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The Second Fundamental Law of Capitalism: β = s/g In the long run, the capital / income ratio β is related in a simple and transparent way to the savings rate s and the growth rate g according to the following formula: β = s/g
To recapitulate: the fundamental force for divergence, which I have emphasized throughout this book, can be summed up in the inequality r > g, which has nothing to do with market imperfections and will not disappear as markets become freer and more competitive. The idea that unrestricted competition will put an end to inheritance and move toward a more meritocratic world is a dangerous illusion.
One of the most striking lessons of the Forbes rankings is that, past a certain threshold, all large fortunes, whether inherited or entrepreneurial in origin, grow at extremely high rates, regardless of whether the owner of the fortune works or not.
The progressive tax is indispensable for making sure that everyone benefits from globalization, and the increasingly glaring absence of progressive taxation may ultimately undermine support for a globalized economy.
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.
According to our estimates, the optimal top tax rate in the developed countries is probably above 80 percent.
The overall conclusion of this study is that a market economy based on private property, if left to itself, contains powerful forces of convergence, associated in particular with the diffusion of knowledge and skills; but it also contains powerful forces of divergence, which are potentially threatening to democratic societies and to the values of social justice on which they are based.
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.
