You want to read the book that everyone has been talking about. But it is almost 600 pages long not counting the notes, and it contains lots of graphs and some algebraic equations. By all means I urge you to read the book. It is a fascinating story on capital and inequality of wealth and income. And you don’t need to understand all the equations to appreciate the message of the book.
But until you get the time to read it, here is a list of points and interesting quotations from the book that you can use in conversations with friends and colleagues.
On the difference between himself and Karl Marx, Piketty says,
“My conclusions are less apocalyptic than those implied by Marx’s principle of infinite accumulation and perpetual divergence [growing wealth inequality] (since Marx’s theory implicitly assumes zero productivity growth over the long run). In the model I propose, divergence [growing wealth inequality] is not perpetual and is only one of several possible future directions for the distribution of wealth.”
On the rise in income inequality in the United States, Piketty says,
“…this spectacular increase in inequality largely reflects an unprecedented explosion of very elevated incomes from labor, a veritable separation of the top managers of large firms from the rest of the population.”
Piketty has mined large amounts of data on wealth holdings and on incomes dating in some cases from as early as 1700 and as recent as 2010 in various countries. His data show that wealth or assets such as land holdings, homes, buildings and factories, stocks, bonds, etc., were large relative to annual income in the 18th and 19th centuries, fell during and after WWI and WWII, but have rebounded and are now back to levels nearly as high as they were in the 19th century.
Piketty attributes the return to high levels of wealth relative to income (in Piketty’s usage, wealth and capital are the same thing) to a slowing of the rate of income growth in the economies of developed countries, and to the fact that the rate of return on capital or wealth has been consistently higher than the rate of income growth. In Piketty’s terms, we have, by now, the famous ‘r’ is greater than ‘g’, or “r>g,” where ‘r’ is the rate of return on capital and ‘g’ is the rate of growth of income.
“When the rate of return on capital significantly exceeds the growth rate of the economy (as it did through much of history until the nineteenth century), then it logically follows that inherited wealth grows faster that output and income.”
On economists, Piketty says,
“Economists are all too often preoccupied with petty mathematical problems of interest only to themselves.”
People who spent their youth in the years after WWII and launched their work lives prior to 1980 have lived in an economic growth period that was much faster than most periods in world history. With brief interruptions, 1945 – 1975 was a period of steady and significant growth of incomes. But beginning in the latter half of the 1970s, income growth slowed. About this phenomenon, Piketty says,
“People still do not understand what evil spirit condemned them to such a low growth rate beginning in the late 1970s. Even today, many people believe that the last thirty (soon to be thirty-five or forty) ‘pitiful years’ will soon come to an end, like a bad dream, and things will once again be as they were before.”
Of that return to relatively high growth, Piketty, in his book, doesn’t appear to be optimistic. Piketty says of income growth,
“… the pace accelerated over the course of the eighteenth and nineteenth centuries, and especially the twentieth, and is now likely returning to much lower levels for the remainder of the twenty-first century.”
Piketty concludes his book with this quote, urging all of us to engage in this policy debate.
“Yet it seems to me that all social scientists, all journalists and commentators, all activists in the unions and in politics of whatever stripe, and especially all citizens should take a serious interest in money, its measurement, the facts surrounding it, and its history. Those who have a lot of it never fail to defend their interests. Refusing to deal with the numbers rarely serves the interests of the least well-off.”