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157 of 181 people found the following review helpful
5.0 out of 5 stars A Brief Summary and Review
The main argument: The unequal distribution of wealth in the developed world has become a significant issue in recent years. Indeed, the data indicate that in the past 30 years the incomes of the wealthiest have surged into the stratosphere (and the higher up in the income hierarchy one is, the greater the increase has been), while the incomes of the large majority have...
Published 4 months ago by A. D. Thibeault

150 of 177 people found the following review helpful
3.0 out of 5 stars Correct about inequality but poor economics
Thomas Picketty offers the disclaimer that his book is ‘as much a work of history as of economics’ (p33) which he then goes on to prove. He introduces his 2 core economic equations and asks readers not well versed in mathematics not to immediately close the book. It is in fact readers who are well versed in mathematics who might well close the book, since his...
Published 2 months ago by Geoff Crocker

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157 of 181 people found the following review helpful
5.0 out of 5 stars A Brief Summary and Review, 26 Mar 2014
The main argument: The unequal distribution of wealth in the developed world has become a significant issue in recent years. Indeed, the data indicate that in the past 30 years the incomes of the wealthiest have surged into the stratosphere (and the higher up in the income hierarchy one is, the greater the increase has been), while the incomes of the large majority have stagnated. This has led to a level of inequality in wealth in the developed world not seen since the eve of the Great Depression. This much is without dispute.

Where there is dispute is in trying to explain just why the rise in inequality has taken place (and whether, and to what degree, it will continue in the future); and, even more importantly, whether it is justified. These questions are not merely academic, for the way in which we answer them informs public debate as well as policy measures--and also influences more violent reactions. Indeed, we need look no further than the recent Occupy Movement to see that the issue of increasing inequality is not only pressing, but potentially incendiary.

Given the import and the polarizing nature of the issue of inequality, it is all the more crucial that we begin by way of shedding as much light on the situation as possible. This is the impetus behind Thomas Piketty's new book Capital in the Twenty-First Century.

One of Piketty's main concerns in the book is to put the issue of inequality in its broader historical context. Specifically, the author traces how inequality has evolved from the agrarian societies of the 18th and early 19th centuries; through the Industrial Revolution and up to the First World War; throughout the interwar years; and into the second half of the twentieth century (and up to the first part of the twenty-first).

With this broad historical context we are able to see much more clearly the causes of inequality. As we might expect, what we find is that inequality is influenced by a host of societal factors--including economic, political, social and cultural factors. However, what we also find is that inequality is influenced by a broader set of factors associated with how capital works in capitalist societies (and market economies more generally).

Specifically, we find that capital (and the wealth it generates) tends to accumulate faster than the rate of economic growth in capitalist societies. What this means is that capital tends to become an increasingly prevalent and influential factor in these societies (at least up to a point). What's more, wealth not only tends to accumulate, but to become more and more concentrated at the top (mainly because those with more capital are able to earn a higher rate of return on their capital investments). For these reasons, capitalism on its own tends to produce a relatively high degree of inequality.

The natural tendency of capital to accumulate and to become ever more concentrated largely explains the high degree of inequality that was witnessed in the developed world in the early part of the twentieth century. This inequality was largely dashed, however, in the interwar years. The reason for this is that the major events of the first half of the twentieth century (including the two world wars, and the Great Depression) thwarted capital's natural tendency to accumulate, and also destroyed large stocks of wealth. The end result was that by the time World War II was over, inequality in the developed world had reached an all-time low.

After the Second World War, the natural tendency of capital to accumulate resumed. However, various political and economic measures (including progressive taxation, rent control, increasing minimum wages, and expanded social programs) worked to redistribute this growing capital, thus preventing inequality from growing as quickly as it would have otherwise.

In the 1980s, though, the developed countries did an about-face, and began eliminating many of the measures that had prevented inequality from rising according to its natural tendency. The consequence was that inequality reasserted itself in a major way, such that it is nearly as extreme today as it was on the run up to the Great Depression. Furthermore, the historical evidence indicates that capital will likely continue to accumulate and become ever more concentrated, such that we will witness an even greater level of inequality moving forward.

As far as justifying the growing inequality that we are currently seeing, Piketty raises serious doubts as to whether it may rightly be considered fair. What's more, as inequality continues to grow, it is increasingly likely that large parts of the population will also come to see it as unfair and unjustified--thereby increasing the likelihood of political opposition.

For Piketty, the best and fairest solution to these problems would be to steepen the progressive taxation applied to the wealthiest individuals. The problem, though, is that in a world of financial globalization (where there is a high degree of competition for capital--as witnessed by tax havens), it is extremely difficult to apply the appropriate tax scheme without the cooperation and coordinated efforts of the international community--and this is simply not something that is easy to achieve.

The alternative, however, is much more troubling for it is likely that it will involve reverting to protectionism and nationalism--and this is really in no one's interest.

This book is an absolute tour-de-force. The broad time-frame that Piketty explores, and the enormous body of data that he brings together, makes this study extremely comprehensive (no one will even think of accusing Piketty of cherry picking the data). Also, the reader is struck by how dispassionately Piketty analyzes the evidence he brings to the table. Indeed, while the author does have a position on inequality, one never receives the impression that this is corrupting his analysis (I consider myself to be a pragmatist politically, and often find that writers on both the left and the right massage the truth, but that was never the case here). Finally, it should be said that the book is very long, and just as dense, with the author often delving into extreme detail, so be prepared for a challenge. A must read for anyone with a serious interest in economics.
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150 of 177 people found the following review helpful
3.0 out of 5 stars Correct about inequality but poor economics, 12 May 2014
Geoff Crocker (Bristol UK) - See all my reviews
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Thomas Picketty offers the disclaimer that his book is ‘as much a work of history as of economics’ (p33) which he then goes on to prove. He introduces his 2 core economic equations and asks readers not well versed in mathematics not to immediately close the book. It is in fact readers who are well versed in mathematics who might well close the book, since his equations make no sense and cannot bear the weight of interpretation he places on them throughout the book. They are core to his argument, but they fail. He nowhere derives them, proves them, or empirically tests them. He merely states them.

According to Picketty, the ‘first fundamental law of capitalism’ (p52) is that α=rxβ where α is the share of capital in national income, r is the rate of return on capital, and β is Picketty’s capital/income ratio. This is a simple identity, is no more than telling us that a/b x b = a. Picketty admits this identity and tautology but nevertheless insists that this is the ‘first fundamental law of capitalism’, a claim he simply cannot justify. His ‘second fundamental law of capitalism’ (p166) is that β=s/g where s is the savings rate and g the growth rate. His example claims that a savings rate of 12% and a growth rate of 2% give a capital/income ratio of 600%. This is simply untrue. A simple spreadsheet taking 100 units of GDP growing in row 1 at 2%/year, showing 12% saving of that GDP in row 2, cumulating that in row 3 and dividing the result by row 1 to give Picketty’s capital/income ratio in row 4, shows that it becomes 600% only in year 199. Not only does this ‘fundamental law’ take so long to be true, as Picketty admits, but it is only true in that year and thereafter continues to grow, contrary to his claim that it reaches a long term equilibrium. His third equation is his claim that r>g drives capital accumulation. r and g are however measures in different units, r is a scalar ratio, whereas g is a first differential over time. Equations and inequalities require variables on each side to be in the same units. Picketty’s comparison of the return to capital and the growth rate are like comparing one person’s height to another person’s weight. His model is bogus.

He then conflates capital and wealth (‘I use the words ‘capital’ and ‘wealth’ interchangeably’ (p47)). This obscures more than it elucidates. Capital traditionally defined in economics is the means of production. It is an input to the economic process. Wealth by contrast is an output. We might very well care differently about how much capital and wealth we have, and who owns them. More effective capital may drive up output, whilst more wealth has no creative function and attracts a moral question. Picketty is wrong, analytically and morally, to confuse the two in one measure.

Picketty is disparaging in very short measure of Marx (p227-230), Keynes (p220), mathematical economics (p32), and economists generally (p296, 437, 514, 573, 574). Only Picketty has it right (p232). He quotes Jane Austen and Honoré de Balzac, more than he does either Marx or Keynes. His book is unnecessarily long and a tedious read, due to its rambling repetitive style. It could have been far more concise.

His main point is however well taken. Ownership of wealth has become increasingly unequal. His remedy is a global progressive tax on capital. By this he means all capital. But he doesn’t say what effect a progressive tax on each form of capital would have, how it would be paid, and what should be done with the payment. Would companies owning productive assets have to hand factories to the state? Or to the poor? Would house owners have to sell their houses, or shareholders their shares, in which case would their price be sustained? Or is he assuming asset owners also have income to pay the capital tax, in which case it becomes an income tax? And what’s the point? The purpose Picketty tells us on page 518 is ‘to regulate capitalism’ and thereby to ‘avoid crises’. But he doesn’t tell us how capitalism would be thereby made more acceptable or how crises would be avoided. He also admits it will never happen!

Whilst I agree with Picketty that extremes of income and wealth are morally repugnant, my complaint is that i) he should do more to investigate and attack the processes which allow this outcome, for example regulating the software market more effectively to avoid Bill Gates becoming obscenely wealthy based on Microsoft’s extreme and unjustified monopoly rate of profit, whilst also regulating natural resource markets to avoid billionaire build up there, ii) this is not in fact the major issue facing capitalism today. Far more important is the lack of effective macroeconomic demand and the fall in real wages caused by the high productivity of automation technology. For this a citizen’s income funded by QE (ie without being added to government debt) is the only and the urgently needed solution. Maybe we could compromise and use the proceeds of Picketty’s capital tax to fund a world citizen income. He clearly has a very good PR machine promoting his book – see the low votes attached to any critical review on Amazon, a fate very likely to meet this review!

Geoff Crocker
Author ‘A Managerial Philosophy of Technology : Technology and Humanity in Symbiosis’
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4.0 out of 5 stars An astute historical analysis of growth and capital let down by a poorly developed list of suggested policy responses, 30 July 2014
Amazon Customer (Leamington Spa, Warwickshire United Kingdom) - See all my reviews
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This review is from: Capital in the Twenty-First Century (Kindle Edition)
Piketty’s tome is undoubtedly a work of tremendous importance, if only thanks to the political influence that it has already exerted in France, the USA and the UK. In many ways, it is an irreverent book that snubs its nose at economists as a class and tries to break down academic barriers in pursuit of an honest analysis of economic history. Piketty studies not only tax records and schedules of wills in pursuit of the development of capital and wages but also literature and uses popular culture to illustrate his arguments to a lay audience. This makes is remarkably readable even considering that it weighs in at almost 600 pages (plus footnotes and a website of economic source data).

Piketty’s principal innovation is in drawing together data sets (predominantly for the three countries named above but segueing into other developed and developing economies) that are unparalleled in their range and depth, covering centuries of economic data. Working with a number of colleagues to refine and analyse the data, Pikkety has produced perhaps the most complete study of the transformation of agrarian economies into industrial economies and beyond into service economies. In doing so, he has isolated what he believes to be key economic rules affecting wealth and income and trends that hold true across multiple societies and extrapolate forward for a century or more.

The work is separated into three distinct parts; a review of existing economic theory, an analysis of the new data sets and proposals for economic policy in the twenty-first century.

Piketty’s analysis is undeniably astute. Adopting the longue durée approach created by Marc Bloch, the author looks for trends across centuries rather than years. In doing so, he casts aside the surface fluctuations of individual asset classes or economic shocks and looks at the totality of economic growth, inflation, capital rate of return and wages. This turns up some interesting trends (e.g. capital return consistently out-performing growth) and a strongly supported hypothesis that political economic management has relatively little impact on the long-term maturation of an economy. It also suggests that twentieth century growth and the reduction of inequality was an aberration caused by the destruction of the World Wars rather than a new norm; consequently, he sees the challenge of the twenty-first century as being one of managing inequality returning to nineteenth-century norms.

It is this conclusion in particular, which taps into very present concerns regarding the super rich, executive returns and inequality in an era of universal suffrage, that have brought Piketty so much attention. Naturally, the book has been particularly adopted to the left, not least due to the echoes of Marx’s Das Capital, but also because Piketty responses to these challenges provide a degree of academic rigor for policy responses popular with the left (notably wealth taxes).

There are, however, problems with the study. Piketty was clearly writing for a French audience and he allows political biases, which are common currency in French public discourse but considered outré elsewhere, to infect his discourse – a snobbish dismissal of ‘Anglo-Saxon’ models, the free association of economic equality with democracy etc. This partiality is rarely more than an irritant and doesn’t impact his historic analysis. (If anything, he has demonstrated that French protectionism and Anglo-Saxon free markets, despite their differences, have created almost identical economic conditions).

Once he moves on to proposed policy responses, Piketty’s lazy bias does begin to grate. He espouses a tax on capital as a means of restricting the expansionary nature of capital but fails to address its potential as an inflationary factor – the kind of oversight that he would have astutely identified when looking at historic policy measures. Furthermore, Pikkety has clearly isolated innovation and post-destruction catch up as the principle factors that affect capital value, return on capital and wages, yet his model can make no account for them in the future. Furthermore, his logic becomes less consistent – insisting both that some extent of inequality is necessary but fails to define what level and even occasionally suggests in ideal of no inequality. Having espoused the democratic ideal throughout, he even goes so far as to suggest technocratic government being the only way to effectively manage the economies of the twenty-first century. For Pikertty, it seems, democracy is an economic rather than political function.

Undoubtedly, this is a classic piece of economic writing. There has been some criticism of Piketty’s use of data but that is an academic question and beyond my reading of the book. Based on the information provided, Piketty’s analysis of historic trends will prove to be hugely influential. It shares, however, the same problem with most other economic works; economics is not a science and therefore does not work in an environment of physical laws. Methodical analysis of the past can provide rules and equations that can help unpick the current economic condition but they give no real a posteriori ability to predict the future. As soon as Piketty begins to consider the state of the current economy and future policy measures, the scientific method becomes redundant and instead we are exposed to (informed) guess work and the biases of the author. This is a real shame, as the book will appeal to those of the left who find their own prejudices confirmed but the historic analysis is equally relevant to those of the right who may find the policy proposals rather thin.
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53 of 66 people found the following review helpful
5.0 out of 5 stars Serious economic work based on exhaustive research and a long period of trend observation, 8 April 2014
Denis Vukosav - See all my reviews
‘Capital in the Twenty-First Century’ written by Thomas Piketty who is a Professor at the Paris School of Economics is a well-made evaluation of trends in the world economy until the 21st century. This is a translation of a book that was last year originally published in French, which I read on the original, but in English is much more understandable and therefore more accessible to a wider group of readers what with its quality certainly deserves.

The Piketty’s book is quite extensive, so take some solid amount of time for its nearly 700 pages that will definitely not disappoint you, but do not expect to read them as some light novel. ‘Capital in the Twenty-First Century’ is divided into four major units – ‘Income and Capital’, ‘The Dynamics of the Capital/Income Ratio’, ‘The Structure of Inequality’ and ‘Regulating Capital in the Twenty-First century’- and as good add-on that is for such a book mandatory supplement, the author at the end of the text added Index, his notes, contents in detail and list of book tables and illustrations.

At the very beginning Thomas Piketty raises significant questions which answer why he decided to write his book – “…But what do we really know about the distribution of wealth over the long term? Do the dynamics of private capital accumulation inevitably lead to the concentration of wealth in ever fewer hands, as Karl Marx believed in the nineteenth century? Or do the balancing forces of growth, competition, and technological progress lead in later stages of development to reduced inequality and greater harmony among the classes, as Simon Kuznets thought in the twentieth century? What do we really know… and what lessons can we derive from that knowledge for the century now under way?”

The author sincerely admits that his answers are not perfect and fully complete, but they are based on much more extensive historical and comparative research than were available to economists and researchers, covering three centuries and numerous countries, starting from the United States, providing a new framework that enables a better understanding of economy hidden mechanisms.

And although it might seem that this book is intended only to economic experts, due to its informativeness and clarity, ‘Capital in the Twenty-First Century’ will intrigue also general audience interested in economic developments and long term distribution of income and wealth.

After reading Piketty’s book the reader will, however, be clear that the author comes from Europe because his views are quite different from the American conservative ones, but we must not forget that a work based on such amount of data and the long period of trend observation no one has written before.

Therefore ‘Capital in the Twenty-First Century’ can certainly be considered credible and recommendable to read.
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63 of 81 people found the following review helpful
5.0 out of 5 stars Economics of Inequality, 17 Mar 2014
Charles - See all my reviews
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This review is from: Capital in the Twenty-First Century (Kindle Edition)
Inequality is a sensitive subject with extreme views on both sides of the argument, but what do we really know about how wealth and inequality comes about and what can we do to fix the problem? Unfortunately economics has a bad reputation for "abundance of prejudice and a paucity of fact" as the author puts it. This is especially bad when you take in to account politicians rely on economists to tell them how to run the country. This book tries to address the problem by using actual data like tax returns to try and get to the heart of the problem.

A major point is that inequality is increasing and has been for a long time, the decline in inequality in the 20 century was a result of the shock to society of two world wars (e.g destruction of property, inflation, bankruptcy)

"In fact, all the historical data at our disposal today indicate that it was not until the second half-- or even the final third-- of the nineteenth century that a significant rise in the purchasing power of wages occurred. From the first to the sixth decade of the nineteenth century, workers' wages stagnated at very low levels-- close or even inferior to the levels of the eighteenth and previous centuries."

"This long phase of wage stagnation, which we observe in Britain as well as France, stands out all the more because economic growth was accelerating in this period. The capital share of national income-- industrial profits, land rents, and building rents --insofar as can be estimated with the imperfect sources available today, increased considerably in both countries in the first half of the nineteenth century."

"It would decrease slightly in the final decades of the nineteenth century, as wages partly caught up with growth. The data we have assembled nevertheless reveal no structural decrease in inequality prior to World War I. What we see in the period 1870- 1914 is at best a stabilization of inequality at an extremely high level, and in certain respects an endless inegalitarian spiral, marked in particular by increasing concentration of wealth. It is quite difficult to say where this trajectory would have led without the major economic and political shocks initiated by the war. With the aid of historical analysis and a little perspective, we can now see those shocks as the only forces since the Industrial Revolution powerful enough to reduce inequality."

"In any case, capital prospered in the 1840s and industrial profits grew, while labour incomes stagnated. This was obvious to everyone, even though in those days aggregate national statistics did not yet exist. It was in this context that the first communist and socialist movements developed. The central argument was simple: What was the good of industrial development, what was the good of all the technological innovations, toil, and population movements if, after half a century of industrial growth, the condition of the masses was still just as miserable as before, and all lawmakers could do was prohibit factory labour by children under the age of eight? The bankruptcy of the existing economic and political system seemed obvious. People therefore wondered about its long-term evolution: what could one say about it?"

Karl Marx's prediction of an apocalyptic end to capitalism was based on the tendency for capital to accumulate and become concentrated in ever fewer hands, with no natural limit to the process. "either the rate of return on capital would steadily diminish (thereby killing the engine of accumulation and leading to violent conflict among capitalists), or capital's share of national income would increase indefinitely (which sooner or later would unite the workers in revolt). In either case, no stable socioeconomic or political equilibrium was possible."

But Marx's apocalypse did not happen "In the last third of the nineteenth century, wages finally began to increase: the improvement in the purchasing power of workers spread everywhere, and this changed the situation radically, even if extreme inequalities persisted and in some respects continued to increase until World War I. The communist revolution did indeed take place, but in the most backward country in Europe, Russia, where the Industrial Revolution had scarcely begun, whereas the most advanced European countries explored other, social democratic avenues-- fortunately for their citizens. Like his predecessors, Marx totally neglected the possibility of durable technological progress, steadily increasing productivity and diffusion of knowledge, which is a force that can to some extent serve as a counterweight to the process of accumulation and concentration of private capital."

The next major point is when the return rate on capital exceeds the rate of growth of output and income ( as it did in the nineteenth century and seems quite likely to do again in the twenty-first) it means that people that own capital profit more than people that sell their labour thus inequality rises between owners of capital and people that rely on labour to earn a living.

The wars also effected inheritance. Individuals who should have inherited fortunes in 1950- 1960 did not inherit much because their parents had not had time to recover from the shocks of the previous decades and died without much wealth to their names. The low point was in the 1970s: inherited capital accounted for just over 40 percent of total private capital. For the first time in history (except in new countries), wealth accumulated in the lifetime of the living constituted the majority of all wealth: nearly 60 percent. But now the share of inherited wealth in total wealth has grown steadily since the 1970s. Inherited wealth once again accounted for the majority of wealth in the 1980s, and according to the latest available figures it represents roughly two-thirds of private capital in France in 2010, compared with barely one-third of capital accumulated from savings. If current trends continue, the share of inherited wealth will continue to grow in the decades to come, surpassing 70 percent by 2020 and approaching 80 percent in the 2030s.

Since the 1980s there has been a massive increase in inequality coming from labour. This comes mainly from top managers of firms giving themselves massive pay rises (60 to 70 percent, depending on what definitions one chooses) of the top 0.1 percent of the income hierarchy in 2000- 2010 consists of top managers. By comparison, athletes, actors, and artists of all kinds make up less than 5 percent)
"One possible explanation of this is that the skills and productivity of these top managers rose suddenly in relation to those of other workers. Another explanation, which to me seems more plausible and turns out to be much more consistent with the evidence, is that these top managers by and large have the power to set their own remuneration, in some cases without limit and in many cases without any clear relation to their individual productivity."

The process by which wealth is accumulated and distributed contains powerful forces pushing toward inequality but forces of equality also exist, and in certain countries at certain times, these may prevail, but the forces of inequality can at any point regain the upper hand, as seems to be happening now.

Inequality in the USA and Europe is covered, how the histories of those countries effected capital and inequality, e.g early America had less inherited wealth than Europe, ownership of land was cheap and there was slavery. Other subjects covered are public wealth transferred to private hands (e.g privatization and oligarchs), public dept creating private wealth and many other related topics.

The theory of a stable capital-labour split (itself based on data only going back no further than 1950, thus missing the interwar period and early twentieth century) and thus flawed is now out of date thanks to studies of the 1970s showing a significant increase in the share of national income in the rich countries going to profits and capital and less going to wages and labour.

"The emergence of a patrimonial middle class was an important event. To be sure, wealth is still extremely concentrated today: the upper decile own 60 percent of Europe's wealth and more than 70 percent in the United States. 20 And the poorer half of the population are as poor today as they were in the past, with barely 5 percent of total wealth in 2010, just as in 1910. Basically, all the middle class managed to get its hands on was a few crumbs: scarcely more than a third of Europe's wealth and barely a quarter in the United States . This middle group has four times as many members as the top decile yet only one-half to one-third as much wealth. It is tempting to conclude that nothing has really changed: inequalities in the ownership of capital are still extreme"

What is the solution to this problem? The author suggest a global progressive tax on capital but he admits this would be very hard to implement. "The primary purpose of the capital tax is not to finance the social state but to regulate capitalism. The goal is first to stop the indefinite increase of inequality of wealth, and second to impose effective regulation on the financial and banking system in order to avoid crises. To achieve these two ends, the capital tax must first promote democratic and financial transparency: there should be clarity about who owns what assets around the world. Without a global tax on capital or some similar policy, there is a substantial risk that the top centile's share of global wealth will continue to grow indefinitely-- and this should worry everyone. In any case, truly democratic debate cannot proceed without reliable statistics."

This book has been getting rave reviews and what its states is going to upset a lot of people. It is good to see such detailed long term trend analysis based on data and personally I think this book is a masterpiece.
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42 of 55 people found the following review helpful
3.0 out of 5 stars Thought-provoking but flawed, 26 April 2014
Eric Lonergan - See all my reviews
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One way to summarise is as follows: Piketty's astronomical sales have increased wealth inequality among economists. Is his new-found wealth deserved? What is the impact of this wealth on the democratic process? Should we tax his global sales? Should he set up a foundation to combat the negative effects of inequality?

This book's strength is the novel approach Piketty takes to framing the problem of inequality. We are all aware that the distribution of income and wealth has become more extreme in the last 30 years. It is usually assumed that policies of deregulation and taxation have caused this. More recently, Brynjolfsson and others have argued that technology and globalisation are the underlying causes. Piketty, however, draws attention to the fact that the rate of return which owners of wealth generate is itself a critical determinant of the distribution of wealth. A central part of his thesis is that the very wealthiest in society save more and earn higher returns on their investments. Labour income grows more slowly than wealth. This is a novel focus for the debate.

But Piketty's interpretation of the data and his predictions need to be considered very carefully. There are clear flaws. Much of the increase in the value of wealth in the last 30 years has been caused by declining real interest rates: this lies behind the huge capital gains in property, bonds and equities. But it is not repeatable. It is also likely to have economic consequences which drive down their prospective returns. For example, the surge in technological innovation which is creating many technology billionaires (in part due to financial conditions), is also sowing the seeds for the destruction of wealth in the industries it is rendering redundant.

What Piketty's framework does, however, is force us to focus on which types of assets are owned by whom and what their prospective returns might be. Piketty's tentative conclusion that the trend of wealth compounding at a rate higher than labour income may be right for the wrong reasons. The distribution of what is likely to be the highest returning asset - equity - is even more concentrated than property, or other financial assets, such as deposits. A structural reason why wealth may have an inherent tendency to become increasingly concentrated is that the wealthier you are the greater risk you can take with capital. Surprisingly, Piketty has little to say about shifts in the valuation and ownership of equities, which is hugely relevant to the last 30 years, and probably the next thirty.

Another omission in this fascinating book, is that Piketty does not sufficiently distinguish between the merits of various forms of wealth and returns. This is a legitimate criticism that Nassim Taleb has made. Tax policy should surely take into account the relative social merits of different forms of wealth. We want incentives that reward innovation and philanthropy which is focused on social enterprise and R&D, such as that of the Gates foundation. Unproductive wealth and disincentivising inheritance is a specific and more reasonable target for taxation.

There are also many more philosophical possibilities suggested by this book, which are beyond its remit but worth considering. The distribution of well-being and happiness in developed economies is much less extreme than the distribution of wealth, and arguably takes priority as a policy objective. It may also act as an incentive for more socially productive investment by the wealthy. We should not lose sight of this.

Despite these weaknesses, this book is original and thought-provoking. It is also written with clarity and style.

Eric Lonergan
Author, 'Money' published by Acumen
Money (second revised edition)
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4.0 out of 5 stars Wealth inequality and the distribution of wealth, 14 July 2014
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This is a very interesting book, it provides a great historical details on wealth inequality and the distribution of wealth. I would recommend it to anyone but, it takes a bit of time to read. I'm still reading it...
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4.0 out of 5 stars Four Stars, 13 July 2014
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This review is from: Capital in the Twenty-First Century (Kindle Edition)
A Good History book. Perhaps this is the way economics should go.
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17 of 23 people found the following review helpful
5.0 out of 5 stars A Tour de Force, 3 May 2014
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Piketty argues three points:

1. Throughout human history income distribution and (even more so) wealth distribution has almost inevitably been skewed very heavily toward the top. This is the result of powerful economic laws that reinforce each other.

(i) Over time, total wealth in a society tends to the ratio of the savings rate to the growth rate, which has typically resulted in wealth (=capital) of 4 to 7 times more than total income. In the US today this ratio is at 4, in Italy today it's more like 6, the same as it was in pre-1914 France, for example. The composition of capital has changed (e.g. arable land has gone from very important to totally unimportant) but not its ratio to income (as measured by GDP or GNP or GNI).

(ii) World growth has throughout history been abysmally low. It averaged 0.1% per annum between year 0 and 1700, 1.6% per annum between 1700 and today and a mere 3% per annum from 1913 to 2013. Ergo, it's a tiny denominator that's been keeping this ratio up, rather than particularly impressive savings rates. Only a smidge more than half of that growth has been per capita growth, incidentally, with the rest attributable to population growth, which cannot but stop dead in its tracks In the next fifty years due to physical, Malthusian limitations to demographics.

(iii) Wealth, once you've got it, can work for you to make you richer. So those at the top of the wealth pyramid get a leg up in staying near the top of the pyramid.

(iv) The more wealth you command, the harder it works for you because you can hire experts to manage it, get access to better ways of investing etc.

(v) The bottom 50% of society has never saved a penny anywhere, not even in 1970's Sweden, it's always and everywhere lived hand-to-mouth.

(vi) Meantime, a large chunk of wealth in history has typically been inherited.

(vii) Return on capital is higher than the rate of GDP growth, which is Piketty's famous r>g inequality. An explanation the author offers is that there needs to be some type of compensation for risk.

So, for example, from 1800 to 1900 both in the United Kingdom and in France, the top 10% of society owned 90% of the wealth (=capital) and indeed the top 1% owned comfortably more than 50% of wealth. This wealth generated itself a lot of income, a fact that ensured there was very little chance a pauper could ever work his way to the top without marrying into wealth. This top 1% of society enjoyed income equivalent to 30 times the average. This income, was in turn used to employ the staff that would supply its masters with fresh food (no refrigerators back then, remember), clothing (a very labor-intensive set of goods up until the industrial revolution), transport (somebody needed to take care of the horses!) etc. etc.

2. We are now living in the tail end of a brief interlude in history when it appeared that we had been moving away from this status quo. The first and second world war decimated the built-up capital (=wealth) of the western world if four different ways:

(i) The loss of European (mainly British and French) colonies eliminated in one fell swoop somewhere between a quarter and a third of all accumulated wealth in the west.

(ii) The taxation that became necessary to wage WWI and WWII was obviously borne by those who could pay, i.e. the rich, and it remained truly confiscatory for years after the end of conflict, with marginal rates on passive income hitting 98% in the UK, for example.

(iii) The wars themselves brought destruction of property and capital on a massive scale.

(iv) Inflation on an equally massive scale followed, which wiped out the purchasing power of nominal savings (e.g. bonds and bank deposits) of many a saver, much as the flip side of this silent confiscation was a de facto forgiveness of public debts.

So for the first time in a couple thousand years, the top 10% of the population only controls 40% to 60% of the wealth (depending on the country). The bottom 50% controls zero, as always, but there is a 40% of the population that controls some 60% to 40% of wealth (depending on the country). A middle class!

Our parents' generation inherited very little, was born into as equal a society as there has been in at least two thousand years and made something of it. Not only does it feel fully entitled to its wealth, it also believes very strongly (and justifiably) that this status was acquired in an environment of fairness and meritocracy. Moreover, these events took place against the background of an equally generation-defining struggle between the free market and communism. At the apogee of its success, our parents' generation voted in people like Ronald Reagan, Margaret Thatcher and more recently George W Bush that enshrined this right to succeed and enjoy the fruits of one's success in low taxation rates on both income and capital.

3. Piketty argues that our parents are confused. It was not only the free market that contributed to the creation of a middle class. The free market has always been there. The other ingredient was the "thirty year war" that started in 1914 and ended in 1945. Now we've had peace for a good seventy years, and especially now that we have (among other things)
(i) States competing with one another to provide low taxation for corporates
(ii) Tax havens for the rich to hide their savings
(iii) Supermanagers earning 500 times what the shop-floor workers earn (as a result of the incentives offered by lower taxation rates)
...we are moving full-speed-ahead toward re-establishing the status quo of 1800-1913 and eliminating the middle class. As proof, he shows what has happened to the ratios of wealth to GDP that are approaching the Ancien Regime and Belle Epoque levels (though he does not provide any corroborating evidence from wealth distribution tables)

Having made these arguments, Piketty goes on to propose a global tax on capital, which he hopes can be one measure that will ensure we do not see the types of wealth concentration that pre-dated WWI.

I must confess that I find myself nodding in agreement with every single word of the book and then disagreeing with the conclusion. Perhaps because I don't understand why r>g. Fine, it's true for the past, but where is it written that capital can grow faster than GDP forever? Last I checked, Elon Musk's crowd were looking to mine asteroids for minerals, for which endeavor I'm very happy to warrant that E(r) = 0

Similarly, and pardon me for going technical, I really don't think that Wealth / GDP necessarily equals s / g (the saving rate divided by the growth rate) because savings can disappear if they are misinvested. What's China going to have to show for all the misinvestment going over there at the moment in ghost cities, for example? Sure, we can mark our wealth to market, but ultimately we need to be able to convert it to spending. The value of Klimts and Basquiats and Ferrari 250s is proof, if any was needed, that the super-wealthy are struggling to find something to do with their superwealth that you and I would truly covet.

Just because investment is not worthwhile if r is not much higher than g it does not mean that r must be higher than g, is my point.

More fundamentally, and Piketty himself makes this point very eloquently, some 200 years ago you needed the income to pay for the 30 servants who'd get you the fresh fruit and freshly hunted meat and fresh clothes and groomed horses if you wanted to live long, have the spare time to read and write books etc. These days, you can be in the bottom 50% of the population and enjoy all of the above (assuming a Ford Focus will do in lieu of a stable of horses), as well as decent free healthcare and education in this very bastion of inequality (according to Piketty) that is the United Kingdom. In Piketty's words, we've gone through a "tenfold increase in purchasing power." Of course there's room for improvement, but we're doing Rawls proud here.

So I remain to be convinced we need to tax capital. By all means, tax income that comes from capital, and a nice first step would be to tax it at the same marginal rate as income from labor. But to tax capital in a world that is already rather reluctant to deploy capital does not sound to me like an automatic choice. And Piketty does not offer a single word to explain what the non-bureaucratic benefits would be, beyond the re-distribution of wealth, which to me cannot be an end in itself.

Regardless, this is an UNBELIEVABLY important book. If I had not read it I would not know where to start in terms of disagreeing with its author, let's put it that way.

What we have here is as impressive a compendium of research as has ever been published by an economist. Call it Friedman and Schwartz for wealth / capital, except much better researched. The value is not in the narrative, but more than anything else in the years and years of research that went into collecting, comparing, cleaning, tabulating and interpreting data. This book is now the inevitable starting point for any discussion on the topic of wealth / capital. It is, pardon my French, a tour de force.

Finally, I thought the style of the book was totally disarming. Piketty has his views, for sure, but he never dares comingle fact and opinion, not once in 577 pages. Oh, and he sounds like a bit of a player. Never seen so many women in the acknowledgments of an Economics book.

Six stars are not enough for this book, five are downright miserly, but that's all I'm allowed to give!
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2 of 3 people found the following review helpful
5.0 out of 5 stars Though provking...., 16 July 2014
As someone who has not read Karl Marx's work, I found Thomas Piketty's assessment of wealth inequality insightful and put in great context given the historical data he bases his conclusions upon.

Although there has been much criticism about the source of the data that he uses, I don't think you can doubt that the underlying theme of his book holds and is put in a coherent way that allows you to sit back and asses what the underlying motives are of people in wealthier nations today.....especially politicians.

I should warn people that the introduction is a unnecessarily long and is prone to ramble on about how other Economists have failed and why he dislikes living anywhere but France. Beyond that I found it a thought provoking read that I'm sure people will be reading for a number of years to come.
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