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.
