Lunchtime Must-Watch: Thomas Piketty: Capital in the Twenty-First Century

Capital in the Twenty-First Century: “What are the grand dynamics that drive…

…the accumulation and distribution of capital? Questions about the long-term evolution of inequality, the concentration of wealth, and the prospects for economic growth lie at the heart of political economy. But satisfactory answers have been hard to find for lack of adequate data and clear guiding theories. In Capital in the Twenty-First Century, economist Thomas Piketty analyzes a unique collection of data from twenty countries, ranging as far back as the eighteenth century, to uncover key economic and social patterns. His findings will transform debate and set the agenda for the next generation of thought about wealth and inequality…

Plus:

Diane Coyle: Capital and Destiny: “It is with some trepidation that I offer my review of Thomas Piketty’s Capital in the 21st Century….

Piketty’s construction of a long-run multi-country World Top Incomes Database for income and wealth, along with Emmanuel Saez and Anthony Atkinson, is a magnificent achievement…. Piketty shows that the income share of (marketed financial) capital (at market values) declined substantially in the second half of the 20th century but is now climbing again. His argument is that this increase is a near-inexorable trend. The mid-20th century decline was essentially the result of Depression and war, or in other words, the massive destruction of assets and social dislocation; and the capital share stayed low for some decades because economic growth was unusually high, which–he argues–will no longer be the case. Specifically, population growth has slowed or turned negative, and Piketty is clearly gloomy about the prospect of productivity growth.

It’s clear that many readers have taken this argument as a given without concerning themselves about how it adds up. It is based on two equations… the share of capital in national income (α) is defined as the rate of return on capital (r) times the ratio of the capital stock to income (β)… an accounting identity … [and] a ‘steady state’ condition: when the economy settles down in a stable way in the very long run, at its long-term potential growth rate, the ratio of capital stock to income equals the savings rate (s) divided by the growth rate (g)….

Piketty notes….

The inequality r > g is a contingent historical proposition, which is true in some periods and political contexts and not in others…

The exception was the latter part of the 20th century…. I am sceptical about the economy ever reaching the balanced growth state…. I’m also doubtful that the saving rate would not adjust…. I also wish Piketty had spent more time discussing the rate of return…. James Galbraith’s point… is marketable capital consisting mainly of financial assets the right definition to plug into a balanced growth model?…

The sense of inevitability or otherwise does matter. Piketty’s policy proposal is a global wealth tax. He’s acknowledged how unrealistic this is, but says it’s important to change the intellectual climate. True, but how about also debating the rigged markets in finance and the corporate legal framework that have contributed so significantly to the growth in very high incomes, which are quickly turned into new wealth? What about income and inheritance taxes? And rather than treating savings, the return on capital and the growth rate as givens, isn’t it worth thinking about what determines them, and what actually determines causality in the book’s simple algebra. I’m glad Capital in the 21st Century has succeeded…. It’s just a bit of a shame it does so in such a deterministic–and therefore disempowering–way.