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Capital in the twenty-first century

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LAST year Thomas Piketty, an economist at the Paris School of Economics and a renowned expert on global inequality, published a book titled «Capital in the Twenty-first Century»—in French. It was released in English on March 10th. We reviewed the book earlier this year, but it is detailed and important enough, in our opinion, to deserve additional discussion. We will therefore be publishing a series of posts over the next few weeks—live-blogging the book, as it were—to draw out its arguments at slightly greater length. You can read the previous entries for: the Introduction parts one and twoChapter 1Chapter 2Chapters 3 and 4Chapters 5 and 6, Chapters 7, 8, and 9, and Chapters 10, 11, and 12.

AND now we come to Part 4, which focuses on the critical question of how to structure policy in the world Mr Piketty describes. As this section contains some of the book’s weaker arguments, this seems like an appropriate place to end our discussion with a grand assessment of the work’s biggest contributions and shortcomings. I’ll start with the former. 

So what are the book’s main contributions? First and perhaps most important are the data. As impressive as «Capital» is, it may ultimately prove less influential and significant than the World Top Incomes Database, on which much of the book is based. That, and the data on the distribution and evolution of wealth, represent an enormous achievement and the basis for the narrative. It’s worth pointing out again that Mr Piketty has been just one of many economists working to pull these figures together. Were it not for this effort, the ongoing discussion on inequality would not be as serious and relevant as it is.

Second, the book challenges conventional wisdom concerning the economic history of the rich world in several important ways. Once again, Mr Piketty is not alone in demonstrating, for instance, Simon Kuznets’ view that inequality would rise and then fall as industrialisation proceeded, or that the shares of national income flowing to capital and labour are not constant. But Mr Piketty has given these ideas new prominence, and with them the view that the 20th century’s dramatic compression of wealth and incomes was largely down to the one-off shock of the interwar era. Putting this all together, Mr Piketty’s book goes a long way toward challenging the 20th-century orthodoxy that distribution is not particularly important.

Third, «Capital» provides a framework for thinking about how inequality might evolve in future. Mr Piketty’s data give us a view of the past. He also gives us his thoughts on how things might unfold in future (albeit with plenty of caveats). But even if readers doubt his forecasts for the rate of return on capital or for economic growth, they will have a way to think about how key distributions will change, thanks to this book. Among pundits, policy discussions have already begun to reflect this: the distributional effects of possible policy changes are beginning to be discussed in terms of how the policy might shift r or g (or s, the savings rate, or other key variables)… MORE

THE ECONOMIST: Apr 25th 2014, 20:48 by R.A. | LONDON

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