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The Economics of Inequality
Thomas Piketty―whose Capital in the Twenty-First Century pushed inequality to the forefront of public debate―wrote The Economics of Inequality as an introduction to the conceptual and factual background necessary for interpreting changes in economic inequality over time. This concise text has established itself as an indispensable guide for students and general readers in France, where it has been regularly updated and revised. Translated by Arthur Goldhammer, The Economics of Inequality now appears in English for the first time.
Piketty begins by explaining how inequality evolves and how economists measure it. In subsequent chapters, he explores variances in income and ownership of capital and the variety of policies used to reduce these gaps. Along the way, with characteristic clarity and precision, he introduces key ideas about the relationship between labor and capital, the effects of different systems of taxation, the distinction between “historical” and “political” time, the impact of education and technological change, the nature of capital markets, the role of unions, and apparent tensions between the pursuit of efficiency and the pursuit of fairness.
Succinct, accessible, and authoritative, this is the ideal place to start for those who want to understand the fundamental issues at the heart of one of the most pressing concerns in contemporary economics and politics.
Piketty begins by explaining how inequality evolves and how economists measure it. In subsequent chapters, he explores variances in income and ownership of capital and the variety of policies used to reduce these gaps. Along the way, with characteristic clarity and precision, he introduces key ideas about the relationship between labor and capital, the effects of different systems of taxation, the distinction between “historical” and “political” time, the impact of education and technological change, the nature of capital markets, the role of unions, and apparent tensions between the pursuit of efficiency and the pursuit of fairness.
Succinct, accessible, and authoritative, this is the ideal place to start for those who want to understand the fundamental issues at the heart of one of the most pressing concerns in contemporary economics and politics.
160 pages, Hardcover
First published January 1, 1997
About the author
Thomas Piketty
76 books2,012 followersThomas Piketty (French: [tɔma pikɛti]; born May 7, 1971) is a French economist who works on wealth and income inequality. He is the director of studies at the École des hautes études en sciences sociales (EHESS) and professor at the Paris School of Economics. He is the author of the best selling book Capital in the Twenty-First Century (2013), which emphasizes the themes of his work on wealth concentrations and distribution over the past 250 years. The book argues that the rate of capital return in developed countries is persistently greater than the rate of economic growth, and that this will cause wealth inequality to increase in the future. To address this problem, he proposes redistribution through a global tax on wealth.
Piketty was born on May 7, 1971, in the Parisian suburb of Clichy. He gained a C-stream (scientific) Baccalauréat, and after taking scientific preparatory classes, he entered the École Normale Supérieure (ENS) at the age of 18, where he studied mathematics and economics. At the age of 22, Piketty was awarded his Ph.D. for a thesis on wealth redistribution, which he wrote at the EHESS and the London School of Economics under Roger Guesnerie.
After earning his PhD, Piketty taught from 1993 to 1995 as an assistant professor in the Department of Economics at the Massachusetts Institute of Technology. In 1995, he joined the French National Centre for Scientific Research (CNRS) as a researcher, and in 2000 he became director of studies at EHESS.
Piketty won the 2002 prize for the best young economist in France, and according to a list dated November 11, 2003, he is a member of the scientific orientation board of the association "À gauche, en Europe", founded by Michel Rocard and Dominique Strauss-Kahn.
In 2006 Piketty became the first head of the Paris School of Economics, which he helped set up. He left after a few months to serve as an economic advisor to Socialist Party candidate Ségolène Royal during the French presidential campaign. Piketty resumed teaching at the Paris School of Economics in 2007.
He is a columnist for the French newspaper Libération, and occasionally writes op-eds for Le Monde.
In April 2012, Piketty co-authored along with 42 colleagues an open letter in support of then-PS candidate for the French presidency François Hollande. Hollande won the contest against the incumbent Nicolas Sarkozy in May of that year.
In 2013, Piketty won the biennial Yrjö Jahnsson Award, for the economist under age 45 who has "made a contribution in theoretical and applied research that is significant to the study of economics in Europe."
Piketty specializes in economic inequality, taking a historic and statistical approach. His work looks at the rate of capital accumulation in relation to economic growth over a two hundred year spread from the nineteenth century to the present. His novel use of tax records enabled him to gather data on the very top economic elite, who had previously been understudied, and to ascertain their rate of accumulation of wealth and how this compared to the rest of society and economy. His most recent book, Capital in the Twenty-First Century, relies on economic data going back 250 years to show that an ever-rising concentration of wealth is not self-correcting. To address this problem, he proposes redistribution through a global tax on wealth.
Piketty was born on May 7, 1971, in the Parisian suburb of Clichy. He gained a C-stream (scientific) Baccalauréat, and after taking scientific preparatory classes, he entered the École Normale Supérieure (ENS) at the age of 18, where he studied mathematics and economics. At the age of 22, Piketty was awarded his Ph.D. for a thesis on wealth redistribution, which he wrote at the EHESS and the London School of Economics under Roger Guesnerie.
After earning his PhD, Piketty taught from 1993 to 1995 as an assistant professor in the Department of Economics at the Massachusetts Institute of Technology. In 1995, he joined the French National Centre for Scientific Research (CNRS) as a researcher, and in 2000 he became director of studies at EHESS.
Piketty won the 2002 prize for the best young economist in France, and according to a list dated November 11, 2003, he is a member of the scientific orientation board of the association "À gauche, en Europe", founded by Michel Rocard and Dominique Strauss-Kahn.
In 2006 Piketty became the first head of the Paris School of Economics, which he helped set up. He left after a few months to serve as an economic advisor to Socialist Party candidate Ségolène Royal during the French presidential campaign. Piketty resumed teaching at the Paris School of Economics in 2007.
He is a columnist for the French newspaper Libération, and occasionally writes op-eds for Le Monde.
In April 2012, Piketty co-authored along with 42 colleagues an open letter in support of then-PS candidate for the French presidency François Hollande. Hollande won the contest against the incumbent Nicolas Sarkozy in May of that year.
In 2013, Piketty won the biennial Yrjö Jahnsson Award, for the economist under age 45 who has "made a contribution in theoretical and applied research that is significant to the study of economics in Europe."
Piketty specializes in economic inequality, taking a historic and statistical approach. His work looks at the rate of capital accumulation in relation to economic growth over a two hundred year spread from the nineteenth century to the present. His novel use of tax records enabled him to gather data on the very top economic elite, who had previously been understudied, and to ascertain their rate of accumulation of wealth and how this compared to the rest of society and economy. His most recent book, Capital in the Twenty-First Century, relies on economic data going back 250 years to show that an ever-rising concentration of wealth is not self-correcting. To address this problem, he proposes redistribution through a global tax on wealth.
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Displaying 1 - 30 of 148 reviews
December 17, 2016
"Is the unequal distribution of wealth among individuals and countries not only unjust but also inefficient, because it reproduces itself by limiting the ability of the poor to invest and thus close the gap between themselves and the rich? If so, how can capital be efficiently redistributed?"
-- Thomas Piketty, The Economics of Inequality
Piketty wrote this book ten years before (2004) Piketty wrote his famous book Capital in the Twenty-First Century (2014) [My Review of Capital]. In this book Piketty outlines many of the economic arguments concerning economic inequality (primarily income, wage, capital) and discusses many of the different potential approaches used to combat it. He also explores not just the moral challenges of a society with high levels of income inequality (stability, etc), but also explore ideas surrounding whether high levels of income inequality is efficient economically. Some of the ideas he explored heavily in Capital in the 21st Century are seen as seeds here (flat tax on capital, etc). He isn't looking to burn capitalism down, rather he is pointing to the need to "analyze the reasons for labor income inequality. The point of such analysis is to determine what kinds of redistributive instruments might combat it. The goal is no longer to abolish private ownership of capital, tax profits, or redistribute wealth. The instruments suitable for dealing with labor income inequality go by other names: taxation of top incomes and fiscal transfers to those with lower incomes; policies to improve education and training; minimum wages; and measures to prevent employment discrimination, strengthen unions, and establish wage schedules, to name of few."
His goal with this book is to determine which of those policies/taxes above are the most justifiable morally and economically, what arguments are used to justify them or reject them, and how do we evaluate those arguments.
-- Thomas Piketty, The Economics of Inequality
Piketty wrote this book ten years before (2004) Piketty wrote his famous book Capital in the Twenty-First Century (2014) [My Review of Capital]. In this book Piketty outlines many of the economic arguments concerning economic inequality (primarily income, wage, capital) and discusses many of the different potential approaches used to combat it. He also explores not just the moral challenges of a society with high levels of income inequality (stability, etc), but also explore ideas surrounding whether high levels of income inequality is efficient economically. Some of the ideas he explored heavily in Capital in the 21st Century are seen as seeds here (flat tax on capital, etc). He isn't looking to burn capitalism down, rather he is pointing to the need to "analyze the reasons for labor income inequality. The point of such analysis is to determine what kinds of redistributive instruments might combat it. The goal is no longer to abolish private ownership of capital, tax profits, or redistribute wealth. The instruments suitable for dealing with labor income inequality go by other names: taxation of top incomes and fiscal transfers to those with lower incomes; policies to improve education and training; minimum wages; and measures to prevent employment discrimination, strengthen unions, and establish wage schedules, to name of few."
His goal with this book is to determine which of those policies/taxes above are the most justifiable morally and economically, what arguments are used to justify them or reject them, and how do we evaluate those arguments.
August 1, 2015
A nice little primer which has finally been translated from the French on the back of the stunning success of Capital in the Twenty-First Century. The thesis of the book is actually very simple. Having established that there is, and always has been, a need for an ongoing transfer of capital from the capitalist to the worker, Piketty asks: Which is better, fiscal or direct redistribution? Direct redistribution is making the capitalist give up his wealth to the worker, through increases in the minimum wages etc, whilst fiscal redistribution is the state taking the money from the capitalist and giving it to the worker through benefits, pensions and other welfare payments.
Most people would have thought this was an obvious choice. Raise the minimum wage and cut welfare payments. Why have the state as a costly and blundering middleman? For Piketty the answer is not so clear cut. Fiscal redistribution, through taxing profits, breaks the link between the the labour market and taxes paid by the employer. An increase in the minimum wage or payroll taxes can be counteracted by the employer either lowering wages or sacking workers (and thus counteracting the effect of the wage hike). By raiding profits the capitalist cannot reduce his liabilities though moving to less labour intensive modes of business. In fact, if he increases his profits by doing so he will just pay more tax. The money can then be redistributed to the worker through welfare payments.
There is unfortunately a slight problem with all this. The labour market no longer functions as a closed system in which, say, French workers compete with other French workers for jobs. In the modern globalised world they compete with German workers, and British Workers and Slovakian workers and even Chinese and Vietnamese workers. The restriction of the elasticity of the labour market in France is only effective if the capitalist cannot seek to reestablish his ability to respond to high business costs by shedding labour by moving to a place where he can do just that. In practice this is called taking your factory to Indonesia or Mexico.
Piketty is well aware of this (he isn't stupid) and concedes that there would be a degree of international cooperation required. In this we can see the same flaw which is more fully developed in Capital, his plan is utopian. It requires the unilateral surrender of comparative advantage by nations who exploit the fact that they (in the case of many developing nations, on of the few they have.) Having secured this miracle, Piketty would then have us use this to coordinate a tax upon the profits of corporations to allow the adequate funding of social transfers whilst protecting employees from the wrath employers. Isn't that a bit boring? If you have managed to secure this international cooperation is this really what you would do with it? Is not installing a more benevolent class of capitalists, or nationalising the global means of production not a better and more radical project?
This critique is not as problematic as it is in Capital but it is on the horizon. But that is not why this book is important. This translation is timely because we find ourselves in the midst of this very question. George Osborne is hell bent on removing the low-wage high tax credit economy with a high wage low tax credit one. At the moment the debate rages about whether the new level of the minimum wage will compensate for the loss of taxpayer support for low earners. Completely absent from the current discourse is the question of whether the change is a good idea in the first place. Piketty investigates these questions in this readable interesting little tome, it should be read by all and the issues he raises should inform our debate.
Most people would have thought this was an obvious choice. Raise the minimum wage and cut welfare payments. Why have the state as a costly and blundering middleman? For Piketty the answer is not so clear cut. Fiscal redistribution, through taxing profits, breaks the link between the the labour market and taxes paid by the employer. An increase in the minimum wage or payroll taxes can be counteracted by the employer either lowering wages or sacking workers (and thus counteracting the effect of the wage hike). By raiding profits the capitalist cannot reduce his liabilities though moving to less labour intensive modes of business. In fact, if he increases his profits by doing so he will just pay more tax. The money can then be redistributed to the worker through welfare payments.
There is unfortunately a slight problem with all this. The labour market no longer functions as a closed system in which, say, French workers compete with other French workers for jobs. In the modern globalised world they compete with German workers, and British Workers and Slovakian workers and even Chinese and Vietnamese workers. The restriction of the elasticity of the labour market in France is only effective if the capitalist cannot seek to reestablish his ability to respond to high business costs by shedding labour by moving to a place where he can do just that. In practice this is called taking your factory to Indonesia or Mexico.
Piketty is well aware of this (he isn't stupid) and concedes that there would be a degree of international cooperation required. In this we can see the same flaw which is more fully developed in Capital, his plan is utopian. It requires the unilateral surrender of comparative advantage by nations who exploit the fact that they (in the case of many developing nations, on of the few they have.) Having secured this miracle, Piketty would then have us use this to coordinate a tax upon the profits of corporations to allow the adequate funding of social transfers whilst protecting employees from the wrath employers. Isn't that a bit boring? If you have managed to secure this international cooperation is this really what you would do with it? Is not installing a more benevolent class of capitalists, or nationalising the global means of production not a better and more radical project?
This critique is not as problematic as it is in Capital but it is on the horizon. But that is not why this book is important. This translation is timely because we find ourselves in the midst of this very question. George Osborne is hell bent on removing the low-wage high tax credit economy with a high wage low tax credit one. At the moment the debate rages about whether the new level of the minimum wage will compensate for the loss of taxpayer support for low earners. Completely absent from the current discourse is the question of whether the change is a good idea in the first place. Piketty investigates these questions in this readable interesting little tome, it should be read by all and the issues he raises should inform our debate.
January 20, 2016
Interesting. It was very technical though. If you don't have a basic grasp of economic concepts don't bother reading this.
January 11, 2016
Dry.
Unemployment is a misleading statistic due to the way it is defined (people actively looking for work). It thus excludes the entire prison population (which is about 1% of labour force in the US).
It also does not account for those who would enter the labour market if a suitable job presented itself.
Fiscal redistribution makes it possible for firms to separate the price they pay for labour from the price that workers charge for their services and thus preserve the allocative role of the price system while still redistributing income.
The only way to redistribute income from capital to labour is to tax capital.
A substantial portion of inequality is due to unequal distribution of human capital and education levels, which reduces the return on investment of an additional unit of capital.
The right-wing view that improvements in standard of living can come only from growth and not from redistribution holds true only in the long run.
Unlike capital, labour can integrate itself into the production process. Agriculture is the only realm in which direct redistribution of capital has met with tangible success.
Compulsory elementary education is no doubt the most important of all instruments for efficient redistribution.
The effects of school and neighbourhood social environment are greater than those of educational spending per se.
It will probably have more effect to send a child to a high performing prep school rather than a highly trained teacher to a difficult neighbourhood school.
If it is widely believed that the members of certain groups are unlikely to succeed, they will be discouraged from trying.
The imperfection of intertemporal markets may also justify public pension systems. (Yay CPF)
Public higher education might end up redistributing from low earners to high earners.
Unemployment is a misleading statistic due to the way it is defined (people actively looking for work). It thus excludes the entire prison population (which is about 1% of labour force in the US).
It also does not account for those who would enter the labour market if a suitable job presented itself.
Fiscal redistribution makes it possible for firms to separate the price they pay for labour from the price that workers charge for their services and thus preserve the allocative role of the price system while still redistributing income.
The only way to redistribute income from capital to labour is to tax capital.
A substantial portion of inequality is due to unequal distribution of human capital and education levels, which reduces the return on investment of an additional unit of capital.
The right-wing view that improvements in standard of living can come only from growth and not from redistribution holds true only in the long run.
Unlike capital, labour can integrate itself into the production process. Agriculture is the only realm in which direct redistribution of capital has met with tangible success.
Compulsory elementary education is no doubt the most important of all instruments for efficient redistribution.
The effects of school and neighbourhood social environment are greater than those of educational spending per se.
It will probably have more effect to send a child to a high performing prep school rather than a highly trained teacher to a difficult neighbourhood school.
If it is widely believed that the members of certain groups are unlikely to succeed, they will be discouraged from trying.
The imperfection of intertemporal markets may also justify public pension systems. (Yay CPF)
Public higher education might end up redistributing from low earners to high earners.
March 1, 2021
Trudna, pełna liczb i tabel. Zdecydowanie nie dla laików. Pełna szczegółów i solidna. Tabele słabo się formatują na czytniku, zatem zapewne lepiej czytać na papierze.
January 5, 2017
This is a short book by Piketty that provides the basic arguments about inequality behind his "Capital in the 21st Century". It is not the full argument and lacks the huge data presentations in the larger work - or some of the later arguments. This is actually good for those trying to follow what Piketty is trying to do about inequality - but if you are not comfortable with economic terminology and arguments, have some reference handy to follow the story. It is worth following.
The book covers the idea of inequality and its origins in the US and Western nations. The economic bases of inequality in the economics of capital-labor relations and the various choices of employers and government taxing and redistributive authorities. The final chapter discusses various options open to governments for dealing with inequality as a social issue and as an impediment to economic growth. This is especially relevant at a time when the US is again looking at retooling its health care and related regulations and looking for various options for crafting some sort of replacement.
These issues are complex and do not lend themselves to cheap overhyped slogans such as are common in election campaigns. Piketty's arguments may help make sense of these changes. If this volume will get readers to read Piketty's later work, that is also a good result.
The book covers the idea of inequality and its origins in the US and Western nations. The economic bases of inequality in the economics of capital-labor relations and the various choices of employers and government taxing and redistributive authorities. The final chapter discusses various options open to governments for dealing with inequality as a social issue and as an impediment to economic growth. This is especially relevant at a time when the US is again looking at retooling its health care and related regulations and looking for various options for crafting some sort of replacement.
These issues are complex and do not lend themselves to cheap overhyped slogans such as are common in election campaigns. Piketty's arguments may help make sense of these changes. If this volume will get readers to read Piketty's later work, that is also a good result.
Read
May 6, 2021This book gets points for its beautiful bright orangey-red cover and intriguing title, but to be honest I don't think I understood a single word. Not sure if this is because I am not an economist, or because it's a translated book (I hate translated books- I've yet to read one where the translation is fluid and natural). At least it's not another neoliberal read to the likes of uncle milty or great uncle hayek...
August 2, 2016
This is a fairly technical book that may be best appreciated by those with a background in economics, although the determined layperson may also be rewarded with interesting insights the author has gleaned from masses of economic data, tracing the evolution of economic inequality in the West from the 19th Century to the present.
The author demonstrates the extent of income inequality but, according to my understanding of the volume, doesn't necessarily recommend a drastic increase in the minimum wage to correct it. Instead, he suggests other avenues of approaching the problem. He says if taxes are increased on the better-off, and especially if tax loopholes are fixed and the system of moving revenue around the world to evade taxation (which he says would only be possible under a federal, perhaps world/federal system) then there could be more benefits transfers to the less well-off. If the minimum wage is raised, he says jobs will disappear - or, business will simply automate. He basically says low-wage jobs are almost expendable, liable to automation, but high-wage positions, such as in the computer industry, which bring (presumably) more value to a business, are not.
He discusses the sources of inequality, and various theories that have been advanced through the years to explain it. He says the family is key to developing human capital - the influence and care of family cannot be understated, which explains why money poured into schools does not always result in better outcomes. He says school mates are likewise extremely important - that social/racial mixing in schools does result in better outcomes for the under-privileged, in fact, it's more important than money poured into schools. He identifies these two "intangibles" that cannot be purchased as being key to the future success of the student: Family environment - that is, if there were books in the house, if the parents converse with the child, and I suppose if a high value is placed on learning, if the family expects the child to carry on the same standard of living going forward (a value that is obviously instilled into children in the better-off families) - and school environment, if the student learns alongside and socializes with better-off students. Both of these factors build up human capital, perhaps an intangible quality of becoming interested in learning, studying, succeeding, which cannot be "purchased" or added to failing schools by money alone. He correctly dismisses "racist" explanations for the divergence of academic achievement, by pointing out that in cases of identical twins from under-privileged mothers, the twin adopted by an affluent family succeeds just as much as the natural-born children of the affluent mother, whereas the twin adopted by a less-affluent family will succeed on the same level as the natural-born children of the less-affluent mother. The conclusion is that everyone is the same; race is a myth - it's intangibles such as the value placed on books/learning/succeeding in the home, as well as the influence of school mates, that determines outcome.
He covers many more interesting ideas - such as the concept that "only the rich can borrow money" - given that they already have money, can more or less "guarantee" the repayment of a loan, which leads to doors closing for moderate-income individuals who may wish to invest or start a business.
I read most of this book in one day - so it is relatively easy to read. However, there is much technical information and I have to admit I fell asleep a couple of times reading it. The author has received much attention the past few years, perhaps some see his works as the most up-to-date books on economics, that even the layperson can understand. Yes, the layperson can understand his books (or at least the book under discussion) and there are many interesting insights contained in his works, but in general, the prose doesn't "flow" (possibly because the work is translated from the French) and the text is on the dry, technical side; I would have appreciated more real-life examples to illustrate his theses, or even show how the statistics/tables play out ,or have played out, in real life. That's why I gave the book three stars; I appreciate the work that went into it, and the masses of data, and review of articles, that the author undertook, and the insights he gained which he is now sharing with the reader in his own book. However, this book requires patience and a commitment to getting an idea of the author's findings. It is not an easy read, although it can be read easily enough.
The author demonstrates the extent of income inequality but, according to my understanding of the volume, doesn't necessarily recommend a drastic increase in the minimum wage to correct it. Instead, he suggests other avenues of approaching the problem. He says if taxes are increased on the better-off, and especially if tax loopholes are fixed and the system of moving revenue around the world to evade taxation (which he says would only be possible under a federal, perhaps world/federal system) then there could be more benefits transfers to the less well-off. If the minimum wage is raised, he says jobs will disappear - or, business will simply automate. He basically says low-wage jobs are almost expendable, liable to automation, but high-wage positions, such as in the computer industry, which bring (presumably) more value to a business, are not.
He discusses the sources of inequality, and various theories that have been advanced through the years to explain it. He says the family is key to developing human capital - the influence and care of family cannot be understated, which explains why money poured into schools does not always result in better outcomes. He says school mates are likewise extremely important - that social/racial mixing in schools does result in better outcomes for the under-privileged, in fact, it's more important than money poured into schools. He identifies these two "intangibles" that cannot be purchased as being key to the future success of the student: Family environment - that is, if there were books in the house, if the parents converse with the child, and I suppose if a high value is placed on learning, if the family expects the child to carry on the same standard of living going forward (a value that is obviously instilled into children in the better-off families) - and school environment, if the student learns alongside and socializes with better-off students. Both of these factors build up human capital, perhaps an intangible quality of becoming interested in learning, studying, succeeding, which cannot be "purchased" or added to failing schools by money alone. He correctly dismisses "racist" explanations for the divergence of academic achievement, by pointing out that in cases of identical twins from under-privileged mothers, the twin adopted by an affluent family succeeds just as much as the natural-born children of the affluent mother, whereas the twin adopted by a less-affluent family will succeed on the same level as the natural-born children of the less-affluent mother. The conclusion is that everyone is the same; race is a myth - it's intangibles such as the value placed on books/learning/succeeding in the home, as well as the influence of school mates, that determines outcome.
He covers many more interesting ideas - such as the concept that "only the rich can borrow money" - given that they already have money, can more or less "guarantee" the repayment of a loan, which leads to doors closing for moderate-income individuals who may wish to invest or start a business.
I read most of this book in one day - so it is relatively easy to read. However, there is much technical information and I have to admit I fell asleep a couple of times reading it. The author has received much attention the past few years, perhaps some see his works as the most up-to-date books on economics, that even the layperson can understand. Yes, the layperson can understand his books (or at least the book under discussion) and there are many interesting insights contained in his works, but in general, the prose doesn't "flow" (possibly because the work is translated from the French) and the text is on the dry, technical side; I would have appreciated more real-life examples to illustrate his theses, or even show how the statistics/tables play out ,or have played out, in real life. That's why I gave the book three stars; I appreciate the work that went into it, and the masses of data, and review of articles, that the author undertook, and the insights he gained which he is now sharing with the reader in his own book. However, this book requires patience and a commitment to getting an idea of the author's findings. It is not an easy read, although it can be read easily enough.
June 2, 2020
Too short to contain any information of value but too technical to be anything of a good read, this is the kind of book that's meant to be assigned to and read in class.
There is no narrative through line: it's just 120 pages of 'here's a new concept'
TLDR: tax the rich
There is no narrative through line: it's just 120 pages of 'here's a new concept'
TLDR: tax the rich
March 12, 2020
A good clear and concise book that lays the groundwork for understanding the deficiencies of the capitalist system that leads to inequality. Along the way this book explores technology, education, discrimination and politics at a surface level and how the contribute to inequality.
Although it provides a solid framework for understanding the subject of economic inequality it doesn’t do much more than that for the reader. Further reading would be needed to form a deeper understanding of the economics of inequality.
Personally economics is very dry to read. I would recommend this only if you are interested in economics or our society’s economic health.
Although it provides a solid framework for understanding the subject of economic inequality it doesn’t do much more than that for the reader. Further reading would be needed to form a deeper understanding of the economics of inequality.
Personally economics is very dry to read. I would recommend this only if you are interested in economics or our society’s economic health.
February 13, 2020
In this short, yet wide-ranging and dense book, Thomas Piketty sets himself to offer a concise summary of the themes that have shaped his research program, and later reappear in his magnum opus, Capital in the 21st Century. He divides the book into three distinct sections.
In the first one, he looks at the historical evolution of economic inequality in the Western World. A highly reductive summary would be as followed: The era of the Industrial Revolution was explosive in regards to inequality; Despite the unprecedented technological advances and rise in worker productivity, the fruits of early industrialisation was barely enjoyed by the rising proletariat. This was most evident in Britain, where working-class wages stagnated for much of the first half of the 19th Century, a phenomenon known now known as the Engels' pause. This led Karl Marx to see increasing inequality and dwindling wages as a natural consequence of the logic of capitalism, one which would ultimately result in its own demise.
To Marx's surprise, however, this was not to continue for long. "In the 1890s Eduard Bernstein insisted that Marx’s proletarianization thesis did not hold because the social structure was clearly becoming more diverse and wealth was spreading to ever broader segments of society". Exogenous shocks, such as the two World Wars and the Great Depression, fueled this reversal in inequality trends. Although no such shocks can be observed in the immediate post-war era, Western societies continued in an egalitarian direction. Why? Piketty attributes it to a "fiscal revolution":
At last, somewhere around the 1980s, another turn came. A combination of structural forces, e.g. Globalisation, and upheavals in policymaking, exemplified by the dismantling of the post-war welfare states by Reagan and Thatcher, brought about another era of sharply rising inequalities. To call our current state of affairs the new Gilded Age would not go amiss.
It is by no means surprising that an increase in social ills was to follow this "free-market" revolution. A disturbing one, mentioned by Piketty in the book, is the surge in prison population.
The second section of the book is devoted to the main mechanisms behind economic inequalities in capitalist societies, namely the labour-capital split, and income inequality. Piketty, for the most part, emphasizes the impact of the latter in this book, as labour share of income held constant at around two-thirds of the GDP in much of the developed economies during the 20th century. Given that it was written in 2004, however, this is an aspect of the book that feels quite dated, as labour share of income has been in freefall in the last ~20 years; In the US, for instance, it has gone down from 62.5% to 56.5% between 2002 and 2016.
To classical economists, like David Ricardo and Karl Marx, the division of income between labour and capital was a purely distributional conflict, one that would not have any effect on the level of employment or output. This is based on the assumption that "the technology that allows the nation to produce from available quantities of capital and labor is characterized by what economists call fixed coefficients: in order to produce 1 unit of output, exactly 1 unit of capital and n units of labor are required".
This assumption was challenged by marginalist economists in the 1870s, who pointed out the possibility of substitution between labour and capital, emphasizing the allocative rule of prices. For instance, when a government tries to improve the living conditions of low-wage workers by increasing the minimum wage, firms might respond by replacing workers with capital-intensive machinery and thus decrease labour share of income. If true, this has important implications for policymakers interested in redistributing capital income; They can either directly intervene in the wage-setting process, by imposing a minimum wage or empowering unions, or use fiscal methods, by taxing firm profits and then redistributing it through transfers to workers. The latter, unlike the former, does not distort market prices, and subsequently will not adversely impact employment. Fiscal redistribution thus seems to be more efficient and should be favoured over labour market interventions, at least on paper.
By looking at the historical data, however, the answer is not so obvious, Piketty proclaims. Firstly, although long-term wage increases can only be explained by the increases in productivity, the same is not is true in the short and medium-term (10-20 years). The periods with the fastest wage growths tend to coincide with higher labour militancy and union density.
In comparison, never in history did a program of fiscal redistribution manage to increase labour share of income by 10%.
Other rationales exist to justify direct redistribute measures, too. In the presence of information asymmetries between employers and employees, and/or monopsony power of employees, it would be possible for firms to abuse their power and pay inefficient wages. In such situations, unions and minimum wages would not only help workers to earn higher wages, but also increase the efficiency of market outcomes. This is probably among the key reasons why minimum wage hikes have had no negative impact on the level of employment in the US.
The last section of the book deals with the subject of instruments of redistribution. By the 1980s, it became fashionable to argue in the US that high marginal tax rates on the rich disincentivise work, so much so that a tax cut would increase, not decrease, government revenues. Proponents of this idea, such as Arthur Laffer, finally won the day and "the top marginal income tax rate was progressively reduced from 70 percent in the late 1970s to 28 percent in 1986". The tax receipts, predictably, ended up becoming much smaller, and the deficit and the debt ballooned under Reagan. Later estimates found that the impact of tax cuts on the supply of labour was in fact minuscule.
Overall, despite the dry style of writing, this book provides a great survey of the inequality literature of the 20th century and is very much worth reading.
In the first one, he looks at the historical evolution of economic inequality in the Western World. A highly reductive summary would be as followed: The era of the Industrial Revolution was explosive in regards to inequality; Despite the unprecedented technological advances and rise in worker productivity, the fruits of early industrialisation was barely enjoyed by the rising proletariat. This was most evident in Britain, where working-class wages stagnated for much of the first half of the 19th Century, a phenomenon known now known as the Engels' pause. This led Karl Marx to see increasing inequality and dwindling wages as a natural consequence of the logic of capitalism, one which would ultimately result in its own demise.
To Marx's surprise, however, this was not to continue for long. "In the 1890s Eduard Bernstein insisted that Marx’s proletarianization thesis did not hold because the social structure was clearly becoming more diverse and wealth was spreading to ever broader segments of society". Exogenous shocks, such as the two World Wars and the Great Depression, fueled this reversal in inequality trends. Although no such shocks can be observed in the immediate post-war era, Western societies continued in an egalitarian direction. Why? Piketty attributes it to a "fiscal revolution":
The concentration of wealth and capital income did not return to the astronomical level achieved on the eve of World War I, however. The most likely explanation involves the fiscal revolution of the twentieth century. The impact of the progressive income tax (created in France in 1914) and the progressive estate tax (created in 1901) on the accumulation and reconstitution of large fortunes seems to have prevented a return to nineteenth-century rentier society. If contemporary societies have become societies of managers—that is, societies in which the top of the income distribution is dominated by the “working rich” (people who live mainly on their labor income rather than on income derived from capital accumulated in the past), it is primarily a consequence of particular historical circumstances and institutions.
At last, somewhere around the 1980s, another turn came. A combination of structural forces, e.g. Globalisation, and upheavals in policymaking, exemplified by the dismantling of the post-war welfare states by Reagan and Thatcher, brought about another era of sharply rising inequalities. To call our current state of affairs the new Gilded Age would not go amiss.
It is by no means surprising that an increase in social ills was to follow this "free-market" revolution. A disturbing one, mentioned by Piketty in the book, is the surge in prison population.
In the United States, for example, there has been a substantial withdrawal of less-skilled individuals from the labor market (and from the group of people classified in official statistics as “actively seeking work”) since the 1970s. This is entirely due to the collapse of low-wage employment opportunities (Juhn et al., 1991; Topel, 1993). Many people of working age have thus found themselves excluded from the labor market, yet they are not counted in unemployment statistics. One striking manifestation of this can be seen in the impressive increase of the prison population. In 1995, 1.5 million individuals were incarcerated in US prisons, compared with 500,000 in 1980; it is estimated that 2.4 million will be incarcerated in 2000 (Freeman, 1996). This aspect of underemployment, entirely neglected in official unemployment statistics, is not a minor matter, since these 1.5 million prisoners represented 1.5 percent of the US working age population in 1995.
The second section of the book is devoted to the main mechanisms behind economic inequalities in capitalist societies, namely the labour-capital split, and income inequality. Piketty, for the most part, emphasizes the impact of the latter in this book, as labour share of income held constant at around two-thirds of the GDP in much of the developed economies during the 20th century. Given that it was written in 2004, however, this is an aspect of the book that feels quite dated, as labour share of income has been in freefall in the last ~20 years; In the US, for instance, it has gone down from 62.5% to 56.5% between 2002 and 2016.
To classical economists, like David Ricardo and Karl Marx, the division of income between labour and capital was a purely distributional conflict, one that would not have any effect on the level of employment or output. This is based on the assumption that "the technology that allows the nation to produce from available quantities of capital and labor is characterized by what economists call fixed coefficients: in order to produce 1 unit of output, exactly 1 unit of capital and n units of labor are required".
This assumption was challenged by marginalist economists in the 1870s, who pointed out the possibility of substitution between labour and capital, emphasizing the allocative rule of prices. For instance, when a government tries to improve the living conditions of low-wage workers by increasing the minimum wage, firms might respond by replacing workers with capital-intensive machinery and thus decrease labour share of income. If true, this has important implications for policymakers interested in redistributing capital income; They can either directly intervene in the wage-setting process, by imposing a minimum wage or empowering unions, or use fiscal methods, by taxing firm profits and then redistributing it through transfers to workers. The latter, unlike the former, does not distort market prices, and subsequently will not adversely impact employment. Fiscal redistribution thus seems to be more efficient and should be favoured over labour market interventions, at least on paper.
By looking at the historical data, however, the answer is not so obvious, Piketty proclaims. Firstly, although long-term wage increases can only be explained by the increases in productivity, the same is not is true in the short and medium-term (10-20 years). The periods with the fastest wage growths tend to coincide with higher labour militancy and union density.
Although the wage share tended to increase in the 1970s, it was the profit share that increased in the 1980s and 1990s, in some cases substantially. These variations were widest in France, where the wage share was 66.4 percent in 1970, rising to 71.8 percent in 1981, then falling after 1982 to 62.4 percent in 1990 and 60.3 percent in 1995. How can we explain the fact that more than 5 percent of national income was redistributed from capital to labor between 1970 and 1982, while 10 percent went from labor to capital between 1983 and 1995?
It so happens that the first period coincides with a period of substantial wage increases inaugurated by the Grenelle Accords of 1968. Wages continued to improve in the 1970s owing to the influence of social movements and substantial increases in the minimum wage. The last major increment to the minimum wage occurred in 1981.
In comparison, never in history did a program of fiscal redistribution manage to increase labour share of income by 10%.
[F]iscal redistribution measures adopted by the Socialist government after it came to power in France in 1981, which were denounced at the time by the right as the height of “fiscal bludgeoning” and which consisted essentially of a wealth tax and a surtax on top income brackets, brought in less than 10 billion francs in 1981 (Nizet, 1990, pp. 402, 433), or 0.3 percent of national income. In theory, a government can achieve any level of redistribution it wants via taxes and transfers, but in practice, no transfer of comparable magnitude has been accomplished in so few years. Inevitably, therefore, workers think of and experience redistribution primarily in terms of social struggle and wage increases rather than fiscal reform and transfer payments.
Other rationales exist to justify direct redistribute measures, too. In the presence of information asymmetries between employers and employees, and/or monopsony power of employees, it would be possible for firms to abuse their power and pay inefficient wages. In such situations, unions and minimum wages would not only help workers to earn higher wages, but also increase the efficiency of market outcomes. This is probably among the key reasons why minimum wage hikes have had no negative impact on the level of employment in the US.
The last section of the book deals with the subject of instruments of redistribution. By the 1980s, it became fashionable to argue in the US that high marginal tax rates on the rich disincentivise work, so much so that a tax cut would increase, not decrease, government revenues. Proponents of this idea, such as Arthur Laffer, finally won the day and "the top marginal income tax rate was progressively reduced from 70 percent in the late 1970s to 28 percent in 1986". The tax receipts, predictably, ended up becoming much smaller, and the deficit and the debt ballooned under Reagan. Later estimates found that the impact of tax cuts on the supply of labour was in fact minuscule.
Overall, despite the dry style of writing, this book provides a great survey of the inequality literature of the 20th century and is very much worth reading.
May 17, 2015
The Economics of Inequality by Thomas Piketty is a brief introduction to the principles of inequality and some pertinent theories for its amelioration. In particular, it defines a clear picture of the nature of income inequality and capital inequality as the former began to observably increase in the 90s, the time at which the book was written.
Piketty writes very clearly, explaining advanced economic principles in an accessible and lucid prose. This is a great introduction to the subject of inequality at a level that encourages further indulgence in economic theory (and history, say, in Capital in the Twenty-First Century) or in the now popular conversation of remedial policy in the political sphere.
Of course it is impossible to write a review of this work in English (so, in 2015) without comparing this work to Capital in The Twenty-First Century. The Economics of Inequality is neither an introduction nor a summary to Capital. Capital in the Twenty-First Century is a sweeping, game changing, economic history of capital. It identifies inequality in its historical context. Conversely, The Economics of Inequality assumes inequality is a current issue, one that is undesired and possibly reflective of devolution in capitalism’s history. As such it is a socioeconomic issue to be addressed by more popular understanding, and policy changes.
It is clear from the tone of Economics that this is Piketty’s first sortie into ‘popular economics,’ which Capital essentially revolutionized for our times. As such Piketty’s writing is slightly less charming than in Capital, missing some of the wit and humility that was so well received. Beyond this Economics falls short of Capital’s uniquely insightful perspective, and Piketty’s enormous, and amazing research.
But don’t let a comparison decide the value of this work. To reiterate, independently it is a remarkably accessible work on an important subject. In fact, it would be ideal if this work had the same fanfare as Capital in The Twenty-First Century, if only because its scale and concision would likely have an even greater impact on the debate.
Piketty writes very clearly, explaining advanced economic principles in an accessible and lucid prose. This is a great introduction to the subject of inequality at a level that encourages further indulgence in economic theory (and history, say, in Capital in the Twenty-First Century) or in the now popular conversation of remedial policy in the political sphere.
Of course it is impossible to write a review of this work in English (so, in 2015) without comparing this work to Capital in The Twenty-First Century. The Economics of Inequality is neither an introduction nor a summary to Capital. Capital in the Twenty-First Century is a sweeping, game changing, economic history of capital. It identifies inequality in its historical context. Conversely, The Economics of Inequality assumes inequality is a current issue, one that is undesired and possibly reflective of devolution in capitalism’s history. As such it is a socioeconomic issue to be addressed by more popular understanding, and policy changes.
It is clear from the tone of Economics that this is Piketty’s first sortie into ‘popular economics,’ which Capital essentially revolutionized for our times. As such Piketty’s writing is slightly less charming than in Capital, missing some of the wit and humility that was so well received. Beyond this Economics falls short of Capital’s uniquely insightful perspective, and Piketty’s enormous, and amazing research.
But don’t let a comparison decide the value of this work. To reiterate, independently it is a remarkably accessible work on an important subject. In fact, it would be ideal if this work had the same fanfare as Capital in The Twenty-First Century, if only because its scale and concision would likely have an even greater impact on the debate.
January 22, 2021
This book offers a really shallow introduction to the macro- and microeconomics of inequality, ranging from concepts like pure and efficient redistribution to multifaceted discussions of capital/labour relations. Such a work is probably written for outsiders like me but personally, I feel that Piketty's brevity was rather insufficient in explaining clearly the multiple complex issues at hand; the pages are peppered with unsatisfactorily brief explorations of case studies and economic phenomena. In fact, I wonder if reading this book was actually useful at all -- sure, I learnt the definition of a few terms but other than that, I did not find myself reaching a clearer understanding of the economics of inequality, though that could be attributed to my not having studied economics formally.
Economics books intended for the general public should contain a balance of accessibility and nuance; The Economics of Inequality is superficially accessibly (little obfuscatory language and remarkable brevity) but it falls short in illuminating thoroughly the nuances of its complex subject.
Economics books intended for the general public should contain a balance of accessibility and nuance; The Economics of Inequality is superficially accessibly (little obfuscatory language and remarkable brevity) but it falls short in illuminating thoroughly the nuances of its complex subject.
June 26, 2018
Dense and intense historical and theoretical analysis on the evolution of inequality and the means employed to solve it. TP brings up several aspects that are considered the causes of inequality and digresses deeply on them, before going through as many different solutions, and whether they should succeed or even if governmental interference is worth the while.
It's not that easy of a read though condensed in a small book, but it brings insights to get free from common sense and build real knowledge on the matted.
It's not that easy of a read though condensed in a small book, but it brings insights to get free from common sense and build real knowledge on the matted.
August 19, 2016
Pink propaganda.
Shelved as 'dnf'
January 5, 2022DNF
Not for me unfortunately.
Not for me unfortunately.
September 12, 2020
Bom, eu já virei fã do Picketty faz um tempo. Eu assumo que não entendo absolutamente de economia ou Finanças do ponto de vista macro, ainda mais quando isso afeta a sociedade.
Nesse livro, o Picketty da uma aula profunda sobre diversas facetas da complexidade da desigualdade que existe na sociedade. Além disso, ele mostra como é ineficiente todas as soluções que existem, sejam iniciativas de esquerda ou direita... e esse é o que me torna fã do Picketty: ele não se coloca de nenhum dos lados ao explicar coisas complexas. Pelo contrário. Ele não analisa as ideologias, mas as soluções dadas, não importando o lado.
Nesse livro ele fala sobre aposentadorias, redistribuição de renda por meio de impostos, fala sobre salário mínimo e uma série de outros tópicos importantes.
Preciso ler de novo pra conseguir entender melhor esses detalhes, além de decorar umas partes pra contra argumentar com os espertinhos de esquerda e direita que se acham os donos da verdade. :-)
Nesse livro, o Picketty da uma aula profunda sobre diversas facetas da complexidade da desigualdade que existe na sociedade. Além disso, ele mostra como é ineficiente todas as soluções que existem, sejam iniciativas de esquerda ou direita... e esse é o que me torna fã do Picketty: ele não se coloca de nenhum dos lados ao explicar coisas complexas. Pelo contrário. Ele não analisa as ideologias, mas as soluções dadas, não importando o lado.
Nesse livro ele fala sobre aposentadorias, redistribuição de renda por meio de impostos, fala sobre salário mínimo e uma série de outros tópicos importantes.
Preciso ler de novo pra conseguir entender melhor esses detalhes, além de decorar umas partes pra contra argumentar com os espertinhos de esquerda e direita que se acham os donos da verdade. :-)
March 6, 2022
Language is very accessible, and it uses a lot of data before any sign of conclusions, which is a green flag!
I don't like that Piketty cites himself as much as he does, it feels very pretentious and makes me less prone to take him seriously sometimes.
I do like how strong the other citations are, though. This is extremely well based on literature and empirical research, and it makes some well-established economic theory way more palatable to someone like me, who doesn't enjoy macro theory that much.
I don't like that Piketty cites himself as much as he does, it feels very pretentious and makes me less prone to take him seriously sometimes.
I do like how strong the other citations are, though. This is extremely well based on literature and empirical research, and it makes some well-established economic theory way more palatable to someone like me, who doesn't enjoy macro theory that much.
July 6, 2021
U stilu ove knjige:
Ovo je najskuplja knjiga, po stranici, koju sam kupio od 1986. godine. Zato bi bilo dobro redistribuirati zvezdice u skladu sa medijanskom cenom knjige po stranici, u Srbiji od 2000. do 2021. godine*
Drugi faktor koji moramo razmotriti prilikom ove ocene je postojanje remek dela o istoj temi, istog autora, 20ak godina mladje. Dok je zabavno videti seme iz koga se razvilo to stablo, ipak je tesko pratiti suvu ekonomsku analizu bez primera i ilustracija.
* iako sam rodjen 86, kupujem knjige tek od 14. godine
Ovo je najskuplja knjiga, po stranici, koju sam kupio od 1986. godine. Zato bi bilo dobro redistribuirati zvezdice u skladu sa medijanskom cenom knjige po stranici, u Srbiji od 2000. do 2021. godine*
Drugi faktor koji moramo razmotriti prilikom ove ocene je postojanje remek dela o istoj temi, istog autora, 20ak godina mladje. Dok je zabavno videti seme iz koga se razvilo to stablo, ipak je tesko pratiti suvu ekonomsku analizu bez primera i ilustracija.
* iako sam rodjen 86, kupujem knjige tek od 14. godine
May 19, 2022
Good book. Talks about different redistribution mechanisms and how they've been used through history, brings up good points on what to do and what no to do.
Kind of a slow read because it gets pretty technical sometimes.
Kind of a slow read because it gets pretty technical sometimes.
December 14, 2019
Very thought provoking. Certainly Piketty has a World view he is promoting, but I found his summary of the aspects of the subject matter to be both clear and balanced.
July 16, 2022
Great overview of inequality over time and across countries. Too academic, but that is intentional.
March 18, 2023
Data yoğunluklu akademik bir yayın okuyormuş gibi hissettiriyor. Çok akıcı değil. Ekonomi kitaplarını çok sevmeme rağmen bu tam tatmin etmedi. Görüş ortaya koymaya korkar gibi yazmış. Fikri anlamda aklımda bir iz bırakmaması da garibime gitti.
May 19, 2021
Thomas Piketty a écrit ce livre quand il avait mon âge. Je n'ai plus rien à ajouter.
December 20, 2019
Back in 2016, Capital in the 21st Century dominated non-fiction bookshelves everywhere. I felt like I should be reading it as an incoming economics undergraduate, but I chickened out after weighing the 685-paged tome in my hands.
Recently, I found out that Piketty wrote a much shorter volume before Capital, as a sort of introduction. The Economic of Inequality painted, in broad strokes, the socioeconomic causes of inequality. The book was technical at times, but Piketty did a pretty good job of explaining himself clearly and carefully. And though the data used (mainly from France, US & UK) and theories discussed were somewhat outdated - this was first published in 2004 - I still found inspiration in many of Piketty's insights.
Piketty discussed economic inequality along several dimensions. For the capital/labour divide, he looked at data across time and across countries, and pointed out trends that correlated to specific fiscal or labour shocks (e.g. stronger labour union movements). He also analysed human capital inequality - the divide between skilled and unskilled workers - and critiqued theories like the "skilled-biased technological change" that were popularly used to explain wage inequality in the early 2000s. Policy measures like affirmative action and unions were evaluated, but redistribution policies made up the main bulk of his arguments.
Piketty distinguished between "direct" and "fiscal" redistribution. Direct redistribution occurs by increasing wages, either by increasing min wage or supporting union demand for higher wages. Fiscal redistribution depends on raising taxes on capital to finance a fiscal transfer to workers. Piketty found fiscal redistribution superior. The argument went like this:
Basically, redistribution by increasing wages increases labour costs to firms. This increases the relative cost of labour to capital. Assuming these 2 methods of production are substitutible, firms will decrease demand for workers and replace them with capital over time. Higher unemployment results. On the other hand, redistribution by tax on firm profits does not distort the relative cost of labour and capital, and thus preserves the role that prices pay in allocating production between labour and capital.
This was an "ah-ha!" moment for me because Piketty pointed out a caveat in economic policy-making that I would've missed. The key point is that it is not enough to judge a policy simply by the amount of redistribution and who pays: in both fiscal and direct redistribution, firms pay the social charges. Yet they are not alike. Some are more efficient than others, in the sense that they allow the same improvement in the standard of living of workers without decreasing the level of employment. In essence, it is important to consider the effects of the proposed redistribution on the economic system as a whole.
Overall, this was a quick, concise summary of the debates around economic inequality in the past century (albeit very Western-centric). Technical indeed, but still readable. Hopefully this will set me up to face the Capital beast in the near future!
Recently, I found out that Piketty wrote a much shorter volume before Capital, as a sort of introduction. The Economic of Inequality painted, in broad strokes, the socioeconomic causes of inequality. The book was technical at times, but Piketty did a pretty good job of explaining himself clearly and carefully. And though the data used (mainly from France, US & UK) and theories discussed were somewhat outdated - this was first published in 2004 - I still found inspiration in many of Piketty's insights.
Piketty discussed economic inequality along several dimensions. For the capital/labour divide, he looked at data across time and across countries, and pointed out trends that correlated to specific fiscal or labour shocks (e.g. stronger labour union movements). He also analysed human capital inequality - the divide between skilled and unskilled workers - and critiqued theories like the "skilled-biased technological change" that were popularly used to explain wage inequality in the early 2000s. Policy measures like affirmative action and unions were evaluated, but redistribution policies made up the main bulk of his arguments.
Piketty distinguished between "direct" and "fiscal" redistribution. Direct redistribution occurs by increasing wages, either by increasing min wage or supporting union demand for higher wages. Fiscal redistribution depends on raising taxes on capital to finance a fiscal transfer to workers. Piketty found fiscal redistribution superior. The argument went like this:
The essential difference between these two types of redistribution is that the contribution of firms is not calculated in the same way: direct redistribution requires firms to contribute to redistribution in proportion to the number of workers they employ, whereas fiscal redistribution requires firms to contribute only in proportion to their profits, no matter how much capital or labor they employ to produce those profits. Fiscal redistribution thus makes it possible to separate the price the firm pays for labor from the price that workers charge for their services and thus to preserve the allocative role of the price system while still redistributing income.
Basically, redistribution by increasing wages increases labour costs to firms. This increases the relative cost of labour to capital. Assuming these 2 methods of production are substitutible, firms will decrease demand for workers and replace them with capital over time. Higher unemployment results. On the other hand, redistribution by tax on firm profits does not distort the relative cost of labour and capital, and thus preserves the role that prices pay in allocating production between labour and capital.
This was an "ah-ha!" moment for me because Piketty pointed out a caveat in economic policy-making that I would've missed. The key point is that it is not enough to judge a policy simply by the amount of redistribution and who pays: in both fiscal and direct redistribution, firms pay the social charges. Yet they are not alike. Some are more efficient than others, in the sense that they allow the same improvement in the standard of living of workers without decreasing the level of employment. In essence, it is important to consider the effects of the proposed redistribution on the economic system as a whole.
Overall, this was a quick, concise summary of the debates around economic inequality in the past century (albeit very Western-centric). Technical indeed, but still readable. Hopefully this will set me up to face the Capital beast in the near future!
May 18, 2017
Inequality is a subject matter that politicians and economists around the world are very concerned with. Before reading this book, I myself had a vague understanding of what inequality truly is in the first place. Piketty, a renowned French economist has spent a substantial time researching and studying the effects of the many different forms of economic inequality with historical and economic frameworks, and he presents his findings and views in this publication.
In Piketty's book (with the superb help of Goldhammer), he details his findings and occasionally offers his own perspective of the subject matter. The term "inequality" is actually quite broad, and Piketty breaks down the many different kinds of inequality that can be examined. Although he uses quite a bit of economic jargon, he also often provides light explanations of what they mean so even those who are not very familiar with the study of economics can follow along and understand what he is trying to convey.
Throughout the book, he examines many types of inequalities, such as the inequality between income for capitalists and laborers, between low-skilled and high-skilled laborers, income and wage differences, and many more differentiations. In addition, he discusses in-depth about the (often politicized) effects of pure redistributive policies (social justice and government-imposed transfers) and efficient redistributive policies (market-oriented with minimal state intervention) in historical and economic frameworks, so we can have a better understanding of how they work without a strong political bent. He offers well thought-out explanations for why inequality exists and how they affect people, supported by numerous references to other academic studies and works to substantiate his words.
As a passionate, curious, and somewhat naive student of economics, I can say that Piketty opened my eyes to the complexity of inequality, and directly challenged many pre-existing ideas of it. My only grievance is that I did not read his major publication, Capital in the Twenty-First Century , before reading The Economics of Inequality. From other reviews, I feel as though the two go hand-in-hand, with the prior book providing more of a foundation to understand the inequality that he discusses.
For anyone interested in reading this book, I can certainly guarantee you that there is much knowledge to be gained from this small publication. Piketty seems to write in a very frank and somewhat humorless style. This book may be somewhat challenging to read for someone unfamiliar with economics or the concept of inequality (in an economic sense), but is a gem for anyone interested in redistributive policies and how wealth is distributed amongst people in different countries.
In Piketty's book (with the superb help of Goldhammer), he details his findings and occasionally offers his own perspective of the subject matter. The term "inequality" is actually quite broad, and Piketty breaks down the many different kinds of inequality that can be examined. Although he uses quite a bit of economic jargon, he also often provides light explanations of what they mean so even those who are not very familiar with the study of economics can follow along and understand what he is trying to convey.
Throughout the book, he examines many types of inequalities, such as the inequality between income for capitalists and laborers, between low-skilled and high-skilled laborers, income and wage differences, and many more differentiations. In addition, he discusses in-depth about the (often politicized) effects of pure redistributive policies (social justice and government-imposed transfers) and efficient redistributive policies (market-oriented with minimal state intervention) in historical and economic frameworks, so we can have a better understanding of how they work without a strong political bent. He offers well thought-out explanations for why inequality exists and how they affect people, supported by numerous references to other academic studies and works to substantiate his words.
As a passionate, curious, and somewhat naive student of economics, I can say that Piketty opened my eyes to the complexity of inequality, and directly challenged many pre-existing ideas of it. My only grievance is that I did not read his major publication, Capital in the Twenty-First Century , before reading The Economics of Inequality. From other reviews, I feel as though the two go hand-in-hand, with the prior book providing more of a foundation to understand the inequality that he discusses.
For anyone interested in reading this book, I can certainly guarantee you that there is much knowledge to be gained from this small publication. Piketty seems to write in a very frank and somewhat humorless style. This book may be somewhat challenging to read for someone unfamiliar with economics or the concept of inequality (in an economic sense), but is a gem for anyone interested in redistributive policies and how wealth is distributed amongst people in different countries.
July 23, 2023
This was a bit dense to get through at times, and I'm still a little confused as to who the target audience are exactly, but nevertheless, it was a good overview of a few key concepts of the 'economics of inequality'.
Some interesting quotes from the first two chapters because I returned the lib copy I borrowed before I got around to noting down the rest xox >>>>
“The top 5% take more of their income from wages than capital… one has to go even higher in the income hierarchy to reach a level where labour income no longer accounts for the largest share.”
“Non wage income and especially capital income are much more unequally distributed than wages.”
“A majority of low-income households are households living on small pensions, often consisting of one person, whereas high income households are generally couples, often with two earners and children living at home.”
“Inequality between the top 10% and bottom 10% in a given country… is on the order of 3-4, and this is 2 to 3 times smaller than the gap in standard living between the end of the nineteenth century and the end of the twentieth century and than the gap between the richest and poorest countries. These two forms of inequality [time and space] are therefore not incomparable.”
“The Kuznets curve is definitely dead.”
“Without transfers, income inequality would have increased…Actual inequality of income from labour (whether due to employment inequality or wage inequality_ has thus increased in all Western countries since the 1970s.”
“Inequality is thus described as a contrast between those who own capital, that is, the means of production, and those who do not and must therefore make do with what they can earn from their labour.”
“Why should a person who inherits ownership of capital receive income denied to those who inherit only their labour power?”
Some interesting quotes from the first two chapters because I returned the lib copy I borrowed before I got around to noting down the rest xox >>>>
“The top 5% take more of their income from wages than capital… one has to go even higher in the income hierarchy to reach a level where labour income no longer accounts for the largest share.”
“Non wage income and especially capital income are much more unequally distributed than wages.”
“A majority of low-income households are households living on small pensions, often consisting of one person, whereas high income households are generally couples, often with two earners and children living at home.”
“Inequality between the top 10% and bottom 10% in a given country… is on the order of 3-4, and this is 2 to 3 times smaller than the gap in standard living between the end of the nineteenth century and the end of the twentieth century and than the gap between the richest and poorest countries. These two forms of inequality [time and space] are therefore not incomparable.”
“The Kuznets curve is definitely dead.”
“Without transfers, income inequality would have increased…Actual inequality of income from labour (whether due to employment inequality or wage inequality_ has thus increased in all Western countries since the 1970s.”
“Inequality is thus described as a contrast between those who own capital, that is, the means of production, and those who do not and must therefore make do with what they can earn from their labour.”
“Why should a person who inherits ownership of capital receive income denied to those who inherit only their labour power?”
April 3, 2015
En este libro originalmente escrito antes del Capital en el Siglo XXI, Piketty muestra el inicio de los argumentos que eventualmente terminarían en su ars magna. Piketty trata los problemas de la redistribución en sus distintas dimensiones y elabora sobre las ventajas y desventajas que algunas formas de distribución pueden tener sobre las sociedades. El libro trata principalmente el caso francés pero elabora en algunas cosas sobre los casos de Estados Unidos y de el Reino Unido.
Vale la pena destacar que Piketty actualiza algunos capítulos de esta edición con sus descubrimientos en el Capital en el Siglo XXI. Es una obra pequeña pero con debates importantes en torno a la desigualdad y que formas son mejores para combatirla.
Vale la pena destacar que Piketty actualiza algunos capítulos de esta edición con sus descubrimientos en el Capital en el Siglo XXI. Es una obra pequeña pero con debates importantes en torno a la desigualdad y que formas son mejores para combatirla.
May 13, 2015
The book analyses the inequality problematic quite good and with many good sources, but it's focus remains in the OECD countries, mainly France, the US and the UK. That is done for obvious reasons, you need to compare similar countries which already have gone through different social and economical realities, like the industrial revolution and so on, but I think inequality is also in a worldwide range, being important to consider what is exactly inequality in different realities, like in the developing countries. Finally, it was a good book to start this huge discussion, and Piketty had the ability to consider many social aspects synthesizing in a terrific way in the four chapters.
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