If anyone has any interest in economics, one should not miss the discussion surrounding the book by Thomas Pikkety, Capital in the Twenty-First Century.
It has been called a dynamite in the current economics thinking, and has become a must read among economists and policy makers.. Mr. Pikkety argues, supported by his data of over 200 years and about 20 countries, that rate of return on capital exceeds the rate of growth ( r>g). The average growth ( g ) is about 1.5 to 2 % but rate of return on capital ( r) is about 6 %. The capitalists are earning about three times more than the growth and leading to accumulation of wealth in top 1%. To make the matters worse, the tax rate on capital gains is much less than earned income. He further argues that inequality is not due to skills of lagging workers either. To reduce inequality, Mr. Piketty argues for an internationally enforced progressive wealth tax, where the rate of tax rises with the level of wealth.
Many economists has commented on his work, and following are some excerpts from article by Larry Summers , former Treasury Secretary. ( F. Sheikh )
Once in a great while, a heavy academic tome dominates for a time the policy debate and, despite bristling with footnotes, shows up on the best-seller list. Thomas Piketty’s Capital in the Twenty-First Century is such a volume. As with Paul Kennedy’s The Rise and Fall of the Great Powers, which came out at the end of the Reagan Administration and hit a nerve by arguing the case against imperial overreach through an extensive examination of European history, Piketty’s treatment of inequality is perfectly matched to its moment.
Like Kennedy a generation ago, Piketty has emerged as a rock star of the policy-intellectual world. His book was for a time Amazon’s bestseller. Every pundit has expressed a view on his argument, almost always wildly favorable if the pundit is progressive and harshly critical if the pundit is conservative. Piketty’s tome seems to be drawn on a dozen times for every time it is read.
This should not be surprising. At a moment when our politics seem to be defined by a surly middle class and the President has made inequality his central economic issue, how could a book documenting the pervasive and increasing concentration of wealth and income among the top 1, .1, and .01 percent of households not attract great attention? Especially when it exudes erudition from each of its nearly 700 pages, drips with literary references, and goes on to propose easily understood laws of capitalism that suggest that the trend toward greater concentration is inherent in the market system and will persist absent the adoption of radical new tax policies.
Piketty’s timing may be impeccable, and his easily understandable but slightly exotic accent perfectly suited to today’s media; but make no mistake, his work richly deserves all the attention it is receiving. This is not to say, however, that all of its conclusions will stand up to scholarly criticism from his fellow economists in the short run or to the test of history in the long run. Nor is it to suggest that his policy recommendations are either realistic or close to complete as a menu for addressing inequality.
Start with its strengths. In many respects, Capital in the Twenty-First Century embodies the virtues that we all would like to see but find too infrequently in the work of academic economists. It is deeply grounded in painstaking empirical research. Piketty, in collaboration with others, has spent more than a decade mining huge quantities of data spanning centuries and many countries to document, absolutely conclusively, that the share of income and wealth going to those at the very top—the top 1 percent, .1 percent, and .01 percent of the population—has risen sharply over the last generation, marking a return to a pattern that prevailed before World War I. There can now be no doubt that the phenomenon of inequality is not dominantly about the inadequacy of the skills of lagging workers. Even in terms of income ratios, the gaps that have opened up between, say, the top .1 percent and the remainder of the top 10 percent are far larger than those that have opened up between the top 10 percent and average income earners. Even if none of Piketty’s theories stands up, the establishment of this fact has transformed political discourse and is a Nobel Prize-worthy contribution.
There was an article about this book in Time magazine 2 weeks ago. The thing that struck me most is that the wealth gap between the rich and poor in current day America is equal to or greater than what existed in France just before the French Revolution(the gap being the cause of the revolution).
It is an open study. The author has placed most of the data and techniques he has used on the internet. Needless to say it is being examined by supporters, detractors and the uninitiated with a great deal of noise and debate. Thus far, his contention that the rich have become unprecedentally rich is beyond dispute. The implications for the national and international order and globalization are hot bbutton subjects we will be hearing about for years to come.
In NYT Richard Cohen writes on the same subject illustrating how severe the problem is:
“40 percent of recent graduates in U.S. are underemployed and youth unemployment is around 50 percent in the worst affected countries in the euro area.”
Mark Carney, the Canadian governor of the Bank of England, lays into unfettered capitalism. “Just as any revolution eats its children,” he says, “unchecked market fundamentalism can devour the social capital essential for the long-term dynamism of capitalism itself.”
For generations thousands of middle class families relied on decent jobs with Kodak company in Rochester New York; now Apple, a company more than ten times bigger in market value, has far less workers,few high paying jobs at the top, rest are low paying jobs with little benefits.
Fayyaz
Capitalism is an ideology based on inequality, injustice, exploitation, militarism, and imperial wars. It is an ideology that eventually is self-destructive or gets pushed to corruption. Many critics of it seem to believe that the problems with today’s economy are of recent origin, whereas it emerged on the day man created society. In capitalist economies, capital is not acquired to be spent; it is acquired to be accumulated. Businesses do not exist to create jobs. Jobs are created by businesses only when it suits their purposes; when it helps create more wealth. Growing evidence in the Western capitalist countries show unaddressed system making problems too grave to ignore. Over time, advanced economies will need to invest in human capital, skills and social safety nets to increase productivity and enable workers to compete, be flexible and thrive in a globalised economy.
The alternative is to end monetary stagnation, depression, currency and trade wars, capital controls, financial crisis, sovereign insolvencies, and massive social and political instability. The first decade of twenty first century’s cutting-edge biotechnological researches and the boundless frontiers of computer science are enabling the transfer of knowledge and power from the physically strong to the mentally smart, from the rich and elite to the common man. Research and successe in genetic engineering, neurobiology, and superfast communication systems are amazingly and progressively challenging capitalism and changing the economic spectrum of the modern world. It is predicted that by the end of next decade, capitalism will crumble down and computer technology will make it possible that only intellectualism will rule the world.
Mirza Ashraf