Thomas Piketty

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The Sarandon Plan, the theory of the politically challenged actor Susan Sarandon which asserted that the election of a kleptocrat Donald Trump would lead to a revolution that obliterates wealth inequality and other social ills, was not the optimal one. A lot of people get hurt in this scenario.

We would be better off electing politicians who alter tax policy, invest in education and work to remove outsize wealth from the political process. Perhaps we could also institute something like the National Service system I’ve suggested, in which maintenance of health, environment and infrastructure would provide good jobs, so that we’re not a nation of “iPhones and potholes.” It won’t be easy, but neither were the challenges of the Gilded Age, the Industrial Revolution or the Great Depression. Major things can be accomplished despite huge obstacles. 

In a Marketwatch article, Steve Goldstein writes of a new study by Thomas Piketty and others which reveals the bottom half of American households to be cratering financially. What follows is the opening of that piece and a few exchanges from a Reddit AMA the writer conducted in relation to the findings.

A new research paper from economists including Thomas Piketty finds that the bottom 50%’s share of income in the United States is “collapsing.”

The paper, written by Facundo Alvaredo, Lucas Chancel, Piketty, Emmanuel Saez and Gabriel Zucman, studies global inequality dynamics. And while there are rising top income and wealth shares in nearly all countries, the magnitude varies substantially.

In the U.S., between 1978 and 2015, the income share of the bottom 50% fell to 12% from 20%. Total real income for that group fell 1% during that time period.

That’s not the case elsewhere. In China — where there also has been a marked rise in income inequality — the bottom 50% saw their income go up by 401%, not surprising given the industrialization the world’s second-largest economy has seen. Even in developed France, however, the bottom 50% saw their income grow, by 39%.

Like income, wealth also has become more concentrated around the world.

The economists say that the varying magnitude suggests different country-specific policies and institutions matter greatly.•


If we took all the money in the world and divided it equally amongst everyone, we’d all have about $7,000. Do you support doing this?

Steve Goldstein:

I don’t, but then, that’s because it would hurt me. And obviously no U.S. policymaker would be in favor, either.

The point is, should eliminating income inequality be the number-one priority? The authors noted that in China, where income inequality also has skyrocketed, so too has the living standards of the bottom 50%. Now, China is in a different stage of the economic cycle than the U.S., but the point is if the pie is growing — and everyone is getting a reasonable slice — people won’t worry as much about the size of their slice.


I think having a universal basic income that provided housing, clothing, food, and medical care should be the goal. Provide those 4 things to meet basic needs and income inequality doesn’t mean much. If basic needs are met people are then free to invest time. And time mixed with sweat is what allows small businesses to thrive.

Steve Goldstein:

Universal basic income is a really interesting idea — particularly if, as technology advances, fewer laborers will be needed. The new experiment in Finland along those lines will certainly be closely watched.


Is rising income inequality today tied to the financialization of the economy in the 70s?

Steve Goldstein:

Tough question. I suspect the greater share of finance activity in the economy is the result of broader changes — laws and technology — then the cause.


Should we all share equally in all money or should be paid out according to your value?

Steve Goldstein:

I think regulated capitalism is the best economic system out there, for fairness and living standards alike. Small-scale sharing societies (e.g., a kibbutz) can work, but at large scale they have been a disaster.


As automation continues to replace human jobs, do you see income inequality getting massively worse as the gains accrue to those who create the automation? I.e. the rate of change of income inequality is getting much worse?

Steve Goldstein:

Seems that way so far. The Gini ratio — a common measure of inequality — has steadily climbed since the 1970s, as automation has picked up.


In a capitalistic system like the U.S., isn’t it futile to seek income equality?

Steve Goldstein:

If the goal is 100% equality, yes.

If the goal is reducing inequality, then no. That can be achieved in different ways, from improving the distribution of skills to taxation. It ostensibly was the message of both major presidential candidates in the last election.•

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Thomas Piketty is a capitalist, which might surprise some. The French economist simply believes the system is a driving force of wealth inequality if left unfettered and must be constantly treated, like a patient prone to fever. In a Financial Times piece by Anne-Sylvaine Chassany, Piketty discusses the development of his ideas. An excerpt:

Piketty says his interest in inequality crystallised after the collapse of the Berlin Wall and the first Gulf war. He recalls visiting Moscow in 1991 and being struck by “the lines in front of shops”. He came back vaccinated against communism — “I believe in capitalism, private property, the market” — but also with a question central to his work: “How come those people had been so afraid of inequality and capitalism in the 19th and 20th century that they created such a monstrosity? How can we tackle inequality without repeating this disaster?”

The first Gulf war, he believed, demonstrated the cynicism of the west: “We are told constantly that states can’t do anything, that it’s impossible to regulate the Cayman Islands and the other tax havens because they are too powerful, and all of a sudden we send a million soldiers 10,000km from home to allow the emir of Kuwait to keep his oil.”

I am halfway through the now tepid bolognese when I ask him why his work had such an impact in the US without causing anything like such a stir in France at the time of its original publication. Piketty says he caught American attention in 2003 when, together with Emmanuel Saez, a fellow French economist who teaches at the University of California, he first compiled historical data on the US’s wealthiest people. In 2009, newly elected President Obama used the French economists’ graph that showed inequality was back to its 1929 peak. “We became the target of Republican think-tanks,” he recalls. The French version of the book acted as a teaser to those critics, he believes, helping propel it to the top of Amazon’s bestseller list for three weeks when it was released in English.

“The rise of the top 1 per cent is an American thing. It’s not by chance that Occupy Wall Street happened in Wall Street, and not in Brussels, Paris or Tokyo,” he says. “It’s different in Europe. Here, inequality takes the form of unemployment and public debt.”

Though Piketty concedes that the global wealth tax he recommends is a “utopian” dream, he also says a confiscatory tax rate of more than 80 per cent on earnings exceeding $1m would work.•

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I put up a post of Thomas Piketty’s NYRB take on Sir Tony Atkinson’s Inequality: What Can Be Done? Here’s a passage from an Economist piece about the same book, which compares Atkinson’s work to Piketty’s conversation-turning Capital in the Twenty-First Century:

In the event, Sir Anthony is more radical than Mr Piketty; he calls for robust taxation of the rich whom he reckons have got off easily over the last generation (see chart). But that’s not all. He believes government should meddle in markets in all sorts of ways to influence the distribution of economic rewards. Sir Anthony’s recommendations are a throwback to the 1960s and 1970s, when trade unions were a dominant force in politics and the state was seen as a much-needed check on markets. Even the most egalitarian economists, such as Mr Piketty, are reluctant to recommend employment guarantees and wage controls. Sir Anthony is not. And if his arguments are not always wholly convincing, he may nonetheless succeed in shifting the debate.

Inequality begins with a clear statement of the harm done by rising income gaps: they unfairly punish those who suffer bad luck. They undermine economic growth and social cohesion. Perhaps most importantly, inequality in economic resources translates directly into inequality in personal opportunity. Wealth generates comfort even when it isn’t being spent; the rich enjoy the fact that they are insured against future hardship or could use their wealth in future to satisfy personal or professional goals.•

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In a New York Review of Books pieceThomas Piketty, who has suggested his own remedies for wealth disparity (including aggressive investment in education), reviews British economist Anthony B. Atkinson’s progressive treatment of the problem in the UK, Inequality: What Can Be Done? which suggests, among other things, an endowment be paid to all citizens at the time of their eighteenth birthdays. An excerpt:

The idea of going back to a more progressive tax structure clearly has a major part in the plan of action that Atkinson sets forth. The British economist leaves no doubt about it: the spectacular lowering of top income tax rates has sharply contributed to the rise of inequality since the 1980s, without bringing adequate corresponding benefits to society at large. We must therefore waste no time discarding the taboo that says marginal tax rates must never rise above 50 percent. Atkinson proposes a far-reaching reformation of the British income tax, with top tax rates raised to 55 percent for annual income above £100,000 and 65 percent for annual income above £200,000, as well as a hike in the cap on contributions to national insurance.

All of which would make it possible to finance a significant expansion of the British social security and income redistribution system, notably with a sharp increase in family benefits (doubling and even quadrupling them in one of the variants proposed), as well as a rise in retirement and unemployment benefits for people with lower resources.* Atkinson presents a series of variants of these measures and scenarios for reform, while advocating those measures that make it possible to return to a policy of universal social safety nets (i.e., that would be open to everyone), as opposed to conditional transfers of resources.

If these proposals, statistically accounted for and fully financed from taxes, were to be adopted, there would be a significant drop in British levels of inequality and poverty. According to the simulations done by Atkinson and Sutherland, those levels would fall from their current quasi-American levels to the point where they would come close to European and OECDaverages. This is the central goal of Atkinson’s first set of proposals: you can’t expect everything from fiscal redistribution, but that nonetheless is where you have to begin.

Radical Reformism: A New Philosophy of Rights

But Atkinson’s plan of action hardly stops there. At the core of his program is a series of proposals that aim to transform the very operation of the markets for labor and capital, introducing new rights for those who now have the fewest rights. His proposals include guaranteed minimum-wage public jobs for the unemployed, new rights for organized labor, public regulation of technological change, and democratization of access to capital. This is only a sampling of the many reforms he recommends.•

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Before voting for any politician in any American election, it might be instructive to check back on where they stood on economic policy in the aftermath of the 2008 financial collapse. The results are in and the proof conclusive: The U.S. rebounded so quickly because we invested in the country while Europe is still in a terrible spot because it chose austerity, which may have felt right but was decidedly wrong. Two exchanges follow from a Thomas Piketty Q&A with Julia Amalia Heyer and Christoph Pauly of Spiegel.



You publicly rejoiced over Alexis Tsipras’ election victory in Greece. What do you think the chances are that the European Union and Athens will agree on a path to resolve the crisis?

Thomas Piketty: 

The way Europe behaved in the crisis was nothing short of disastrous. Five years ago, the United States and Europe had approximately the same unemployment rate and level of public debt. But now, five years later, it’s a different story: Unemployment has exploded here in Europe, while it has declined in the United States. Our economic output remains below the 2007 level. It has declined by up to 10 percent in Spain and Italy, and by 25 percent in Greece.



What do you propose?

Thomas Piketty: 

We need to invest more money in training our young people, and in innovation and research. That should be the most important goal of an initiative to promote European growth. It isn’t normal that 90 percent of the world’s top universities are in the United States and our best minds go overseas. The Americans invest 3 percent of their GDP in their universities, while it’s more like 1 percent here. That’s the main reason why America is growing so much faster than Europe.


The United States has a uniform fiscal policy. What conclusions can be drawn from that?

Thomas Piketty: 

We need a fiscal union and a harmonization of budgets. We need a common debt repayment fund for the euro zone, like the one proposed by the German Council of Economic Experts, for example. Each country would remain responsible for repaying its portion of the total debt. In other words, the Germans would not have to pay off the Italians’ old debts, and vice-versa. But there would be a common interest rate for euro bonds, which would be used to refinance the debt.•

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In a Potemkin Review interview conducted by Antoine Dolcerocca and Gokhan Terzioglu, Thomas Piketty discusses what he believes is the source of long-term, even permanent, productivity, which, of course, can occur without reasonably equitable distribution, the main focus of his book Capital in the 21st Century. An excerpt:


What do you see as a source of perpetual productivity growth?

Thomas Piketty:

Simply accumulation of new knowledge. People go to school more, knowledge in science increases and that is the primary reason for productivity growth. We know more right now in semiconductors and biology than we did twenty years ago, and that will continue.


You argue in the book that while Marx made his predictions in the 19th century, we now know that sustained productivity growth is possible with knowledge (Solow residual, etc.). But do you think this can be a sustained process in the long run?

Thomas Piketty:

Yes, I do think that we can make inventions forever. The only thing that can make it non-sustainable is if we destroy the planet in the meantime, but I do not think that is what Marx had in mind. It can be a serious issue because we need to find new ways of producing energy in order to make it sustainable, or else this will come to a halt. However if we are able to use all forms of renewable energy, immaterial growth of knowledge can continue forever, or at least for a couple of centuries. There is no reason why technological progress should stop and population growth could also continue for a little more.•

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In a Guardian article, Owen Jones interviews French economist Thomas Piketty, who labels François Hollande’s tenure a “disaster,” discusses the incredible inequity of Middle Eastern finances and comments on the virtues of both the free market and of revolution. An excerpt: 

“The west’s general relationship with the Middle East – ‘the most unequal region in the world,’ he says – is one that troubles him, not least because it exposes grotesque inequalities. ‘Take Egypt: the total budget for education for 100 million people is 100 times less than the oil revenue for a few dozen people in Qatar. And then in London and in Paris we are happy to have these people buying football clubs and buying apartments, and then we are surprised that the youths in the Middle East don’t take very seriously our democracy and social justice.’

Although some on the right have assailed him as a dangerous red, I put it to him that he is not as radical as he is portrayed. He has written that he was ‘vaccinated for life against the conventional but lazy rhetoric of anti-capitalism’; he opposed the introduction of a 35-hour week in France, and the Wall Street Journal even called him ‘a neoliberal economist who sees many virtues in market forces but favours government redistribution to smooth out some of the market’s excesses.’ He looks bemused. ‘I don’t live in the cold war. Some people maybe still live in the cold war, but this is their problem, not mine.’ He unashamedly believes in ‘market forces.’ arguing there is no ‘war of religion’ between left and right in the modern era. But he defends his radicalism, arguing that a global wealth tax makes ‘property temporary, rather than permanent,’ which he describes as ‘a permanent revolution, a very substantial change to the traditional capitalist system.’

Though Piketty supported François Hollande’s presidential bid in 2012, he is contemptuous of the French president. ‘He’s been a disaster,’ is his unequivocal response, clarifying that he was ‘more against Sarkozy than [he] was for Hollande.'”

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Here are 25 pieces of journalism from this year, alphabetized by author name, which made me consider something new or reconsider old beliefs or just delighted me.

  • Exodus” (Ross Andersen, Aeon) A brilliant longform piece that lifts off with Elon Musk’s mission to Mars and veers in deep and mysterious directions.
  • Barack Obama, Ferguson, and the Evidence of Things Unsaid” (Ta-Nehisi Coates, The Atlantic) Nobody speaks truth to race in America quite like Coates, and the outrage of Ferguson was the impetus for this spot-on piece about the deeply institutionalized prejudice of government, national and local, in the U.S.
  • The Golden Age of Journalism?” (Tom Engelhardt, TomDispatch) The landscape has never been more brutal for news nor more promising. The author luxuriates in the richness destabilization has wrought.
  • Amazon Must Be Stopped” (Franklin Foer, The New Republic) Before things went completely haywire at the company, Foer returned some sanity to the publication in the post-Peretz period. This lucid article argues that Amazon isn’t becoming a monopoly but already qualifies as one.
  • America in Decay” (Francis Fukuyama, Foreign Affairs) Strong argument that the U.S. public sector is so dysfunctional because of a betrayal of meritocracy in favor of special interests and lobbyists. The writer’s idea of what constitutes a merit-based system seems flawed, but he offers many powerful ideas.
  • What’s the Matter With Russia?” (Keith Gessen, Foreign Affairs) An insightful meditation about Putin’s people, who opt to to live in a fairy tale despite knowing such a thing can never have a happy ending.
  • The Dying Russians(Masha Gessen, New York Review of Books) Analysis of Russia’s high mortality rate suggests that the root cause is not alcohol, guns or politics, but simply hopelessness.  
  • Soak the Rich” (David Graeber, Thomas Piketty) Great in-depth exchange between two thinkers who believe capitalism has run amok, but only one of whom thinks it’s run its course.
  • The First Smile(Michael Graziano, Aeon) The Princeton psychology and neuroscience professor attempts to explain why facial expressions appear to be natural and universal.
  • The Creepy New Wave of the Internet” (Sue Halpern, New York Review of Books) The author meditates on the Internet of Things, which may make the world much better and much worse, quantifying us like never before.
  • Super-Intelligent Humans Are Coming” (Stephen Hsu, Nautilus) A brisk walk through the process of genetic modification, which would lead to heretofore unknown brain power.
  • All Dressed Up For Mars and Nowhere to Go” (Elmo Keep, Matter) A sprawling look at the seeming futility of the MarsOne project ultimately gets at a more profound pointlessness–pursuing escape in a dying universe.
  • The Myth of AI” (Jaron Lanier, Edge) Among other things, this entry draws a neat comparison between the religionist’s End of Days and the technologist’s Singularity, the Four Horseman supposedly arriving in driverless cars.
  • The Disruption Machine” (Jill Lepore, The New Yorker) The “D” word, its chief promulgator, Clayton M. Christensen, and its circuitous narratives, receive some disruption of their own.
  • The Longevity Gap(Linda Marsa, Aeon) A severely dystopian thought experiment: Will the parallels of widening income disparity and innovations in medicine lead to two very different lifespans for the haves and have-nots?
  • The Genetics Epidemic” (Jamie F. Metzl, Foreign Affairs) Genetic modification studied from an uncommon angle, that of national-security concerns.
  • My Captivity(Theo Padnos, The New York Times Magazine) A harrowing autobiographical account of an American journalist’s hostage ordeal in the belly of the beast in Syria.
  • We Are a Camera” (Nick Paumgarten, The New Yorker) In a time of cheap, ubiquitous cameras, the image, merely an imitation, is ascendant, and any event unrecorded seemingly has less currency. The writer examines the strangeness of life in the GoPro flow.
  • A Goddamn Death Dedication” (Alex Pappademas, Grantland) A knowing postmortem about Casey Kasem, America’s deejay when the world was hi-fi but before it became sci-fi.
  • In Conversation: Chris Rock” (Frank Rich, New York) The exchange about “black progress” is an example of what comedy does at its best: It points out an obvious truth that so many have missed.
  • The Mammoth Cometh” (Nathaniel Rich, The New York Times Magazine) A piece which points out that de-extinct animals won’t be exactly like their forebears, nor will augmented humans of the future be just like us. It’s progress, probably.
  • Hello, My Name Is Stephen Glass, and I’m Sorry(Hanna Rosin, The New Republic) Before the implosion of the publication, the writer wondered what it would mean to forgive her former coworker, an inveterate fabulist and liar, and what it would mean if she could not forgive.
  • Gilbert Gottfried: New York Punk” (Jay Ruttenberg, The Lowbrow Reader) Written by the only person on the list whom I know personally, but no cronyism is necessary for the inclusion of this excellent analysis of the polarizing comic, who’s likely more comfortable when at his most alienating.

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Although better education, particularly at the primary and secondary levels, would be a great thing in America, I don’t really believe that such an improvement would reverse wealth inequality in the country, as Thomas Piketty has suggested. We seem to be in a spiral with no easy answers. From the Economist:

“AMONG the most controversial of Thomas Piketty’s arguments in his bestselling analysis of inequality, Capital in the Twenty-First Century is that wealth is increasingly concentrated in the hands of the very rich. Rising wealth inequality could presage the return of an 18th century inheritance society, in which marrying an heir is a surer route to riches than starting a company. Critics question the premise: Chris Giles, the economics editor of the Financial Times, argued earlier this year that Mr Piketty’s data were both thin and faulty. Yet a new paper suggests that, in America at least, inequality in wealth is approaching record levels.

Earlier studies of American wealth have tended to show only small increases in inequality in recent decades. A 2004 study of estate-tax data by Wojciech Kopczuk of Columbia University and Emmanuel Saez of the University of California, Berkeley, found an almost imperceptible rise in the share of wealth held by the top 1% of families, from about 19% in 1976 to 21% in 2000. A more recent investigation of the Federal Reserve’s data on consumer finances, by Edward Wolff of New York University showed a continued but gentle increase in inequality into the 2000s. Mr Piketty’s book, which drew on this previous work, showed similarly modest rises in wealth inequality in America.

A new paper by Mr Saez and Gabriel Zucman of the London School of Economics reckons past estimates badly underestimated the share of wealth belonging to the very rich. It uses a richer variety of sources than prior studies, including detailed data on personal income taxes (which the authors mine for figures on capital income) and property tax, which they check against Fed data on aggregate wealth. The authors note that not every potential source of error can be accounted for; tax avoidance strategies, for instance, could cause either an overestimation of the wealth share of the rich (if they classify labour income as capital income in order to take advantage of lower rates) or an underestimation (if they intentionally seek out lower yielding investments for their tax advantages). Yet they believe their estimates represent an improvement over past attempts.

The results are enough to make Mr Piketty blush.”

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In his TED Talk, “New Thoughts on Capital in the Twenty-First Century,” Thomas Piketty has good and bad news. The good: Wealth inequality, although severe now, is not as deep as a century ago. The bad: The shrunken wealth gap post-World War II was an outlier, not a norm that will reestablish itself for any long period under the present system.


We tend to equate wealth with intelligence in America, and that’s often a false association. Hiltons and Johnsons who inherit money often seem as dumb as posts, and even someone who has basic smarts like Mike Bloomberg has had many points added to his IQ erroneously because he amassed vast wealth by identifying a small shortfall in financial information which could be exploited. He was really great at one particular endeavor, much the same way as Harlan Sanders was with chicken, not an amazing Renaissance Man. It showed in the very uneven job he did as NYC mayor.

So it’s best not to take as gospel the opinions of the super-rich because knowing one thing isn’t knowing everything. That said, I’ll grant Bill Gates is far more intelligent and intellectually curious than your average person, monied or not. Here’s the opening of his review of Thomas Piketty’s Capital in the Twenty-First Century, which he agrees with overall:

“A 700-page treatise on economics translated from French is not exactly a light summer read—even for someone with an admittedly high geek quotient. But this past July, I felt compelled to read Thomas Piketty’s Capital in the Twenty-First Century after reading several reviews and hearing about it from friends.

I’m glad I did. I encourage you to read it too, or at least a good summary, like this one from The Economist. Piketty was nice enough to talk with me about his work on a Skype call last month. As I told him, I agree with his most important conclusions, and I hope his work will draw more smart people into the study of wealth and income inequality—because the more we understand about the causes and cures, the better. I also said I have concerns about some elements of his analysis, which I’ll share below.

I very much agree with Piketty that:

  • High levels of inequality are a problem—messing up economic incentives, tilting democracies in favor of powerful interests, and undercutting the ideal that all people are created equal.
  • Capitalism does not self-correct toward greater equality—that is, excess wealth concentration can have a snowball effect if left unchecked.
  • Governments can play a constructive role in offsetting the snowballing tendencies if and when they choose to do so.

To be clear, when I say that high levels of inequality are a problem, I don’t want to imply that the world is getting worse. In fact, thanks to the rise of the middle class in countries like China, Mexico, Colombia, Brazil, and Thailand, the world as a whole is actually becoming more egalitarian, and that positive global trend is likely to continue.

But extreme inequality should not be ignored—or worse, celebrated as a sign that we have a high-performing economy and healthy society.”

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I was disappointed when I first played the new EconTalk podcast, which featured host Russ Roberts interviewing Capital in the Twenty-First Century author Thomas Piketty; I simply couldn’t understand the guest due to his French accent (or my American ears). Thankfully, the program is transcripted, and it makes for a fascinating read. The Libertarian host and his politically opposed guest go at it in an intelligent way on all matters of wealth creation and distribution.

One argument that Roberts makes always galls me because I think it’s intellectually dishonest: He says that really innovative people (e.g., Steve Jobs and Bill Gates) deserve the huge money they make, implying that most of the wealth in the country is concentrated with such people. That’s not so. They’re outliers, extreme exceptions being raised to argue a rule.

There are also the Carly Fiorinas of the world, who run formerly great companies like Hewlett-Packard into the ground and make a soft landing with a ginormous golden parachute just before thousands of workers are laid off. If you want to say she’s equally an outlier, feel free, but the majority of CEOs in the U.S. aren’t great innovators. They’re stewards being compensated like innovators, collecting generous “royalties” on someone else’s ideas.

One excerpt from the show on this topic:

“Russ Roberts:

I’m just trying to get at the mechanics, because I think it matters a lot for why inequality has risen. So, for example, if somebody has gotten wealthy because they’ve been able to be bailed out using my tax dollars, then I would resent that. But if somebody is wealthy because they’ve created something marvelous, then Idon’t resent it. And my argument is that when we look at the Forbes 400, or the top 1%, many of the people in their, their incomes, their wealth has risen at a greater rate than the economy as a whole not because they are exploiting people, not because of corporate governance, but because of an increase in globalization that allows people to capture–make more people happy. Make more people–provide more value. My favorite example is sports. Lionel Messi makes about 3 times–the great soccer player, the great footballer, makes about 3 times what Pele made in his best earning years, 40 years ago. That’s not because Messi is a better soccer player. He’s not. Pele, I think, is probably a better soccer player. But Messi reaches more people, because of the Internet, because of technology and globalization. You can still argue that he doesn’t need $65 million a year and you should tax him at high tax rates. But I think as economists we should be careful about what the causal mechanism is. It matters a lot.

Thomas Piketty:

Oh, yes, yes, yes. But this is why my book is long, because I talk a lot about this mechanism. And I talk a lot about the entrepreneur, and the reason there is a lot of entrepreneurial wealth around, but my point is certainly not to deny this. My point is twofold. First, even if it was 100% entrepreneurial wealth, you don’t want to have the top growing 4 times faster than the average, even if it was complete mobility from one year to the other, you know, it cannot continue forever, otherwise the share of middle class in national wealth goes to 0% and you know, 0% is really very small. So that would be too much. And point number 2, is that when you actually look at the dynamics of top wealth holders, you know it’s really a mixture of, you know, you have entrepreneurs but you also have sons of entrepreneurs; you also have ex-entrepreneurs who don’t work any more but their wealth is rising as fast and sometimes faster than when they were actually working. You have–it’s a very complicated dynamics. And also be careful actually with Forbes’s ranking, which probably are even underestimating the rise of top wealth holders and you know, there are a lot of problems counting for inherited diversified portfolios. It’s a lot easier to spot people who have created their own company and who actually want to be in the ranking because usually they are quite proud of it, and maybe rightly so, than to spot the people, you know, who just inherited from the wealth. And so I think this data source is very biased in the direction of entrepreneurial wealth. But even if you take it as perfect data you will see that you have a lot of inherited wealth. You know, look: I give this example in the book, which is quite striking. The richest person in France and actually one of the richest in Europe, is Liliane Bettencourt. Actually, her father was a great entrepreneur. Eugene Schueller founded L’Oreal, number 1 cosmetics in the world, with lots of fancy products to have nice hair; this is very useful, this has improved the world welfare by a lot.

Russ Roberts: 

Pleasant. It’s nice.

Thomas Piketty:

The only problem is that Eugene Schueller created L’Oreal in 1909. And he died in the 1950s, and you know, she has never worked. What’s interesting is that her fortune, between the [?], between 1990 and 2010, has increased exactly as much as the one of Bill Gates. She has gone from $5 to $30 billion, when Bill Gates has gone from like $10 to $60. It’sexactly in the same proportion. And you know, in a way, this is sad. Because of course we would all love Bill Gates’ wealth to increase faster than that of Liliane. Look, why would I–I’m not trying to–I’m just trying to look at the data. And when you look at the data, you would see that the dynamics of wealth that you mention are not only about entrepreneurs and merit, and it’s always a complicated mixture. You have oligarchs who are seated on a big pile of oil, which you know, I don’t know how much of it is their labor and talent but some of it is certainly direct appropriation. And once they are seated on this pile of wealth, the rate of return that they are getting by paying tons of people to make the right investment with their portfolio can be quite impressive. So I think we need to look at these dynamics in an open manner. And when Warren Buffet says, I should not be paying less tax than my secretary, I think he has a valid point. And I think the issue, the idea that we are going to solve this problem only by letting these people decide how much they want to give individually is a bit naive. I believe a lot in charitable giving, but I think we also need collective rules and laws in order to determine how each one of us is contributing to tax revenue and the common good.

Russ Roberts:

Well, the share contributed by the wealthy in the United States is relatively high. You could argue it should be higher. As you would point out, I don’t really have a model to know what that would be. But real question for me is the size of government. If there’s a reason for it to be larger, if money can be spent better by the government, that would be one thing. And again, the other question is what should be the ideal distribution of the tax burden.”

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One of the best things I’ve read this year is an excellent longform conversation at the Baffler between Thomas Piketty and David Graeber, both of whom believe the modern financial system is passé, but only one of whom (Graeber) believes it’s certain to collapse. An exchange:


Is capitalism itself the cause of the problem, or can it be reformed?

Thomas Piketty:

One of the points that I most appreciate in David Graeber’s book is the link he shows between slavery and public debt. The most extreme form of debt, he says, is slavery: slaves belong forever to somebody else, and so, potentially, do their children. In principle, one of the great advances of civilization has been the abolition of slavery.

As Graeber explains, the intergenerational transmission of debt that slavery embodied has found a modern form in the growing public debt, which allows for the transfer of one generation’s indebtedness to the next. It is possible to picture an extreme instance of this, with an infinite quantity of public debt amounting to not just one, but ten or twenty years of GNP, and in effect creating what is, for all intents and purposes, a slave society, in which all production and all wealth creation is dedicated to the repayment of debt. In that way, the great majority would be slaves to a minority, implying a reversion to the beginnings of our history.

In actuality, we are not yet at that point. There is still plenty of capital to counteract debt. But this way of looking at things helps us understand our strange situation, in which debtors are held culpable and we are continually assailed by the claim that each of us “owns” between thirty and forty thousand euros of the nation’s public debt.

This is particularly crazy because, as I say, our resources surpass our debt. A large portion of the population owns very little capital individually, since capital is so highly concentrated. Until the nineteenth century, 90 percent of accumulated capital belonged to 10 percent of the population. Today things are a little different. In the United States, 73 percent of capital belongs to the richest 10 percent. This degree of concentration still means that half the population owns nothing but debt. For this half, the per capita public debt thus exceeds what they possess. But the other half of the population owns more capital than debt, so it is an absurdity to lay the blame on populations in order to justify austerity measures.

But for all that, is the elimination of debt the solution, as Graeber writes? I have nothing against this, but I am more favorable to a progressive tax on inherited wealth along with high tax rates for the upper brackets. Why? The question is: What about the day after? What do we do once debt has been eliminated? What is the plan? Eliminating debt implies treating the last creditor, the ultimate holder of debt, as the responsible party. But the system of financial transactions as it actually operates allows the most important players to dispose of letters of credit well before debt is forgiven. The ultimate creditor, thanks to the system of intermediaries, may not be especially rich. Thus canceling debt does not necessarily mean that the richest will lose money in the process.

David Graeber:

No one is saying that debt abolition is the only solution. In my view, it is simply an essential component in a whole set of solutions. I do not believe that eliminating debt can solve all our problems. I am thinking rather in terms of a conceptual break. To be quite honest, I really think that massive debt abolition is going to occur no matter what. For me the main issue is just how this is going to happen: openly, by virtue of a top-down decision designed to protect the interests of existing institutions, or under pressure from social movements. Most of the political and economic leaders to whom I have spoken acknowledge that some sort of debt abolition is required.”

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The (relative) mania surrounding Thomas Piketty and his unlikely bestseller, Capital in the Twenty-First Century, has stretched from spring to summer. From a report of his sold-out lecture on Monday in London by the Guardian’s Stuart Jeffries:

“Piketty wants us to realise that the 20th century was unusual: rapid, unrepeatable population increases that helped accelerate growth, combined with shocks (two world wars, the Great Depression) that reduced the value of capital and so kept inequalities low. These are exceptions in human history rather than the rules. The 21st century won’t be like the 20th, the professor predicts. If we don’t act, the accumulation of capital in the hands of the very few will resemble the norms in the early 19th or 18th centuries.

Someone asks Piketty if what Margaret Thatcher proposed in the 1980s was right, namely that if you reduce inequality you reduce growth. ‘I have no problem with inequality per se,’ he replies. ‘Up to a point it can be a motivation for growth. When inequalities grow more extreme, it can be no good for growth. It leads to the perpetuation of inequality. Over time that stops mobility from happening.'”

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From Josh Eidelson’s new Salon interview with economist Thomas Piketty, an exchange about leveling wealth inequality with taxes and/or education:


David Leonhardt, in his New York Times Magazine essay on your book, writes that rather than a wealth tax, there’s ‘another, more politically plausible force that can disrupt [Piketty’s] first law of inequality: education. When a society becomes more educated, many of its less-wealthy citizens quickly acquire an ephemeral but nonetheless crucial form of capital — knowledge — that can bring enormous returns.’ Do you share that view?

Thomas Piketty:

I do share partly that view. As I say in the book, education and the diffusion of knowledge are the primary forces towards reduction in inequality…

The question is, is that going to be sufficient?

…You need education but you also need progressive taxation.

It’s not an all-or-nothing solution. I think a lot can be done at the national level. We do already have progressive taxation of income, progressive taxation of inherited wealth, at the national level. We also have annual taxation of wealth at the national level. For instance, in the U.S. you have a pretty big property tax… Technically, it is perfectly possible to transform it into a progressive tax on net wealth…

The main difficulty is not so much to make it a global tax. The main difficulty is not international tax competition. The main difficulty is more internal political [obstacles]… Right now the property tax is a local tax, and so the federal government cannot do anything. You know, it was the same with the income tax one century ago.

So I don’t share the pessimistic view that a progressive wealth tax will never happen.”

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More on insta-famous economist Thomas Piketty, this time from Maxine Montaigne at the Conversation, who attempts to not argue the points of Capital in the Twenty-First Century but to explain the sensation. An excerpt:

“While almost everyone seems to agree that Piketty’s work is a valuable and timely contribution to the debate on inequality, there is a lingering sense of confusion about why this book in particular has grabbed the public’s attention. In order to understand this phenomenon, it might be helpful to look back a few hundred years, at the most famous dismal scientist of them all, T. R. Malthus.

Malthus was, and is still, famous for his slightly depressing comments on humanity’s inability to provide for a growing population. What is particularly interesting though is that despite these ideas not being hugely original or even very surprising, Malthus became something of a household name in the 19th century, at least more so than any other economist at that time.

One reason for Malthus’ unusual fame was simply good timing. At the beginning of the 19th century the British public were increasingly concerned with the overcrowding of Britain’s cities, and combined with decades of low agricultural wages and a damaging war with France it’s no surprise that Malthus’ pessimism struck a chord.

It’s easy to see the parallel with Thomas Piketty today, who many see as finally providing proof of capitalism’s inherent flaws as argued vocally by the Occupy movement. And once again the timing is everything; Piketty and his colleagues have been working on the World Top Incomes Database since well before the financial crisis and subsequent recessions, but his book now seems perfectly timed in response to growing public disenchantment with the theory of ‘trickle down’ economics.”

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Have not yet read Thomas Piketty’s Capital in the Twenty-First Century, so I have to reserve judgement, though I’m always skeptical about anyone who believes they’ve cracked the code of economics, which, like nature, seems almost beyond understanding–just too many variables and black swans. But I’m still looking forward to it. Here’s an excerpt from Paul Mason at the Guardian explaining why the economist believes the relative equality of the postwar period is unlikely to recur:

“For Piketty, the long, mid-20th century period of rising equality was a blip, produced by the exigencies of war, the power of organised labour, the need for high taxation, and by demographics and technical innovation.

Put crudely, if growth is high and the returns on capital can be suppressed, you can have a more equal capitalism. But, says Piketty, a repeat of the Keynesian era is unlikely: labour is too weak, technological innovation too slow, the global power of capital too great. In addition, the legitimacy of this unequal system is high: because it has found ways to spread the wealth down to the managerial class in a way the early 19th century did not.

If he is right, the implications for capitalism are utterly negative: we face a low-growth capitalism, combined with high levels of inequality and low levels of social mobility. If you are not born into wealth to start with, life, for even for the best educated, will be like Jane Eyre without Mr Rochester.”

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I put up a post just a couple of weeks ago about Thomas Piketty’s Capital in the Twenty-First Century, and since then it’s quickly become an unlikely blockbuster, sold out in brick-and-mortar stores and ranked #1 on Amazon, the latest green shoot in the Occupy mindset which blossomed in these scary financial times. At Foreign Affairs, economist Tyler Cowen provides a well-written review of the work, which he finds impressive but (unsurprisingly) disagrees with in fundamental ways. The opening:

Every now and then, the field of economics produces an important book; this is one of them. Thomas Piketty’s tome will put capitalist wealth back at the center of public debate, resurrect interest in the subject of wealth distribution, and revolutionize how people view the history of income inequality. On top of that, although the book’s prose (translated from the original French) might not qualify as scintillating, any educated person will be able to understand it — which sets the book apart from the vast majority of works by high-level economic theorists.

Piketty is best known for his collaborations during the past decade with his fellow French economist Emmanuel Saez, in which they used historical census data and archival tax records to demonstrate that present levels of income inequality in the United States resemble those of the era before World War II. Their revelations concerning the wealth concentrated among the richest one percent of Americans — and, perhaps even more striking, among the richest 0.1 percent — have provided statistical and intellectual ammunition to the left in recent years, especially during the debates sparked by the 2011 Occupy Wall Street protests and the 2012 U.S. presidential election.

In this book, Piketty keeps his focus on inequality but attempts something grander than a mere diagnosis of capitalism’s ill effects. The book presents a general theory of capitalism intended to answer a basic but profoundly important question. As Piketty puts it:

‘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?’

Although he stops short of embracing Marx’s baleful vision, Piketty ultimately lands on the pessimistic end of the spectrum. He believes that in capitalist systems, powerful forces can push at various times toward either equality or inequality and that, therefore, ‘one should be wary of any economic determinism.’ But in the end, he concludes that, contrary to the arguments of Kuznets and other mainstream thinkers, ‘there is no natural, spontaneous process to prevent destabilizing, inegalitarian forces from prevailing permanently.’ To forestall such an outcome, Piketty proposes, among other things, a far-fetched plan for the global taxation of wealth — a call to radically redistribute the fruits of capitalism to ensure the system’s survival. This is an unsatisfying conclusion to a groundbreaking work of analysis that is frequently brilliant — but flawed, as well.”

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The new technologies have chosen winners and losers with little regard for fairness. If you were a really good travel agent or bookstore owner, your livelihood is gone. But Major League Baseball owners, not exactly innovative people, have become mega-rich because they happened to have endless hours of content that’s not likely to be time-shifted, in an era when regional cable exploded. And low ratings–or no ratings–haven’t thus far made much of a difference.

Technology, however, isn’t likely the sole factor in the new wave of income inequality. Politics plays a vital role. From Paul Krugman’s New York Review of Books piece on French economist Thomas Piketty’s new volume on haves and have-nots:

“Capital still matters; at the very highest reaches of society, income from capital still exceeds income from wages, salaries, and bonuses. Piketty estimates that the increased inequality of capital income accounts for about a third of the overall rise in US inequality. But wage income at the top has also surged. Real wages for most US workers have increased little if at all since the early 1970s, but wages for the top one percent of earners have risen 165 percent, and wages for the top 0.1 percent have risen 362 percent. If Rastignac were alive today, Vautrin might concede that he could in fact do as well by becoming a hedge fund manager as he could by marrying wealth.

What explains this dramatic rise in earnings inequality, with the lion’s share of the gains going to people at the very top? Some US economists suggest that it’s driven by changes in technology. In a famous 1981 paper titled ‘The Economics of Superstars,’ the Chicago economist Sherwin Rosen argued that modern communications technology, by extending the reach of talented individuals, was creating winner-take-all markets in which a handful of exceptional individuals reap huge rewards, even if they’re only modestly better at what they do than far less well paid rivals.

Piketty is unconvinced. As he notes, conservative economists love to talk about the high pay of performers of one kind or another, such as movie and sports stars, as a way of suggesting that high incomes really are deserved. But such people actually make up only a tiny fraction of the earnings elite. What one finds instead is mainly executives of one sort or another—people whose performance is, in fact, quite hard to assess or give a monetary value to.

Who determines what a corporate CEO is worth? Well, there’s normally a compensation committee, appointed by the CEO himself. In effect, Piketty argues, high-level executives set their own pay, constrained by social norms rather than any sort of market discipline. And he attributes skyrocketing pay at the top to an erosion of these norms. In effect, he attributes soaring wage incomes at the top to social and political rather than strictly economic forces.”

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