Capital in the Twenty-First Century

by Thomas Piketty

Even more strikingly, perhaps, the bottom 50 percent of the wage distribution always receives a significant share of total labor income (generally between one-quarter and one-third, or approximately as much as the top 10 percent), whereas the bottom 50 percent of the wealth distribution owns nothing at all, or almost nothing (always less than 10 percent and generally less than 5 percent of total wealth, or one-tenth as much as the wealthiest 10 percent).

The very high concentration of capital is explained mainly by the importance of inherited wealth and its cumulative effects: for example, it is easier to save if you inherit an apartment and do not have to pay rent.

In most countries, moreover, women are in fact significantly overrepresented in the bottom 50 percent of earners, so that these large differences between countries reflect in part differences in the male-female wage gap, which is smaller in northern Europe than elsewhere.

in the early 2010s, the richest 10 percent own around 60 percent of national wealth in most European countries, and in particular in France, Germany, Britain, and Italy.

Housing is the favorite investment of the middle class and moderately well-to-do, but true wealth always consists primarily of financial and business assets.

Is it possible to imagine societies in which the concentration of income is much greater? Probably not. If, for example, the top decile appropriates 90 percent of each year’s output (and the top centile took 50 percent just for itself, as in the case of wealth), a revolution will likely occur, unless some peculiarly effective repressive apparatus exists to keep it from happening.

income from capital assumes decisive importance only in the top thousandth or top ten-thousandth. Its influence in the top centile as a whole is relatively insignificant.

To sum up: what happened in France is that rentiers (or at any rate nine-tenths of them) fell behind managers; managers did not race ahead of rentiers.

Goldin and Katz have no doubt that increased wage inequality in the United States is due to a failure to invest sufficiently in higher education.

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.

Over the long run, education and technology are the decisive determinants of wage levels.

Germany and Sweden have chosen to do without minimum wages at the national level, leaving it to trade unions to negotiate not only minimums but also complete wage schedules with employers in each branch of industry.

The payment of a monthly rather than a daily wage was a revolutionary innovation that gradually took hold in all the developed countries during the twentieth century.

First, the most striking result is probably that the upper centile’s share of national income in poor and emerging economies is roughly the same as in the rich economies.

household surveys, which are often the only source used by international organizations (in particular the World Bank) and governments for gauging inequality, give a biased and misleadingly complacent view of the distribution of wealth.

For example, if g = 1% and r = 5%, saving one-fifth of the income from capital (while consuming the other four-fifths) is enough to ensure that capital inherited from the previous generation grows at the same rate as the economy.

it is an illusion to think that something about the nature of modern growth or the laws of the market economy ensures that inequality of wealth will decrease and harmonious stability will be achieved.

In the nineteenth century, the average age of inheritance was just thirty; in the twenty-first century it will be somewhere around fifty.

The central scenario is based on the assumption of an annual growth rate of 1.7 percent for the period 2010–2100 and a net return on capital of 3 percent.

The alternative scenario is based on the assumption that growth will be reduced to 1 percent for the period 2010–2100, while the return on capital will rise to 5 percent.

This could happen, for instance, if all taxes on capital and capital income, including the corporate income tax, were eliminated, or if such taxes were reduced while capital’s share of income increased.

in all societies, at all levels of wealth, a significant number of wealthy individuals, between 10 and 20 percent, accumulate fortunes during their lifetimes, having started with nothing.

If we now consider the one-hundred-millionth wealthiest part of the world’s population, or about 30 people out of 3 billion in the late 1980s and 45 out of 4.5 billion in the early 2010s, we find that their average wealth increased from just over $3 billion to almost $35 billion, for an even higher growth rate of 6.8 percent above inflation. For the sake of comparison, average global wealth per capita increased by 2.1 percent a year, and average global income by 1.4 percent a year,

Note that the precise conclusions depend quite heavily on the years chosen for consideration. For example, if we look at the period 1990–2010 instead of 1987–2013, the real rate of growth of the largest fortunes drops to 4 percent a year instead of 6 or 7.4 This is because 1990 marked a peak in global stock and real estate prices, while 2010 was a fairly low point for both

The higher we go in the endowment hierarchy, the more often we find “alternative investment strategies,” that is, very high yield investments such as shares in private equity funds and unlisted foreign stocks (which require great expertise), hedge funds, derivatives, real estate, and raw materials, including energy, natural resources, and related products (these, too, require specialized expertise and offer very high potential yields).28

If we consider the importance in these various portfolios of “alternative investments,” whose only common feature is that they abandon the usual strategies of investing in stocks and bonds accessible to all, we find that they represent only 10 percent of the portfolios of institutions with endowments of less than 50 million euros, 25 percent of those with endowments between 50 and 100 million euros, 35 percent of those between 100 and 500 million euros, 45 percent of those between 500 million and 1 billion euros, and ultimately more than 60 percent of those above 1 billion euros.

Some people think, wrongly, that inflation reduces the average return on capital. This is false, because the average asset price (that is, the average price of real estate and financial securities) tends to rise at the same pace as consumer prices.

the average return on the Saudi sovereign wealth fund was no more than 2–3 percent, mainly because much of the money was invested in US Treasury bonds.

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.

A progressive tax on capital is a more suitable instrument for responding to the challenges of the twenty-first century than a progressive income tax, which was designed for the twentieth century

Despite the defects of these public pensions systems and the challenges they now face, the fact is that without them it would have been impossible to eradicate poverty among the elderly, which was endemic as recently as the 1950s. Along with access to education and health, public pensions constitute the third social revolution that the fiscal revolution of the twentieth century made possible.

The historical evidence suggests that with only 10–15 percent of national income in tax receipts, it is impossible for a state to fulfill much more than its traditional regalian responsibilities: after paying for a proper police force and judicial system, there is not much left to pay for education and health.

skyrocketing executive pay is fairly well explained by the bargaining model (lower marginal tax rates encourage executives to negotiate harder for higher pay) and does not have much to do with a hypothetical increase in managerial productivity.

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 assets can be removed from China without government approval).

For a fair proportion of Americans in the bottom 50 percent of the income distribution, these inequalities are of secondary importance for the very simple reason that they were born in a less wealthy country and see themselves as being on an upward trajectory.

In Africa, the outflow of capital has always exceeded the inflow of foreign aid by a wide margin.

In Germany, prices were multiplied by a factor of 100 million between the beginning of 1923 and the end.