Capital in the Twenty-First Century

by Thomas Piketty

Knowledge and skill diffusion is the key to overall productivity growth as well as the reduction of inequality both within and between countries.

There is one great advantage to being an academic economist in France: here, economists are not highly respected in the academic and intellectual world or by political and financial elites.

To be sure, the transformations entailed by a growth rate of 1 percent are far less sweeping than those required by a rate of 3–4 percent, so that the risk of disillusionment is considerable—a reflection of the hope invested in a more just social order, especially since the Enlightenment. Economic growth is quite simply incapable of satisfying this democratic and meritocratic hope, which must create specific institutions for the purpose and not rely solely on market forces or technological progress.

In Britain, things were done differently: more slowly and with less passion.

Has there ever been a more concise summation of the similarities and differences of Britain and France?

(economists like simple stories, even when they are only approximately correct),

In the long run, the best way to reduce inequalities with respect to labor as well as to increase the average productivity of the labor force and the overall growth of the economy is surely to invest in education.

the main purpose of the educational sector is not to prepare students to take up an occupation in some other sector of the economy. In all human societies, health and education have an intrinsic value: the ability to enjoy years of good health, like the ability to acquire knowledge and culture, is one of the fundamental purposes of civilization.

Economic and technological rationality at times has nothing to do with democratic rationality. The former stems from the Enlightenment, and people have all too commonly assumed that the latter would somehow naturally derive from it, as if by magic. But real democracy and social justice require specific institutions of their own, not just those of the market, and not just parliaments and other formal democratic institutions.

these reports have, if nothing else, the merit of existing,

governments fail to collect this kind of information properly, for example, by requiring annual declarations of wealth, which would serve a genuinely useful public purpose and could be largely automated with the aid of modern technology.

no matter how justified inequalities of wealth may be initially, fortunes can grow and perpetuate themselves beyond all reasonable limits and beyond any possible rational justification in terms of social utility.

the veritable cult of Bill Gates is an outgrowth of the apparently irrepressible need of modern democratic societies to make sense of inequality.

Inflation does not do away with rent: on the contrary, it probably helps to make the distribution of capital more unequal.

the political and military aspects of the choice must also be taken into account: even though it is never stated explicitly, it is not illogical for Saudia Arabia to lend at low interest to the country that protects it militarily. To my knowledge, no one has ever attempted to calculate precisely the return on such an investment, but it seems clear that it is rather high. If the United States, backed by other Western powers, had not driven the Iraqi army out of Kuwait in 1991, Iraq would probably have threatened Saudi Arabia’s oil fields next, and it is possible that other countries in the region, such as Iran, would have joined the fray to redistribute the region’s petroleum rents. The dynamics of the global distribution of capital are at once economic, political, and military.

It is striking, moreover, how frequently opponents of progressive taxation, who were clearly in the majority among the economic and financial elite of Belle Époque France, rather hypocritically relied on the argument that France, being a naturally egalitarian country, had no need of progressive taxes.

even a tax with low rates can be a source of knowledge and a force for democratic transparency.

As I showed in Chapter 9, the theory of marginal productivity runs into serious conceptual and economic difficulties (in addition to suffering from a certain naïveté) when it comes to explaining how pay is determined at the top of the income hierarchy.

It is always difficult for an executive to convince other parties involved in the firm (direct subordinates, workers lower down in the hierarchy, stockholders, and members of the compensation committee) that a large pay raise—say of a million dollars—is truly justified. In the 1950s and 1960s, executives in British and US firms had little reason to fight for such raises, and other interested parties were less inclined to accept them, because 80–90 percent of the increase would in any case go directly to the government. After 1980, the game was utterly transformed, however, and the evidence suggests that executives went to considerable lengths to persuade other interested parties to grant them substantial raises. Because it is objectively difficult to measure individual contributions to a firm’s output, top managers found it relatively easy to persuade boards and stockholders that they were worth the money, especially since the members of compensation committees were often chosen in a rather incestuous manner.

Furthermore, this “bargaining power” explanation is consistent with the fact that there is no statistically significant relationship between the decrease in top marginal tax rates and the rate of productivity growth in the developed countries since 1980.

the reduction of top marginal income tax rates and the rise of top incomes do not seem to have stimulated productivity (contrary to the predictions of supply-side theory) or at any rate did not stimulate productivity enough to be statistically detectable at the macro level.

The evidence suggests that a rate on the order of 80 percent on incomes over $500,000 or $1 million a year not only would not reduce the growth of the US economy but would in fact distribute the fruits of growth more widely while imposing reasonable limits on economically useless (or even harmful) behavior.

no hypocrisy is too great when economic and financial elites are obliged to defend their interests—and

The primary purpose of the capital tax is not to finance the social state but to regulate capitalism. The goal is first to stop the indefinite increase of inequality of wealth, and second to impose effective regulation on the financial and banking system in order to avoid crises.

An 0.1 percent tax on capital would be more in the nature of a compulsory reporting law than a true tax. Everyone would be required to report ownership of capital assets to the world’s financial authorities in order to be recognized as the legal owner, with all the advantages and disadvantages thereof.

Nation-states built over centuries find that they are too small to impose and enforce rules on today’s globalized patrimonial capitalism.

The problem is that neither the European authorities nor the IMF have published any statistics, not even the crudest estimate. Very likely they do not have much information themselves, for the simple reason that they have never equipped themselves with the tools they need to move forward on this issue, even though it is absolutely central.

No one wants to empower a head of state to replace university presidents and professors at will, much less to define the content of their teaching.

Adequate answers to all these questions can clearly be found only at the European (or global) level. The right approach is therefore to create a Eurozone budgetary parliament to deal with them.

In practice, there are much simpler and more effective ways to deal with rentiers, namely, by taxing them:

The nations of Europe have never been so rich. What is true and shameful, on the other hand, is that this vast national wealth is very unequally distributed. Private wealth rests on public poverty, and one particularly unfortunate consequence of this is that we currently spend far more in interest on the debt than we invest in higher education.

The public debt (which is much smaller than total private wealth and perhaps not really that difficult to eliminate) is not our major worry. The more urgent need is to increase our educational capital and prevent the degradation of our natural capital.

Without real accounting and financial transparency and sharing of information, there can be no economic democracy.

If democracy is someday to regain control of capitalism, it must start by recognizing that the concrete institutions in which democracy and capitalism are embodied need to be reinvented again and again.

For countries at the world technological frontier—and thus ultimately for the planet as a whole—there is ample reason to believe that the growth rate will not exceed 1–1.5 percent in the long run, no matter what economic policies are adopted.

immense inequalities of wealth have little to do with the entrepreneurial spirit and are of no use in promoting growth.

if we are to regain control of capitalism, we must bet everything on democracy—and

supposedly scientific methods. In fact, those methods rely on an immoderate use of mathematical models, which are frequently no more than an excuse for occupying the terrain and masking the vacuity of the content.

Refusing to deal with numbers rarely serves the interests of the least well-off.