

coun

tries

, are

incl

uded

in th

e da

taba

se w

hen

satis

fact

ory

stat

istic

s ex

ist.

If y

ou a

re w

onde

ring

why

a b

ook

abou

t ine

qual

ity sh

ould

beg

in b

y m

easu

ring

tota

l wea

lth, j

ust w

ait.

Sinc

e co

mpa

rison

s ov

er v

ast

stre

tche

s of

tim

e an

d sp

ace

are

the

esse

nce,

ther

e is

a p

robl

em

abou

t fin

ding

com

para

ble

units

in w

hich

to m

easu

re to

tal w

ealth

or c

apita

l in,

say,

Fra

nce

in

1850

as

wel

l as

in th

e U

nite

d St

ates

in 1

950.

Pik

etty

sol

ves t

his

prob

lem

by

divi

ding

wea

lth

mea

sure

d in

loca

l cur

renc

y of

the

time

by n

atio

nal i

ncom

e, a

lso

mea

sure

d in

loca

l cur

renc

y of

the

time.

The

wea

lth-in

com

e ra

tio t

hen

has

the

dim

ensi

on “

year

s.” T

he c

ompa

rison

just

men

tione

d sa

ys i

n fa

ct t

hat

tota

l w

ealth

in

Fran

ce i

n 18

50 a

mou

nted

to

abou

t sev

en y

ears

wor

th o

f in

com

e, b

ut o

nly

abou

t fou

r yea

rs fo

r the

Uni

ted

Stat

es in

195

0. T

his

visu

aliz

atio

n of

natio

nal

wea

lth o

r ca

pita

l as

rel

ativ

e to

nat

iona

l in

com

e is

bas

ic t

o th

e w

hole

ent

erpr

ise.

Ref

eren

ce t

o th

e ca

pita

l-ou

tput

or

capi

tal-

inco

me

ratio

is

com

mon

plac

e in

eco

nom

ics.

Get

used

to it

.

'Cap

ital i

n th

e Tw

enty

-Firs

t Cen

tury

' by

Thom

as P

iket

ty, r

evie

wed

| N

ew R

epub

lic

http

://w

ww

.new

repu

blic

.com

/arti

cle/

1174

29/c

apita

l-tw

enty

-firs

t-cen

tury

-thom

as-p

iket

ty-r

evie

wed

[4/2

7/20

14 5

:53:

41 A

M]

Ther

e is

a s

mal

l am

bigu

ity h

ere.

Pik

etty

use

s “w

ealth

” an

d “c

apita

l” a

s in

terc

hang

eabl

e te

rms.

We

know

how

to c

alcu

late

the

wea

lth o

f a p

erso

n or

an

inst

itutio

n: y

ou a

dd u

p th

e va

lue

of a

ll

its a

sset

s an

d su

btra

ct th

e to

tal

of d

ebts

. (Th

e va

lues

are

mar

ket

pric

es o

r, in

thei

r abs

ence

,

som

e ap

prox

imat

ion.

) Th

e re

sult

is n

et w

orth

or w

ealth

. In

Engl

ish

at le

ast,

this

is o

ften

calle

d

a pe

rson

’s o

r in

stitu

tion’

s ca

pita

l. B

ut “

capi

tal”

has

ano

ther

, not

qui

te e

quiv

alen

t, m

eani

ng: i

t

is a

“fa

ctor

of

prod

uctio

n,”

an e

ssen

tial

inpu

t in

to t

he p

rodu

ctio

n pr

oces

s, in

the

for

m o

f

fact

orie

s, m

achi

nery

, com

pute

rs, o

ffic

e bu

ildin

gs, o

r hou

ses

(that

pro

duce

“ho

usin

g se

rvic

es”)

.

This

mea

ning

can

div

erge

fro

m “

wea

lth.”

Triv

ially

, the

re a

re a

sset

s th

at h

ave

valu

e an

d ar

e

part

of w

ealth

but

do

not

prod

uce

anyt

hing

: w

orks

of

art,

hoar

ds o

f pr

ecio

us m

etal

s, an

d so

forth

. (P

aint

ings

han

ging

in a

livi

ng r

oom

cou

ld b

e sa

id to

pro

duce

“ae

sthe

tic se

rvic

es,”

but

thos

e ar

e no

t ge

nera

lly c

ount

ed in

nat

iona

l in

com

e.)

Mor

e si

gnifi

cant

ly, s

tock

mar

ket v

alue

s,

the

finan

cial

cou

nter

part

of c

orpo

rate

pro

duct

ive

capi

tal,

can

fluct

uate

vio

lent

ly, m

ore

viol

ently

than

nat

iona

l inc

ome.

In a

rece

ssio

n, th

e w

ealth

-inco

me

ratio

may

fall

notic

eabl

y, a

lthou

gh th

e

stoc

k of

pro

duct

ive

capi

tal,

and

even

its

exp

ecte

d fu

ture

ear

ning

pow

er, m

ay h

ave

chan

ged

very

littl

e or

not

at a

ll. B

ut a

s lo

ng a

s w

e st

ick

to lo

nger

-run

tren

ds, a

s Pi

ketty

gen

eral

ly d

oes,

this

diff

icul

ty c

an sa

fely

be

disr

egar

ded.

AD

VER

TISE

MEN

T

load

ing.

..

'Cap

ital i

n th

e Tw

enty

-Firs

t Cen

tury

' by

Thom

as P

iket

ty, r

evie

wed

| N

ew R

epub

lic

http

://w

ww

.new

repu

blic

.com

/arti

cle/

1174

29/c

apita

l-tw

enty

-firs

t-cen

tury

-thom

as-p

iket

ty-r

evie

wed

[4/2

7/20

14 5

:53:

41 A

M]

IThe

data

then

exh

ibit

a cl

ear

patte

rn. I

n Fr

ance

and

Gre

at B

ritai

n, n

atio

nal c

apita

l sto

od fa

irly

stea

dily

at a

bout

sev

en ti

mes

nat

iona

l inc

ome

from

170

0 to

191

0, th

en fe

ll sh

arpl

y fr

om 1

910

to 1

950,

pre

sum

ably

as

a re

sult

of w

ars

and

depr

essi

on, r

each

ing

a lo

w o

f 2.5

in B

ritai

n an

d a

bit l

ess

than

3 in

Fra

nce.

The

cap

ital-

inco

me

ratio

then

beg

an to

clim

b in

bot

h co

untri

es, a

nd

reac

hed

slig

htly

mor

e th

an 5

in

Brit

ain

and

slig

htly

les

s th

an 6

in

Fran

ce b

y 20

10. T

he

traje

ctor

y in

the

Uni

ted

Stat

es w

as sl

ight

ly d

iffer

ent:

it st

arte

d at

just

abo

ve 3

in 1

770,

clim

bed

to 5

in 1

910,

fell

slig

htly

in 1

920,

reco

vere

d to

a h

igh

betw

een

5 an

d 5.

5 in

193

0, fe

ll to

bel

ow

4 in

195

0, a

nd w

as b

ack

to 4

.5 in

201

0.

The

wea

lth-in

com

e ra

tio in

the

Uni

ted

Stat

es h

as a

lway

s be

en lo

wer

than

in E

urop

e. T

he m

ain

reas

on in

the

early

yea

rs w

as th

at la

nd v

alue

s bu

lked

less

in th

e w

ide

open

spa

ces o

f Nor

th

Am

eric

a. T

here

was

of

cour

se m

uch

mor

e la

nd,

but

it w

as v

ery

chea

p. I

nto

the

twen

tieth

cent

ury

and

onw

ard,

how

ever

, th

e lo

wer

cap

ital-

inco

me

ratio

in

the

Uni

ted

Stat

es p

roba

bly

refle

cts

the

high

er l

evel

of

prod

uctiv

ity:

a gi

ven

amou

nt o

f ca

pita

l co

uld

supp

ort

a la

rger

prod

uctio

n of

out

put t

han

in E

urop

e. It

is n

o su

rpris

e th

at th

e tw

o w

orld

war

s ca

used

muc

h le

ss

dest

ruct

ion

and

diss

ipat

ion

of c

apita

l in

the

Uni

ted

Stat

es t

han

in B

ritai

n an

d Fr

ance

. The

impo

rtant

obs

erva

tion

for

Pike

tty’s

arg

umen

t is

that

, in

all t

hree

cou

ntrie

s, a

nd e

lsew

here

as

wel

l, th

e w

ealth

-inco

me

ratio

has

bee

n in

crea

sing

sin

ce 1

950,

and

is

alm

ost

back

to

nine

teen

th-c

entu

ry le

vels

. H

e pr

ojec

ts th

is in

crea

se to

con

tinue

into

the

curr

ent c

entu

ry, w

ith

wei

ghty

con

sequ

ence

s tha

t will

be

disc

usse

d as

we

go o

n.

n fa

ct h

e pr

edic

ts,

with

out

muc

h co

nfid

ence

and

with

out

kidd

ing

him

self,

tha

t the

wor

ld

capi

tal-

inco

me

ratio

will

rise

from

just

und

er 4

.5 in

201

0 to

just

ove

r 6.5

by

the

end

of th

is

cent

ury.

Tha

t w

ould

brin

g th

e w

hole

wor

ld b

ack

to w

here

a f

ew r

ich

coun

tries

of E

urop

e

wer

e in

the

nine

teen

th c

entu

ry. W

here

doe

s th

is g

uess

com

e fr

om?

Or,

mor

e ge

nera

lly, w

hat

dete

rmin

es a

n ec

onom

y’s

long

-run

cap

ital-

inco

me

ratio

any

way

? Th

is is

a q

uest

ion

that

has

been

stu

died

by

econ

omis

ts f

or s

ome

seve

nty-

five

year

s. Th

ey h

ave

conv

erge

d on

a st

anda

rd

answ

er th

at P

iket

ty a

dopt

s as

a lo

ng-r

un e

cono

mic

“la

w.”

In ro

ugh

outli

ne it

goe

s lik

e th

is.

'Cap

ital i

n th

e Tw

enty

-Firs

t Cen

tury

' by

Thom

as P

iket

ty, r

evie

wed

| N

ew R

epub

lic

http

://w

ww

.new

repu

blic

.com

/arti

cle/

1174

29/c

apita

l-tw

enty

-firs

t-cen

tury

-thom

as-p

iket

ty-r

evie

wed

[4/2

7/20

14 5

:53:

41 A

M]

TImag

ine

an e

cono

my

with

a n

atio

nal i

ncom

e of

100

, gro

win

g at

2 p

erce

nt a

yea

r (pe

rhap

s w

ith

occa

sion

al h

iccu

ps, t

o be

igno

red)

. Su

ppos

e it

regu

larly

sav

es a

nd in

vest

s (th

at is

, add

s to

its

capi

tal)

10 p

erce

nt o

f na

tiona

l inc

ome.

So,

in th

e ye

ar in

whi

ch it

s in

com

e re

ache

s 100

it a

dds

10 to

its

stoc

k of

cap

ital.

We

wan

t to

know

if th

e ca

pita

l-in

com

e ra

tio c

an st

ay u

ncha

nged

for

next

yea

r, th

at is

to sa

y, c

an st

abili

ze fo

r the

long

run.

For

that

to h

appe

n, th

e nu

mer

ator

of t

he

capi

tal-

inco

me

ratio

mus

t gr

ow a

t th

e sa

me

2 pe

rcen

t ra

te a

s th

e de

nom

inat

or. W

e ha

ve

alre

ady

said

that

it g

row

s by

10;

for t

hat t

o be

2 p

erce

nt o

f cap

ital,

capi

tal m

ust h

ave

been

500

,

no m

ore,

no

less

. We

have

foun

d a

cons

iste

nt st

ory:

this

yea

r nat

iona

l inc

ome

is 1

00, c

apita

l is

500,

and

the

ratio

is 5

. Nex

t yea

r nat

iona

l inc

ome

is 1

02, c

apita

l is

510,

the

ratio

is st

ill 5

, and

this

pro

cess

can

repe

at it

self

auto

mat

ical

ly a

s lo

ng a

s th

e gr

owth

rate

stay

s at 2

per

cent

a y

ear

and

the

savi

ng /

inve

stm

ent r

ate

is 1

0 pe

rcen

t of n

atio

nal i

ncom

e. S

omet

hing

mor

e dr

amat

ic is

true:

if c

apita

l and

labo

r com

bine

to p

rodu

ce n

atio

nal o

utpu

t acc

ordi

ng to

the

good

old

law

of

dim

inis

hing

ret

urns

, th

en w

here

ver

this

eco

nom

y st

arts

, it

will

be

driv

en b

y its

ow

n in

tern

al

logi

c to

this

uni

que

self

-rep

rodu

cing

cap

ital-

inco

me

ratio

.

Car

eful

atte

ntio

n to

thi

s ex

ampl

e w

ill s

how

tha

t it

amou

nts

to a

gen

eral

stat

emen

t: if

the

econ

omy

is g

row

ing

at g

per

cent

per

yea

r, an

d if

it sa

ves

s pe

rcen

t of i

ts n

atio

nal i

ncom

e ea

ch

year

, the

self

-rep

rodu

cing

cap

ital-

inco

me

ratio

is s

/ g

(10

/ 2 in

the

exam

ple)

. Pik

etty

sugg

ests

that

glo

bal g

row

th o

f ou

tput

will

slo

w in

the

com

ing

cent

ury

from

3 p

erce

nt to

1.5

per

cent

annu

ally

. (T

his

is th

e su

m o

f th

e gr

owth

rat

es o

f po

pula

tion

and

prod

uctiv

ity, b

oth

of w

hich

he e

xpec

ts to

dim

inis

h.)

He

puts

the

wor

ld s

avin

g / i

nves

tmen

t rat

e at

abo

ut 1

0 pe

rcen

t. So

he

expe

cts

the

capi

tal-

inco

me

ratio

to c

limb

even

tual

ly to

som

ethi

ng n

ear 7

(or 1

0 / 1

.5).

This

is a

big

deal

, as

will

em

erge

. H

e is

qui

te a

war

e th

at th

e un

derly

ing

assu

mpt

ions

cou

ld tu

rn o

ut to

be w

rong

; no

one

can

see

a ce

ntur

y ah

ead.

But

it c

ould

pla

usib

ly g

o th

is w

ay.

he k

ey th

ing

abou

t wea

lth in

a c

apita

list e

cono

my

is th

at it

repr

oduc

es it

self

and

usua

lly

earn

s a

posi

tive

net

retu

rn.

That

is

the

next

thi

ng t

o be

inve

stig

ated

. Pik

etty

dev

elop

s

estim

ates

of

the

“pur

e” ra

te o

f re

turn

(afte

r m

inor

adj

ustm

ents

) in

Brit

ain

goin

g ba

ck to

'Cap

ital i

n th

e Tw

enty

-Firs

t Cen

tury

' by

Thom

as P

iket

ty, r

evie

wed

| N

ew R

epub

lic

http

://w

ww

.new

repu

blic

.com

/arti

cle/

1174

29/c

apita

l-tw

enty

-firs

t-cen

tury

-thom

as-p

iket

ty-r

evie

wed

[4/2

7/20

14 5

:53:

41 A

M]

1770

and

in F

ranc

e go

ing

back

to 1

820,

but

not

for

the

Uni

ted

Stat

es. H

e co

nclu

des:

“[T

]he

pure

ret

urn

on c

apita

l ha

s os

cilla

ted

arou

nd a

cen

tral

valu

e of

4–5

per

cent

a y

ear,

or m

ore

gene

rally

in

an i

nter

val

from

3–6

per

cent

a y

ear.

Ther

e ha

s be

en n

o pr

onou

nced

long

-term

trend

eith

er u

pwar

d or

dow

nwar

d....

It is

pos

sibl

e, h

owev

er, t

hat t

he p

ure

retu

rn o

n ca

pita

l has

decr

ease

d sl

ight

ly o

ver

the

very

long

run.

” It

wou

ld b

e in

tere

stin

g to

hav

e co

mpa

rabl

e fig

ures

for t

he U

nite

d St

ates

.

Now

if y

ou m

ultip

ly th

e ra

te o

f ret

urn

on c

apita

l by

the

capi

tal-

inco

me

ratio

, you

get

the

shar

e

of c

apita

l in

the

natio

nal i

ncom

e. F

or e

xam

ple,

if th

e ra

te o

f ret

urn

is 5

per

cent

a y

ear a

nd th

e

stoc

k of

cap

ital i

s si

x ye

ars

wor

th o

f na

tiona

l inc

ome,

inco

me

from

cap

ital w

ill b

e 30

per

cent

of n

atio

nal i

ncom

e, a

nd s

o in

com

e fr

om w

ork

will

be

the

rem

aini

ng 7

0 pe

rcen

t. A

t las

t, af

ter

all t

his

prep

arat

ion,

we

are

begi

nnin

g to

talk

abo

ut in

equa

lity,

and

in tw

o di

stin

ct se

nses

. Firs

t,

we

have

arr

ived

at t

he fu

nctio

nal d

istri

butio

n of

inco

me—

the

split

bet

wee

n in

com

e fr

om w

ork

and

inco

me

from

wea

lth. S

econ

d, it

is a

lway

s th

e ca

se th

at w

ealth

is m

ore

high

ly c

once

ntra

ted

amon

g th

e ric

h th

an in

com

e fr

om la

bor (

alth

ough

rece

nt A

mer

ican

his

tory

look

s ra

ther

odd

in

this

resp

ect);

and

this

bei

ng s

o, th

e la

rger

the

shar

e of

inco

me

from

wea

lth, t

he m

ore

uneq

ual

the

dist

ribut

ion

of in

com

e am

ong

pers

ons

is li

kely

to b

e. I

t is

this

ineq

ualit

y ac

ross

per

sons

that

mat

ters

mos

t for

goo

d or

ill i

n a

soci

ety.

This

is o

ften

not

wel

l un

ders

tood

, an

d m

ay b

e w

orth

a b

rief

digr

essi

on. T

he la

bor

shar

e of

natio

nal i

ncom

e is

arit

hmet

ical

ly th

e sa

me

thin

g as

the

real

wag

e di

vide

d by

the

prod

uctiv

ity o

f

labo

r. W

ould

you

rat

her

live

in a

soc

iety

in w

hich

the

real

wag

e w

as r

isin

g ra

pidl

y bu

t the

labo

r sha

re w

as fa

lling

(bec

ause

pro

duct

ivity

was

incr

easi

ng e

ven

fast

er),

or o

ne in

whi

ch th

e

real

wag

e w

as s

tagn

atin

g, a

long

with

pro

duct

ivity

, so

the

lab

or sh

are

was

unc

hang

ing?

The

first

is

sure

ly b

ette

r on

nar

row

ly e

cono

mic

gro

unds

: yo

u ea

t yo

ur w

age,

not

you

r sha

re o

f

natio

nal i

ncom

e. B

ut th

ere

coul

d be

pol

itica

l and

soc

ial a

dvan

tage

s to

the

seco

nd o

ptio

n. If

a

smal

l cl

ass

of o

wne

rs o

f w

ealth

—an

d it

is s

mal

l—co

mes

to

colle

ct a

gro

win

g sh

are

of th

e

natio

nal

inco

me,

it

is l

ikel

y to

dom

inat

e th

e so

ciet

y in

oth

er w

ays a

s w

ell.

This

dic

hoto

my

need

not

aris

e, b

ut it

is g

ood

to b

e cl

ear.

Supp

ose

we

acce

pt P

iket

ty’s

edu

cate

d gu

ess

that

the

capi

tal-

inco

me

ratio

will

incr

ease

ove

r the

'Cap

ital i

n th

e Tw

enty

-Firs

t Cen

tury

' by

Thom

as P

iket

ty, r

evie

wed

| N

ew R

epub

lic

http

://w

ww

.new

repu

blic

.com

/arti

cle/

1174

29/c

apita

l-tw

enty

-firs

t-cen

tury

-thom

as-p

iket

ty-r

evie

wed

[4/2

7/20

14 5

:53:

41 A

M]

Tnext

cen

tury

bef

ore

stab

ilizi

ng a

t a

high

val

ue s

omew

here

aro

und

7. D

oes

it fo

llow

that

the

capi

tal

shar

e of

inc

ome

will

als

o ge

t bi

gger

? N

ot n

eces

saril

y: r

emem

ber

that

we

have

to

mul

tiply

the

cap

ital-

inco

me

ratio

by

the

rate

of

retu

rn,

and

that

sam

e la

w o

f dim

inis

hing

retu

rns

sugg

ests

that

the

rate

of

retu

rn o

n ca

pita

l w

ill f

all.

As

prod

uctio

n be

com

es m

ore

and

mor

e ca

pita

l-in

tens

ive,

it g

ets h

arde

r and

har

der t

o fin

d pr

ofita

ble

uses

for a

dditi

onal

cap

ital,

or

easy

way

s to

sub

stitu

te c

apita

l fo

r la

bor.

Whe

ther

the

capi

tal

shar

e fa

lls o

r ris

es d

epen

ds o

n

whe

ther

the

rate

of

retu

rn h

as to

fall

prop

ortio

nally

mor

e or

less

than

the

capi

tal-

inco

me

ratio

rises

.

Ther

e ha

s be

en a

lot

of

rese

arch

aro

und

this

que

stio

n w

ithin

eco

nom

ics,

but

no

defin

itely

conc

lusi

ve a

nsw

er h

as e

mer

ged.

Thi

s su

gges

ts t

hat

the

ultim

ate

effe

ct o

n th

e ca

pita

l sha

re,

whi

chev

er w

ay it

goe

s, w

ill b

e sm

all.

Pike

tty o

pts

for a

n in

crea

se in

the

capi

tal s

hare

, and

I am

incl

ined

to a

gree

with

him

. Pro

duct

ivity

gro

wth

has

bee

n ru

nnin

g ah

ead

of re

al w

age

grow

th

in th

e A

mer

ican

eco

nom

y fo

r th

e la

st f

ew d

ecad

es, w

ith n

o si

gn o

f a re

vers

al, s

o th

e ca

pita

l

shar

e ha

s ris

en a

nd t

he l

abor

sha

re f

alle

n. P

erha

ps t

he c

apita

l sh

are

will

go

from

abo

ut 3

0

perc

ent

to a

bout

35

perc

ent,

with

wha

teve

r ch

alle

nge

to d

emoc

ratic

cul

ture

and

pol

itics

that

enta

ils. he

re is

a s

trong

er im

plic

atio

n of

this

line

of

argu

men

t, an

d w

ith it

we

com

e to

the

hear

t

of P

iket

ty’s

cas

e. S

o fa

r as

I k

now

, no

one

bef

ore

him

has

mad

e th

is c

onne

ctio

n.

Rem

embe

r w

hat h

as b

een

esta

blis

hed

so fa

r. B

oth

hist

ory

and

theo

ry su

gges

t tha

t the

re is

a sl

ow te

nden

cy in

an

indu

stria

l ca

pita

list

econ

omy

for

the

capi

tal-

inco

me

ratio

to st

abili

ze,

and

with

it th

e ra

te o

f re

turn

on

capi

tal.

This

tend

ency

can

be

dist

urbe

d by

seve

re d

epre

ssio

ns,

war

s, a

nd s

ocia

l an

d te

chno

logi

cal

disr

uptio

ns,

but

it re

asse

rts i

tsel

f in

tran

quil

cond

ition

s.

Ove

r the

long

span

of h

isto

ry su

rvey

ed b

y Pi

ketty

, the

rate

of r

etur

n on

cap

ital i

s us

ually

larg

er

than

the

und

erly

ing

rate

of

grow

th.

The

only

sub

stan

tial

exce

ptio

nal

sub-

perio

d is

bet

wee

n

1910

and

195

0. P

iket

ty a

scrib

es th

is r

arity

to th

e di

srup

tion

and

high

taxa

tion

caus

ed b

y th

e

two

grea

t war

s an

d th

e de

pres

sion

that

cam

e be

twee

n th

em.

'Cap

ital i

n th

e Tw

enty

-Firs

t Cen

tury

' by

Thom

as P

iket

ty, r

evie

wed

| N

ew R

epub

lic

http

://w

ww

.new

repu

blic

.com

/arti

cle/

1174

29/c

apita

l-tw

enty

-firs

t-cen

tury

-thom

as-p

iket

ty-r

evie

wed

[4/2

7/20

14 5

:53:

41 A

M]

BTher

e is

no

logi

cal n

eces

sity

for

the

rate

of

retu

rn to

exc

eed

the

grow

th ra

te: a

soc

iety

or

the

indi

vidu

als

in i

t ca

n de

cide

to

save

and

to

inve

st s

o m

uch

that

the

y (a

nd t

he l

aw o

f

dim

inis

hing

ret

urns

) dr

ive

the

rate

of

retu

rn b

elow

the

long

-term

gro

wth

rat

e, w

hate

ver t

hat

happ

ens

to b

e. I

t is

kno

wn

that

this

pos

sibl

e st

ate

of a

ffai

rs is

soc

ially

per

vers

e in

the

sens

e

that

letti

ng th

e st

ock

of c

apita

l dim

inis

h un

til th

e ra

te o

f re

turn

falls

bac

k to

equ

ality

with

the

grow

th r

ate

wou

ld a

llow

for

a p

erm

anen

tly h

ighe

r le

vel o

f con

sum

ptio

n pe

r per

son,

and

thus

for

a be

tter

soci

al s

tate

. B

ut th

ere

is n

o in

visi

ble

hand

to st

eer a

mar

ket e

cono

my

away

from

this

per

vers

ity. Y

et it

has

bee

n av

oide

d, p

roba

bly

beca

use

hist

oric

al g

row

th r

ates

hav

e be

en

low

and

cap

ital

has

been

sca

rce.

We

can

take

it a

s no

rmal

that

the

rate

of

retu

rn o

n ca

pita

l

exce

eds

the

unde

rlyin

g gr

owth

rate

.

ut n

ow w

e ca

n tu

rn o

ur a

ttent

ion

to w

hat

is h

appe

ning

with

in th

e ec

onom

y. S

uppo

se it

has

reac

hed

a “s

tead

y st

ate”

whe

n th

e ca

pita

l-in

com

e ra

tio h

as st

abili

zed.

Tho

se w

hose

inco

me

com

es e

ntire

ly fr

om w

ork

can

expe

ct th

eir w

ages

and

inco

mes

to b

e ris

ing

abou

t

as fa

st a

s pr

oduc

tivity

is in

crea

sing

thro

ugh

tech

nolo

gica

l pro

gres

s. T

hat i

s a

little

less

than

the

over

all

grow

th r

ate,

whi

ch a

lso

incl

udes

the

rat

e of

pop

ulat

ion

incr

ease

. N

ow i

mag

ine

som

eone

who

se in

com

e co

mes

ent

irely

from

acc

umul

ated

wea

lth. H

e or

she

ear

ns r

per

cent

a

year

. (I

am ig

norin

g ta

xes,

but

not

for

long

.) If

she

is v

ery

wea

lthy,

she

is li

kely

to c

onsu

me

only

a s

mal

l fr

actio

n of

her

inco

me.

The

res

t is

sav

ed a

nd a

ccum

ulat

ed, a

nd h

er w

ealth

will

incr

ease

by

alm

ost

r pe

rcen

t ea

ch y

ear,

and

so w

ill h

er in

com

e. I

f you

leav

e $1

00 in

a b

ank

acco

unt p

ayin

g 3

perc

ent i

nter

est,

your

bal

ance

will

incr

ease

by

3 pe

rcen

t eac

h ye

ar.

This

is P

iket

ty’s

mai

n po

int,

and

his

new

and

pow

erfu

l con

tribu

tion

to a

n ol

d to

pic:

as

long

as

the

rate

of

retu

rn e

xcee

ds t

he r

ate

of g

row

th,

the

inco

me

and

wea

lth o

f the

rich

will

gro

w

fast

er th

an th

e ty

pica

l in

com

e fr

om w

ork.

(Th

ere

seem

s to

be

no o

ffse

tting

tend

ency

for t

he

aggr

egat

e sh

are

of c

apita

l to

shr

ink;

the

tend

ency

may

be

slig

htly

in th

e op

posi

te d

irect

ion.

)

This

int

erpr

etat

ion

of t

he o

bser

ved

trend

tow

ard

incr

easi

ng i

nequ

ality

, an

d es

peci

ally

the

phen

omen

on o

f th

e 1

perc

ent,

is n

ot r

oote

d in

any

fai

lure

of

econ

omic

inst

itutio

ns; i

t res

ts

'Cap

ital i

n th

e Tw

enty

-Firs

t Cen

tury

' by

Thom

as P

iket

ty, r

evie

wed

| N

ew R

epub

lic

http

://w

ww

.new

repu

blic

.com

/arti

cle/

1174

29/c

apita

l-tw

enty

-firs

t-cen

tury

-thom

as-p

iket

ty-r

evie

wed

[4/2

7/20

14 5

:53:

41 A

M]

Pprim

arily

on

the

abili

ty o

f th

e ec

onom

y to

abs

orb

incr

easi

ng a

mou

nts

of c

apita

l w

ithou

t a

subs

tant

ial f

all i

n th

e ra

te o

f ret

urn.

Thi

s m

ay b

e go

od n

ews f

or th

e ec

onom

y as

a w

hole

, but

it

is n

ot g

ood

new

s for

equ

ity w

ithin

the

econ

omy.

We

need

a n

ame

for

this

pro

cess

for

fut

ure

refe

renc

e. I

will

cal

l it

the

“ric

h-ge

t-ric

her

dyna

mic

.” T

he m

echa

nism

is a

littl

e m

ore

com

plic

ated

than

Pik

etty

’s b

ook

lets

on.

The

re is

som

e sa

ving

from

labo

r inc

ome,

and

thus

som

e ac

cum

ulat

ion

of c

apita

l in

the

hand

s of

wag

e

and

sala

ry e

arne

rs.

The

retu

rn o

n th

is w

ealth

has

to

be t

aken

int

o ac

coun

t. St

ill, g

iven

the

smal

l ini

tial w

ealth

and

the

rela

tivel

y lo

w s

avin

g ra

te b

elow

the

top

grou

p, a

s w

ell a

s th

e fa

ct

that

sm

all s

avin

gs e

arn

a re

lativ

ely

low

rate

of r

etur

n, c

alcu

latio

n sh

ows

that

this

mec

hani

sm is

not c

apab

le o

f off

setti

ng th

e fo

reca

st o

f wid

enin

g in

equa

lity.

Ther

e is

yet

ano

ther

, al

so r

athe

r da

rk,

impl

icat

ion

of t

his

acco

unt

of u

nder

lyin

g tre

nds.

If

alre

ady

exis

ting

aggl

omer

atio

ns o

f w

ealth

tend

to g

row

fas

ter

than

inco

mes

fro

m w

ork,

it is

likel

y th

at th

e ro

le o

f inh

erite

d w

ealth

in so

ciet

y w

ill in

crea

se re

lativ

e to

that

of r

ecen

tly e

arne

d

and

ther

efor

e m

ore

mer

it-ba

sed

fortu

nes.

Nee

dles

s to

say

, the

fact

that

the

aggr

egat

e of

wag

e

inco

mes

gro

ws

only

at a

rela

tivel

y sl

ow ra

te d

oes

not e

xclu

de th

e po

ssib

ility

that

out

stan

ding

ly

succ

essf

ul in

nova

tors

, man

ager

s, e

ntre

pren

eurs

, en

terta

iner

s, a

nd o

ther

s ca

n ac

cum

ulat

e la

rge

amou

nts

of w

ealth

in a

life

time

and

join

the

rank

s of

the

rent

iers

. But

a sl

ower

rate

of g

row

th

certa

inly

mak

es s

uch

succ

ess

stor

ies

less

like

ly. T

here

will

be

mor

e to

say

abo

ut th

is. Y

et th

e

arith

met

ic s

ugge

sts

that

the

con

cent

ratio

n of

wea

lth a

nd i

ts a

bilit

y to

gro

w w

ill fa

vor a

n

incr

easi

ng w

eigh

t of i

nher

itanc

e as

com

pare

d w

ith ta

lent

.

iket

ty li

kes

to d

escr

ibe

the

dist

ribut

ion

of in

com

e an

d w

ealth

con

cret

ely,

and

not

in te

rms

of s

umm

ary

stat

istic

s. H

e lo

oks

at t

he p

ropo

rtion

s of

the

tot

al c

laim

ed b

y th

e to

p 1

perc

ent

(som

etim

es a

lso

the

top

tent

h of

the

1 pe

rcen

t), th

e to

p 10

per

cent

, the

nex

t 40

perc

ent,

and

the

botto

m h

alf.

(He

labe

ls th

e 40

per

cent

bet

wee

n th

e to

p de

cile

and

the

med

ian

as th

e “m

iddl

e cl

ass.”

The

re is

an

elem

ent

of o

xym

oron

in a

mid

dle

clas

s th

at li

es e

ntire

ly

abov

e th

e m

edia

n; b

ut I

sup

pose

this

usa

ge is

no

wor

se th

an th

e A

mer

ican

hab

it of

des

crib

ing

'Cap

ital i

n th

e Tw

enty

-Firs

t Cen

tury

' by

Thom

as P

iket

ty, r

evie

wed

| N

ew R

epub

lic

http

://w

ww

.new

repu

blic

.com

/arti

cle/

1174

29/c

apita

l-tw

enty

-firs

t-cen

tury

-thom

as-p

iket

ty-r

evie

wed

[4/2

7/20

14 5

:53:

41 A

M]

Yever

yone

bet

wee

n th

e cl

early

rich

and

the

abje

ctly

poo

r as

bein

g in

the

mid

dle

clas

s.)

The

data

are

com

plic

ated

and

not

eas

ily c

ompa

rabl

e ac

ross

tim

e an

d sp

ace,

but

her

e is

the

flavo

r of

Pik

etty

’s s

umm

ary

pict

ure.

Cap

ital i

s in

deed

ver

y un

equa

lly d

istri

bute

d. C

urre

ntly

in

the

Uni

ted

Stat

es,

the

top

10 p

erce

nt o

wn

abou

t 70

per

cent

of

all

the

capi

tal,

half

of th

at

belo

ngin

g to

the

top

1 pe

rcen

t; th

e ne

xt 4

0 pe

rcen

t—w

ho c

ompo

se th

e “m

iddl

e cl

ass”

—ow

n

abou

t a q

uarte

r of t

he to

tal (

muc

h of

that

in th

e fo

rm o

f hou

sing

), an

d th

e re

mai

ning

hal

f of t

he

popu

latio

n ow

ns n

ext t

o no

thin

g, a

bout

5 p

erce

nt o

f tot

al w

ealth

. Eve

n th

at a

mou

nt o

f mid

dle-

clas

s pr

oper

ty o

wne

rshi

p is

a n

ew p

heno

men

on in

his

tory

. The

typi

cal E

urop

ean

coun

try is

a

little

mor

e eg

alita

rian:

the

top

1 pe

rcen

t ow

n 25

per

cent

of

the

tota

l ca

pita

l, an

d th

e m

iddl

e

clas

s 35

per

cent

. (A

cen

tury

ago

the

Eur

opea

n m

iddl

e cl

ass

owne

d es

sent

ially

no

wea

lth a

t

all.)

If th

e ow

ners

hip

of w

ealth

in fa

ct b

ecom

es e

ven

mor

e co

ncen

trate

d du

ring

the

rest

of t

he

twen

ty-f

irst c

entu

ry, t

he o

utlo

ok is

pre

tty b

leak

unl

ess y

ou h

ave

a ta

ste

for o

ligar

chy.

Inco

me

from

wea

lth is

pro

babl

y ev

en m

ore

conc

entra

ted

than

wea

lth it

self

beca

use,

as

Pike

tty

note

s, la

rge

bloc

ks o

f w

ealth

ten

d to

ear

n a

high

er r

etur

n th

an s

mal

l on

es. S

ome

of th

is

adva

ntag

e co

mes

fro

m e

cono

mie

s of

sca

le,

but

mor

e m

ay c

ome

from

the

fact

that

ver

y bi

g

inve

stor

s ha

ve a

cces

s to

a w

ider

ran

ge o

f in

vest

men

t op

portu

nitie

s th

an s

mal

ler

inve

stor

s.

Inco

me

from

wor

k is

nat

ural

ly le

ss c

once

ntra

ted

than

inco

me

from

wea

lth. I

n Pi

ketty

’s st

yliz

ed

pict

ure

of t

he U

nite

d St

ates

tod

ay,

the

top

1 pe

rcen

t ea

rns

abou

t 12

per

cent

of a

ll la

bor

inco

me,

the

next

9 p

erce

nt e

arn

23 p

erce

nt,

the

mid

dle

clas

s ge

ts a

bout

40

perc

ent,

and

the

botto

m h

alf

abou

t a

quar

ter

of i

ncom

e fr

om w

ork.

Eur

ope

is n

ot v

ery

diff

eren

t: th

e to

p 10

perc

ent c

olle

ct so

mew

hat l

ess a

nd th

e ot

her t

wo

grou

ps a

littl

e m

ore.

ou g

et t

he p

ictu

re:

mod

ern

capi

talis

m i

s an

une

qual

soc

iety

, an

d th

e ric

h-ge

t-ric

her

dyna

mic

stro

ngly

sug

gest

that

it w

ill g

et m

ore

so. B

ut th

ere

is o

ne m

ore

loos

e en

d to

tie

up, a

lread

y hi

nted

at,

and

it ha

s to

do

with

the

adve

nt o

f ver

y hi

gh w

age

inco

mes

. Firs

t,

here

are

som

e fa

cts

abou

t the

com

posi

tion

of to

p in

com

es. A

bout

60

perc

ent o

f the

inco

me

of

the

top

1 pe

rcen

t in

the

Uni

ted

Stat

es to

day

is la

bor

inco

me.

Onl

y w

hen

you

get

to th

e to

p

'Cap

ital i

n th

e Tw

enty

-Firs

t Cen

tury

' by

Thom

as P

iket

ty, r

evie

wed

| N

ew R

epub

lic

http

://w

ww

.new

repu

blic

.com

/arti

cle/

1174

29/c

apita

l-tw

enty

-firs

t-cen

tury

-thom

as-p

iket

ty-r

evie

wed

[4/2

7/20

14 5

:53:

41 A

M]

tent

h of

1 p

erce

nt d

oes

inco

me

from

cap

ital

star

t to

pre

dom

inat

e. T

he i

ncom

e of

the

top

hund

redt

h of

1 p

erce

nt is

70

perc

ent

from

cap

ital.

The

stor

y fo

r Fra

nce

is n

ot v

ery

diff

eren

t,

thou

gh th

e pr

opor

tion

of la

bor i

ncom

e is

a b

it hi

gher

at e

very

leve

l. Ev

iden

tly th

ere

are

som

e

very

hig

h w

age

inco

mes

, as

if yo

u di

dn’t

kno

w.

This

is a

fairl

y re

cent

dev

elop

men

t. In

the

1960

s, th

e to

p 1

perc

ent o

f wag

e ea

rner

s co

llect

ed a

little

mor

e th

an 5

per

cent

of

all

wag

e in

com

es.

This

fra

ctio

n ha

s ris

en p

retty

stea

dily

unt

il

now

aday

s, w

hen

the

top

1 pe

rcen

t of

wag

e ea

rner

s re

ceiv

e 10

–12

perc

ent o

f all

wag

es. T

his

time

the

stor

y is

rat

her

diff

eren

t in

Fra

nce.

The

re th

e sh

are

of to

tal

wag

es g

oing

to th

e to

p

perc

entil

e w

as s

tead

y at

6 p

erce

nt u

ntil

very

rece

ntly

, whe

n it

clim

bed

to 7

per

cent

. The

rece

nt

surg

e of

ext

rem

e in

equa

lity

at th

e to

p of

the

wag

e di

strib

utio

n m

ay b

e pr

imar

ily a

n A

mer

ican

deve

lopm

ent.

Pike

tty, w

ho w

ith E

mm

anue

l Sae

z ha

s m

ade

a ca

refu

l stu

dy o

f hig

h-in

com

e ta

x

retu

rns

in th

e U

nite

d St

ates

, at

tribu

tes

this

to th

e ris

e of

wha

t he

calls

“su

perm

anag

ers.”

The

very

hig

hest

inc

ome

clas

s co

nsis

ts t

o a

subs

tant

ial

exte

nt o

f to

p ex

ecut

ives

of

larg

e

corp

orat

ions

, with

ver

y ric

h co

mpe

nsat

ion

pack

ages

. (A

dis

prop

ortio

nate

num

ber o

f the

se, b

ut

by n

o m

eans

all

of th

em, c

ome

from

the

finan

cial

ser

vice

s in

dust

ry.)

With

or

with

out

stoc

k

optio

ns, t

hese

larg

e pa

y pa

ckag

es g

et c

onve

rted

to w

ealth

and

futu

re in

com

e fr

om w

ealth

. But

the

fact

rem

ains

that

muc

h of

the

incr

ease

d in

com

e (a

nd w

ealth

) ine

qual

ity in

the

Uni

ted

Stat

es

is d

riven

by

the

rise

of th

ese

supe

rman

ager

s.

Ther

e is

not

muc

h un

ders

tand

ing

of th

is p

heno

men

on, a

nd th

is b

ook

has

little

to a

dd. P

iket

ty

is o

f co

urse

aw

are

that

exe

cutiv

e pa

y at

the

very

top

is u

sual

ly d

eter

min

ed in

a c

ozy

way

by

boar

ds o

f di

rect

ors

and

com

pens

atio

n co

mm

ittee

s m

ade

up o

f peo

ple

very

like

the

exec

utiv

es

they

are

pay

ing.

The

re i

s ce

rtain

ly a

n el

emen

t of

the

Lak

e W

obeg

on i

llusi

on: e

very

boa

rd

wan

ts to

bel

ieve

that

“its

” hi

gh e

xecu

tives

are

bet

ter

than

the

med

ian

and

dese

rve

to b

e pa

id

mor

e th

an th

e m

edia

n.

It is

of c

ours

e po

ssib

le th

at “

supe

rman

ager

s” re

ally

are

supe

rman

ager

s, an

d th

eir v

ery

high

pay

mer

ely

refle

cts

thei

r ve

ry la

rge

cont

ribut

ions

to c

orpo

rate

pro

fits.

It is

eve

n po

ssib

le th

at th

eir

incr

ease

d do

min

ance

sinc

e th

e 19

60s

has

an id

entif

iabl

e ca

use

alon

g th

at li

ne. T

his

expl

anat

ion

wou

ld b

e ha

rder

to m

aint

ain

if th

e ph

enom

enon

turn

s out

to b

e un

ique

ly A

mer

ican

. It d

oes

not

'Cap

ital i

n th

e Tw

enty

-Firs

t Cen

tury

' by

Thom

as P

iket

ty, r

evie

wed

| N

ew R

epub

lic

http

://w

ww

.new

repu

blic

.com

/arti

cle/

1174

29/c

apita

l-tw

enty

-firs

t-cen

tury

-thom

as-p

iket

ty-r

evie

wed

[4/2

7/20

14 5

:53:

41 A

M]

Ioccu

r in

Fra

nce

or, o

n ca

sual

obs

erva

tion,

in G

erm

any

or Ja

pan.

Can

thei

r top

exe

cutiv

es la

ck

a ce

rtain

gen

e? If

so, i

t wou

ld b

e a

frui

tful f

ield

for t

rans

plan

ts.

Ano

ther

pos

sibi

lity,

tem

ptin

g bu

t st

ill r

athe

r va

gue,

is th

at to

p m

anag

emen

t com

pens

atio

n, a

t

leas

t som

e of

it, d

oes

not r

eally

bel

ong

in th

e ca

tego

ry o

f lab

or in

com

e, b

ut re

pres

ents

inst

ead

a so

rt of

adj

unct

to c

apita

l, an

d sh

ould

be

treat

ed in

par

t as

a w

ay o

f sh

arin

g in

inco

me

from

capi

tal.

Ther

e is

a p

uzzl

e he

re w

hose

sol

utio

n w

ould

shed

som

e lig

ht o

n th

e re

cent

incr

ease

in

ineq

ualit

y at

the

top

of

the

pyra

mid

in

the

Uni

ted

Stat

es.

The

puzz

le m

ay n

ot b

e so

lubl

e

beca

use

the

varie

ty o

f circ

umst

ance

s an

d ou

tcom

es is

just

too

larg

e.

n an

y ca

se, i

t is

pret

ty c

lear

that

the

clas

s of

sup

erm

anag

ers

belo

ngs s

ocia

lly a

nd p

oliti

cally

with

the

ren

tiers

, no

t w

ith t

he l

arge

r bo

dy o

f sa

larie

d an

d in

depe

nden

t pro

fess

iona

ls a

nd

mid

dle

man

ager

s. S

o Pi

ketty

’s f

oreb

odin

g vi

sion

of

the

twen

ty-f

irst

cent

ury

rem

ains

to b

e

deal

t with

: slo

wer

gro

wth

of

popu

latio

n an

d pr

oduc

tivity

, a ra

te o

f re

turn

on

capi

tal d

istin

ctly

high

er th

an th

e gr

owth

rate

, the

wea

lth-in

com

e ra

tio ri

sing

bac

k to

nin

etee

nth-

cent

ury

heig

hts,

prob

ably

a s

omew

hat

high

er c

apita

l sh

are

in n

atio

nal

inco

me,

an

incr

easi

ng d

omin

ance

of

inhe

rited

wea

lth o

ver

earn

ed w

ealth

, and

a st

ill w

ider

gap

bet

wee

n th

e to

p in

com

es a

nd a

ll th

e

othe

rs.

May

be a

littl

e sk

eptic

ism

is in

ord

er. F

or in

stan

ce,

the

hist

oric

ally

fairl

y st

able

long

-

run

rate

of r

etur

n ha

s be

en th

e ba

lanc

ed o

utco

me

of a

tens

ion

betw

een

dim

inis

hing

retu

rns

and

tech

nolo

gica

l pro

gres

s; p

erha

ps a

slow

er ra

te o

f gro

wth

in th

e fu

ture

will

pul

l the

rate

of r

etur

n

dow

n dr

astic

ally

. Per

haps

. But

sup

pose

that

Pik

etty

is o

n th

e w

hole

righ

t. W

hat,

if an

ythi

ng, i

s

to b

e do

ne?

Pike

tty’s

stro

ng p

refe

renc

e is

for

an

annu

al p

rogr

essi

ve ta

x on

wea

lth, w

orld

wid

e if

poss

ible

,

to e

xclu

de f

light

to p

hony

tax

have

ns.

He

reco

gniz

es th

at a

glo

bal t

ax is

a h

opel

ess

goal

, but

he th

inks

that

it is

pos

sibl

e to

enf

orce

a re

gion

al w

ealth

tax

in a

n ar

ea th

e si

ze o

f Eur

ope

or th

e

Uni

ted

Stat

es.

An

exam

ple

of t

he s

ort

of r

ate

sche

dule

tha

t he

has

in m

ind

is 0

per

cent

on

fortu

nes

belo

w o

ne m

illio

n eu

ros,

1 p

erce

nt o

n fo

rtune

s be

twee

n on

e an

d fiv

e m

illio

n eu

ros,

'Cap

ital i

n th

e Tw

enty

-Firs

t Cen

tury

' by

Thom

as P

iket

ty, r

evie

wed

| N

ew R

epub

lic

http

://w

ww

.new

repu

blic

.com

/arti

cle/

1174

29/c

apita

l-tw

enty

-firs

t-cen

tury

-thom

as-p

iket

ty-r

evie

wed

[4/2

7/20

14 5

:53:

41 A

M]

and

2 pe

rcen

t ab

ove

five

mill

ion

euro

s. (

A e

uro

is c

urre

ntly

wor

th a

bout

$1.

37.)

Rem

embe

r

that

thi

s is

an

annu

al t

ax,

not

a on

etim

e le

vy.

He

estim

ates

tha

t su

ch a

tax

app

lied

in th

e

Euro

pean

Uni

on w

ould

gen

erat

e re

venu

e eq

ual

to a

bout

2 p

erce

nt o

f G

DP,

to

be u

sed

or

dist

ribut

ed a

ccor

ding

to s

ome

agre

ed fo

rmul

a. H

e se

ems

to p

refe

r, as

wou

ld I,

a sl

ight

ly m

ore

prog

ress

ive

rate

sch

edul

e. O

f co

urse

the

adm

inis

tratio

n of

suc

h a

tax

wou

ld re

quire

a h

igh

degr

ee o

f tra

nspa

renc

y an

d co

mpl

ete

repo

rting

on

the

part

of f

inan

cial

inst

itutio

ns a

nd o

ther

corp

orat

ions

. The

boo

k di

scus

ses

in s

ome

deta

il ho

w th

is m

ight

wor

k in

the

Euro

pean

con

text

.

As

with

any

tax,

ther

e w

ould

no

doub

t be

a co

ntin

uing

stru

ggle

to c

lose

loop

hole

s an

d pr

even

t

evas

ion,

but

that

is p

ar fo

r the

cou

rse.

Ann

ual

reve

nue

of 2

per

cent

of

GD

P is

nei

ther

triv

ial

nor

enor

mou

s. B

ut re

venu

e is

not

the

cent

ral

purp

ose

of P

iket

ty’s

pro

posa

l. Its

poi

nt is

that

it is

the

diff

eren

ce b

etw

een

the

grow

th

rate

and

the

afte

r-ta

x re

turn

on

capi

tal t

hat f

igur

es in

the

rich-

get-

riche

r dyn

amic

of i

ncre

asin

g

ineq

ualit

y. A

tax

on c

apita

l with

a ra

te st

ruct

ure

like

the

one

sugg

este

d w

ould

dim

inis

h th

e ga

p

betw

een

the

rate

of

retu

rn a

nd th

e gr

owth

rate

by

perh

aps

1.5

perc

ent a

nd w

ould

wea

ken

that

mec

hani

sm p

erce

ptib

ly.

This

pro

posa

l m

akes

tec

hnic

al s

ense

bec

ause

it

is a

nat

ural

ant

idot

e to

the

dyn

amic

s of

ineq

ualit

y th

at h

e ha

s un

cove

red.

Kee

p in

min

d th

at th

e ric

h-ge

t-ric

her p

roce

ss is

a p

rope

rty o

f

the

syst

em a

s it

oper

ates

on

alre

ady

accu

mul

ated

wea

lth. I

t doe

s no

t wor

k th

roug

h in

divi

dual

ince

ntiv

es to

inno

vate

or e

ven

to sa

ve. B

lunt

ing

it w

ould

not

nec

essa

rily

blun

t the

m. O

f cou

rse

a lo

wer

afte

r-ta

x re

turn

on

capi

tal

mig

ht m

ake

the

accu

mul

atio

n of

larg

e fo

rtune

s so

mew

hat

less

attr

activ

e, t

houg

h ev

en t

hat

is n

ot a

t al

l cl

ear.

In a

ny c

ase,

it

wou

ld b

e a

tole

rabl

e

cons

eque

nce.

Pike

tty w

rites

as

if a

tax

on w

ealth

mig

ht s

omet

ime

soon

hav

e po

litic

al v

iabi

lity

in E

urop

e,

whe

re th

ere

is a

lread

y so

me

expe

rienc

e w

ith c

apita

l le

vies

. I

have

no

opin

ion

abou

t tha

t. O

n

this

sid

e of

the

Atla

ntic

, the

re w

ould

see

m to

be

no s

erio

us p

rosp

ect o

f suc

h an

out

com

e. W

e

are

polit

ical

ly u

nabl

e to

pre

serv

e ev

en a

n es

tate

tax

with

real

bite

. If w

e co

uld,

that

wou

ld b

e a

reas

onab

le p

lace

to s

tart,

not

to m

entio

n a

mor

e st

eepl

y pr

ogre

ssiv

e in

com

e ta

x th

at d

id n

ot

favo

r in

com

e fr

om c

apita

l as

the

curr

ent s

yste

m d

oes.

But

the

built

-in te

nden

cy fo

r the

top

to

'Cap

ital i

n th

e Tw

enty

-Firs

t Cen

tury

' by

Thom

as P

iket

ty, r

evie

wed

| N

ew R

epub

lic

http

://w

ww

.new

repu

blic

.com

/arti

cle/

1174

29/c

apita

l-tw

enty

-firs

t-cen

tury

-thom

as-p

iket

ty-r

evie

wed

[4/2

7/20

14 5

:53:

41 A

M]

outp

ace

ever

yone

els

e w

ill n

ot y

ield

to m

inor

pat

ches

. Wou

ldn’

t it b

e in

tere

stin

g if

the

Uni

ted

Stat

es w

ere

to b

ecom

e th

e la

nd o

f th

e fr

ee,

the

hom

e of

the

bra

ve,

and

the

last

refu

ge o

f

incr

easi

ng in

equa

lity

at th

e to

p (a

nd p

erha

ps a

lso

at th

e bo

ttom

)? W

ould

that

wor

k fo

r you

?

Robe

rt M

. Sol

ow is

Inst

itute

Pro

fess

or o

f Eco

nom

ics

emer

itus

at M

IT. H

e w

on th

e N

obel

Pri

ze

in E

cono

mic

s in

198

7.

shar

e th

is a

rtic

le o

n fa

cebo

ok o

r tw

itter

post

ed in

: pol

itics

,eco

nom

ics,

inco

me

ineq

ualit

y,ta

xatio

n,m

arx

prin

t thi

s ar

ticle

You

May

Lik

eby

Tab

oola

Spo

nsor

ed C

onte

nt

Hai

r C

olor

for

Wom

en

Wh

y Y

ou S

hou

ld C

olor

You

r G

ray

at H

ome

Per

fect

ly T

imed

Pic

ture

s

Th

e M

ost

Ou

trag

eou

s,P

erfe

ctly

Tim

edP

ictu

res

Yo…

Qu

iBid

s

SP

EC

IAL

RE

PO

RT

:M

ust

-Hav

e P

rod

uct

sB

ein

g S

old

Wit

h S

t…

Con

tin

uu

m

DD

OS

in 2

014

: T

he

New

Dis

trib

ute

d D

enia

lof

Ser

vice

A…

Tru

e H

ealt

h

You

Wil

l Be

SH

OC

KE

Dto

Hea

r th

e T

ruth

Ab

out

L…

Tri

pC

ura

tor

Bes

t R

esor

ts:

Top

10

Car

ibbe

an V

alu

es

'Cap

ital i

n th

e Tw

enty

-Firs

t Cen

tury

' by

Thom

as P

iket

ty, r

evie

wed

| N

ew R

epub

lic

http

://w

ww

.new

repu

blic

.com

/arti

cle/

1174

29/c

apita

l-tw

enty

-firs

t-cen

tury

-thom

as-p

iket

ty-r

evie

wed

[4/2

7/20

14 5

:53:

41 A

M]

Apr

il 20

, 201

4 - 1

2:00

AM

Why

Do

Our

Off

ices

Mak

e U

s So

Mis

erab

le?

Apr

il 22

, 201

4 8:

00 P

M

Putin

Is U

sing

WW

II fo

r Pr

opag

anda

Bec

ause

It's

the

Bes

t Mem

ory

Tha

tR

ussi

a H

as

pro

acti

v+

Don

’t L

et Y

ours

elf

Get

Th

ese

Maj

or T

ypes

of

Acn

eW

en b

y C

haz

Dea

n

Hai

r C

are

Issu

es:

Bef

ore

& A

fter

Ph

otos

by T

aboo

laP

rom

oted

Con

tent

Fro

m T

he

Web

Fro

m T

he

New

Rep

ub

lic

How

To

Tra

in Y

our

Pu

pp

y to

Sit

(uliv

e)

See

Th

is/S

kip

Th

at: F

rom

Th

eO

ther

Wom

…(P

EO

PLE

.com

)

Th

e M

ost

Hil

ario

us,

Am

azin

g,…

(Am

azin

gly

Tim

ed P

hoto

s)

12 F

un

Fac

ts A

bou

t "S

aved

By

Th

e B

ell"

(Sug

gest

)

Ch

alle

nge

s O

n A

Cro

ss C

oun

try

Bik

e T

rip

(Mer

rell)

Is R

uss

ia S

uff

erin

g F

rom

Pos

t-T

rau

mat

ic S

tres

s D

iso

…H

ow T

wo

Inof

fen

sive

Wor

ds

Bec

ame

the

Mos

t In

flam

ma…

Rep

ubl

ican

s H

ave

a G

ood

Map

.T

hat

Doe

sn't

Mea

n O

…T

hom

as J

effe

rson

Was

a M

usl

imM

ich

ael P

ined

a’s

Fou

l Bal

l

360

com

men

ts


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