Piketty Backtracks a Bit

Last year, French economist Thomas Piketty’s book on the causes of income inequality became the rallying cry by people on the left for a tax on the wealthy.  However, many intelligent and thoughtful individuals (including NCPA blogger Jeff Lerner) disagreed on what Piketty pointed to as the cause of income inequality – mainly, that as the return on capital far outpaces GDP growth, inherited wealth grows, leading to a wealth gap.  The left interpreted this as capitalism should be replaced by a massive global wealth tax and, of course, European-style socialism.  But now, in a forthcoming article in the American Economic Review as reported by the Wall Street Journal, Piketty admits that other factors come into play, and that r > g is not as relevant when it comes to actual wage inequality.  For further analysis of Piketty’s theory, see the NBER study, “The Rise and Decline of General Laws of Capitalism” by Acemoglu and Robinson.

Comments (6)

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  1. Frank says:

    I wonder if Krugman will backtrack as well. Seems unlikely.

  2. Brian Williams. says:

    Piketty, being French, is prone to retreating.

    • Devon Herrick says:

      The reason Piketty is retreating is due to the success of is book. Capital in the 21st Century has sold well — propelling Piketty to the ranks of the wealthy! Now he believes that some of the wealthy actually deserve their wealth!

  3. Devon Herrick says:

    I reviewed Piketty’s book for Business Economics last year. Piketty’s view of capital is akin to a feudalistic, agrarian model. He believes the rich have capital, which will grow at rates above inflation. The rich get richer, while the poor and middle-class get nothing. The only economic model that seems to fit that worldview is an aristocracy composed of landed gentry, where most people are engaged in agriculture. Wealth could become highly unequal in a system where capital is primarily composed of land, and nobles acquire land by inheritance under the law of primogenitor, and laws restrict selling land that is tied to a noble title. Under feudalism labor mobility is restricted and peasants were forced to stay on their master’s estate.

    That is hardly a model that explains today’s wealth.

  4. JW Chen says:

    Actually, no matter what causes inequality, proponents
    of free markets are the real opponents of inequality. Because inequality inhibits the development of free economic institutions.

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