Summary of Piketty

I here provide a summary of Capital in the 21st Century by Thomas Piketty. The summary is broken into three parts by theme. The first part of the summary covers the Capital/Income ratio and the Capital Share of Income. The second part of the summary covers Income inequality and Wealth inequality. The third part of the summary is about Inherited Wealth. I also provided a “fourth” part discussing some of the main objections and criticisms that have been raised.

By my reading the book is largely a description of past trends, present trends, and probable future trends in income, capital, and inequality. This summary therefore concentrates on summarizing and describing those trends. I deliberately omit treatment of Piketty’s policy suggestions (largely Chapters 14 & 15).

I omit some other parts of Piketty’s book. Those describing historical and present trends in population growth rates (and ageing demographics), on the grounds they are well covered elsewhere. Those on global inequality as it is somewhat of a side-issue from his main topic; inequality in the developed countries in particular inequality in income and wealth of the top percentiles. Those on the differing size of governments (measured as a percentage of GDP) between countries and over the past century; as well as historical changes in top tax rates. Those on what tax rates on income and capital should be (Piketty’s policy prescriptions).

Much of Piketty’s book is about explaining how the data is put together: what are the sources?, what assumptions and definitions are made?, what is the uncertainty in the measurements?, if we used different measures would things change much? I ignore these important aspects here (go read the book!) and concentrate solely on describing some of the main findings. At this point massive kudos are due to Piketty for putting all of the graphs and data from his book online, without which this summary would not be possible in its existing form.

Some criticism of the book has been based on the grounds that the book contains a theory of inequality. The theory, such as it is, consists mostly of simple accounting equations. One has the feeling Piketty received the same advice Stephan Hawking got when writing A Brief History of Time: “Someone told me that each equation I included in the book would halve the sales. I therefore resolved not to have any equations at all. In the end, however, I did put in one equation, Einstein’s famous equation, $$E=mc^2$$. I hope that this will not scare off half of my potential readers.” For those who do think the book is about theory, allow Debraj Ray to clear things up. Those interested in Piketty’s theory will have to look at the technical appendixes of his book, or at his published papers.

Enough chat, here are the various parts of the summary.

Oddly enough almost all of the reviews seem to ignore Chapter 11 on the relative importance of inheritance in capital wealth. Odd since this seems to address one of the most contentious aspects of the book, I can only offer two possible reasons, either most reviewers didn’t reach chapter 11 before their deadlines, or the reviewers simply don’t like France (for reasons of data availability it is mostly about France, Britain and Germany get a mention, but the US and other countries are ignored simply as the needed historical data is non-existent).

For those who prefer to read a review instead of a summary, here are a few of the better ones.
Solow in New Republic
Shenk in The Nation (starts mid page 6))
Debraj Ray
Podcast interview on EconTalk

If your interest is in inequality at a global level, which has been falling, as well as a discussion of population and heath, a good book is Angus Deaton The Great Escape: Health, Wealth and the Origins of Inequality.