Capital in the Twenty-First Century by Thomas Pickety

[walkinwood]

I haven't found a thread on this subject - if there is, please merge.

I've been hearing a lot of discussion about the book

Capital in the Twenty-First Century by Thomas Pickety

Here's a description from Amazon's site.

What are the grand dynamics that drive the accumulation and distribution of capital? Questions about the long-term evolution of inequality, the concentration of wealth, and the prospects for economic growth lie at the heart of political economy. But satisfactory answers have been hard to find for lack of adequate data and clear guiding theories. In Capital in the Twenty-First Century, Thomas Piketty analyzes a unique collection of data from twenty countries, ranging as far back as the eighteenth century, to uncover key economic and social patterns. His findings will transform debate and set the agenda for the next generation of thought about wealth and inequality.

At 700 pages of dense economic data & discussions, it is unlikely that I will be able to get through it, so was hoping to get a discussion going by those who have either read it or read discussions of the book .

It would easily get political, so please respect the forum rules.

One aspect that I found interesting is his assertion that the return on capital is higher than economic growth today. The implication is that great fortunes continue to grow faster than the wealth in society & thus garners a greater and greater percentage of the overall wealth.

While there are few, if any, "great fortunes" in this forum, it seems to me that there is an implication for those who save & accumulate capital. Our capital could grow faster than overall wealth in society and we end up creeping up the relative wealth ladder. Of course, those of us who are ER'd eat away at that wealth too, so we may just stay in the same place or slip back slowly.

I just saw this discussion of the book which despite its provocative title is pretty good.

 

[FIGuy]

There's a good review of this in this weeks Economist magazine.

General take-away was that the book is well researched with interesting tidbits, but that the suggestions in it are not very practical in the current political / social climate. The wackiest idea they mentioned was a 10% (max progressive) annual tax on wealth. That would pretty much kill my desire to grow wealthy and I'd probably just work less and contribute to society through my job less. No thanks.

I'll read the book when I can get my hands on it for free probably.

 

[M Paquette]

Very good book for the data driven folks. Lots of stuff showing how we got where we are, and how unusual or common some economic situations actually are.

The controversies appear to be around the application of economics to alter the current situation, as many of the proposals are based on mainstream economics, rather than political economics, politics, or approved ideologies.

If you are data-driven, have a good grasp of math and statistics, and can tolerate ideas which you may find unexpected, this is a good book.

 

[kramer]

I am not an expert on this at all, but I do follow a popular economics blog which has some short overviews and opinions about the book. Try this link, it should pull up the search results automatically from the Marginal Revolution site:

Search: piketty

It will quickly give you some concise overviews and opinions from various economists.

Tyler Cowen himself is not sold on many of the arguments although he says the book is very important and that you should read it.

http://marginalrevolution.com/margi...ot-persuaded-by-thomas-pikettys-argument.html

 

[scrinch]

I'm about a third of the way through the book (kindle edition)... and making slow progress. I've found the data interesting so far, but his discussion is sometimes less than compelling. He's slowly developing several lines of reasoning, but a lot of his commentary already carries his final conclusions, which at this point in the book aren't justified. Because of this the book reads like the author is writing with some preconceived conclusions.

Sent from my Nexus 7 using Tapatalk

 

[explanade]

There's a good review of this in this weeks Economist magazine.

General take-away was that the book is well researched with interesting tidbits, but that the suggestions in it are not very practical in the current political / social climate. The wackiest idea they mentioned was a 10% (max progressive) annual tax on wealth. That would pretty much kill my desire to grow wealthy and I'd probably just work less and contribute to society through my job less. No thanks.

I'll read the book when I can get my hands on it for free probably.

Is it tax on all wealth? If a middle class family has a couple of hundred thousand? Or the ER people here who've scrimped and saved to amass a couple of million to RE?

It seems there's a longstanding economic argument against inherited or permanent wealth. So the idea of estate taxes aren't controversial outside the US.

But if they can abolish or have a moratorium on "death taxes," chances for a wealth tax, much less a global wealth tax, are slim.

 

[Independent]

Is it tax on all wealth? If a middle class family has a couple of hundred thousand? Or the ER people here who've scrimped and saved to amass a couple of million to RE?

It seems there's a longstanding economic argument against inherited or permanent wealth. So the idea of estate taxes aren't controversial outside the US.

But if they can abolish or have a moratorium on "death taxes," chances for a wealth tax, much less a global wealth tax, are slim.

I haven't read the book. But, every reference I've seen by someone who seems to have read the book refers to a "progressive" tax.

Piketty concedes that this is a “utopian idea” but also insists that it is the best possible solution to the problem. He hedges a bit on the precise numbers but suggests that wealth below 200,000 euros be taxed at a rate of 0.1 percent, wealth between 200,000 and one million euros at 0.5 percent, wealth between one million and five million euros at 1.0 percent, and wealth above five million euros at 2.0 percent.

Tyler Cowen | Thomas Piketty's Vision of a Global Wealth Tax | Foreign Affairs

0.1% of $200,000 = $200.
0.5% of $1,000,000 = $5,000
1.0% of $5,000,000 = $50,000

(yes, I know that a euro is not a dollar)

I'm not going to change my personal financial plans on the extremely low probability that something like this might be enacted in my lifetime.

I agree with the bold. As an example, I'll mention that in the US unrealized capital gains are never subject to income tax if the owner can hold them to death (because of the step up in basis rules). Almost all the tax forgone by this policy would have been paid by a very small slice of very wealthy people. Yet, I don't see any significant political movement to reverse this. If the votes aren't there to get rid of this pretty obvious special deal, imagine how hard it would be to get an Piketty's wealth tax enacted.

 

[FIGuy]

On the topic of the probability of such a tax, I'll mention that in the US unrealized capital gains are never subject to income tax if the owner can hold them to death (because of the step up in basis rules). Almost all the tax forgone by this policy would have been paid by a very small slice of very wealthy people. Yet, I don't see any significant political movement to reverse this. If the votes aren't there to get rid of this pretty obvious special deal, imagine how hard it would be to get an Piketty's wealth tax enacted.

Completely agree with this. I just remember seeing Bush telling a bunch of folks with probably $500 in the bank about how he was going to eliminate the "death tax" at town hall meeting. You have to admire the guts of our "representatives"!

I'm about 1/3rd the way through this book and don't quite get what all the fanfare is over. It would have made a great 12 page special report in some magazine. I recommend the cliff notes version.

 

[LongPrime]

Wealth concentration eventually gets to your head. Revolution eventually happens when the majority minions get fed up for the lack of opportunity and mobility. Two more election cycles, when most of the Boomers are into SS, and the X,Y, Echo, and Millennium generations will discover that they don't have the cards and even if they had the cards, they can't influence their outcome. .

 

[Hamlet]

I'm about a quarter through the book. He puts forth a couple of general principles that are obvious in hindsight, but I hadn't really though about them before.

He calculated the ratio of capital to income over time for the major economies. As that ratio gets higher, inherited wealth becomes more important in relation to an individual's earning power. When that ratio is low, it's less of a problem to start out with nothing because you can buy capital cheaply with your labor. As that ratio goes up, it becomes more important to have inherited capital in order to succeed.

That's a pretty fundamental concept that I haven't heard articulated directly before now.

 

[ERD50]

I've heard the 'hoopla' over this book, but don't know much about it, other than the general 'tax the rich' and 'inequality' themes.

I started to listen to the link in the OP, but clearly this approach is like catnip to Paul Krugman, so even though his comments may be informative, I'd rather hear from a more neutral source.

I found these under the 'critiques' section of wikipedia:

One strand of critique faults Piketty for placing inequality at the center of analysis without any reflection on why it matters. He merely assumes that inequality matters, but never explains why, only demonstrates that it exists and how it worsens.[13] As one reviewer put it, "Aside from its other flaws, "Capital in the 21st Century" invites readers to believe not just that inequality is important but that nothing else matters. This book wants you to worry about low growth in the coming decades not because that would mean a slower rise in living standards, but because it might . . . worsen inequality."[14]

James K. Galbraith criticizes Piketty for using "an empirical measure that is unrelated to productive physical capital and whose dollar value depends, in part, on the return on capital. Where does the rate of return come from? Piketty never says." Galbraith also says: "Despite its great ambitions, his book is not the accomplished work of high theory that its title, length, and reception (so far) suggest."[15]

But are those critiques justified?

I'm about a quarter through the book. He puts forth a couple of general principles that are obvious in hindsight, but I hadn't really though about them before.

He calculated the ratio of capital to income over time for the major economies. As that ratio gets higher, inherited wealth becomes more important in relation to an individual's earning power. When that ratio is low, it's less of a problem to start out with nothing because you can buy capital cheaply with your labor. As that ratio goes up, it becomes more important to have inherited capital in order to succeed.

That's a pretty fundamental concept that I haven't heard articulated directly before now.

I wonder if this holds if you look at global economies, rather than ' the major economies'? Seems to me that the cheap overseas labor clearly puts a strain on the lower level class in developed countries. But if you have capital, you can put it to work overseas and benefit. So that could be a major source of any widening gap.

But now include all those people in less developed countries who are having their standard of living improved. How does that fit into the big picture?

And for me, the really big, big question: Should anyone be doing anything about it? Maybe taking more from the wealthy would limit these kinds of investments, and overall, the world would be worse off? Certainly there are many examples of 'unintended consequences' of good intentions.

I really don't know, just food for thought. I have another article to address some of the inequality issue, but I gotta run...

-ERD50

 

[M Paquette]

I'm a big fan of actually reading a book before discussing it's contents, but I am also widely considered to be some sort of weirdo.

Lets all be careful to stick with economics here and avoid wobbling off into political ideology-land.

 

[mrfeh]

One aspect that I found interesting is his assertion that the return on capital is higher than economic growth today. The implication is that great fortunes continue to grow faster than the wealth in society & thus garners a greater and greater percentage of the overall wealth.

I'm just beginning to understand this concept, because I can see it happening to me and my descendants.

I'm planning on retiring in 2 years, with at least 35x annual expenses. Just in the last 2-3 years, I can see how once you acquire a large enough sum, wealth can become self-perpetuating (if we continue to live within our means and don't blow a bunch of money needlessly).

If the markets perform average to well over the next 5-10 years, we'll likely have much more money than we'd ever need. That money could be passed on to our heirs, etc, etc. Obviously this nirvana only occurs if the monies are well-managed over time...

 

[LongPrime]

^ That nice at 35x. You really didn't have to tell me that. We had to retire at 10x. It is now up to 15x thats to a robust market and a significant health insurance cost reduction from ACA and entering into Medicare. We hope to get it to 20x in 5 more years when I will be 69 and wife at 72.

If you have money at retirement, you really don't need to have manage your money well-because most Americans are not doing well.

 

[clifp]

PBS Newshour is running a 3 part series on the book, tonight's episode featured a pretty interesting debate on the book from a liberal think tank woman and I guy from the
AEI.

The AEI guy thought his data on inequality was quite good. However, Piketty ignores income transfer which seems to be a pretty big deal.

It is on my list of possible books to read, but I've been reading some heavy books lately and need something light.

 

[samclem]

If you have money at retirement, you really don't need to have manage your money well-because most Americans are not doing well.

If I may ask: What does this mean?

 

[REWahoo]

CHP...

 

[LongPrime]

If I may ask: What does this mean?

When the bear is chasing you and tent mate, You only have to run just a step ahead of your slower partner. No sense in busting a gut when you are not dinner.

 

[bld999]

"I've been reading some heavy books lately and need something light."

I'm trying to plow through the kindle version and really wish I had it in paper in order to mark pages, etc. It is a bit difficult to keep up with for me at least, without taking some notes.

If nothing else, the author has sparked a lot of discussion about the issues, and if he makes the data available to others, some sharp minds may be able to make even better sense of the picture.

 

[Hamlet]

What is meant by income transfer?

The AEI guy thought his data on inequality was quite good. However, Piketty ignores income transfer which seems to be a pretty big deal.

 

[Options]

Ordered the book from the library two weeks ago. I'm number 44 in the holds queue! While waiting, I'm reading "All the President's Bankers". Incredibly enlightening. And depressing.

 

[walkinwood]

What is meant by income transfer?

government payments like Earned Income Credit, food stamps, and other help. I think SS and medicare/medicaid also count as income transfers.

 

[samclem]

If you have money at retirement, you really don't need to have manage your money well-because most Americans are not doing well.

If I may ask: What does this mean?

When the bear is chasing you and tent mate, You only have to run just a step ahead of your slower partner. No sense in busting a gut when you are not dinner.

Obviously, we have to manage our money well in retirement if we want to have a satisfactory quality of life regardless of whether others are doing well or poorly. If the "inflation bear", or "market bear" (tee hee) gobbles up my neighbor it doesn't benefit me at all.

 

[walkinwood]

PBS Newshour is running a 3 part series on the book, tonight's episode featured a pretty interesting debate on the book from a liberal think tank woman and I guy from the
AEI.

The AEI guy thought his data on inequality was quite good. However, Piketty ignores income transfer which seems to be a pretty big deal.

It is on my list of possible books to read, but I've been reading some heavy books lately and need something light.

Thanks for the link clifp.

I thought Heather Bouchet didn't even try to counter Kevin Hasset's assertions and that left me disappointed. I had to go look up her bio to know that she is indeed an economist.

 

[explanade]

Wonder how many ER types would be amenable to a wealth tax.

It kind of punishes people who save and plan responsibly to have retirement income, vs. the majority of retirees who don't have much savings at retirement.

Presumably though, the wealth tax would target people who have much greater wealth, perhaps like the estate tax which exempts what, the first couple of million?