Capital in the Twenty-First Century review
Posted on 2014-07-23 21:27:00
Tags: reviews books
Capital in the Twenty-First Century by Thomas Piketty
My rating: 5 of 5 stars
This is a 700-page book about economics which...wait, come back! So yeah, it's pretty long, and I'd be lying if I said it was fun and games the whole way through. But it was quite interesting, and even surprisingly entertaining. It's also quite readable for a 700 page economics book. I'm not going to try and summarize the whole thing (I'd recommend reading one of the many other reviews for that) but here are a few bits I found interesting:
- Piketty talks about the works of Honore de Balzac and Jane Austin. He points out that inflation was low enough in the 19th century that their novels could have specific references to wealth and income and readers would be able to relate. Between 1914-1945 significant inflation was seen for the first time, and consequently you don't tend to see dollar amounts in books, etc.
- Income inequality in the US has been trending upward (higher than in most other countries), and Piketty believes it's because of the enormous rise of salaries of "super-managers" (i.e. CEOs) whose individual productivity is very hard to measure. After the Reagan tax cuts of the 1980s (when the top tax bracket was reduced from 70% to 28%) the "super-managers" had more of an incentive to try to increase their earnings. An argument one hears is that decreasing the top tax rate increased productivity growth, but that doesn't seem to be the case.
- Before 1914, wealth was very concentrated, but the shocks of World Wars 1 and 2 dramatically reduced the wealth of the top 10%, and it's only now starting to "recover". Similarly, before the World Wars, wealth was more concentrated in Europe than it was in the US, but since 1960 or so the reverse is true.
- One of the main theses of the book goes as follows: the rate of return on capital (which Piketty calls "r") in generally on the order of 4-5% per year. (I don't think there's a theoretical underpinning for this - it's just what has been measured for a long time) The rate of growth of world GDP (which Piketty calls "g"), while it has been as high as 3-4% in recent times, is usually lower, and he believes it will be lower in the future. This means that r>g, so wealth will continue to accumulate faster than people can earn it, so wealth will continue to become more concentrated.
- If you look at university endowments, it seems that the larger the endowment, the more return it tends to get. This is another factor that can lead to "the rich getting richer" effect.
- His solution to the problem of growing inequality is a global progressive tax on wealth. (not income)
Anyway, it really was a fascinating and surprisingly readable book, and I'd recommend it if you didn't run away screaming at the first paragraph of this review :-)
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