Piketty and "Capital in the XXI Century"
Written by XSIM
The book by French economist Thomas Piketty is sweeping the world. Few books of economic research have had the impact it is having "Capital in the XXIst Century" (that's how it is called) was not only a bestseller but has also generated debate among economists and politicians as few books have generated in the history of the economic literature. I will not say that the book has been an instant success because it makes more than a year as the original French and in France published the book went unnoticed (or, to be more precise, no more pain and no more glory which have all the books in economics). I guess the reason is that in France, Thomas Piketty is known to be one of the advisers of the Socialist Party (was economic adviser to Ségolène Royal in 2007 and advised François Hollande on the tax from 75% to the income of the rich during the last presidential). Thus, in France Piketty surprised that nobody wrote a book saying that income inequality in the world are not only huge but are growing and that the solution to this problem is the combination of inheritance taxes, wealth and up to 80% of the income of the rich. Moreover, in France, to speak of "the fundamental contradictions of capitalism" is quite common so the book Piketty no surprise.
In March 2014, however, the English version of the book was published in the United States and the impact was instantaneous. The main thesis of the book is that inequalities of wealth and income in some developed countries have increased since 1970 and that this increase is the fundamental problem of modern capitalism. Since the crisis of 2008, the Americans themselves are very concerned about the evolution of inequalities in their own country.And while some left-wing commentators (Paul Krugman or Joseph Stiglitz for example) while speaking of the potentially horrific consequences of capitalism, the American populace is not used to hearing such as Piketty proclamations. Even Kruman and Stiglitz were accustomed to hear such proclamations which have concluded with an unusual noise economist book.
In this post I will try to make a brief critical summary of what I consider the highlights of the book (and I say try because it is always difficult to summarize 577 pages).
Input, Piketty should be commended for his work is the result of a huge effort data collection carried out by him and a group of co-authors. The data allow us to analyze an important part of economic history for over 200 years. It should also be commended for making available all the data (in total there are 75 databases (again, 75 databases ) to the university community worldwide. Economists normally work with data, especially those of us to study the evolution of income distribution, inequality and poverty in the world, we must acknowledge the effort and transparency when reporting data). Congratulations, then, to Thomas Piketty for writing a great book.
INTRODUCTION
After doing a review of the thinking of economists and classical philosophers of the eighteenth and nineteenth century (Malthus, Ricardo, Marx ...), Piketty started his introduction by presenting the main thesis of the book. It is what he calls "fundamental force of divergence and the main contradiction of capitalism: r> g". The letter "r" denotes the rate of return on capital.The letter "g" denotes the growth rate of the economy. The expression, "r> g", which has been so successful in the media, it means giving the return of capital (r), is higher than the growth rate of the economy (g).
The inequality "r> g" is the key book Piketty and, he summarizes all conclusions. In her own words: "When the rate of return on capital is higher than the growth rate of the economy, logic dictates that inherited wealth is growing faster than GDP and personal income" (p. 25).And that is the fundamental message of the book: as the rate of return on capital is higher than the growth rate of the economy (and therefore wages), the "capitalists" obtained an increasing share of the pie, that leave an inheritance to their children, therefore, are born rich. The return of inherited wealth that they will get will also be higher than the growth rate but not den hit in his life. And so dynasties rich are getting richer relative to workers and capital have become increasingly large relative to the rest of the economy. This constant increase in inequality is a fundamental problem because capitalism creates political instability: as Piketty, the mass of poor trabajares will end rebelling against the rich minority and through democracy or violence will destroy the system. That is the "central contradiction of capitalism" contradiction that will ultimately lead to self-destruction. To fix the problem requires taxing inheritances and capital, to break the dynasties of billionaires and their possible dominating the economy.Everything from the finding that the rate of return on capital is higher than the growth rate of the economy. Everything from "r> g".
This logic Piketty, however, has a little problem: IS FALSE That the rate of return on capital, r, is greater than the growth rate of the economy, g, far from being a "contradiction of capitalism" is! a condition of economic efficiency that economists have dubbed "dynamic efficiency". If an economy has "r <g", is inefficient in the sense that it has saved too. That is, if "r <g", the current generation could increase their consumption (reducing their savings), with no future generations will be forced to suffer. In this case the savings would be inefficiently large so it would be socially desirable to be reduced until "r> g." And that would be true in a capitalist economy and a planned economy. qualify, then inequality "r> g" "central contradiction of capitalism" is an aberration.
Moreover, contrary to the claims Piketty, the fact that r is greater than g implies neither the rich spend their savings on to their children, or that wealth grows faster than GDP, or dynasties rich are increasingly richer, or that social inequalities grow. imagine, for example, a world in which individuals work of young and retire when old. Knowing that someday will be removed, when young, save money and invest. When you are old, used their savings (and the rate of return on their savings) to survive. No longer a dollar inheritance to their children and die with nothing. The children do the same parents and, thus, generation after generation. All economists know that in this world of "overlapping generations" (English "overlapping generations") rate of return on capital, r, may be higher, exceeding the growth rate, g (1). If the economy is dynamically efficient, then it is true that "r> g" and yet, no one leaves a euro inheritance! I mean, unlike what it says Piketty, logic dictates no, no way, that "r> g" implies that inherited wealth grows faster than GDP, partly because inherited wealth can be exactly zero at worlds where "r> g"! In the real world, of course, the rich do not consume everything they have and leave part of their wealth in inheritance to their children. It is also true that many of them an important part of that wealth is spent on lavish parties, boats, airplanes, luxury travel or philanthropic actions such as Bill Gates or Warren Buffet. Furthermore, unlike what happened in ancient times, where all the wealth going to stop a single heir, now the property of the rich is divided between many children (often from different marriages) so that a very rich grandfather You can have very poor grandchildren. It is well known the saying that describes the creator grandfather's fortune, their children and grandchildren the extend that squandered. The world could have "r> g" and, in turn, be filled with families whose grandparents created fortunes, the grown children and grandchildren destroy them. And contrary to what Piketty says, in that world there would be more and more rich and powerful dynasties, however, would be true that "r> g"!.
Therefore, the logic of Piketty is absolutely false: it may be that r is greater than g that is perfectly compatible with huge estates, small inheritances, legacies of two generations or no inheritance. Or put another way, the fundamental strength of the divergence is in fact a support inequality, dwindling equal or just increasing wealth. (2)
Only a detailed study of inheritance can enlighten us on whether the legacies are key to explaining inequalities. The ratio "r> g" tells us absolutely nothing about the subject!
PART ONE: "Income and Capital"
In the first book, Piketty analyzes the evolution of the growth rate of the economy. His main argument is that the growth rates throughout history have always been small and that high rates we experienced during the war were an anomaly (the result of reconstruction after the war and the convergence of Europe and the United States ). For the rich countries, growth in the last decades is still much less and most likely during the twentieth century will be even lower. The data for Europe and the United States from 1700 to 2012 can be seen in the graph below.
In fact, the thesis that "what happened between 1950 and 1970 is a historical aberration" is repeated throughout the book.
It is clear that the growth rates after the war contain aspects of convergence that occurs when a country is destroyed by war and start rebuilding. It occurs in Europe and Japan (countries whose capital was largely destroyed during the war) and least in the U.S. or Canada (whose physical capital remained intact, but not human capital). Piketty argues that the global growth rate has increased in recent times because most emerging countries is converging towards the countries leading technology. Ie as "copy" is easier than "invent" countries that are behind can grow more rapidly than those ahead. But once copied everything can only grow with the leader.That's why Piketty predicts that the global rate of growth will slow once are emerging frontier technology. Since then, the growth rate will be similar to what the leaders had in the nineteenth century, ie 1.5% pa. The evolution of GDP growth during the twentieth century and projections for the twenty-first century are:
Comment: Much of the book uses these projections to predict the disasters that await the capitalist system over the next century. Indeed, Piketty constantly speaks of "growth curve bell-shaped" like a reality. The fact, however, is that they reproduce figure 2.4 above, combines data we already have rather than to the past (ranging from year 0 to 2012) with data corresponding to predictions. Actual data, which logically end in 2012, show a rate of growth increasing repeat, GROWING.'s not true that global growth has declined. In recent decades we have seen how poor countries grew like never before and that has made the world growth rate has been increasing. It has also made the world poverty rates are steadily diminishing . That's the reality. From here, Piketty guess (again, guess!) Growth will accelerate to 2030 and thereafter, it will drop to 2100, forming the "bell." Needless to say that neither Piketty, neither the United Nations , no one can predict if future growth rates will be higher, lower or equal to the last century. And all theories (including bell-shaped) that are based on the assumption (again, assumption) that emerging countries will converge towards the leader and the growth rate of the leader will be the nineteenth century.
But more, he let us look at the following chart made by my colleague Maxim Pinkovskiy (Fed of New York) in which it appears the (log of) GDP technologically leading country: until 1900 the leader was Britain and thereafter United USA. Remember that the slope of this graph is the rate of growth. If the growth rates during the twentieth century had been constant, GDP leader country had followed the red line. The graph shows that the blue curve, with rapid growth, describes much better than the red GDP growth. I do not know if during the XXI century, the growth rate will drop to return to the levels of the nineteenth century or remain high. Nor do I know if the rates you will converge to levels that make the red line or the blue line. What I do know is that Piketty not know.And I know that if Piketty had written his book in 1900, it would have made a huge and growing error because, in fact, the growth of world GDP by leading all supposedly end up converging, has increased over the century. Caution, therefore, to make predictions of long-term growth.
Finally, a note on the measurement of GDP. More and more economists are saying thatthe national accounts, as we have raised today, not too well captures technological progress in the services sector. For example, no doubt that Google and Facebook are having a brutal impact on our lives, our efficiency when working or studying. However, national accounting says that neither Google nor Facebook generated nearly Gross Domestic Product. The technological change that generates new products not just measured either growth (While economists measure price change existing products, but as the price change is measured, for example, Viagra from the year before and the year appears that the tablet?). In fact, in 1995, the U.S. Senate recognized these problems and commissioned a study by a committee led by Professor Michael Boskin (known as the "Boskin Report"). Basically, the Boskin Commission estimated that the current statistical methods tend to underestimate the growth rates of 1.1% ANNUAL! That is, the growth of the United States between 1990 and 2012 was not actually 1.5% but 2.6%. As technological progress in the services sector is accentuated, this measurement problem will be worse. There will come a time when accountants will have to face this reality and have to change the methodology for calculating GDP.
PART TWO: "The dynamics of capital / GDP ratio"
In the second part, Pikety shows the most important data of the book: the evolution of the amount of "capital" of an economy in terms of GDP. Displays data for the United Kingdom, France, Germany, United States and Canada.
Before you begin, explain that to Piketty, capital and wealth are equivalent since no distinction between serving to produce wealth (capital) or wealth used to live (home). To Piketty, capital (and wealth) of a country, including foreign productive capital, domestic productive capital, agricultural land and housing. Interestingly, not included durables (cars, computers, furniture, refrigerators, Ipads, stereos)., This will be a major factor later when it is stated that 50% of the population does not have any wealth. In fact, for 50% of the population, durable goods have a value of approximately 20,000 to 30,000 euros. But Piketty not included in its estimate of wealth even for a large number of poor citizens all their wealth is invested in durable goods.
In Figure 3.2 the evolution of capital VALUE shown in France. Capital value in the eighteenth century was about 7 (or 700%) times the value of a year of GDP in France. That is, if at the time you'll save all that is produced in France for a year, it would take seven years to accumulate the wealth that existed in the country. That number plummeted during the Great Depression up to 300%. Remained at that level until the 50s and has from there, it went back up again to over 600% in 2010. Graphs show not to UK or Germany because they are essentially identical.
Capital in European countries thus form a "U" is high during the eighteenth and nineteenth centuries, falls in the early twentieth century and recovered to the levels of the nineteenth century to the early twenty-first century. Piketty believes that evolution does not correspond to a structural transformation of capitalism. The fall of the capital throughout the twentieth century is only the result of any transofrmación but is due to the Great Depression and the world wars.
Piketty attaches great importance to capital growth from the 50s and especially the 70s. In Figure 5.3 shows us the evolution of the relationship between capital and GDP from 1970-2010 for 8 rich countries. We all have a tendency to increase.
Somehow, this increase confirms the fundamental theory of Piketty and allows you to make the following story: the capitalists get a return, r, which is higher than the growth rate of the economy. That makes their wealth is increasing and that the inheritance passed on to their children. These, born rich can live capital income without working. And gradually, capital grows relative to the rest of the economy. The natural tendency, therefore, is that the relationship between capital and GDP will rise. The only reason I did not increase during the twentieth century is that the first half of the century was an "exception" as the great shocks of the Great Depression and World Wars were especially destructive to the rich. Once finished the war, however, the trend of the relationship between capital and GDP increase, has reappeared.
But that interpretation of data is a serious problem. If we analyze the composition of capital, and we can make it back to Figure 3.2 above, we see that there are actually two fundamental facts. The first is that the value of agricultural land has fallen steadily since the early eighteenth century. The reason is simple: agriculture accounted for the majority of economic output in the eighteenth century, but has been gradually being replaced by industry and services.Logically, the value of agricultural land has plummeted. That drop reflects that agricultural rents landlords obtained eighteenth century (which were most of their income) have disappeared. A trend this fall in the value of agricultural land is added a decrease in the value of productive capital and housing from 1910 to 1950, probably (as Piketty says) because of the Great Depression and the world wars. Starting 1950, the capital increase occurs almost exclusively by increasing the value of homes and not productive capital! Looking at the "business capital" only, we see that the relationship between capital and GDP remains essentially constant between 1970 and 2010.All, or nearly all, the increase in Piketty data are due to home values. And the same applies to all other countries discussed in the book.
It is true that homes are part of the family wealth. But if the increase of wealth is not the result of the accumulation of productive capital by the rich but rather the increase in the price of their homes, the theory that the rich capitalists exploit the working poor and therefore capital increases growing relative to the rest of GDP seems-fetched.
One thing is that capital owners earn a very high income from its investments, these rents are saved (and inheritance passes from father to son) and those savings may require capital increases so large that the relationship between capital and GDP are each increasing. And another thing is that the relationship between capital and increase GDP because capital includes dwellings and houses go up in price! The facts are indisputable, but the story that one must do to explain these data changes dramatically! And the story of Piketty, based on capitalist with an increasing power to exploit workers is not consistent with the data say the proportion of the capital increases relative to GDP is the value of homes!
That the houses rise in price does not necessarily mean that the income obtained their owners, ie, rents, also do so. Indeed, it is surely true that the rich eighteenth century derived a high proportion of their income from performance of their lands. But it is not true that today the rich get much of their income from their vacation mansions! Some economic theories say that the value of a home should be equivalent to the present value of all future rentals.But what if that were not true? What if sometimes the value of homes go up without this would be reflected in the rental as happens, for example, when housing bubbles? What would be the value of real estate in that case? A group of French researchers (3) ( Bonet, Bono, and Wasmer Chapelle ), recalculated the ratio of total capital to GDP for the United Kingdom, France, Canada, the United States and Germany, correcting the value of home equity the value of the holiday and not the market value. Their results are very different from Piketty: in the case of France, the total capital does not increase from 1950 but remains constant between 1950 and 2010 drops slightly between 1950 and 1970, remains constant between 1970 and 2000 and increased between 2000 and 2010.
Figure 4.6 shows the evolution of capital in the United States. Input, capital in America is much lower than in France (and Europe): 300% of GDP (compared to 700% in Europe). The explanation is that the land in the United States in 1770 was much cheaper than in Europe. From 1810 to 1930, domestic productive capital increases with the great industrialization of America and peaks in 1910. Falls during World War I, recovers to the absolute maximum in 1930. The Great Depression brings down capital to a minimum of 1950 and thereafter increases again: between 1950 and 2010, the U.S. capital returns to its long-term positive trend.
As happened in France, the great increase in the capital since 1950 is almost entirely due to increased home values. Bonet and coauthors also address U.S. data (graph below is here) and no homes valued at market value but the value they generate rents, we see that, again, the relationship between total capital and GDP in the United States has remained constant around 400%, has even dropped from 200 to 2010.'s conclusion that comes Piketty capital value has increased since 1970 is due solely to how valued vacation homes .
Is measured as the value of real estate is measured, what is clear is that the fundamental conclusion Piketty which consists in saying that the relationship between capital and GDP has a natural tendency to grow in a capitalist economy is not confirmed in the data once it is found that all the capital increase will be driven by rising real estate prices.
In Chapter 6, analyzes the fraction Piketty entire GDP workers and non-workers fraction (capitalists, landlords, lenders, etc.) remain remain. The key graph is the 6.1, where the data for the UK are between 1770 and 2010 (just put the analysis in the UK although the other countries is very similar). Black diamond in the fraction of total income that workers are left blank and the box that "capital" are displayed. A dispassionate analysis of this graph shows that the fraction remaining workers in 1770 has had a tendency AL HIKE: it was 65%, that number dropped to 57% in 1850, which rose to 80% in 1920, which was the same 80% in 1970 and since then, it has dropped to 73% as the fraction. are workers and that employers should remain equal 100% logically evolution for capitalists is exactly the opposite that I described for workers Clearly, the trend over the century is clear. workers increase and capitalists down. huh? But no! Piketty Here again says that what matters is what happens after 1970! Thing before 1970 is a curiosity that does not matter. The important thing is that the fraction of total income that workers are going down and that the capitalists remain up ... from 1970. Needless to say that this statement is rather curious and biased.
PART THREE: THE GAP
The third part of the book is that Piketty brings more interesting data: measures inequality of income and capital (remember that Piketty capital means wealth and that includes housing but excluding durable goods such as cars, furniture, refrigerators, computers or Ipads).
The fact that you most want to highlight Piketty is the fraction of wealth held by the richest richest 10% of the population or even 1%. The evolution can be analyzed for France in Figure 10.1.We see that 10% of the richest population of France had 80% of the total wealth of the country in 1810. This proportion rose to nearly 90% in 1910. Thereafter, a systematic decrease is observed up to 60 % in 1970 and since then, it has stagnated (or experienced a slight increase). The richest 1% of the country, meanwhile, had 45% of the wealth in 1810, 60% in 1910. Since then, the share of wealth of the super-rich down to 22% in 1970 and increased slightly to 25% in 2010.
The same pattern is observed in Britain and Sweden: increasing the fraction of wealth held by the rich and super-rich in the nineteenth century, the proportion falling between 1910 and 1970 and slight recovery since 1970.
In the U.S. (where the 1810 and 1870 data are much less accurate, partly because of having to assess the value of the slaves, who Piketty devotes an entire section of his book), the pattern in the twentieth century is basically the same though the numbers have been much more stable over time. The big difference is that the fraction of total wealth that had the rich and super-rich in 1800 was much lower in 1810 (57% and 25% in the U.S. compared with 47% and 80% in France). During the nineteenth century, then, inequality in America increased slightly more than in Europe. But the pattern is basically the same: increase during the nineteenth century, reduction between 1910 and 1970 and increased (mild) from 1970.
Clearly, Piketty charts show that during the twentieth century the fraction of wealth that are rich (richest 10% of the population) and super-rich (1%) has been declining. Viewing these graphs, it is difficult to say that inequality has risen dramatically or have an upward trend. Yet Piketty redo their traditional (and now annoying) argues pirouette ly says "natural tendency" is to go up ... "what happens is that the period from 1910 to 1970 is a rare exception because of the large Depression and two world wars! "Alehoop! Thus, Piketty gets to say that capitalism has a natural tendency to concentrate wealth among the rich even though the data show exactly the opposite. It's the old trick almendruco: "Where data go in the direction I want, is the norm. And when going backwards, are a historical exception. "But one must wonder why the first half of the twentieth century is the exception and the second half is the norm and not the reverse!
For example, the economy of finance tells us that when the risk (ie, with increasing variability of the rate of return), the rate of return increases. That is, an important part of the "r" (yes, yes, the r is greater than g) is the "risk premium" that investors require when there upheavals. Taking literally the Piketty own narrative, it is possible that the great catastrophes of the first half of the twentieth century (Great Depression and World Wars) create significant volatility in the return on investment (large losses followed big wins) . And it's possible, seeing that high volatility, investors demand a higher risk premium from 1950 to compensate for the uncertainty of other possible wars. If this were the explanation, however, once investors see (as you have seen during the second half of the twentieth century) that the uncertainties of the Great Depression and the World Wars have disappeared (or Piketty says, were a historical exception) , will fall again risk premiums and, therefore, the rates of return on capital and inequality. Perhaps the exceptional period was not the the first half of the twentieth century but of the second half.
As for the inequality of income or revenue, Figures 9.3, 9.4 and 9.5 show that the fraction of the total income of a country that ends up 1% top earning fell between 1910 and 1980 in almost all the countries analyzed and then the measure of inequality has risen. Rising inequality is more pronounced in countries like U.S., UK, Canada or Australia, but has also been significant in Sweden or Italy. In all the countries analyzed inequalities have declined over the last century.Yet Piketty is concluded again that there is a problem of growing inequality because, in reality, the reduction experienced during the first half of the twentieth century is a "historical exception" fruit of shocks representing the Great Depression and the world wars while the increase from 1980 is the "rule of capitalism."
That inequalities over the last century have fallen does not mean that is not interesting to ask why the downward trend that existed between 1910 and 1980 was reversed thereafter. In fact, long time economists have been discussing this phenomenon and there are many possible explanations ago. First, the turnaround is due to the liberal influence of Reagan and Thatcher that lowered taxes on the rich. Second, it has been because of the addition of 4,000 million Asians to global labor markets, which has brought down the wages of unskilled workers in rich countries. A single massive incorporation of Asian labor which has displaced many manufacturing sectors towards Asia has been joined by the collapse of the Soviétiva Union also made a lot of industrial businesses in the U.S. and Europe be shifted to Poland, the republics Baltic or the Czech Republic. Third, the baby boomers are living West makes the generation entering the labor market at the end of the 70 is very large and that depresses wages. Fourth,technological change in the late twentieth century is complemented by education. Unlike the change meant the industrial revolution that increased the wages of less skilled workers who migrated from agriculture to industry, changes since 1980 (internet, telecommunications, etc.) have benefited the citizens with higher levels of education. That has made those who had higher wages and their wages rise more than those with lower wages, which has exacerbated the differences. In fact, to be truly and instantly global, new age innovations have allowed the best of the best (Bill Gates of Microsoft, Steve Jobs of Apple, Mark Zuckerberg of Facebook, or Larry Page and Sergei Brinn of Google) reached truly stratospheric income.
The most serious and convincing study to date is that of Claudia Goldin and Larry Katz (2010) (4). Goldin and Katz analyze the evolution of wages and education levels in the United States and conclude that the best explanation of what happened after 1980 is the fourth. Technological change current benefits more educated despises Thomas Piketty explanation of Goldin and Katz (and all others) saying it is tautological: as Mark Zuckerberg productivity can not be measured, just say that your income matches your "productivity" is a thing that can not be demonstrated. Piketty suggests an alternative explanation: since 1980, the "social norms" have become "socially acceptable" than business managers themselves are made stratospheric salaries. And that social acceptance is higher in Anglo-Saxon countries where it is most inequalities have increased. Shareholders are unable to control it and not scandalized society so that administrators abuse the company to be granted self-outrageous salaries. According to Piketty, these managers are not superstars and technology, as part of the group of super-super-rich and their wages are those that explain the increase in inequality.
Piketty Ignoring all the economic literature that precedes it is surprising, especially in light of his own explanation. Perhaps "tautological" Mark Zuckerberg said that charges a lot for their contribution to the economy (productivity) is large and that this contribution can not be measured.But it is equally tautological to say that the explanation is that "social norms have changed and it is now socially acceptable for managers' salaries are outrageously large" because the "social acceptance" can not measure! How is social acceptance measures? And if you can not measure, is not that exactly as tautological explanation that productivity?
The origin of the increase in inequality is the key to everything and Piketty can not so easily discredit alternative explanations. You can not argue that "the rule of the capitalist system is the increase in inequality observed since 1980 and the decrease observed between 1910 and 1980 is the exception" if one can not determine the cause. Because it is true that the Great Depression and the world wars of the first half of the twentieth century were probably unrepeatable phenomena.But it is also true that the addition of 4,000 million Asian or European ex-communist European labor market, doing the same thing but did western half price and higher quality is also a unique and unrepeatable phenomenon. And if that is the reason, as Asians have higher wages, many of the jobs they left to return to West Asia and that will push up wages.Moreover, theories of economic growth indicate that as capital increases, so will wages.
If the explanation is that the huge baby boom generation has depressed wages Western when that generation retires (and the first member of that generation are beginning to retire), wages will rise and falling inequality. And if the explanation is technological, will have to see how societies (and their educational systems) are adjusted and businesses (and their production systems) to new production technologies. Indeed, it seems that one of the consequences of the new revolution technology is being repatriated to the U.S. industries (a phenomenon that has been given the name "reshoring" as opposed to offshoring).
In short, as happens in different parts of the book, Piketty going very fast when it comes to say that what happened in the world during the first half of the twentieth century is the exception and what happens after 1980 is the norm. There are many reasons to think that the reality is rather the opposite and Piketty not provide convincing evidence that the current situation will perpetuate in time.
To finish the section inequalities Piketty an analysis of the wealth of the richest of the rich. Those in the lists of billionaires as the Forbes list that first appeared in 1987 "Forbes Billionaires represent hundred millionth of the world's population. Their average wealth has grown from 1,500 million dollars in 1987 to 15,000 million in 2013 That represents an increase of 6.4% per annum "Such statements seem to confirm the theory that Piketty described in the introduction to hisbook..'s earn superior returns rich to the poor and that perpetuates the wealth of a series of dynasties that money passed through families.
There is a small problem: the wealth of the hundred millionth of the richest population increases not in any way confirm the existence of dynasties capital are passed down through families. And is that families who were part of the richest in 1987 are not the same as the wealthiest families 2013. Unfortunately Forbes list starts in 1987, but in my book "Liberal Economics Economists and Non No Liberals" (written . in 2001) make a list of the richest people in 1915 and compare it to the 2000 Here goes:
And there goes the comment you wrote on that list in 2001: "...
The second aspect is obvious that none of the names in the list of 1915 listed in 2000.'s Great dynasties of the early twentieth century (Rockefeller, Ford, Morgan, Carnegie, Vanderbilt, etc.). Disappeared lists of the richest families in the country in less than a century, a fact that reflects the social mobility we discussed a moment ago. The third interesting aspect is that the vast majority of 2000 are super-rich people who have made their own fortune not to have inherited from their fathers. The stories of young university as Bill Gates, Paul Allen or Michael Dell, leaving the race to set up a small company in the garage of his home and become billionaires in a few years, is a story that is repeated thousands of times each year in United States and in many other parts of the world.
If we make a similar list of the richest characters from the beginning and end of theeighteenth century in any European country (in the U.S. we could not do because it does not exist), we would see that the names of the two lists would be approximately the same, which reflect not only differences in wealth existed, but tended to perpetuate. "
Even if you look at the Forbes list of billionaires since 1987 (as does Piketty) we see that many of the super 1987 have disappeared from the list. For example, headed the list the first year were Japanese. You know, in 1987 the real estate bubble in Japan was at its peak a few years later all those super-rich lost nearly all their capital. In fact, the richest in 1987 was a Japanese man named Yoshiaki Tsutsumi. In 1987, Tsutsumi had a wealth of 1.2 billion dollars. In 2013 this man was not in the list of the richest why had lost almost 96% of its wealth. Performance that is not exactly 6.4% annual estimated Piketty!
To see if the return of the rich is higher than others, so you should have done is to analyze the return Piketty who have experienced that were richer in 1987. Spanish economist Juan Ramón Rallo (6) does exactly that year and shows how the richer or 10 have lost up to 96% if wealth or have completed a tiny return.
For Piketty's theory were true, not worth to show that they possess the hundred millionth of the world's richest growing. What should show that the rate at which the rich billionaires lists leaving in 1900 was higher than in the second half of the twentieth century. And there's nothing in the book of Piketty showing that this is true.
Finally, I'll finish the reviews of the third with a reference to the section called "the moral hierarchy of wealth" (page 443). In this section Piketty embarks on a discussion unworthy sovereign morals of the rich is that parasites and thieves. After describing how some dictators have earned their fortunes (and talks about the story they have in Paris or London, the son of Teodoro Obiang, president of Equatorial Guinea, Russian oligarchs and oil barons of the Middle East), Piketty speaks so contemptuous of the rich as Bill Gates "Sometimes one has the impression that Bill Gates invented the computer ... The cult of Bill Gates is undoubtedly the result of the overwhelming need that modern democracies to justify inequalities." By putting in the same analysis fortunes of thieves, dictators and innovative entrepreneurs, Piketty suggiere between the lines that all the fortunes of the world, somehow, have been accumulated by fraudulent methods so the condemnation would almost always justifiable. Such statements, more like that of a Marxist professor pamphleteers serious and impartial economy trying to understand the evolution of inequality in the world and project an image of Piketty, not as prestigious economist is, but as sectarian hating the rich for the sake of being rich (and perhaps explain some recommendations that will Piketty at the end of the book). Refrain from giving more say on this chapter of the book, again, I think totally unworthy of Piketty.
Part Four: Recommendations
The fourth part of the book is that Piketty has attracted the attention of the media and, from my point of view, it has less intellectual value (and policy review of the French Socialist Party adviser) to solve the problem of rising inequality, state intervention with huge taxes on wealth is necessary. That would prevent the super-rich dynasties of wealth from parents to children and perpetuate pass in power.
I have already explained that the data provided Piketty not demonstrate in any way that inequalities of wealth and income increase long-term (one from 1980) and much less than r> gimplies the existence of dynasties that are perpetuated through of estates. But here I would like to comment on a much more fundamental problem: Piketty never convincingly explains why economic inequalities are important and why they represent the seeds of the destruction of capitalism. Sometimes speech uses the expression "it is clear that inequalities are socially harmful or unsustainable" and sometimes says "inequalities generate social unrest will end leading to political instability (peaceful or violent) going to end capitalism" . The first is not an argument but rather a review. And the second is based on some kind of vague political theory, to be convincing, it should develop. For example, let's accept for a moment that economic inequalities generate social unrest. The question is: what economic inequality affect social unrest in France? Are inequalities in France? How about global inequalities Piketty I say this because only analyzes inequalities INSIDE rich countries: in France, within the UK, within the United States. But global inequalities have plummeted since 1970 as the poorest and most populous countries worldwide have grown at a much faster rate, which has reduced inequalities between countries and has brought down the global inequalities. I myself analyzed this phenomenon called "The Great Convergence" in an article in 2002 (7), a phenomenon that the same Piketty accepted as real and true on page 15 of his book.
The very fact that the French economist worry so much about the wealth of Bill Gates and the super-rich Americans indicates that, in his mind, is a political theory in which the wealth of the rich in other countries matter for stability policy of France. And if what matters is the overall inequality, then one must admit that the inequalities in the world not only have not increased since 1980 but have fallen significantly. Obviously, we will not know what implications does the evolution of inequality until Piketty show us a political theory of social unrest which proves inequality within a country, and no global inequalities, generating political instability.Until we presented this theory, the argument of the inherent instability of capitalism is only a subjective opinion of Piketty.
Understanding the determinants of instability or why inequalities are bad also matter in setting economic policies to solve the "problem." For example, the wealth tax recommended by Piketty not solve the problem of inequalities between countries. Moreover, this tax can end it hurting growth of poor countries and, therefore, can in the process of convergence that great about the rich. To accelerate the convergence and growth of the poor, the weapon is needed is education: a good educational system incorporating African labor market will accelerate global growth rates still world's poorest continent and reduce still more global inequalities.
To be fair, I must say that Thomas Piketty also think education is the key. On page 306 he writes: "the experiences of France and the United States is going in the same direction: a long-term, the best way to reduce inequality while increasing labor productivity and the overall rate of growth is to invest in education ". Unfortunately neither the press nor the same Piketty both spoke about his book have publicized that recommendation with the same emphasis with which they publicized massive tax increases also recommended by the book.
And finally, let me make a point about social security. If the most famous thesis Piketty is true and the rate of return on capital is higher than the growth rate of the economy (r> g), it follows that we should have is a social security funding. (8) say, with the current system of distribution in which young workers pay their dues pensions of retirees, the rate of return they get is the growth rate of wages, ie, g. If, on the contrary, cogiéramos money minors and we invested in capital would get a return r. If, as Piketty says, "r> g", retirees could enjoy a much higher pension if the pension system funded out! That's exactly what I argued the union leader and former leader of ICV, Joan Coscubiela a debate on the future of the work we did on TV3. He said the return on capital was much higher than the growth rate of wages and that meant that capital increasing share of GDP "ate". I warned him to watch out with that argument because the immediate implication was that the model was funded pension than PAYG. I got the impression that Coscubiela not understand the contradiction of his own argument, but Thomas Piketty yes it understands. So devotes an entire section of his book to discuss pensions. Recognizing the validity of the argument, Piketty explains that now it is too late to change the system because at the time of the transition would have a generation that has to pay twice. That argument is not valid for emerging countries still do not have a pension system. I wonder if Piketty (and Coscubiela) I advocate the introduction of a private pension scheme for poor countries that do not have social security. In fact, the argument is not valid for the rich countries: if truly the return of capital is so superior to wage growth, it could take some of the excess return, save it and grow it until you have enough money to make the transition . Why not Piketty argues that? Then why there is a second reason for not wanting a funded system: the return on capital is higher ag, true, but it is also vastly more volatile and uncertain! That is, after writing an entire book on the bargain it represents for the rich have capital at the end of the book he confesses that some of the higher return is compensation for taking higher risk. A risk that's not to Piketty workers. Interestingly, Piketty not analyze the risk assumed by capitalists throughout the book. Throughout the book, Piketty speaks of the rate of return of capital as an overpayment to a class of citizens who little more than suck the blood of the workers. At the moment of truth, however, Piketty confesses that, at least in part, that "r" rewards risk taking by those who invest. One thing is to get a return for exploiting your fellow citizens and quite another to reward who takes a risk to the rest of society (and Piketty the first!) Are not willing to take. This lack of rigor in analyzing the relationship between return and risk of capital is one of the major shortcomings of the book.
CONCLUSIONS
Piketty has written a fascinating book of great impact that should be commended. The data presented are important and should be analyzed by economic analysts. The reading of these data, however, is often biased and incorrect. As summary, let me add a list of misinterpretations of Piketty:
First, the rate of return on capital exceeds the growth rate of the economy, the famous r> g, does not imply the existence of rich dynasties to take over an increasingly important part of the economy. That rate of return is consistent with a world without inheritance (and therefore without dynasties) or inheritances that disappear within one or two generations. The inequality r> gis a measure of dynamic efficiency of the economy and has nothing to do with the distribution of wealth in a country because it is compatible with increasing, decreasing or constant inequalities.
Second, most of the increase in capital during the second half of the twentieth century dueto rising home values and has nothing to do with the story of capitalists seize the means of production and exploit workers .
Third, inequalities of wealth and income in the countries analyzed have decreased over the last century. Only since 1970 have experienced an upward trend. However, Piketty argues that the natural tendency is to increase because the period of reducing inequalities is a historical exception. But never Piketty shows that claim. There are reasons to believe that the exception is actually the period post 1970 with the addition of the baby boom and 4.000 million Asian and European citizens of ex-d communitas ictaduras global labor market, a phenomenon that certainly is not going to repeated.
Fourth, the increase in income inequality since 1980 is perfectly compatible with the technological changes that have increased the income of a range of innovative super-rich (Bill Gates, Steve Jobs, Mark Zuckerberg, Larry Page and Sergei Brinn). Piketty says that theory is "tautological and arbitrary." His theory is that "since 1980, the society has to accept the stratospheric compensation of corporate managers." Without a theory of "social acceptance" that interpretation is also tautological and arbitrary.
Fifth, the analysis of the fraction of total wealth held by the super-rich list Forbes has a major conceptual flaw: dynasties belonging to the super-rich are not the same in the early twentieth century, in 1987 or 2013.
And finally, after writing a whole book on the evolution of inequality, Piketty still does not explain why inequalities are important. He exposes a vague theory that social inequalities generate instability. But to not give a precise theory, do not know if you care inequalities are inequalities within countries (which have risen since 1980) or global inequalities (including inequalities between countries and have declined since 1970 due to the large convergence of emerging countries.) Global inequalities have experienced a decline between 1970 and 2012.
After reading the book Piketty, one has the impression that the capitalist economy is a disaster that generates infinite inequality increases, especially during the last four decades. But if one looks at the evolution of the world economy, especially during the last four decades, one realizes that the world poverty rates have declined as never before had, global inequalities are dwindling, indicators education, mortality, life expectancy, health, freedom and democracy improved in almost every corner of the planet.'s true that inequalities within countries have grown, but after reading the book "Capital in the XXI Century", one not sure if that's a trend that will be perpetuated in time or simply disappear. Piketty has clear where the future is headed.Unfortunately, that is based more on ideology and opinion on data that he provides.
Thanks to the capitalist system, Thomas Piketty earn much money (more than Milo of dollars) and sales of his famous book. An important part will be the French government he helped bring to power last year. The rest, you can spend it as you like: partying, buying books, saving it for retirement ... or even doing something as detestable as it is to leave it as an inheritance to their children. Freedom for you to choose your Thomas: That's the beauty of capitalism in the twenty-first century!
(1) See Diamond, Peter, American Economic Review, 1965 "National Debt in a Neoclassical Growth Model".
(2) Caselli and Ventura (2000) present a growth model where citizens are different, donate the condition r> g where inequalities of wealth are constant term is given. Piketty If logic were true, to Caselli and Ventura have been unable to find a model that predicts simultaneously r> g constants inequalities over time. [Caselli, Francesco and Jaume Ventura (2000), American Economic Review "A Representative Theory of Distribution".A simple version of this model can be found in Chapter 3 of the book "Economic Growth"of Barro and Sala-i-Martin (2004).]
(3) Bonnet, Bono, Chappelle and Wasmer (2014) "capital Le logement contribue-t-il aux inégalités? Le Retour sur XXIe Capital au siècle Thomas Piketty "
(4) Goldin and Katz (2010), "The Race Between Education and Technology".http://www.amazon.com/The-Race-between-Education-Technology/dp/0674035305
(5) The exceptions are Robson Walton (son of Sam Walton, inventor of the supermarket chains and creator of the famous Wal Mart) and the three children of Forrest Mars (creator of the empire of the chocolate and the father of the popular M & M) who died in 1999. Yet neither Sam Walton Forrest Mars or inherited money from their parents.
(7) Sala-i-Martin (2006), " The World Distribution of Income: Falling Poverty and convergence, Period . " Quarterly Journal of Economics, May.
(8) With this I am not advocating the privatization of social security. I am only highlighting the inconsistency in the argument of those who complain that r> g!
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