Posts that are intended to be ‘permanent’.
[This is the fourth of five posts on Capital in the 21st Century. The first is here.]
[This is the third of five posts on Capital in the 21st Century. The first is here.]
[This is the second of five posts on Capital in the 21st Century. The first is here.]
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.