Inequality and Dynastic Wealth: Piketty Ten Years On

From UnHerd, March 10:

Thomas Piketty’s failed revolution Ten years on, society is governed for the wealthy

Think back to the political situation a decade ago, and one may have in mind a calmer, less dysfunctional time. Britain’s economy was growing, just about, and real wages were beginning to rise for the first time since the summer of 2007, even if they remained well below that peak. The steadying influence of Barack Obama in the White House and the Coalition government in Whitehall seems a world away from our current post-Brexit, post-Covid age of geopolitical upheaval and spiralling living costs. Only the looming referendum on Scottish independence seemed then to present any real challenge to the status quo, whether that be viewed as threat or opportunity. Economists speak of a “misery index”, which combines the inflation rate with the unemployment rate. By this measure, economies of the UK and the US were doing well in the spring of 2014. Interest rates remained where they had been since the banking crisis, stuck rigidly below 1%. This was a gift to mortgage-holders, and house prices reflected that.

It was into this context that a 700-page book about rentiers, wealth elites, inheritance, war, and taxation, over the previous two centuries, became an extraordinary publishing sensation. Few had heard of Thomas Piketty when Capital in the Twenty-First Century appeared, but his publisher, Harvard University Press, would soon be struggling (and failing) to keep up with demand for the book. Hundreds of thousands of copies were shifted over the summer of 2014, while A-boards appeared outside the luckier independent bookshops in hipster neighbourhoods around the world declaring “PIKETTY IN STOCK!”. Sales figures topped two million within a couple of years.

Inevitably, much of the media commentary descended into banality and crass comparison. Piketty himself was instantly declared a “rock star economist”, and compared with Karl Marx, presumably because he had published a doorstopper with the word “capital” in the title. Those who’d bothered to read (at least some of) Capital in the Twenty-First Century were surprised and impressed to discover, amid lots of graphs, references to Balzac and Jane Austen in a book notionally of economics. This was clearly more intriguing than the “economics 101” that was taught at school and university.

From the perspective of the trade publishing market, the book also had the merit of being beautifully simple to understand. Capital in the Twenty-first Century is ultimately a piece of historical statistical description, containing no real theory or mathematics to speak of. Its famous formula “R>G”, which even came to adorn t-shirts, refers to the long-standing tendency (Piketty has been adamant it’s not a “law”) of returns on capital being higher than growth in income from production. As anyone who has owned an asset (such as a house) might have noticed, its value tends to rise faster than one’s pay. Scale that up to an economy as a whole, and you have a situation where existing stocks of wealth are growing faster than GDP.

Piketty’s thesis clearly chimed with narratives about inequality that had been developing on the Left since the 2008 financial crisis. The book’s focus upon the rising incomes and wealth of the top “1%” echoed the language of the Occupy movement, language which had itself been borrowed from the study of “top incomes” that Piketty had helped pioneer some years earlier. One of Britain’s most eye-catching political reactions to the banking crisis was UK Uncut, which was founded in 2010 to campaign against corporate tax avoidance, at a time when brutal cuts to benefits, higher education and local government were being unveiled. Fred “the shred” Goodwin, the CEO of RBS that had been bailed out by the British taxpayer and who had then resigned with a knighthood and a £700,000 pension, became a symbol of something morally rotten in capitalism. There was a widespread sense of an economy that was rigged in favour of the rich, which Capital in the Twenty-first Century did much to empirically substantiate.

But the extraordinary success of the book cannot be wholly explained in terms of media hype or the immediate fall-out from 2008. No doubt, the sentiments expressed by Occupy and UK Uncut remained potent ones, contributing some years later to the unexpected rise of “Left populists” such as Bernie Sanders and Jeremy Corbyn. Piketty has expressed some political sympathy with those movements, but if one were looking for a rousing, polemical denunciation of neoliberal capitalism around which to mobilise, one probably wouldn’t turn to Capital in the Twenty-First Century. Its resonance requires some deeper explanation.

The scientific study of “top incomes” originated in the early 2000s, led by the late British economist, Tony Atkinson, who struck up a collaboration with Piketty, based in Paris, and Emmanuel Saez in Berkeley. This yielded a series of academic articles and edited volumes, which passed under the radar of general readers or the media, back when nobody had ever spoken of “the 1%”. One distinguishing feature of this programme was a willingness to use novel sources of empirical data, namely tax records. Another was the study of very long-term historical trends, over not just decades but centuries. “The Top Incomes Database”, which first presented the kinds of graphs with which Capital in the Twenty-First Century is littered, was launched at a conference hosted by Atkinson and Piketty in Paris in 2011....

....MUCH MORE

If interested here is Le blog de Thomas Piketty:

Publié le 13 février 2024
Pesants, the most unequal of professions

 

Paysans: la plus inégale des professions

 

We have a lot of posts on the good professor:

 

Thomas Piketty Is Still Alive (and thinking about taxing endowments)

Piketty, The Musical
Emanuel Derman, Tyler Cowen et al On "Why is Thomas Piketty's 700-page book a bestseller?"
While I Contemplated Writing 700,000 Words On Piketty, The FT's Money Supply Came Back Swinging
A Socialist Review of Piketty's Latest
The Financial Times Explains Its Vicious Crypto-fascist, Puppies-in-a-Blender Attack on Thomas Piketty
Piketty, Piketty. Why Does That Name Seem Familiar? El-Erian on Piketty's Investment Strategies
Piketty Til You Puke: "Ryan Avent Is Very Unhappy with Clive Crook’s Review of Piketty’s 'Capital in the Twenty-First Century'"
We've now gone all second -or is it third?- derivative (fourth?).
Anti-Piketty: Merrill Lynch's Tips on Creating a Financial Dynasty
 

And many more, use the 'search blog' box if interested.  

And whenever I see his platform at Le Monde I think of: Le Blog de Jean-Paul Sartre

Piketty Takes Another Swing At It: What I Meant To Say Was...

From Bloomberg: 

French Economist Piketty Clarifies Findings on Rising Inequality

French economist Thomas Piketty sought to clarify his findings on the causes of rising inequality in a new paper published in the American Economic Review. 

In his best-selling book “Capital in the Twenty-First Century,” Piketty posited that the return on capital -- property, stocks, bonds and the like -- would outpace economic growth over time, tending to increase wealth inequality. He summed up that relationship in a simple equation: r>g.

Piketty said in his new paper that formula shouldn’t be seen as the “primary tool” for explaining changes in income and wealth inequality in the last century nor in forecasting what’s ahead in the current one. Other forces -- both political and economic -- also will play a major role in determining what occurs, he wrote in the article.

“One of the main conclusions of my research is indeed that there is substantial uncertainty about how far income and wealth inequality might rise in the 21st century,” he said.

“Capital in the Twenty-First Century” was hailed by Nobel-prize winning economist Paul Krugman as “the most important economics book of the year -- and maybe of the decade” after its publication in English last year. Piketty has given presentations on its findings to the White House Council of Economic Advisers, the International Monetary Fund and the United Nations.

The 43-year-old professor at the Paris School of Economics examined centuries of data on countries including the U.S., Sweden, France and the U.K. to come up with his findings.

Piketty stressed in his new article that rising inequality in the U.S. in recent decades was not due to capital accumulation by wealthy Americans -- a point he said he also made in his book.

Executive Compensation
Rather, it’s been caused by a widening gap between the labor incomes of top-earners and the rest of Americans. That in turn can be explained by “exploding” compensation for top company managers, large cuts in the maximum tax rates and more access to higher education by those better off, he said.

As for wealth inequality, Piketty said it “is currently much less extreme than it was a century ago” in the developed world. In trying to discern where it is headed, he said he had to “clarify the role played by r>g in my analysis.”

The gap between the return on capital and the growth of the economy “is certainly not a problem in itself,” he said. And an increase in that gap “does not have much impact on labor earnings inequality,” though it can lead to greater disparities in wealth, according to Piketty....MORE

The Wall Street Journal's Washington Wire is less charitable:

Why Thomas Piketty’s Revisions Don’t Fix His Book 

A year after the English-language edition of “Capital in the Twenty-First Century” dominated American bestseller lists, Thomas Piketty is trying to cover his retreat with an article aimed at academic economists who have largely rejected the book. In the new article, Mr. Piketty tries to guide people toward his tome’s stronger points and away from its weaknesses, which include his cavalier use and abuse of data.

Mr. Piketty reiterates, for example, that the rise of labor inequality in the U.S. has very little to do with his central thesis, which is that when the interest rate (“r”) is greater than the growth rate (“g”), wealth inequality rises.

Sections II and IV of Mr. Piketty’s article say that simple versions of economic models do not support the claims he made in “Capital.” He argues–without using enough math to be falsifiable–that the addition of some tweaks could make the models give the results he desires. He does not say that in his book he used simple versions of the models.

One important failure in Mr. Piketty’s book was that it relied on substitutability between capital and labor that is far beyond the range supported by data. In a 2014 paper, Brent Neiman and Loukas Karabarbounis offered a defense of high substitutability (though not necessarily as high as Mr. Piketty suggests it is), based on an economy with multiple sectors. In his new article, Mr. Piketty borrows their idea, which was not available when he wrote his book. Of the approach used throughout “Capital,” Mr. Piketty now writes that it is “not [his] favored interpretation of the evidence.”

In other ways, Mr. Piketty remains consistent. His argument for why the inequality “r > g” should increase wealth inequality is tweaked in Section II but still has a central flaw: He does not deal with the fact that r and probably g are outputs of the same economic processes that create wealth.

But even the predictive value of that famous inequality goes under the revisionist’s knife....MORE

And even harsher on the Opinion page:
Piketty Corrects the Inequality Crowd

Here is the good Professor's website at the Paris School of Economics.
And here's "About Capital In the Twenty First century" (6 page PDF)

Thomas Piketty Is Still Alive (and thinking about taxing endowments)

Or, at minimum, someone using his nom de blog is still posting at Le blog de Thomas Piketty.
(and in English)

I was thinking about Piketty because a friend sent me this from Philanthropy Daily, June 29: 

Thomas Piketty proposes specific tax scale for nonprofit endowments

Don’t miss influential author, in new book, floating idea “in order to avoid an excessive concentration of power within a small number of entities and to enable less wealthy entities to develop.”

Progressive intellectuals and activists are foremost among those who have put philanthropy on the defensive of late. And Tomas Piketty is one of the world’s foremost progressive academic economists.

Piketty is a professor at the School for Advanced Studies in the Social Sciences in Paris and has affiliations at several other prestigious academic institutions around the globe. Among his books, 2013’s Capital in the Twenty-First Century in particular restructured the public discourse about political economy and inequality.

His work has been and remains greatly influential.

Piketty’s new book A Brief History of Equality further explores the origins of wealth disparity and offers various specific policy proposals that he believes would mitigate it, including an annual wealth tax that would make “it possible to levy receipts far more substantial than those of the inheritance tax, and to improve redistribution in proportion to each individual’s ability to contribute.”....

....MUCH MORE

Some previous Piketty (gotta stop with the alliteration):
Piketty, The Musical
Emanuel Derman, Tyler Cowen et al On "Why is Thomas Piketty's 700-page book a bestseller?"
While I Contemplated Writing 700,000 Words On Piketty, The FT's Money Supply Came Back Swinging
A Socialist Review of Piketty's Latest
The Financial Times Explains Its Vicious Crypto-fascist, Puppies-in-a-Blender Attack on Thomas Piketty
Piketty, Piketty. Why Does That Name Seem Familiar? El-Erian on Piketty's Investment Strategies
Piketty Til You Puke: "Ryan Avent Is Very Unhappy with Clive Crook’s Review of Piketty’s 'Capital in the Twenty-First Century'"
We've now gone all second -or is it third?- derivative (fourth?).

And many more, use the 'search blog' box if interested. 

"Piketty: Billionaires hurt economic growth and should be taxed out of existence"

Years ago I was told that someone was rich if their pile was three times the size of yours.

Based on sales of three million copies of "Capital in the 21st Century", maybe the theatrical and musical rights to same (the documentary is already in the can) and some judicious investments over the years, Professeur P's pile is probably in the $10 - 30 million range.

From CNBC, September 12, 2019:

• A popular French economist says billionaires are harmful to economic growth and would be effectively abolished under his tax plan,
• In an interview with the French magazine L’Obs, Thomas Piketty calls for a graduated wealth tax of 5% on those worth 2 million euros or more and up to 90% on those worth more than 2 billion euros.
• Piketty says the notion that billionaires create jobs and boost growth is false.

A popular French economist says billionaires are harmful to economic growth and would be effectively abolished under his tax plan, according to an interview.

Thomas Piketty, whose 2013 book on inequality, “Capital in the 21st Century,” became a global bestseller and bible for tax-the-rich progressives, just published a 1,200-page follow-up book called “Capital and Ideology.” It won’t be published in English until March. But in an interview with the French magazine L’Obs, Piketty called for a graduated wealth tax of 5% on those worth 2 million euros or more and up to 90% on those worth more than 2 billion euros.

“Entrepreneurs will have millions or tens of millions,” he said. “But beyond that, those who have hundreds of millions or billions will have to share with shareholders, who could be employees. So no, there won’t be billionaires anymore....MORE

Well there you go, the formula appears to hold in this case.

Some previous Piketty (gotta stop with the alliteration):
Piketty, The Musical
Emanuel Derman, Tyler Cowen et al On "Why is Thomas Piketty's 700-page book a bestseller?"
While I Contemplated Writing 700,000 Words On Piketty, The FT's Money Supply Came Back Swinging
A Socialist Review of Piketty's Latest
The Financial Times Explains Its Vicious Crypto-fascist, Puppies-in-a-Blender Attack on Thomas Piketty
Piketty, Piketty. Why Does That Name Seem Familiar? El-Erian on Piketty's Investment Strategies
Piketty Til You Puke: "Ryan Avent Is Very Unhappy with Clive Crook’s Review of Piketty’s 'Capital in the Twenty-First Century'"
We've now gone all second -or is it third?- derivative (fourth?).

And many more, use the 'search blog' box if interested.

The FT's Money Supply blog on Piketty: "Data problems with Capital in the 21st Century"

When I posted "FT: 'Piketty findings undercut by errors'" I was not aware there was even more at Money Supply's very deep dive by FT econ editor Chris Giles:

Professor Thomas Piketty’s Capital in the 21st Century has data on wealth inequality at its core. His data collection has been universally praised. Prof Piketty says he has collected,

“as complete and consistent a set of historical sources as possible in order to study the dynamics of income and wealth distribution over the long run”

However, when writing an article on the distribution of wealth in the UK, I noticed a serious discrepancy between the contemporary concentration of wealth described in Capital in the 21st Century and that reported in the official UK statistics. Professor Piketty cited a figure showing the top 10 per cent of British people held 71 per cent of total national wealth. The Office for National Statistics latest Wealth and Assets Survey put the figure at only 44 per cent.

This is a material difference and it prompted me to go back through Piketty’s sources. I discovered that his estimates of wealth inequality – the centrepiece of Capital in the 21st Century – are undercut by a series of problems and errors. Some issues concern sourcing and definitional problems. Some numbers appear simply to be constructed out of thin air.

When I have tried to correct for these apparent errors, a rather different picture of wealth inequality appeared.

Two of Capital in the 21st Century’s central findings – that wealth inequality has begun to rise over the past 30 years and that the US obviously has a more unequal distribution of wealth than Europe – no longer seem to hold.

Without these results, it would be impossible to claim, as Piketty does in his conclusion, that “the central contradiction of capitalism” is the tendency for wealth to become more concentrated in the hands of the already rich and

“the reason why wealth today is not as unequally distributed as in the past is simply that not enough time has passed since 1945”.

This long post will outline the classes of data problems I have found in Chapter 10 of Piketty’s book, which deals with the inequality of capital ownership. I will then show why these problems matter for each one of the four countries prof Piketty studies – France, Sweden, UK and the US.

Finally, I will put all the revised data together to show that, based on the sources Piketty cites, the conclusions that (a) wealth inequality rose after 1980 and (b) wealth inequality in the US is larger than in Europe no longer seem to hold....MUCH MORE

Of all the commentary thus far the most interesting has to be from one of Marginal Revolution's readers:

Michael May 23, 2014 at 2:55 pm
It’s really sad that many not-very-bright people will be fooled by Giles’s misleading and tangential nitpicking, which (as Piketty clearly points out) does not actually change the thrust of Piketty’s thesis.

It’s a sad attempt by a Murdoch-owned rag to undercut a very good thesis that undermines Murdoch’s political view. Note that the FT’s treatment of the R-R scandal was much, much more charitable:

“But the corrections do not affect Mr Rogoff and Ms Reinhart’s most up-to-date work, which still shows a slowdown in growth when debt hits 90 per cent of gross domestic product.” 

I’m sure it will fool a lot of Cowen’s fans, and readers of other Koch-supported blogs, but fortunately the clear trend of growing inequality is making it harder and harder for this kind of distracting propaganda to really make a meaningful impact on the hearts and minds of the majority. 

I suppose someone had to break the news to the FT's journalists, Professor Cowen and other 'not-very-bright people' who the real powers behind Pearson (and Marginal Revolution) are.

However, well reasoned as they may be, it will be very difficult for MR's readers to top this Piketty commenter from April 10:

"I’m just going to agree with which ever side fits my political preferences."

(comment by Urstoff April 10, 2014 at 3:20 pm)

Piketty, The Musical

"Piketty, The Musical" in quotation marks already has three hits on Google!
It is impossible to be original anymore and very difficult even to be creative.
Here are the three returns:

Twitter / csandis: #Piketty the musical: ...


https://twitter.com/csandis/status/463315101760880640
May 5, 2014 - #Piketty the musical: https://www.youtube.com/watch?v=Lin-a2lTelg&feature=kp&app=desktop … Reply; Retweet Retweeted; Delete; Favorite ...
Constantine Sandis (csandis) on Twitter
https://twitter.com/csandis
More. Embed Tweet. Constantine Sandis @csandis · May 5 · #Piketty the musical: https://www.youtube.com/watch?v=Lin-a2lTelg&feature=kp&app=desktop …
How We Do Intellectual History at the New York Times ...
crookedtimber.org/2014/04/.../comment-page-9/

Crooked Timber
Apr 26, 2014 - But Piketty: The Musical is too wonderful an idea to be slain by so banal and uninteresting a happenstance. 29. William Timberman 04.26.14 at ...

Which get us comments at crooked timber (first recorded appearance):

Henry Farrell 04.26.14 at 1:17 pm

Shhhh ….
It was actually one of the required poems on the Irish Leaving Certificate (what you need to graduate from high school). But Piketty: The Musical is too wonderful an idea to be slain by so banal and uninteresting a happenstance.

That had been preceded by:

Henry 04.26.14 at 12:43 pm

DeLong likes Piketty. Krugman likes Piketty. Solow likes Piketty. In the eyes of the world they may not be Very Serious People, but they’re people I take very seriously. What I really want to know, though, is whether Piketty rhymes with Ligeti. Maybe there’s a dodecaphonic limerick lurking there.

Can’t say anything about limericks, but I did compose the below ‘Piketty as Macavity’ piece of doggerel, in the course of a very frustrating conversation with one of the chief proponents of the position that Piketty should be anathematized for not paying sufficient deference to the Capital Controversy crowd …

Trailing more than a week later was csandis who offered up Leonard Cohen on May 5 (happy Cinco de Mayo Tomás P?):


I am coming to accept it's a race with no winners, hell I even got beaten to "Enron, the Musical" by one Lucy Prebble who took it to the West End.
As the young people say: bitch.

Oh well, here's some background on the Enron zeitgeist from Generic Theater who did the southern-U.S. premier of the show:

Emanuel Derman, Tyler Cowen et al On "Why is Thomas Piketty's 700-page book a bestseller?"

Heidi Moore writing at the Guardian:

Thomas Piketty is a French economist whose Capital in the Twenty-First Century has swept American discourse. Four experts – Brad DeLong, Tyler Cowen, Stephanie Kelton and Emanuel Derman – take on why that is

There’s been a bizarre phenomenon this year: a young, little-known French economist has written a 700-page tome about economic inequality – dense with data, historical examples from France, and a few literary references to Jane Austen.

That’s not the strange part. This is: it’s a bestseller.

Somehow, Capital in the Twenty-First Century by Thomas Piketty has become a conversation piece among well-read people. Its graphic red-and-ivory cover is inescapable. Early in its launch, it hit No 1 on Amazon’s bestseller list and the paper version – a doorstop in punishing, heavy hardcover – sold out in major bookstores.

Piketty’s main argument is this: that invested capital – in the stock market, in real estate – will grow faster than income.

The implications of that are deep: to have invested capital, you must have money already. If you rely on income, as most people do, you will likely never catch up to the wealth of people who are already rich. The 1% and the 99% enshrined by Occupy are not an anomaly of our time, Piketty’s research suggests. It’s a structural feature of capitalism. Piketty’s work – which has been in progress for over a decade – is a natural pairing with the Occupy movement, which also questions the premises of capitalism.

You can see the appeal of such an argument, which has driven the book to become a cultural touchpoint. Seattle quoted Piketty in its minimum-wage law. The book has had so many reviews and articles that it’s possible for someone to feel as if they have read it even without cracking the cover.

Which raises the question: why this book? The themes that Piketty brings up have been enshrined in discussion about progressive economists for decades. No fewer than three Nobel Prize winners – Joseph Stiglitz, Paul Krugman and Robert Solow – have all devoted much of their careers to studying inequality. On Friday, 19 September, I moderated a panel at the Washington Center for Equitable Growth that included Solow as well as economists Brad DeLong, Tyler Cowen and Russ Roberts. For 90 minutes, they hammered out the implications of Piketty’s work -- and the discussion ended with much more to say.
I decided to ask star economists and finance experts who have devoted their careers to issues of inequality and the American economy: why is Thomas Piketty a bestseller? Is he required reading? Their thoughtful responses are below, and they include some surprises – including one who has decided not to read Piketty at all.

Oh, and it’s pronounced like this: Tome-AH PEEK-a-tee. Now, over to the experts.

...Emanuel Derman
Emanuel Derman is a professor at Columbia University, where he directs the program in financial engineering. His latest book is Models.Behaving.Badly: Why Confusing Illusion with Reality Can Lead to Disasters, On Wall Street and in Life – one of Business Week’s top ten books of 2011.
 
Economists are the new nuclear physicists, turned to by governments for advice as though they are heirs to the power of the scientists who created Hiroshima. Macroeconomists now advise central banks on monetary policy, and behavioral economists tell political parties and governments how to nudge citizens to do what politicians and economists deem to be right.

I make my living teaching finance, the branch of economics concerned with putting a value on assets such as stocks, bonds, mortgages and options.

Though I should, I can’t bring myself to read Thomas Piketty.

I wish I could. I have nothing against him or his work, which seems well-intentioned and directed at improving human welfare. I am just spiritually weary of the ubiquitous cockiness of economists, though Piketty sounds as though he’s less guilty of this than most of the pundits in the daily papers.
The best model in my field, finance, is the Black-Scholes model of options pricing, which, according to Steve Ross, an MIT economist himself, “ ... is the most successful theory not only in finance, but in all of economics.” I’ve spent most of my professional life working on options theory, and I understand it well. More importantly, I understand its limitations in describing the behavior of complex human beings and markets via simple assumptions and mathematics. But limited though it is, finance is much more reliable than economics.

Economics is the study of how to utilize limited resources to achieve good ends. And good, of course, is in the eye of the beholder, defined by humans. But economists don’t agree with each other about ends or means. They can’t agree on the efficacy of money printing or austerity. They keep changing their minds every few years about conventional wisdom while at every instant appearing to be certain that they are right. My gripe with economists is not that their models don’t work well – they don’t, look at the role of central banks in the financial crisis – but that they seem so reluctant to acknowledge the riskiness of their advice. And yet, beware their fearsome unelected power. Anyone visiting from Mars last year and asking to be taken to our leader would undoubtedly expect to meet Bernanke.

As a result their public arguments have an incestuous yet masturbatory quality that is exhausting to follow. The only field more self-confidently but just as regularly wrong as economics is nutrition, whose recommendations to shun butter/margarine or red meat/carbohydrates regularly reverse themselves.

Natural scientists (physicists, chemists, biologists) have had frightful power, and not always used it well. But at least they can more or less agree about truth and efficacy. Economists cannot, except by using statistical regressions which are often flawed and prove little.

So I cannot currently bring myself to read over 600 pages by an economist. One day I do hope to read Piketty’s book....MORE

Well then...
HT: The Big Picture

Given Piketty,Why Do Great Fortunes Disappear

It used to be war that did in the big piles of familial loot. The repeal of primogeniture and the introduction of death duties has also had a leveling effect.
Still though, there's nothing like having your land possessed (or repo'd) by force of arms to spread the wealth around.
From Bloomberg:

If Capital Grows This Fast, How Come Fortunes Disappear?

Michel Barthelemy Olivier, "Thé a l'Anglaise" via Getty Images

The great aristocratic fortunes of the 21st century rival those of Louis XV. And beheading is rarer.

Just how fast do fortunes grow? Andrew Carnegie started from essentially nothing to become the second-richest man in the United States by the time he’d reached the modern retirement age of 65. John Pierpont Morgan got to the top spot even faster, though he had the advantage of being born into wealth. In our own century, Bill Gates beat them both, becoming the richest man in the world before the age of 40.

If the descendants of Carnegie and Morgan and Gates (who has promised to give most of his wealth away) and Carlos Slim bank their fortunes and let it accumulate over the generations, just how much of the world will they own?

The question comes up now because of one book that has seized the attention of the world of economists and those who interpret them: Thomas Piketty’s “Capital in the 21st Century.” The grand summation of the worldwide problem of inequality has gotten a reception that the New York Times’s Jennifer Schuessler describes as “rapturous.”

Together with his frequent collaborator Emmanuel Saez, Piketty has probably done as much as anyone to map wealth and income in the world today. So the encomia are understandable, but as Bloomberg View’s Clive Crook argues, many folks have seem to overlook the leaps from Piketty’s careful scholarship to his big claims. Some of those claims, like Piketty’s accounting of how fast capital expands, seem downright strange.

Which brings us back to that question about how fast fortunes grow. The central claim of Piketty’s book is that the period of diminishing inequality that we saw in the 20th century is a historical aberration, and we are entering a period in which capitalism returns to its natural state of affairs: an increasing concentration of wealth in fewer and fewer hands. That contention is based on a formula that’s fast becoming famous: When the rate of return on capital is greater than the overall growth of the economy — when r>g, in Piketty’s formula — wealth becomes progressively more concentrated.
Piketty believes this was the the case through most of history. To illustrate this, he starts off the book with a long, erudite, and charming discussion of Honoré de Balzac and Jane Austen, demonstrating how for many years it was an accepted rule of thumb that owners of land or bonds would see their capital appreciate at a rate of about 5 percent a year.

For Piketty, that 5 percent rate of growth routinely cited by Balzac and Austen is quite close to the mark; his own calculations yield a number somewhere in the 4 or 5 percent range for the period in which they worked. And that, unfortunately, is a lot faster than most economies grow. Some of that capital, of course, gets spent to maintain the lifestyles of the rentiers. But the rest gets reinvested. If the holders of capital manage to reinvest, say, three-fifths of their money (a number that Piketty takes as reasonable assumption), they will see their fortunes grow 3 percent a year. That’s much faster than economies expanded through most of history. Actually, it’s faster than just about any economy expands except during short and anomalous bursts (like China today or Europe in the period 1950-1980) — and faster than U.S. and European economies are likely to expand in the next century.

The 5 percent returns on capital that Piketty sees as the historic norm have to come from somewhere. And if the income of the 1% (or really 0.1%) is not coming from economic growth, it has to be coming out of squeezing the share of the 99%. That’s a neat and powerful argument you don’t need to be a professional economist to understand. It hinges, though, on that rate of return on capital, a number that frankly seems hard to support.

On Balzac, let’s defer to Thomas Piketty. But it’s not totally clear that on this subject French novels are more authoritative than Russian plays, in which the position of the rentier is more precarious. Not every landowner could sit back and collect a 5 percent risk-free return on the value of an estate; if that was the case, Anton Chekhov’s Anya and Varya would still be sitting pretty in their cherry orchard....MORE

HT: The Big Picture

UPDATED--FT: "Piketty findings undercut by errors"

Update: "The FT's Money Supply blog on Piketty 'Data problems with Capital in the 21st Century'"
Original post:

From the Financial Times:

Thomas Piketty’s book, ‘Capital in the Twenty-First Century’, has been the publishing sensation of the year. Its thesis of rising inequality tapped into the zeitgeist and electrified the post-financial crisis public policy debate.

But, according to a Financial Times investigation, the rock-star French economist appears to have got his sums wrong.

The data underpinning Professor Piketty’s 577-page tome, which has dominated best-seller lists in recent weeks, contain a series of errors that skew his findings. The FT found mistakes and unexplained entries in his spreadsheets, similar to those which last year undermined the work on public debt and growth of Carmen Reinhart and Kenneth Rogoff.

The central theme of Prof Piketty’s work is that wealth inequalities are heading back up to levels last seen before the first world war. The investigation undercuts this claim, indicating there is little evidence in Prof Piketty’s original sources to bear out the thesis that an increasing share of total wealth is held by the richest few.

Prof Piketty, 43, provides detailed sourcing for his estimates of wealth inequality in Europe and the US over the past 200 years. In his spreadsheets, however, there are transcription errors from the original sources and incorrect formulas. It also appears that some of the data are cherry-picked or constructed without an original source....MORE

See also:
Doubts over Piketty inequality data
video 4:49 with FT econ editor Chris Giles

And:
Piketty response to FT data concerns

Piketty, Piketty. Why Does That Name Seem Familiar? El-Erian on Piketty's Investment Strategies

From Fortune's Term Sheet:

El-Erian: Is Piketty right about investment strategies?

 

Watching Bentley Prices

The gap between rich and poor does indeed influence where investors put their money, but so do other factors, including monetary policy and technological advances.

FORTUNE – Having surged to the top of best-seller lists, Thomas Piketty's Capital in the Twenty-First Century continues to attract attention, and rightly so. With the initial flurry over its conclusions now giving way to an intensifying debate over the underlying data, the interest will continue to grow for quite a while yet, as will analytical work on inequality – a topic that is capturing greater public awareness.

Yet there is one related area that, until now, remains under, if not unexplored: The extent to which the book can and should inform investment strategies.

Piketty's analysis of several countries over history highlights how the return to owning capital (what he labels "r"), be it financial or real estate, tend to exceed the rate of economic growth ("g"). As such, income inequality rises; and it does so until the social fabric erodes excessively and/or the rich recognizes it is in their self-interest to capture less of the country's wealth.

Piketty's numbers-driven analysis, while subject to counters, reinforces what some others have documented using other data sources. Moreover, and quite counter-intuitively considering it has only been six years since the financial sector almost tipped the world into a Great Depression, increasing inequality has been a notable feature of the much-shorter post-financial crisis period.

Turning to market implications, well-off households have been richly rewarded in recent years by taking significant exposure to capital markets. Luxury brands serving the rich have out-performed, as have activities aimed at supporting vulnerable segments of the population – that is to say, at the two extremes of the income and wealth distributions. The average returns to labor services have been disappointing as reflected in the protracted sluggishness of wage earnings and unusually high unemployment....MORE

Because....math.

HT: The Reformed Broker

While I Contemplated Writing 700,000 Words On Piketty, The FT's Money Supply Came Back Swinging

This whole thing could have been avoided with a little peer review but no; Piketty had to write a book and commenters had to comment without the least bit of effort beyond turning the pages.

I swear economists have to be the most worthless, most self-absorbed bunch of scamsters one is likely to run into.

So there I was, gathering my thoughts, such as the above, for the 700K word comment when Chris Giles drops out of one of the feedreaders.
From Money Supply:

Capital in the 21st Century – a response

Professor Thomas Piketty has given a more detailed response to the Financial Times articles and blogs on his wealth inequality data in Capital in the 21st Century (here, here, here and here). He says it is “simply wrong” to suggest he made errors in his data.

There are a few things on which we agree. First, the source data on wealth inequality is poor. I have written that it is “sketchy” and Prof Piketty says it is “much less systematic than we have for income inequality”. Second, it would have been preferable for Prof Piketty to have used a more sophisticated averaging technique than a simple average of Britain, France and Sweden to derive an estimate for European wealth inequality. Third, the available data suggests a broad trend of reduction in wealth inequality during most of the 20th Century.

There are more aspects on which there remains disagreement. Prof Piketty does not explain the multiple missing data points in his data or tweaks to it; he explains transcription errors as deliberate adjustments to overcome discontinuities in data, but does not provide formulas or an explanation of why these undocumented adjustments should apply to only one data point in a time series; he does not explain why it is consistent to favour household surveys over estate tax records for the US but not the UK; nor why his UK series showing rising wealth inequality differs so materially from his source materials, which show falling UK wealth inequality in eight of the most recent nine decades....MORE

The Financial Times Explains Its Vicious Crypto-fascist, Puppies-in-a-Blender Attack on Thomas Piketty

A repost this morning had the line

If you read the comments on some of her gold posts from 2012-2013 you'd come away with the impression she practiced some debauched puppies-in-a-blender Ilse Koch/Cruella deVil cultism....

And I remembered how much I liked the over-the-top turn-of-phrase complete with hyphens.

From The Financial Times' Money Supply blog:

Follow up on problems in “Capital in the 21st Century”

Ever since the Financial Times wrote articles pointing to data problems in professor Thomas Piketty’s best selling book, there has been quite a heated reaction online and in print. In this post, I will give what I hope are some more relevant details, address a few misunderstandings and reply to some of the very legitimate questions that have been raised over the past few days.
For those that do not like lists, I apologise because this is something of a long list.

Motivation
Many people online have suggested that the articles were a premeditated attack on professor Piketty, with suggestions that the FT’s motives were in making a splash or pursuing a political agenda. While the FT likes making a splash – it is a news organisation – the true motivation is much more mundane and clearly documented. On 15 May, Britain’s Office for National Statistics released data on wealth inequalities and editors asked me for an international comparison. I reached for prof Piketty’s book as a reference guide, but realised I could not use its comparisons because the British data he used were so different from the ones in the ONS study. In Capital in the 21st Century, the estimate of the top 10 per cent wealth share in 2010 for Britain was 71 per cent; the ONS data put the number at 44 per cent. Without much time, I wrote that the discrepancy raised “questions over the reliability of both Mr Piketty’s and the ONS’s calculations”. Over the next week I dug deeper in order to answer the questions I had raised but failed to answer at the time.

FT procedures
Many people have asked me whether the Financial Times gave prof Piketty sufficient detail of the reporting we planned and sufficient time to respond. The FT sent this detailed email containing all the apparent errors and the thrust of our proposed reporting at 18.37 on Thursday 22 May, requesting a response by 15.00 the next day. Prof Piketty did not ask for any extra time. He replied at 10.59 on Friday 23, May, well before the deadline we set with the response the FT published in full....MORE

As Piketty Demands 120,000 Euros Seed Capital for Everyone, An Inequality Board Game Was A Surprise Christmas Hit

The seed capital idea makes more sense than simply forgiving student loans, which, let's face it, simply advantage those already advantaged by their degrees.

First up. from Austria's Kontrast.AT via Scoop, October 30:

Star economist Piketty demands 120,000 euros seed capital for everyone – financed by a 90 percent tax for billionaires

....5. PARTICIPATORY SOCIALISM AS NEW LEFT POLITICS. A VISION OF PIKETTY
In Capital and Ideology, however, Piketty outlines a way in which the right can be defeated and the rampant social inequality reduced. He calls this new path “participative socialism” and builds it on three pillars:

1. Codetermination at the workplace
2. Nationalization
3. Tax progression.

Thomas Piketty builds upon the Central and Northern European model of social partnership but he wants to push the codetermination even further, Workers should have more say in the management of their companies. This private sector with strong co-determination should stand alongside a strong public sector. The sate should organise education, health and infrastructure, not the market.
However, Piketty’s most radical demand concerns the tax system:

He advocates a top income tax rate of 90 percent. In addition, he argues for a wealth tax that is higher than the average increase in wealth. This would reduce wealth inequality instead of increasing it.

With the tax income from wealth taxes, each citizen gets an unconditional capital stock. The capital stock should be 60 percent of the average wealth and would be paid to everyone on the 25th birthday, according to Piketty’s proposal. For every Austrian that would be a share capital of €120,000. That would be the democratisation of wealth.

Perhaps a bit much for some of our readers, (99%?) [see what I did there?] so here's something else to think about.  From Radio France Internationale, December 28:

Board game exposing French wealth gap is an unexpected Christmas hit

There’s been a clear winner to emerge from pension reform strikes that have crippled France this Christmas: a board game that exposes the gap between the country’s rich and poor.

Kapital, the brainchild of husband and wife sociologists Monique and Michel Pinçon-Charlot, sold out of all 10,000 copies within three weeks of its launch.

A mixture of Monopoly and Game of the Goose, Kapital “seeks to make people understand the notion of wealth” as they battle their way through the game’s 82 boxes (the average life expectancy of a French person) leading to the almighty Tax Haven.

Not only do the wealthy have money, they also have social, symbolic and cultural capital. Just as in real life, the dominant players have the best chance of winning.

Découverte de #Kapital Très drôle. @PINCON_CHARL0T Bravo ! pic.twitter.com/vhNwiRakCc

— jacques duplessy (@jacquesduplessy) December 27, 2019

One player will have a good draw and end up among the rich, while others will be the struggling poor and middle classes.

Kapital has been such a hit that an extra 5,000 copies have been ordered. That a game about class struggle and injustice has been so successful has come as a surprise to its creators....

....MORE

A Socialist Review of Piketty's Latest

From the World Socialist Web Site:

Social inequality and oligarchy in the US and Europe
21 April 2018

A paper published in March by French economist Thomas Piketty cites data showing that the “democratic” political systems in the US, France and Britain are oligarchies in which all the major parties are tools of the super rich, serving to manipulate the population and crush social opposition from below.

The paper, titled “Brahmin Left vs. Merchant Right: Rising Inequality and the Changing Structure of Political Conflict,” shows that the traditional “left” parties of the political establishment—the Democratic Party in the US, the Labour Party in Britain and the Socialist Party in France—have become the preferred parties of significant sections of the ruling elite, abandoning any pretense of social reform. Though the study does not explicitly address parties such as the German Social Democratic Party, the Spanish Socialist Party and the Italian Democratic Party, the process Piketty describes is a universal one.

“The general conclusion is clear,” Piketty writes. “We have gradually moved from a class-based party system to what I propose to label a ‘multiple-elite’ party system. Back in the 1950s-1960s, the party system was defined along class lines: the vote for the left-wing parties was associated to both low-education and low-income voters, while the vote for right-wing parties was associated to both high-education and high-income voters.”

These days are gone. Today, the political systems in these three countries have “little to do with the ‘left’ vs. ‘right’ party system of the 1950s-1960s” because the formerly “left” parties now mirror in social composition and program their Republican, Gaullist and Tory counterparts. “Each of the two governing coalitions alternating in power tends to reflect the views and interests of a different elite,” Piketty writes.

The absence of any major party with working class support helps “explain rising inequality”, because there are no mechanisms through which the working class can influence the direction of government policy. This has produced widespread disillusionment in the working class, which Piketty claims is responsible for both the rise of mass abstentionism and the strengthening of right-wing populism “as low education, low income voters might feel abandoned.”

The chart below tracks the difference between the Democratic Party share of voters in the top 10 percent of the income scale versus the Democratic Party share of voters in the bottom 90 percent over time. 

The chart shows that in the 1940s through the early 1970s, working class voters were far more likely to support the Democratic presidential candidate. This began to shift in the mid-1970s, changing drastically over the course of the Obama presidency and culminating in the 2016 election, in which the Democratic vote share was 10 percent higher among the top 10 percent than it was among the bottom 90 percent....MUCH MORE

Here's "Brahmin Left vs Merchant Right: Rising Inequality & the Changing Structure of Political Conflict" (174 page PDF)

And here is Le Blog de Thomas Piketty

Piketty Til You Puke: "Ryan Avent Is Very Unhappy with Clive Crook’s Review of Piketty’s 'Capital in the Twenty-First Century'"

We've now gone all second -or is it third?- derivative (fourth?).
Brad DeLong at the Washington Center for Equitable Growth:

Ryan Avent: Inequality: “Capital” and its discontents: “Piketty’s magnum opus is certainly not without its weaknesses…

but the quality of the criticism it has attracted provides a sense of the strength of the argument he makes. Consider Clive Crook…. He writes:

There’s a persistent tension between the limits of the data he presents and the grandiosity of the conclusions he draws.

The line doubles as a pleasingly apt description of Mr Crook’s review. He is unhappy…. Why… doesn’t Mr Piketty say that r must be significantly above g to generate the expected divergence, Mr Crook complains…. You don’t even have to read hundreds of pages to get the qualification Mr Crook wants; you can start with the page on which r>g is first mentioned…. Mr Crook then goes on to present his evidence: “The trouble is… capital-to-output ratios in Britain and France in the 18th and 19th centuries… were stable”…. Piketty is not arguing that r>g means that rising inequality is inevitable. Indeed, that is close to the precise opposite of his argument, which is that r>g is a force for divergence… which has at times been countered… and which can and should be similarly countered in future. Presumably, if charts of stable capital-income ratios in the 19th century provided a devastating rebuttal to his story, Mr Piketty would not have included them so prominently in the book. I think he must have imagined that readers would look at the text around them as well…

DeLong highlighting Avent commenting on Crook's review of Piketty.

Rising Global Ultra-Rich Are Outbidding Dealers for Art—and the Dealers Don’t Like It (Piketty cameo)

From Art Market Monitor:

Scott Reyburn latches on to the book of the moment, Thomas Piketty’s Capital in the 21st Century, and tries to apply some of its findings to the art market. Of course, the art market is a product of a the emergence of a global class of “ultra high net worth individuals” who congregate around, and communicate through, the world-wide cavalcade of the art market.

Piketty’s essential point is that as long as invested capital produces a greater rate of return than economic growth, wealth accrues to the owners of capital. Reyburn mistakenly tries to apply this idea to the art itself. But Piketty’s point isn’t that a few wealthy persons will make all the money from art:

Courtesy of the above-growth returns identified by Mr. Piketty, the rich are further increasing their wealth by buying art. Many millions have been made by a new breed of investor-collectors who buy Bacons, Warhols and Richters high, and sell even higher. Art by desirable investment-grade names makes the rich richer. And more and more wealthy individuals are now prepared to make bids of more than $100 million at auctions, while outside, beyond the shiny bubble of the art world, living standards in the rest of society stagnate or decline.

Although the trend, if Piketty is correct, will be toward an even greater concentration of wealth the numbers continue to enlarge the size of this global class from the current few hundred thousand to several millions. Even with this prospect of having a greater population of potential buyers, Reyburn quotes art dealers and their near-sighted frustrations:

“This is well beyond the norms of inflation,” said Ivor Braka, a London dealer who has been buying and selling high-value art since 1978. “The art market has become an excuse for banking in public. People are displaying wealth in the most ostentatious way possible. It’s luxury goods shopping gone wild.”

“People are spending millions on works by artists who have questionable long-term value,” Mr. Braka said.

“Do they have taste?” he added. “I don’t know. That’s capitalism. You can spend money on what you want.”

Can an Economist’s Theory Apply to Art? (NYTimes)

Piketty's "Capital" May Be the Most Unread Book That People Bought This Year

Note to self: "Romantic heat in the late going..." for all reports and blog posts.
From the Wall Street Journal:

The Summer's Most Unread Book Is…
A simple index drawn from e-books shows which best sellers are going unread (we're looking at you, Piketty).

Has anyone made it past page 26 of Piketty? iStockphoto/Getty Images

It's beach time, and you've probably already scanned a hundred lists of summer reads. Sadly overlooked is that other crucial literary category: the summer non-read, the book that you pick up, all full of ambition, at the beginning of June and put away, the bookmark now and forever halfway through chapter 1, on Labor Day. The classic of this genre is Stephen Hawking's "A Brief History of Time," widely called "the most unread book of all time."

How can we find today's greatest non-reads? Amazon's "Popular Highlights" feature provides one quick and dirty measure. Every book's Kindle page lists the five passages most highlighted by readers. If every reader is getting to the end, those highlights could be scattered throughout the length of the book. If nobody has made it past the introduction, the popular highlights will be clustered at the beginning.

Thus, the Hawking Index (HI): Take the page numbers of a book's five top highlights, average them, and divide by the number of pages in the whole book. The higher the number, the more of the book we're guessing most people are likely to have read. (Disclaimer: This is not remotely scientific and is for entertainment purposes only!) Here's how some current best sellers and classics weigh in, from highest HI to lowest:

"The Goldfinch" by Donna Tartt : 98.5%
This seems like exactly the kind of long, impressive literary novel that people would carry around ostentatiously for a while and never finish. But it's just the opposite. All five top highlights come from the final 20 pages, where the narrative falls away and Ms. Tartt spells out her themes in a cascade of ringing, straight-out assertions. 

"Catching Fire" by Suzanne Collins : 43.4%
Another novel that gets read all the way through. "Because sometimes things happen to people and they're not equipped to deal with them" is the most highlighted sentence in the seven-year history of Kindle, marked by 28,703 readers. Romantic heat in the late going also helps to produce a high score.

.......................

"Thinking Fast and Slow" by Daniel Kahneman : 6.8%
Apparently the reading was more slow than fast. To be fair, Prof. Kahneman's book, the summation of a life's work at the forefront of cognitive psychology, is more than twice as long as "Lean In," so his score probably represents just as much total reading as Ms. Sandberg's does. 

"A Brief History of Time" by Stephen Hawking: 6.6%
The original avatar backs up its reputation pretty well. But it's outpaced by one more recent entrant—which brings us to our champion, the most unread book of this year (and perhaps any other). Ladies and gentlemen, I present:

"Capital in the Twenty-First Century" by Thomas Piketty : 2.4%
Yes, it came out just three months ago. But the contest isn't even close. Mr. Piketty's book is almost 700 pages long, and the last of the top five popular highlights appears on page 26. Stephen Hawking is off the hook; from now on, this measure should be known as the Piketty Index....

...MORE 

Hmmm..., how can I use "Romantic heat in the late going..."?
Anna Karenina and solar:

“He stepped down, trying not to look long at her, as if she were the sun, yet he saw her, like the sun, even without looking.” 

Brokeback Mountain on natural gas:

“I wish I knew how to quit you.”

Lady Chatterley's Lover on time and valuation:

“All hopes of eternity and all gain from the past he would have given to have her there, to be wrapped warm with him in one blanket, and sleep, only sleep...."

Love in the Time of Cholera on core investments:

"I have waited for this opportunity for more than half a century, to repeat to you once again my vow of eternal fidelity and everlasting love."

Schmoozing the new compliance guy:

“I want everyone to meet you. You're my favorite person of all time.” 
― Rainbow Rowell, Eleanor & Park

Gone with the Wind on the senior partners:

"You should be kissed and often, and by someone who knows how.”

A Comment on Piketty Worth Reading

Not that every pixel spilled, anywhere in the universe, discussing P-dawg isn't worth reading but this one is especially interesting.
From Marginal Revolution:

From the comments:
Krugman correctly highlights the importance of the elasticity of substitution between capital and labor, but like everyone else (including, apparently, Piketty himself) he misses a subtle but absolutely crucial point.

When economists discuss this elasticity, they generally do so in the context of a gross production function (*not* net of depreciation). In this setting, the elasticity of substitution gives the relationship between the capital-output ratio K/Y and the user cost of capital, which is r+delta, the sum of the relevant real rate of return and the depreciation rate. For instance, if this elasticity is 1.5 and r+delta decreases by a factor of 2, then (moving along the demand curve) K/Y will increase by a factor of 2^(1.5) = 2.8.

Piketty, on the other hand, uses only net concepts, as they are relevant for understanding net income. When he talks about the critical importance of an elasticity of substitution greater than one, he means an elasticity of substitution in the *net* production function. This is a very different concept. In particular, this elasticity gives us the relationship between the capital-output ratio K/Y and the real rate of return r, rather than the full user cost r+delta. This elasticity is lower, by a fraction of r/(r+delta), than the relevant elasticity in the gross production function.

This is no mere quibble. For the US capital stock, the average depreciation rate is a little above delta=5%. Suppose that we take Piketty’s starting point of r=5%. Then r/(r+delta) = 1/2, and the net production function elasticities that matter to Piketty’s argument are only 1/2 of the corresponding elasticities for the gross production function!....MORE

Read the comments, there are a couple which display a grasp beyond the usual "I’m just going to agree with which ever side fits my political preferences." (comment by Urstoff April 10, 2014 at 3:20 pm)

Brad DeLong, who has, in some less-than-couth circles been referred to as "the poor man's Krugman" notes a similar argument in his point three here.

"Soak the Rich: An exchange on capital, debt, and the future"

From The Baffler:

This exchange is from a conversation in Paris between David Graeber and Thomas Piketty, discoursing on the deep shit we’re all in and what we might do about climbing out. It was held at the École Normale Supérieure; moderated by Joseph Confavreux and Jade Lindgaard; edited by Edwy Plenel; first published by the French magazine Mediapart last October; and translated from the 

French for The Baffler by Donald Nicholson-Smith.

Moderators: You both appear to think that the prevailing economic and financial system has run its course, and cannot endure much longer in its present form. I would like to ask each of you to explain why.

Thomas Piketty: I am not sure that we are on the eve of a collapse of the system, at least not from a purely economic viewpoint. A lot depends on political reactions and on the ability of the elites to persuade the rest of the population that the present situation is acceptable. If an effective apparatus of persuasion is in place, there is no reason why the system should not continue to exist as it is. I do not believe that strictly economic factors can precipitate its fall.

Karl Marx thought that the falling rate of profit would inevitably bring about the fall of the capitalist system. In a sense, I am more pessimistic than Marx, because even given a stable rate of return on capital, say around 5 percent on average, and steady growth, wealth would continue to concentrate, and the rate of accumulation of inherited wealth would go on increasing.

But, in itself, this does not mean an economic collapse will occur. My thesis is thus different from Marx’s, and also from David Graeber’s. An explosion of debt, especially American debt, is certainly happening, as we have all observed, but at the same time there is a vast increase in capital—an increase far greater than that of total debt.

The creation of net wealth is thus positive, because capital growth surpasses even the increase in debt. I am not saying that this is necessarily a good thing. I am saying that there is no purely economic justification for claiming that this phenomenon entails the collapse of the system.

Moderators: But you still say the level of inequality has become intolerable?

Piketty: Yes. But there again, the apparatus of persuasion—or of repression, or a combination of the two, depending on what country you are considering—may allow the present situation to persist. A century ago, despite universal suffrage, the elites of the industrialized countries succeeded in preventing any progressive taxes. It took World War I to bring about a progressive income tax.

David Graeber: But the indebtedness of one person has to imply the enrichment of another, don’t you think?

Piketty: That is an interesting question. I loved your book, by the way. The only criticism I would have is that capital cannot be reduced to debt. It is true that more debt for some, public or private, is bound to increase the resources of others. But you do not directly address possible differences between debt and capital. You argue as if the history of capital were indistinguishable from that of debt. I think you are right to say that debt plays a much more significant historical part than has been assumed—especially when you dismiss the fairy tales retailed by economists concerning capital accumulation, barter, the invention of money, or monetary exchange. The way you redirect our attention by stressing the relationships of power and domination that underlie relationships of indebtedness is admirable. The fact remains that capital is useful in itself. The inequalities associated with it are problematic, but not capital per se. And there is much more capital today than formerly.

Graeber: I do not mean to say that capital is reducible to debt. But the absolute opposite is what everybody is told, and it is our task to fill in the blanks left by that account with respect to the history of wage labor, industrial capitalism, and early forms of capital. Why do you say that resources increase even as debt increases?....

...MORE

HT: The Big Picture

If bored by Piketty here's more on the 1895 wreck at the Gare Montparnasse along with the iconic photo:

Questions America Wants Answered: "Is Piketty’s Data Reliable?"

From Marginal Revolution:

When Thomas Piketty’s Capital in the Twenty-First Century first appeared many economists demurred on the theory but heaped praise on the empirical work. “Even if none of Piketty’s theories stands up,” Larry Summers argued, his “deeply grounded” and “painstaking empirical research” was “a Nobel Prize-worthy contribution”.

Theory is easier to evaluate than empirical work, however, and Phillip Magness and Robert Murphy were among the few authors to actually take a close look at Piketty’s data and they came to a different conclusion:

We find evidence of pervasive errors of historical fact, opaque methodological choices, and the cherry-picking of sources to construct favorable patterns from ambiguous data.

Magness and Murphy, however, could be dismissed as economic history outsiders with an ax to grind. Moreover, their paper was published in an obscure libertarian-oriented journal. (Chris Giles and Ferdinando Giugliano writing in the FT also pointed to errors but they could be dismissed as journalists.) The Magness and Murphy conclusions, however, have now been verified (and then some) by a respected figure in economic history, Richard Sutch.

I have never read an abstract quite like the one to Sutch’s paper...

...MORE