Customer Reviews: Capital in the Twenty First Century
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on April 24, 2014
EDIT: I would like to point out that it is ridiculous that literally all of the 1-star reviews (except for one that I counted) for this book are from people who did not purchase the book or even read it. It looks like there was some kind of invasion from April 22nd of right-wingers who were told this book is "communist" or something to make a 1-star vote just to bring down the rating of the book. Amazon should not allow this kind of manipulation, and should limit reviews only to those who are verified customers that purchased this book.

If I could give more than 5 stars I would. As a former Libertarian who realized the path quickly leads to oligarchy with such an ideology, Piketty's book is a wonderful reminder of just how wrong I was back then.

The empirical work he has done in assembling the income and wealth concentration for countries is simply invaluable. We have some data like gini and labor vs. capital income, but to meticulously collect and analyze specific percentiles of income and wealth in many nations is truly groundbreaking. No longer can people who deny the inequality we have in the United States. No longer can people deny that we are in a new gilded age. The regulatory capture in our wild west capitalism has led to outright corruption being "legalized", and the politicians merely keep deregulating, cutting taxes, cutting spending on public programs.

Piketty not only provides the important data, and the historical context and analysis, but makes some very clear policy prescriptions. Tax inheritances, get some sane corporate governance standards to stop the insane overpaying of executives, and strengthen public institutions that provide opportunity to the masses.

Remember, the r in r>g is AFTER TAX. We can reverse this if we change the incentives that allow the American oligarchs to use accounting shenanigans, tax havens, and lobbyists to rig rules in their favor.

I recommend this book to anyone who has irrational anti-government tendencies or liberals who still defend Obama and other corporatist Democrats. It is time for this generation to get radical and reform this disgraceful system.
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on March 17, 2014
This is a monumental work about inequality. Despite the title's allusion to Marx's classic (a point emphasized by the dust jacket design), it's neither a primarily theoretical nor a primarily polemical work, though it has elements of both theory and advocacy. Nor is its author (TP) a radical: he taught at MIT, and is thoroughly at home in the concepts and categories of mainstream neoclassical theory. Nonetheless, I think even many who hold less orthodox views about economics will find this book stimulating, valuable and sympathetic in many respects. And all readers ought to find it disturbing.

In the ultra-long comments below, I begin with the book's audience and style (§ 1); then turn to some of the book's main arguments, which are more nuanced than usually reported (§§ 2-6); then to some things that are unclear or missing (§§ 7-8); and I end with some comments about the book's production (§ 9) and some concluding remarks.

1. In the original French edition, TP says that he intended this book to be readable for persons without any particular technical knowledge. In principle, it could be read by a broad, college-educated audience. TP's prose is very clear and direct, with a low density of jargon and a high density of information. (I read the French edition, but Arthur Goldhammer's translation seems to preserve these qualities very well.) The discussion is enlivened by well-chosen references to literature and a sprinkling of sarcastic barbs, both of them techniques that French scholars have developed into art forms (if not as elegant as John Kenneth Galbraith's irony). The allusions here range from Balzac, Jane Austen and Orhan Pamuk to "The Aristocats," "Bones" and "Dirty Sexy Money;" and the sarcasm hits both university economists and The Economist (@636n20), among others.

But: this is a long and demanding book. It talks relatively little about current events or the policies of particular governments, unlike, say, Joseph Stiglitz's "The Price of Inequality" (2012). I wouldn't say Stiglitz's is an easy book, but it was written more with of a popular audience in mind (picking up 270+ Amazon reviews in less than 2 years). TP's presentation is far more methodical and meticulous than Stiglitz's. It helps for the reader to be interested in the fine points of data series and categories, and in the sources of uncertainty in data. Occasionally the discussion will focus on concepts from academic economics, such as Cobb-Douglas production functions, elasticities, and Pareto coefficients; while TP uses words rather than math on these occasions, he generally assumes you pretty much know what he's talking about. Finally, if, as I did, you make it through the whole thing while reading with some attention, I bet dollars to donuts you'll come out of the experience feeling very, very down, on account of TP's message. Actually, that mood will hit you long before the end. Despite its felicities of style, this is an arduous read.

2. The "capital" in the title includes not only farms, factories, equipment and other means of production, but also assets typically owned by individuals, such as real property, stocks and other financial instruments, gold, antiques, etc. -- what's sometimes called "wealth". TP excludes so-called "human capital," because it lacks some features of true capital (ability to be traded in a market, inclusion in national accounts as investment), unless it's in the form of slaves.

The distribution of capital is far more unequal than that of income. Even the Scandinavian countries have a Gini coefficient for capital of 0.58 -- comparable to that for income inequality in Angola and Haiti, among the 10 worst in the world (World Bank figures). For Europe and the US in 2010, the coefficient is at 0.67 and 0.73 respectively, worse than any country on the World Bank income inequality chart. (Of course, the worst countries on that World Bank list have hair-raising capital inequality, too.)

The book's main thesis is that economic growth alone isn't sufficient to overcome three "divergence mechanisms" or "forces" that are in many places returning inequality in income and/or capital to pre-World War I levels. The main mechanisms are:

(A) the historical tendency of capital to earn returns at a higher rate ('r') than the growth rate of national income ('g'), which typically sets a constraint on how workers' salaries grow, symbolized by the mathematical expression, "r > g".
(B) the relatively recent (post-1980) widening spread between salaries, not only between the wealthiest 10% or 1% and the mean, but even within the top 1%.
(C) an even newer inequality in financial returns, which correlates r with the initial size of an investment portfolio -- i.e., different r for different investors.

A point to keep in mind is that g relates to national income, not to GDP. National income = GDP - depreciation of capital + net revenue received from overseas. Among other benefits, this measure corrects for the reconstruction boosts in GDP after wars, hurricanes, earthquakes, etc., since the depreciation term takes the destruction of property into account. Also, an increase in national income usually has two different sources: part of it is truly economic, coming from productivity growth (output per worker), and part is due to population growth. Historically, it's the latter that has dominated.

3. The r > g argument has received the most attention. It's to be seen "as an historical reality dependent on a variety of mechanisms not as an absolute logical necessity" (@361). TP finds that this condition has held throughout most of the past 2,000 years. As long as it does, he says, it's the natural tendency of capitalism to make inequality worse -- and the bigger the difference (r - g), the worse that inequality will be. Many commentators about this book make it sound as if this is an obvious mechanism. But if you play with it on Excel, using reasonable values for r and g, it turns out to be slower and more sensitive to initial conditions than you might expect.

Here's a toy example: Let's suppose r = 4%, g = 1.5%, and that salaries rise as fast as g (a very idealistic assumption!); and let's assume these rates are net of taxes or that no taxes apply. I'll compare the situations of three people in Silicon Valley: X, an engineer who made $8.5 million by exercising stock options when the company she used to work for had an IPO; Y, the same company's former HR manager, who made $6.0 million from her options; and Z, a young lawyer at a local law firm, who has a $200,000 salary when we first meet her.

After a year, X has $340K in disposable income, Y has $240K, and Z gets a raise to $203K. Suppose X and Y spend all their income from their capital every year. Eventually, Z can earn more than each of them: it will take her about 37 years to exceed X's annual income, but only 13 years to make more than Y. Now suppose X and Y each save the equivalent of 1.5% of their capital. Then Z will never overtake either one in gross annual revenue, but the situation as to disposable cash is a bit different. After saving, X will always have more cash to play with than Z, but it will take more than 15 years for her to have just 50% more than Z does. As for Y, she'll actually start out with less annual cash than Z, and it will take her 13 or 14 years just to catch up -- even though she's a multi-millionaire.

The true potency of the r > g mechanism comes from its working in conjunction with other circumstances. For example, according to TP's historical data, I've been way too conservative in my assumptions about X's and Y's advantages over Z.

From the 18th through the early 20th Centuries, the people who earned money from capital had proportionally a lot more than they do today: e.g., in 1910, the wealthiest 1% in Europe held > 60% of all European wealth, about triple the share they hold today (see Fig. 10.6). The US was not so extreme, but still very unequal: From 1810 to 1910, the share of the top 1% grew from 25% of American wealth to 45.1% (Fig. 10.5), compared to 33.8% today. So to set our example 100-200 years ago, the endowments of X and Y could plausibly be much bigger relative to Z's wages (especially if we chose, say, Wilhelmine Germany instead of Silicon Valley).

More recently, since the 1980s, most folks with a lot of capital also earn salaries -- and having a lot of capital tends to be correlated with having a salary well above average. So in a more realistic modern example, we should consider that X and Y have moved on to new companies where they receive hefty salaries, which would give each in total a healthy and growing excess of annual spendable cash versus Z. This is the realm of the second divergence mechanism, which is especially formidable in America. In 2010 the richest 1% not only held more than 33% of American wealth, but they earned between 17x and 20x the mean American income (depending on whether capital gains are included). Even the wealthiest 0.1% of Americans work, for average incomes roughly 75x the mean (or 95x, if capital gains are included) (see Table S8.2). At the other end of the spectrum, I was shocked to learn that the purchasing power of the US Federal minimum wage peaked in *1969* -- what was $1.60 an hour back then would be worth $10.10 in 2013 dollars. In those same dollars, the current statutory minimum hourly wage is $7.25 or a bit less (see Fig. 9.1 and nearby text).

On top of these trends, succession to family wealth is becoming important again today, even if not to the full degree it was in 19th Century novels. TP frames this in terms of the dialogue of the worldly Vautrin and the young, ambitious Rastignac in Balzac's "Père Goriot" (1853). Rastignac aspires to wealth by studying law. Vautrin counsels him that unless he can claw his way to become one of the five richest lawyers in Paris, his path will be easier if he simply marries an heiress in lieu of study. Cut to the present: judging by TP's Fig. 11.10, law school might have been the better choice for Baby Boomers, but if you're a Rastignac in your 20s or 30s when you read this, consider marrying up. Maybe you think you'd rather found the next Facebook or Google -- but why work so hard, and against such long odds? TP shows that when Steve Jobs died in 2011, his $8 billion fortune was only 1/3rd that of French heiress Liliane Bettencourt, who has never worked a day in her life.

4. There's another way that "r > g" is inadequate as a summary of TP's argument: TP calculates that during the past century (1913-2012), we've seen r < g, the opposite of its usual polarity (Chapter 10).

High rates of growth -- or at least, what we're accustomed to thinking of as high rates of growth, 3%-4% or more -- aren't a sufficient explanation. In fact, such rates of growth aren't sustainable in the long term, and were not sustained in most countries; they're mainly a catch-up mechanism lasting a few decades, according to TP. During the period from 1970-2010, the actual per capita growth rate of national income averaged about 1.8% for the US and Germany, 1.9% for the UK, and 1.6%-1.7% for France, Italy, Canada and Australia. The wealthy country with the highest per capita rate was Japan, at 2.0 (Table 5.1). (Think about that, next time you're tempted to swallow what Paul Krugman and other pundits pronounce.) Nonetheless, growth rates in this range appear to be what TP calls "weak" (e.g., @23).

Rather, the main reasons for the flip are the tremendous destruction of capital in Europe due to the two world wars, and the imposition of very substantial taxes on capital, at an average rate of about 30% in recent years. These greatly reduced r.

Despite these trends, inequality has been getting worse during the past few decades. This isn't a paradox, but rather the impact of the other divergence mechanisms, especially the rise of the "working rich" and the spread of inequality in salaries. So we should be quite alarmed by TP's assertion that we'll flip back to r > g during the 21st Century. His explanations for this seem rather more speculative than most of the rest of the book, though it's clear he expects g to remain low. I return to this a bit more in § 7 below.

In any case, it's clear that r > g isn't a necessary condition for inequality to get worse.

5. TP reserves his most anxious prose ("radical divergence," "explosive trajectories and uncontrolled inegalitarian spirals") for the third mechanism, inequality in returns from capital (@431, 439). Those with a great deal of capital are able to earn higher returns on it -- such as 6%-7%, or even 10%-11% in the case of billionaires like Bill Gates and Bettencourt -- compared to those with only a few hundred thousand or millions of dollars, who may earn closer to 2%-4%. This results from two types of economies of scale: the ultra-rich can afford more intermediaries and advisers, and they can afford to take on more risk.

Unfortunately, public records don't provide adequate information on this point, and while TP does look at Forbes's and other magazines' lists of the wealthy, those present many methodological issues. So TP corroborates his findings by looking at the more than 800 US universities who report about their endowments. Most spend less than 1%, or even less than 0.5%, of their endowments on annual management fees. Harvard University spent around $100 million annually (ca. 0.3%) on management of its $30 billion endowment, and earned net returns of 10.2% annually during 1980-2010 (not counting an additional 2% annual growth from new gifts). Yale and Princeton, each with a $20 billion endowment, earned a similar rate. A majority of universities have endowments of less than $100 million, and so obviously can't fork over $100 million to managers; they earned average returns of 6.2% during that period (still better on average than you or me).

TP of course doesn't worry that universities will own most of the world, nor does he find it plausible that sovereign funds from Asia or oil-producing countries will either. The bigger danger, he contends, is private oligarchs, and he believes this process is already underway. Since the officially documented ownership of global assets comes up slightly negative, TP calculates that either the rich are already hiding the equivalent of at least 8% of global GDP in tax havens, or else that our planet is owned by Mars (@465-466).

6. In Part IV of the book, TP considers policy approaches to deal with the three forces of divergence. In short, the answer for all three is a progressive, annual global tax on capital, to be set at an internationally agreed rate and its proceeds apportioned among countries according to a negotiated schedule (@515). This will also need a global real-time reporting system for transactions in capital assets. Many will attack these ideas, but it seems that TP's main intention is to get a serious conversation going. His admits his approach is utopian, but maintains that utopian ideas are useful as points of reference.

What interested me most was that TP doesn't see pumping up g as a viable approach to preventing r > g from returning. For one thing, demographics create some limitations in how far g can be pushed, especially in countries whose populations will soon be declining (or Japan, where that's happening already). For another, the same forces that pump up g can also increase r, at least in theory, so (r - g) wouldn't necessarily change much. The more practical answer then, is to bring down r.

In his final chapter TP turns to the very topical question of public debt, which he sees as an issue of wealth distribution and not of absolute wealth. He reminds us about two of its important aspects: One is that public debt takes money from the pockets of the mass of citizens, who pay taxes, and puts it in the pockets of the smaller group of people who are wealthy enough to make loans to the state. The other point is that nations are rich -- it's only states who are strapped for funds. He calculates that in many countries, a one-time progressive capital tax of up to 20% on property portfolios worth more than 1 million Euro could bring the national debt to zero, or nearly so.

Actually, TP doesn't believe that such a drastic reduction in debt levels is urgent, any more than he believes that such a gigantic tax is politically feasible. But his observation puts the lie to the notion that one must raise consumption taxes or income taxes (or, for that matter, experience economic growth) to reduce debt levels.

7. There were a couple of rare instances where I didn't feel the text was sufficiently clear. TP very graciously replied to my emailed inquiries about these matters, but without that input, I'd have remained quite confused by them.

(a) The first arose in Chapter 1, where α (alpha) is defined as designating the "share of income from capital in national income." According to the perhaps intemperately named "first law of capitalism," α = rβ, where β is the ratio of the stock of capital to the flow of national income (and r is as above, the rate of return on capital).

But an important category of income from capital is capital gains, the profits you make when you buy assets cheap and sell them dear. Unrealized capital gains make up a substantial part of the fortunes of Bill Gates, Steve Jobs and other billionaires mentioned in the book. And capital gains are *not* included in national income, according to the algorithm for computing that quantity. (Nor are they included in GDP.) This makes the use of the preposition "in" confusing -- does it mean that capital gains aren't considered as income from capital?

This issue seems to have its root in academic economics, where α appears as a parameter in the neoclassical growth model developed by Robert Solow. The model represents an economy that produces one type of good -- i.e., it's all about making and selling stuff that gets consumed, so capital gains aren't considered. (In a sense, this model supplies a lot of the motivation for Part II of the book: the academic debate over the relative shares of capital and labor in the national income, i.e., the size of α and whether it changes with time, is a long and at times contentious one. But you can still benefit from reading Part II without knowing that.)

The answer I got from TP is that because capital gains don't seem to be very important in the long term (>100 years), netting out to roughly zero over such periods, he didn't consider them when discussing α. The subject of capital gains does come up later in other contexts, though, and TP does consider them important in the short-term (which in some contexts can mean a timescale of several decades).

(b) The second issue relates to TP's prediction that our current condition of r < g will flip back to r > g later this century. TP mentions that for the past 100 years, wartime destruction and, later, an average 30% tax rate on capital have brought r below g, despite currently weak growth rates in many countries. The data in the book, though is rather opaque about the relative contributions of these factors. Also, the book's clearest explanation of why matters might reverse rests on the possibility that countries will compete to attract capital by a race to the bottom in capital tax rates, allowing r to edge back up. This sounded rather too speculative to warrant such definite conviction about the return of r > g.

I checked the online material, and found the Excel file (not the pdf file) of supplementary Table S10.3, which mentions some of TP's assumptions. Among other things, this makes it clear that TP factors in destruction of capital from WWII in calculating r even for the most recent 50 years. It seems plausible that this will be less important going forward, so that even a 30% average tax rate on capital might not be sufficient in and of itself to prevent r from popping above g again ... maybe. I'm still not entirely convinced that TP's argument about the future of r is among the strongest in the book; but I'd be even less so if I hadn't consulted the online information.

8. No book can talk about everything pertinent to its theme, so it's all too easy to think of things one wishes had been included. Still, I was disappointed that the book was conventional both in its thinking about economic growth, and in its thinking less about growth's environmental consequences.

TP tells us that part of "the reality of growth" is that "the material conditions of life have clearly improved dramatically since the Industrial Revolution" (@89). Its main benefits include its roles as a social equalizer, and as a "diversifi[er] of lifestyles" (@ 83, 90). "[A] society that grows at 1 percent a year ... is a society that undergoes deep and permanent change" (@96).

Growth's equalizing effect, though, comes largely from population-based growth, whereas "a stagnant, or worse, decreasing population increases the influence of capital in previous generations" (@84). So is a country already in that condition, such as Japan, supposed to open its doors to immigrants? As an immigrant to Japan myself, I can appreciate that there are many social, cultural and political reasons why this could be a bad path both for country and for many of the immigrants as well. How about focusing on productivity-led growth instead? Maybe, because "in a society where output per capita grows tenfold in a generation, it is better to count on what one can earn and save from one's own labor" (@84), instead of relying on an inheritance. The problem is, this takes for granted that gains from productivity improvements will be shared with labor, rather than shareholders. Yet Part II shows that labor's share has been flat or declining. In Japan, productivity improvements nowadays tend to come from using temporary employees instead of higher-paid permanent ones, and from using robots in lieu of employees at all. These have worked out to be more methods for enhancing inequality, than for abating it.

Both population growth and productivity growth have other costs, too. The rapid growth of output TP alludes to could only be of the transitory, catch-up sort, such as China has been experiencing since the 1980s. The environmental consequences of that haven't exactly been benign. Nor does the book give any consideration to the environmental consequences of population growth, when the population in question aspires to a wealthy country's per capita environmental footprint.

So are countries with declining populations doomed to oligarchy until all the other countries in the world can agree on a global capital tax? Obviously there are better ways to proceed. Such as examining whether growth truly is necessary for further improving health and other material conditions of life, even in an already-wealthy country. And inquiring whether deep and permanent change is a virtue in itself, or whether good sorts of changes can be achieved without following policies obsessed with growth. Exploring such questions thoroughly would certainly have been outside the scope of this book, but failing even to hint at their existence was either a missed opportunity or a lapse of imagination.

9. In addition to the good translation, some other aspects of the book's transition to English succeed. The US hardcover has sewn signatures; my closely-read and much-shlepped French copy, which comes in at nearly 1,000 pages in a perfect binding, is already showing signs of loose leaves. The US edition has a pretty good index, whereas the French lacked one entirely. It's not quite complete, though: e.g., you won't find the above-mentioned references to Mars, "Bones" or The Economist in it, and I noticed a few references to Japan that were missing, too. On the other hand, the notes didn't fare as well. The notes in this book are long, discursive and informative; you really should read them. The French original used footnotes, but Harvard opted for endnotes, which means you'll either be doing a lot of flipping back and forth, or else ignoring a lot of good material.

A mixed blessing in both editions is that the technical appendix has been punted online. The package is generous, and includes files for the book's tables and figures in both pdf and Excel formats. The expository appendix (evidently translated by someone other than Dr. Goldhammer) includes hyperlinks to pertinent scholarly articles. Downloading the 2013 paper TP wrote with Gabriel Zucman, "Capital is Back," along with its own humongous technical appendix, might be a good choice: the present book's technical appendix refers to this often. If you want all relevant Excel files (including, e.g., some UN data and TP's comments to the Angus Maddison historical data), be sure to scroll through the pdf of the appendix and click on appropriate links, since several such items are absent from the website's "Piketty 2014 Excel files" folder.

Unfortunately, no one can know if this website will be maintained a few decades from now, or how easy it will be to read .pdf and .xls files by then. Just as is the case today with books by leading mid-20th Century economists, this is the sort of book that scholars will still want to read in future, even after it's out of print. They'll be very frustrated by the many cross-references to the technical appendix (at least 100-200 times by my eyeball count) if the information has vanished. I hope that in the not-too-distant future TP will freeze and publish a hard copy of this supplemental material for archival purposes.

It's also surprising that not even the website provides a comprehensive bibliography. The technical appendix includes a number of references, but these are spread out over a list at the beginning and more references embedded into a chapter-by-chapter commentary. Even this fragmented resource doesn't pick up many of the books and articles mentioned in the printed book's endnotes/footnotes. Again, I hope TP or the publisher will remedy this soon.


Among its other accomplishments, the book demolishes a couple of abstractions from the 1950s that economists have cherished for decades. One is the "Kuznets curve," according to which income inequality first rises, then peaks and thereafter declines as per capita GDP (or earlier, GNP) continues to rise. Another is the Modigliani "life-cycle" saving theory, which posits that the people save for their retirement and then spend pretty much everything by the time they die. TP's long runs of data show that both of these theories were plausible, if ever, at best only during a brief era around the time they were formulated, when both capital and income were distributed in a more egalitarian way.

How will the economists of today react to this book? Paul Krugman didn't provide an encouraging sign in his blog a few days after the US edition appeared. First thing he did was to try to "understand" it by plugging TP's data into another abstract 1950s-era mathematical model. The vast majority of mainstream economists didn't see the 2008 crash coming, but after it happened they insisted that their models weren't defective. If an historical event of that magnitude couldn't make a dent in their worldview, one has to be a great optimist to believe that this book will. More realistic may be to hope that this book's impact can be political. Luckily, that isn't up just to economists, but to readers like us.
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on March 11, 2014
Thomas Piketty's "Capital in the Twenty-First Century" is a brilliant analysis of the long term distribution of income and wealth. The book draws on reams of data from the United States and numerous other countries. Most of the data comes from income tax records and estate tax/inheritance records. The sheer quantity of data that underlies Piketty's conclusions is unprecedented, and as a result his work deserves a great deal of credibility.

While the book is quite long, the major conclusion can be summarized very briefly: Piketty has found that, over the long run, the return on capital is higher than the growth rate of the overall economy. In other words, accumulated and inherited wealth becomes a larger fraction of the economic pie over time. This happens more or less automatically, and there is no reason to believe this trend will change or reverse course. Although Piketty does not focus on it, there is also an argument that modern technologies like robotics and AI could accelerate the process even more. (For more on this, I'd suggest also reading The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future).

Piketty argues that the reduction in inequality in developed countries after World War II was a "one-off" that was driven entirely by political choices and policies. It did not happen automatically. Those policies have now been largely reversed, especially in the United States. As a result the drive toward increased inequality is likely to be relentless.

Piketty's solution is a global wealth tax. While this seems politically unfeasible, he argues that it is the only thing likely to work. In particular he is is dismissive of the idea that more education and training for the masses can solve the problem. Conservatives in the US will almost certainly dismiss Piketty as a socialist, but his book makes it clear that this is not the case. His conclusions are backed by more hard data than any other economist has so far amassed, and they deserve to be taken very seriously.
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on May 25, 2014
Given my interest in economics, Thomas Piketty's Capital in the Twenty-First Century has been on my "should read" list since it came out, but it really caught my attention after shooting to the top of Amazon's bestseller list, with almost everyone who actually read the book giving it a five-star review. Of course, by that time it was sold out and I had to wait for the reprint.

The first thing to realize is that, while it may be aimed at general audiences, this is a research book; it's heavily endnoted (77 pages of endnotes, not counting the technical appendix on the author's website) and the writing level is probably close to what you'd find in a graduate text. That said, the writing (at least in the English translation) is very good and quite readable. The book starts off quickly; in the first dozen pages or so, Piketty has introduced his thesis (that inequality tends to increase because return on capital is greater than economic growth as a whole, leading to more concentrated wealth), provided a short history lesson (both political and economic), and dismissed Marxism and communism. The central theme is that, because capital tends to grow faster than the overall economy, the rich will tend to accumulate a larger and larger share of the pie simply by virtue of how quickly their existing money grows.

The book is divided into four parts. Part one discusses income and capital: how they are measured, how the different returns on capital and labor lead to inequality, and the effects of the rate of return on capital vs overall economic growth. Part two is largely a history lesson; we see how the capital/income ratio has changed throughout the world over the past two centuries. Part three, which takes up most of the book, focuses on inequality The Financial Times has published an article claiming some errors in the numbers in chapter 10, which don't appear to much effect the argument in the book. Finally, part four is what most likely gets people excited, as it contains Piketty's policy prescriptions: a progressive income tax combined with a global progressive tax on capital (he suggests a range from 0.1% on small estates, up to 2% on capital over five million euros) and a progressive estate tax. The purpose of his proposed capital tax is not to increase the amount of money governments raise in taxes (although it would do that as well, and he advocates using either taxes or inflation to quickly reduce public debt); rather, to prevent the infinite accumulation of capital. I should note that while the book primarily covers Britain, France, and the United States (although the other major economies are included as well) the policy at the end is prescribed for Europe as a whole rather than any individual country.

I will admit, I got a little bored a couple hundred pages in, after which I quit stopping to check the endnotes (many of which are references to the online technical appendix) and just read the main text. This is a history text as much as it is an economics text and will appeal most to those interested in both subjects. This is not an easy read, but it's an interesting one.

Does it live up to the hype? That I'm not sure of, and I'm not sure I agree with his conclusions, but judged on its own merits I can confidently say that this is a very good book.
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on May 9, 2014
While I waited awhile for this book to arrive because it was temporarily out of stock, I was treated to a barrage of left vs right punditry on the internet. Half of the commentators probably didn't read the whole book. The emphasis was the claim that Thomas Piketty was 100% right and proved the Liberal world view or he was completely wrong and proved the Conservative world view. I was pleased to find that this was a fact based book that had a complete history of inequality with a voluminous amount of data and statistics. He has historical data on France and Great Britain dating back to the 18th century. He has historical information on the United States dating back to the days of slavery. He has allot of information on Germany, Sweden, Japan and other developed countries countries starting around 1870. You can enjoy the book by learning allot of history, facts and statistics and then come to your own conclusion on the correct interpretation on all this information

The book's analysis would have been more complete if he had incorporated an analysis of the history of capitalism which has significantly improved the material well being of billions of people. I would highly recommend the work of the late Harvard business historian Thomas K. McCraw. In "American Business Since 1920" he points out that in 1920 only a third of the nation had electricity. No one had a TV, computer or cell phone. The shopping cart wasn't invented until 1937 Only 1 out of 30 people completed college. Only 1 0ut of 5 households even had an indoor flush toilet. He also acknowledges the fact that capitalism has many flaws including inequality, overemphasis of material over spiritual values' environmental damage and that it needs to be regulated.

In absolute terms Thomas Piketty even shows that the bottom 90% of the American population has improved its standard of living since the 1970's. However, the growth of inequality created a great deal of instability which was a significant factor in the crash of 2007-2008. The 1% share of income increased from 9% to 20%. The bottom 90% of the population increased their income by .5 percent a year. This leads to a perception of income stagnation. This in turn lead to allot of modest households taking on too much debt which was encouraged by unscrupulous banks and financial intermediaries. Many people used their homes as piggy banks for mass consumption. When real estate values went down the economic system collapsed like a house of cards.

One of the most informative highlights in the book was Table 5.1 on page 174. The table shows the per capita growth rate of several rich countries from 1970-2010. All of these countries redistribute wealth from the rich to the poor and middle class. The United States is on the low end of the scale for income redistribution while many European countries are on the high end of the scale. Yet economic growth after adjustment for rate of population growth is virtually identical all the countries listed. The per capita growth rate ranges from 1.6% to 2%. per year with the United States right in the middle at 1.8% This indicates that the United States could afford to increase income redistribution and taxes without collapsing into a Soviet-Marxist style economy. It is unlikely, however, that the United States will ever equal Sweden in our income redistribution because of our unique history, culture and values.

Thomas Piketty is not a Marxist, see page 31. One of the great values of this book is that it can increase your knowledge of economics and inequality without you having to agree with all of his analysis or solutions. He has a pleasing style of presenting his point of view without resorting to personal attacks such as calling the 1% or rich evil. I would recommend not taking his predictions on future inequality too seriously.. For understanding the hazards of predicting the future I would recommend reading "The Signal and The Noise" by Nate Silver or "Expert Political Judgment by Philip Tetlock..

Capitalism is a tool that was invented by human beings. We are not a slave to the "magic" of the free market. We can decide how to use and regulate our tool.
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on May 25, 2014
I'm a software developer by trade, but for career advancement reasons I obtained financial certification a few years ago with CFA Institute, and am now required to maintain my professional credentialing through continued education. This book has generated a lot of discussion in recent months, so I thought it would be a worthwhile read. I was not disappointed.

First, I have to say that the English translation is very good throughout most of the book. I get the feeling that towards the end they were a little rushed to get to print, but overall a very nice job.

As I said, I have only recently started learning finance as an adjunct to my primary career (I work as a systems analyst for a small fixed income investment firm) and as part of this I have begun to learn the fundamental theories of economics and the various systems, predominantly monetary and market, which underpin it. So I can't really argue the merits of this book from an academic basis, as I'm a neophyte in this area.

However, I am encouraged by Piketty's assertion at the end of his book that it is precisely people like me who should be taking a more active interest in how capital is distributed in today's world, and in the political systems that serve to enable such distributions. The author wants the little guy to get the big picture, and has written a book that speaks to us.

So, from a little guy's perspective, I have a few observations to share about Piketty's book:

- Data. In recent days (I am writing this in late May 2014) doubt has been cast in some conservative circles as to the accuracy of Piketty's data collection methods. I get the impression that the accusations themselves are overblown, as the data trend lines for some graphs presented by the Financial Times differ mainly in degree, not direction, to those presented by Piketty. However, some plausible gaps have been identified in the data presented in the book, and these need to be addressed in a future edition.

- Plausibility. Data aside, do I agree with Piketty that the rich are getting richer and the poor poorer? Well, yes, if one believes his data, there is certainly a trend over the past 30 years that indicates an ever-increasing concentration of wealth in the upper decile of the population. But Piketty also concedes that the share of wealth in the (patrimonial) middle class, measured both in terms of income and asset ownership, has also increased in post war America and Europe, and is rising in Asia. In other words, the rich are getting richer, but the less rich have also never had it so good (by pre-WWI standards). The poor who occupy the bottom 50% may indeed be getting poorer, but they have always been poor, at least as far back as the data allow us to measure such things. In fact, they were much, much poorer over a century ago when one takes into account what they had access to in terms of goods and services.

- Solutions. The primary solution offered up by Piketty as a means to stem the growing divergence of capital is a progressive tax on the top earners, especially the so-called "rentier" class, whose ownership of assets, either through inheritance or entrepreneurship (or a combination both) allows them to continually accumulate income without necessarily generating jobs (r > g).

A progressive tax idea is nothing new, and is obviously at the core of all the controversy, pro and contra, surrounding Piketty's work. After all, we are talking about taking something from one set of people and depositing it elsewhere.

It's the elsewhere that bothers me. As Piketty notes, taxes are necessary, as they provide for the common defense and basic social needs of a society. With the aging of the population in the Western world there will be an ever -increasing strain on budgets to provide care to people whose life expectancies far exceed those of their not-too-distant ancestors. Fair enough. We need to have mechanisms in place to care for the vulnerable in our society.

My problem with progressive taxes, however, has to do with human nature itself. We naturally tend to abhor those in the top centile of earners who loll around all day, while earning income from others (in the form of rents of one sort of another), on account of the assets they inherited. Deep down, I think almost all believe that one should be worthy of his wage. The idea of meritocracy is a universal principle, one could argue a moral one. If you have a good idea and are willing to work for it, you should be rewarded.

So it is natural and good that we look with disdain upon people who are enjoying the good life without having to work much to maintain that lifestyle. This applies just as much to the lazy rich trust fund kid (think of the Dudley Moore movie) as it does to the listless welfare recipient. We just know it's not fair. It's funny though how we are always happy for the lottery winner, as if an act of fate based on random number selection exempts them from the same kind of scrutiny as those who benefit by other means.

So back to taxes. A yearly progressive tax, based on net assets, would definitely help to close the divergence gap between the top decile and the rest of us. The question is, what will be done with that money? Piketty mentions education as the primary beneficiary of such funds. This is not surprising, as he is, well, an educator. Yet, I wonder if his arguments regarding super-manager salaries and the concept of "marginal productivity" cannot be equally applied to that of education. In other words, what guarantee do we have that throwing money into the public sector is going to make our kids smarter? Will we end up with more bureaucrats making (semi) super-manager salaries, followed by super-pensions in the last three decades of their life? If you want a taste of this, Google salaries for state employees in Massachusetts. You'll find that most of the highest paid occupy positions in the half dozen or so state universities. What exactly are all these people who are making 100k+ doing? And are they in fact productive?
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on August 20, 2014
After 60+ years as a professional economist, I am still impressionable, and this book is impressive. The extraordinary historical research is just the beginning and attests to a devoted support team. Piketty's cultural and social awareness--going far beyond his native France--and his analytical acuity, without resort to the meretricious mathematics that today's academic economists hide behind, are wonderfully refreshing. His conclusions and the suggested policies that grow out of them will occupy us for decades to come. Martin Giesbrecht, Professor Emeritus of Economics, Northern Kentucky University
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on June 13, 2014
This book deserves all the attention it has received, and also deserves the time and mental energy that a careful reading entails. First, the book deals a massive blow to the theory of free-market capitalism that has become a core belief of the capitalist elite, and of much of the economics profession. Secondly, it provides a straightforward theory of how capitalism really works. And thirdly, it proposes solutions to the rising inequality that stems from that process. Those solutions don't look politically possible now, but as the author emphasizes, economic developments have political consequences. Moreover, the point isn't really the precise remedies that Piketty proposes, but the fact that he opens the discussion.

The idea of free market capitalism, over the past half century, has grown from a collection of theories espoused by Adam Smith et al into an economic and political ideology, reinforced by the collapse of the Soviet Union, and supported by the economic elite whose interests it has served. The idea that capitalism ultimately benefits all participants -- that "a rising tide lifts all boats" -- is a powerful one that has been accepted by many people whose boats remain unlifted. Much of that reflects that, in the US and Europe, almost everyone between 50 and 70 did grow up in a world where the tide did rise, and most boats rose with it, with income inequality falling drastically compared to pre-war levels. That improvement is very widely assumed to be the result of a capitalist economic system. This is the central "fact" that Piketty demolishes, showing that the 1945-75 period (the thirty glorious years, for the French) reflected economic recovery from the war and political decisions that levelled income distribution.

Rather than the thirty glorious years being the base state, Piketty argues, they were an aberration from the underlying pattern of capitalism, which is that income inequality -- and far more important, wealth inequality -- tends to grow strongly over time. Most of the book is about the data that he uses to arrive at this conclusion, data that were NOT easy to obtain. Indeed, Piketty's achievement in constructing his data base is just as important as his conclusion. Heretofore, we have been discussing inequality almost exclusively as an income phenomenon: what Piketty brings into the discussion is the question of wealth. Not only does he bring it in, he makes it possible to measure it. (Note: most of the reasonable criticism of Piketty so far -- I don't think that yelling Markist! is reasonable criticism -- has focussed on the data. Piketty, in the book, warns over and over of possible data weaknesses, and has made his data available on line. There will be problems, there are always problems with data. But disagreeing with a few data assumptions does not invalidate the argument).

Based on this data, Piketty arrives at his central argument -- that when the rate of return on capital (very broadly defined) exceeds the growth of national income, when r is greater than g, wealth will become more concentrated. In the 50's and 60's, when economies were speeding ahead at 3-5% based on recovery from the war (and from the Depression) and when inflation was low, r was not necessarily greater than g. Since then, however, growth in the advanced countries has slowed sharply, while the return on capital has remained at 5% or better. The result is an increasing concentration of wealth, and Piketty sees no reason why this should change (The US has a special aspect which Piketty examines -- the dramatic increase in income inequality, as high-end wages have soared relative to average wages. This is of interest, but the key point remain r>g

To deal with this, Piketty proposes an international, progressive tax on wealth. That looks improbable at present, but, as he notes, a meaningful income tax looked pretty improbable a century ago. I don't think, however, that Piketty's proposed solution is critical -- what matters is the discussion he has brought to the fore. The essential point is that the state (really a group of states( is the only entity that can offset the concentration of wealth implicit in modern capitalism. Destroying capitalism doesn't work: consider the Soviet Union. But its benefits can be spread more widely by political means (taxes) while leaving the economic motor in place. Ultrahigh taxes, remember, do not seem to have deadened entrepreneurship from 1950 to 1975.

This is not light reading, though it is remarkably free of economic jargon (as a former economist, I am an expert on that topic). But it is well worth the time and effort it demands. It is already playing a major role in the discussion on inequality and its political ramifications, and has certainly changed my thinking on the subject. This is a very major work.
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on June 28, 2015
I noticed that this book was starting a to get a lot of buzz in the media thanks to to Picketty's controversial conclusion that the countries of the world should get together and levy a global tax on capital. I also noticed that many prominent economists on both the left and right were dismissing the book as ridiculous (Michael Hudson, for example, is a big critic of this book even though his political views are similar to Picketty's). Nevertheless, I wanted to read the book myself and form my own conclusions.

The first thing I have to say about this book is that it contains a massive amount of historical research, filled with interesting facts. For example, I did not know that the percentage of national income devoted to taxes in the 20th century had risen from 10% to 30-55% (with the U.S. being on the low end of this and most of Europe being on the upper end). I knew it had grown, but the exact figure is an interesting fact. I also did not know that the U.S. economy had only grown by 1-1.5% each year on average since its founding, but that China had achieved rates of as high as 9% recently by adopting freer markets, as this allowed it to "play catch up" with the U.S. Facts like these are interesting, and the book may be worth reading simply because it contains these intellectual curiosities.

The second thing I have to say about this book, however, is that most of the empirical data presented in it have nothing to do with Picketty's conclusion that inequality is growing and that governments need to tax capital in order to prevent us from returning to a world dominated by feudal aristocracy.

To explain further: Picketty begins the book by talking about the massive inequality that existed in 19th century Europe and implies that we are in danger of returning to that kind of society. Specifically, he is concerned that inherited wealth may come to play a much greater role in the economy than it has in the previous century. If this were true, I agree that it would be a very serious concern to everyone. I certainly wouldn't want to live in the kind of world described by Balzac (a novelist whom Picketty is fond of quoting), where the only way to get rich is to marry someone who stands to inherit wealth.

However, the data that Picketty presents does not support his conclusion, but contradicts it. Over the course of the book, Picketty shows that inequality shrunk through most of the 20th Century and only rebounded after 1970. Even after 1970, however, the kind of inequality that has existed is primarily inequality among different kinds of workers. This new worker inequality is the result of what Picketty calls "the rise of the super-managers", the tendency for elite business executives to get extremely high salaries. Contrary to Picketty's conclusion, this means that the world is not becoming dominated by holders of large amounts of capital, as he feared, but is becoming "meritocratic" instead.

To be fair to Picketty, he does argue that even this kind of inequality is bad. However, that's not the thesis he began the book with, and it has no connection to his conclusions about the global capital tax.

So how does Picketty justify his conclusion that the world is becoming dominated by capital? And why are people paying so much attention to this book?

The answers to these two questions are found in about eight to ten pages that are scattered throughout Picketty's book. Here are some of the most important of these page numbers : 9, 25, 27, 212, 228, 358, 361, and 571

In these pages, Picketty develops an economic theory that he defends through abstract argument. According to this theory, capital accumulation leads to a higher capital/income ratio that is generally not counteracted through a falling rate of profit. Because of this phenomenon, capital accumulation tends to lead in the long-run to a greater portion of national income going to profits (income from capital) instead of wages (income from work). As a result, this causes an "inegalitarian spiral" with terrible social consequences.

Picketty's argument, then, is not that the empirical data shows growing inequality between capitalists and workers. Rather, his argument is that the empirical data shows lessening inequality, but that his theory proves this lessening inequality is just the result of the two world wars in the 20th century and will therefore be reversed in the 21st century.

Once I realized that this was Picketty's argument, I found the book to be very disappointing. I felt like Picketty could have saved me a lot of time if he had simply stated his abstract argument from the outset instead of wasting my time with this massive empirical data that he ultimately didn't care about.

Nevertheless, the book does have some value beyond its consideration as a work of historical statistics, since it does contain these 8-10 pages of economic theory. But if a reader is interested solely in the economic question of whether capitalism has a tendency to lead to a quasi-aristocratic society, I would suggest reading only the pages I listed, plus a good rebuttal to these pages from a critic of Picketty's (such as Reismann's, for example, found here:

In conclusion, this book is an interesting work of historical research that may be of interest to some readers for its sheer curiosity value. But, due to its unnecessary length, it is not very valuable as an economic treatise dealing with the question of inequality.
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on June 20, 2014
Piketty's book is admirable both in its content and its attitude. Its content is straightforward and bold analysis of a tremendous effort by Piketty and other scholars to collect data on income distribution and capital accumulation and distribution over many years and many countries. Whatever one thinks of the analysis, this data collection effort is an important contribution to our knowledge about our modern economy and its history.

The analysis is powerful in part because it is so simple. Piketty's case is simply that the rate of return to capital tends to be greater than the overall economy's growth rate, and that this then leads to wealth, and particularly the wealth of the very wealthiest, to grow faster than overall wages and the overall economy. Whether this past tendency for capital's return to exceed the growth rate will persist in the future is unknown, and arguments can be made that capital accumulation itself will help reduce the rate of return on capital, although Piketty disagrees with such arguments. But the possibility that Piketty is right will have to be addressed in any future discussion of income distribution issues.

His analysis leads him also to a straightforward policy proposal: a progressive global tax on capital. To give specifics, Piketty mentions the possibility of a "capital tax schedule with rates of 0.1 to 0.5 percent on fortunes under 1 million euros, 1 percent on fortunes between 1 and 5 million euros, 2 percent between 5 and 10 million euros, and as high as 5 or 10 percent for fortunes of several hundred million or several billion euros". (At current exchange rates, the equivalent dollar brackets would be a little more than a third higher.)

Although it might not seem so, in many ways this is a quite conservative proposal. Piketty is concerned with trying to avoid very large future increases in income inequality which he views as very dangerous for democracy, for the moral health of Western society, and for the sustainability of mixed capitalist economies. He prefers a tax on capital holdings to exorbitant taxes on capital income which might discourage entrepreneurship or restrictions on capital mobility and trade that might reduce economic growth. Piketty is much more like Keynes than like Marx. He is trying to identify the least interventionist policies that, once adopted, will then allow the market to continue to produce economic growth, but economic growth that is more broadly shared. He is trying to sustain the current economic system, not to overturn it.

As a fellow economist, I find his attitude towards economics to be particularly inspiring. Piketty is interested in an economics that takes on the big issues, that is willing to work with other social science and humanistic disciplines, and that is willing to see what the data suggest about how we can improve our economy and society. As he says at the book's end, economics, which he prefers to call political economy to indicate its "moral purpose", seeks to answer the question: "What public policies and institutions bring us closer to an ideal society?" He then goes on to say that "This unabashed aspiration to study good and evil, about which every citizen is an expert, may make some readers smile...But it is..a necessary...goal, because it is all too easy for social scientists to remove themselves from public debate...and content themselves with the role of...demolishers of the views and data of others. Social scientists, like all intellectuals and all citizens, ought to participate in public debate.... They must make choices and take stands in regard to specific institutions and policies."

Whether one agrees or disagrees with Piketty's book, one has to admit that he has been willing to take a stand, both on what lessons he sees from economic history for our economic future, and on what he thinks we should pursue in public policies to improve our economic future.
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