Author: Thomas Piketty
When I first laid my eyes on this book, it looked formidable. There were 700 pages of closely-spaced small font, coupled with numerous graphs and several numbers and percentages thrown in on almost every other page. I felt there was no way I was going to get past the first chapter, let alone read it all the way through. It took me a couple of weeks, but I am happy to report that even though the material is very dense, Piketty is never dull and boring and except for a few chapters in Section 3, the book was a joy to read.
The basic premise of the book has been blogged and reviewed in every newspaper and magazine that is remotely connected to economics, so I repeat it here only for completeness. Piketty is obsessed with the ratio of capital to income and whether that is growing or shrinking across the world. The main thesis is that if r > g, then the ratio of capital/income is growing, where r is the rate of return on capital and g is the growth rate of the economy. If you play this out to its end state, you end up with a civilization with the top 10% owning pretty much everything and everybody, eventually. This end-state ultimately results in the poor — who inevitably are the overwhelming majority — revolting and triggering a revolution that redistributes the wealth. This movie has played out multiple times in our history and will do so again if we don't find other means to redistribute capital.
Piketty does not make this conjecture lightly. He goes on to evaluate every possible way of slicing and dicing the wealth to income ratio. Very quickly you learn that the typical ratio for capital/income is around 5 - 6 in most developed countries in Europe, US and Japan. This ratio peaked around 1913 and was brought down by the depression and World Wars. We have been living in a golden period between 1950 and 2000 where there was room for the inequality to grow, especially in the US where the growth in the population helped grow the economy as well. However, this is not sustainable and most developed countries have a flat to declining population which will further reduce the overall growth of the economy.
Another interesting observation is how the composition of wealth has changed over the years. In the eighteenth century (and possibly before) capital was largely in the form of agricultural land. In more recent times, this has changed to a mix of industrial and financial capital and urban real estate. It is surprising to see that despite the radical change in the form of wealth, the ratio of capital to income has not changed significantly.
When I first laid my eyes on this book, it looked formidable. There were 700 pages of closely-spaced small font, coupled with numerous graphs and several numbers and percentages thrown in on almost every other page. I felt there was no way I was going to get past the first chapter, let alone read it all the way through. It took me a couple of weeks, but I am happy to report that even though the material is very dense, Piketty is never dull and boring and except for a few chapters in Section 3, the book was a joy to read.
The basic premise of the book has been blogged and reviewed in every newspaper and magazine that is remotely connected to economics, so I repeat it here only for completeness. Piketty is obsessed with the ratio of capital to income and whether that is growing or shrinking across the world. The main thesis is that if r > g, then the ratio of capital/income is growing, where r is the rate of return on capital and g is the growth rate of the economy. If you play this out to its end state, you end up with a civilization with the top 10% owning pretty much everything and everybody, eventually. This end-state ultimately results in the poor — who inevitably are the overwhelming majority — revolting and triggering a revolution that redistributes the wealth. This movie has played out multiple times in our history and will do so again if we don't find other means to redistribute capital.
Piketty does not make this conjecture lightly. He goes on to evaluate every possible way of slicing and dicing the wealth to income ratio. Very quickly you learn that the typical ratio for capital/income is around 5 - 6 in most developed countries in Europe, US and Japan. This ratio peaked around 1913 and was brought down by the depression and World Wars. We have been living in a golden period between 1950 and 2000 where there was room for the inequality to grow, especially in the US where the growth in the population helped grow the economy as well. However, this is not sustainable and most developed countries have a flat to declining population which will further reduce the overall growth of the economy.
Another interesting observation is how the composition of wealth has changed over the years. In the eighteenth century (and possibly before) capital was largely in the form of agricultural land. In more recent times, this has changed to a mix of industrial and financial capital and urban real estate. It is surprising to see that despite the radical change in the form of wealth, the ratio of capital to income has not changed significantly.
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