mau reviewed Capital in the Twenty-First Century by Thomas Piketty
Worth a read
4 stars
Piketty and his colaborators collected information about the distribution of incomes from labor and from capital around the world over the past couple of centuries.
This data allows them to show how economic inequality has changed over this period in different countries.
The findings are striking: economic inequality in the modern era is as high as during the "Gilded age", and it is continually becoming more extreme.
Piketty argues that contrary to Kuznets hopeful belief, the reduction of inequality observed by him in the USA was not an automatic result of a well functioning capitalist system, but a product of policies meant to achieve this reduction.
Had Kuznets had more data, he would have seen his inequality curve rise again.
For labor income to increase, the economy needs to grow.
For capital income to increase, part of the returns have to be reinvested.
…
Piketty and his colaborators collected information about the distribution of incomes from labor and from capital around the world over the past couple of centuries.
This data allows them to show how economic inequality has changed over this period in different countries.
The findings are striking: economic inequality in the modern era is as high as during the "Gilded age", and it is continually becoming more extreme.
Piketty argues that contrary to Kuznets hopeful belief, the reduction of inequality observed by him in the USA was not an automatic result of a well functioning capitalist system, but a product of policies meant to achieve this reduction.
Had Kuznets had more data, he would have seen his inequality curve rise again.
For labor income to increase, the economy needs to grow.
For capital income to increase, part of the returns have to be reinvested.
The fundamental force for divergence, making the rich richer, is the fact that the rate of return of capital (r) has historically been greater than the rate of growth of the economy (g), which means owning things has historically been the surest way to increase your income.
There is also a force for convergence, helping labor increase its income: education and diffusion of knowledge.
But historically this has not been anywhere near enough to compensate for the strong force of divergence.
The book was written more than a decade ago and the problems described have since become worse, the proposed solution still seems reasonable but politically unattainable as the countries of the world are still locked in a race to the bottom for corporate taxes.