“Capital in the Twenty First Century” By Thomas Piketty
Piketty sets out to develop society’s understanding of inequality in a historical context so that we can learn to deal with inequality today, he proposes a much deeper analysis of inequality, with access to more than three centuries of data ranging twenty countries. Piketty introduces the views Karl Marx and Simon Kuznets who bitterly disagreed on the topic of inequality. Marx principals suggest that inequality is always increasing and by definition the world is becoming unjust, whereas Kuznets believes that over time inequalities is naturally decreasing regardless of economic policy. His evaluation of both views shows that there supporting evidence is insufficient based on theoretical speculation. Therefore it is necessary to use the data available to give greater insight into inequality.
His finding show the decline in inequality during 1910-1950 was due to the post war consensus that was adopted to deal with the shocks of war. Then the return of rising inequality from the 1980’s was due to political shifts as taxation became more regressive.
His second conclusion there are powerful dynamic alternating forces resulting in reduction and growth in inequality. The main force for reducing inequality is education and the diffusion of eduction and training; as seen by the development of previously poor countries such as China and India which are emerging as world powers. This has been archived by adopting production methods of wealthy countries and acquiring comparable skills. Another factor that reduces inequality is progress in medicine and improved living has changed the nature of inequality. However Piketty dismisses these ideas as optimistic, as divergence factors are much more prevalent. As long as the return on private capital (interest rate) exceeds the growth rate of an economy then inherited wealth will grow faster than incomes, he explain this with the equation r >g( http://piketty.pse.ens.fr/files/capital21c/en/pdf/F10.9.pdf)Therefore slow economic growth results in increasing inequality and the more wealth someone owns, the faster that wealth grows. Between 1987 and 2013 the rate of return owned by the average adult was 2.1% whereas the average millionaire was 6.1%.
Piketty proposed to bring the question of wealth distribution back to the forefront of economics, considering the rapid growth of inequality in developed economies. Noting his inability to foresee where capital will go in the future he states government must use progressive taxation of wealth to redistribute incomes to reduce inequality, however his policy proposal have been criticised for been ideologically rather than economically driven and could do more damage than good.
https://www.economist.com/news/leaders/21601512-thomas-pikettys-blockbuster-book-great-piece-scholarship-poor-guide-policy?fsrc=explainsdig
No comments:
Post a Comment