Capital in the Twenty First Century
Author: Thomas Piketty
Rating: â 4/5
Date Read: 2015/02/04
Pages: 685
This is going to be a beast to review because, while Iâve got a good head for numbers, Iâm most certainly not an econometrician and I donât know how well I can explain the capital/income ratio that underlies the main arguments of the book. Luckily, author Thomas Piketty is French, and peppers his book with lots of information about capital in literature, with a particular focus on the work of Austen and Blazac. According to Piketty, the reason that Austen found it perfectly reasonable to talk specifically about Mr. Darcyâs ÂŁ10,000 a year is that, up until the 20th century, inflation wasnât really a thing and income from rents was pretty stable. At that time, wealth was extremely concentrated, with a small group holding a vast majority of capital. Disturbingly, extant economic forces seem to be returning us to this type of model. If this doesnât disturb you, it should (unless youâre the holder of vast amounts of capital, in which case, carry on).
The crux of Pikettyâs argument is that current market forces are pushing the global economy towards divergence, meaning that wealth is becoming increasingly concentrated. To make this argument, Piketty spends quite a bit of time talking about the capital/income ration. Piketty explores the idea that, when income from capital outpaces income from wages, holders of capital can increase their wealth far faster than wage earners can accumulate their own wealth. Piketty doesnât solely look at capital as the major problem; indeed, he examines the case of super-managers earning incomes of well over $1,000,000 per year. The argument is well researched, supported by a ton of statistical data, and Piketty is quick to admit to the limitations of his work. He doesnât believe in the invisible hand of the market as some magical being bringing prosperity to everyone by helping the rich get richer (I like to imagine the invisible hand of the market as Ronald Reagan riding a magical unicorn that shits golden eagles). What he does believe is that there needs to be more transparency in banking and a global tax on capital. Which is a lovely idea, although probably also a non-starter.
One major point that I found interesting was the extent to which World War II temporarily changed economic reality. According to Piketty, World War II effectively wiped the economic slate clean, making inherited wealth much less important than it had been at the end of the 19th and beginning of the 20th century. This meant that the Baby Boomer generation lived in a far more meritocratic and egalitarian society. That simple fact has helped me gain some peace with the fact that previous generations seem to be blind to the issues of skyrocketing rents and crippling student loan debt. So when I see something like this:
I remember Iâm living in a world more like this one:
And that doesnât make me feel better, really, but millennials with poor economic outlooks can at least take some solace in the universally acknowledged fact that a super-manager in possession of a good fortune must be in want of a wife. Possibly.