French economist shows inequality trends gaining strength

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French economist shows inequality trends gaining strength


Thomas Piketty, a young guy who has had a big impact in France, now more visible in the US:



Issues Pages: 

Thomas Piketty’s new book, “Capital in the Twenty-First Century,” described by one French newspaper as a “a political and theoretical bulldozer,” defies left and right orthodoxy by arguing that worsening inequality is an inevitable outcome of free market capitalism.

Piketty, a professor at the Paris School of Economics, does not stop there. He contends that capitalism’s inherent dynamic propels powerful forces that threaten democratic societies.

Capitalism, according to Piketty, confronts both modern and modernizing countries with a dilemma: entrepreneurs become increasingly dominant over those who own only their own labor. In Piketty’s view, while emerging economies can defeat this logic in the near term, in the long run, “when pay setters set their own pay, there’s no limit,” unless “confiscatory tax rates” are imposed.

Piketty’s book — published four months ago in France and due out in English this March — suggests that traditional liberal government policies on spending, taxation and regulation will fail to diminish inequality. Piketty has also delivered and posted a series of lectures in French and English outlining his argument.


It should be an interesting book. I read English better than I read French so I'm waiting for the English edition. The Economist reviewed it (presumably the French edition):

and drew the implication that faster growth would lead to greater income equality.


"The only way to halt this process, he argues, is to impose a global progressive tax on wealth – global in order to prevent (among other things) the transfer of assets to countries without such levies. A global tax, in this scheme, would restrict the concentration of wealth and limit the income flowing to capital. Piketty would impose an annual graduated tax on stocks and bonds, property and other assets that are customarily not taxed until they are sold. He leaves open the rate and formula for distributing revenues."

Very interesting piece. Provides a modern theoretical justification for taxing capital at a higher rate in order to reduce inequality and save democracy.


Picketty had a column in French daily Liberation, and it was always very readable;

he and Esther Duflo of MIT are bright stars of French economics, her with more a focus on poverty


Krugman still on the case:

Mr. Piketty is hardly the first economist to point out that we are experiencing a sharp rise in inequality, or even to emphasize the contrast between slow income growth for most of the population and soaring incomes at the top. It’s true that Mr. Piketty and his colleagues have added a great deal of historical depth to our knowledge, demonstrating that we really are living in a new Gilded Age. But we’ve known that for a while.

No, what’s really new about “Capital” is the way it demolishes that most cherished of conservative myths, the insistence that we’re living in a meritocracy in which great wealth is earned and deserved.

For the past couple of decades, the conservative response to attempts to make soaring incomes at the top into a political issue has involved two lines of defense: first, denial that the rich are actually doing as well and the rest as badly as they are, but when denial fails, claims that those soaring incomes at the top are a justified reward for services rendered. Don’t call them the 1 percent, or the wealthy; call them “job creators.”

But how do you make that defense if the rich derive much of their income not from the work they do but from the assets they own? And what if great wealth comes increasingly not from enterprise but from inheritance?

What Mr. Piketty shows is that these are not idle questions. Western societies before World War I were indeed dominated by an oligarchy of inherited wealth — and his book makes a compelling case that we’re well on our way back toward that state.





A 700-page economics tome about income inequality isn't an obvious hit, but it currently tops the list of best-selling books on Amazon.


Krugman endorses thesis :

It seems safe to say that “Capital in the Twenty-First Century,” the magnum opus of the French economist Thomas Piketty, will be the most important economics book of the year — and maybe of the decade. Mr. Piketty, arguably the world’s leading expert on income and wealth inequality, does more than document the growing concentration of income in the hands of a small economic elite. He also makes a powerful case that we’re on the way back to “patrimonial capitalism,” in which the commanding heights of the economy are dominated not just by wealth, but also by inherited wealth, in which birth matters more than effort and talent.

To be sure, Mr. Piketty concedes that we aren’t there yet. So far, the rise of America’s 1 percent has mainly been driven by executive salaries and bonuses rather than income from investments, let alone inherited wealth. But six of the 10 wealthiest Americans are already heirs rather than self-made entrepreneurs, and the children of today’s economic elite start from a position of immense privilege. As Mr. Piketty notes, “the risk of a drift toward oligarchy is real and gives little reason for optimism.”



oh boy Tongue out

a not-at-all condescending counter-vision:

Politically, the global wealth tax is utopian, as even Piketty understands. If the left takes it up, they are marching onto a bridge to nowhere. But, in the current mania, it is being embraced.

This is a moment when progressives have found their worldview and their agenda. This move opens up a huge opportunity for the rest of us in the center and on the right. First, acknowledge that the concentration of wealth is a concern with a beefed up inheritance tax.

Second, emphasize a contrasting agenda that will reward growth, saving and investment, not punish these things, the way Piketty would. Support progressive consumption taxes not a tax on capital. Third, emphasize that the historically proven way to reduce inequality is lifting people from the bottom with human capital reform, not pushing down the top. In short, counter angry progressivism with unifying uplift.

The reaction to Piketty is an amazing cultural phenomenon. But it says more about class rivalry within the educated classes than it does about how to really expand opportunity. Of course, this perspective could just be my own prejudice. When it comes to cultural analysis, I, like Piketty, am quasi-Marxist.


Hands up all who have read it?

Not surprising it's getting a lot of buzz - it's the next "Spirit Level" (not a compliment).

Piketty seems pretty strong on French data, pretty weak on understanding U.S. tax policy (esp. wrt executive comp and university endowments). Three opening comments:

1) Lumping stocks in with bonds as "capital" is perhaps an oversimplification.

2) The r > g inequality thing is moderately irritating, since it should be r*(1-t) vs. g where t is the income tax rate, and since by his own data it doesn't always happen (buy French bonds in 1910 and you're hosed by 1960, since French inflation had taken away a factor of at least 100 of your purchasing power by that time).

3) The reviews up until now seem to bin as "I knew it all along!" vs. "Stupid Marxist!". Seems like few people took the time to actually read the book.


Coming back to this after two years, someone had the gall to check whether the thesis was true empirically:


Since estimated dynamics do not confirm Piketty's theory, observed income inequality in many advanced economies over the past decades are probably explained by factors other than the spread between r and g.


There are endogenous forces overlooked by Piketty - particularly the cyclicality of the savings rate - which balance out predicted large increases in the capital share. On inequality,the evidence against Piketty's predictions is even stronger: for at least 75% of the countries, the response of inequality to increases in r - g has the opposite sign to that postulated by Piketty.

Figure 2 is also enlightening.

Stupid objective reality, disconfirming such a beautiful and politically useful theory.