Sunday, April 27, 2014

As “Capital in the 21st Century” becomes a Number 1 Best Selling Book

  • The book “Capital in the 21st Century” by French economist Thomas Piketty focuses on wealth and income inequality.  It was originally published in August 2013, with its English translation released in March 2014.  Last week, the book became the number 1 best seller on Amazon.  
  • The book suggests that 1) when the investment returns exceed economic growth, wealth becomes increasingly concentrated, 2) wealth concentration did not occur during much of the 20th century because of positive population growth trends and factors associated with the destructive forces of World War I and II3) wealth disparity may exceed levels of the 19th century and 4) political and social upheaval may increase.  Piketty suggests the best solution is a globally coordinated tax on wealth.
  • Piketty’s analysis is heavily data driven and he believes that “too much energy [by economists] has been and still is being wasted on pure theoretical speculation without a clear specification of the economic facts one is trying to explain or the social and political problems one is trying to resolve.  The new methods often lead to a neglect of history and of the fact that historical experience remains our principal source of knowledge."

Factors driving Piketty’s recent popularity likely include:
  1. broad based concerns about income inequality within many developed regions, 
  2. the level of detail supporting his data driven approach and 
  3. the potential for increased income inequality in the future.  
Other challenges that society must confront include 
  1. the impact that technology can have on the value of human capital and the displacement of workers, 
  2. the impact of globalization which has reallocated capital to developing regions, 
  3. the negative impact of immigration restrictions on population growth in developed regions and 
  4. the diminished role of organized labor.  
While Piketty’s view of the future may be negative, it may also serve as a catalyst for policy makers, business leaders and citizens to consider alternative paths for the future.   

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