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Capital in the Twenty-First Century by Thomas Piketty
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This book is well worth the read. The compilation and visualization of data alone provides tremendous value, and the popular criticisms against Piketty for ideological differences do not change this. The data is extremely important for having informed judgments about the nature of wealth, the role of the state, taxation, and even the future of the world's liberal democracies. Capital matters a great deal, and not just to economists and entrepreneurs. It plays an important role in determining the warp and weft of the social fabric. This is a tremendously important book to read, at least to understand the histories of the 19th and 20th centuries, and to get an idea of future macroeconomic developments in the 21st century.

I took a lot of notes on this book, and some of the ideas I found most important are:

1. "Economists are all too often preoccupied with petty mathematical problems of interest only to themselves. This obsession with mathematics is an easy way of acquiring the appearance of scientificity without having to answer the far more complex questions posed by the world we live in." . . . "The new methods often lead to a neglect of history and of the fact that historical experience remains our principal source of knowledge." pp. 32, 575

2. The very high capital to income ratios of prewar Europe fell because capital sustained severe shocks from the two world wars and the Great Depression. The resultant inflation, borrowing, and destruction leveled the playing field for decades, but capital / income ratios are nearing prewar levels again. pg.

3. The capital / income ratio = savings / growth, so that low-growth regimes result in the growth of capital, and wealth generated in the past takes on considerable importance. pg. 233

4. The top decile of income in the U.S. begins at $108,000. The first 5% are from $108,000 to $150,000; the next 4% are from $150,000 to $352,000. The top 1% are making more than $352,000 per year, but the .1% is making more than $1.5 million per year. The top decile accounts for 15 points of national income, but 11 points of that are going to the top 1%, and half of that is going to the .1%. pg. 296.

5. Considering the total growth of the US economy from 1977 to 2007, the richest 10% appropriated 3/4 of the growth, so that the rate of income growth for the bottom 90% is less than .5% per year. The target inflation rate is commonly 1-2% per year, so incomes for the bottom 90% of society in the US have stagnated on average. pg. 297

6. A large part of the increase in wage inequality is the rise of the 'supermanager' in the US, and the rise in inequality does not appear to have been compensated by increased wage mobility over the course of a person's career, on average. The "vast majority . . . of the top .1% income hierarchy in 2000-2010 consists of top managers." pp. 299, 302

7. Piketty hypothesizes the rise of the supermanager to a few possible causes, but says that this "is obviously a question for sociology, psychology, cultural and political history, and the study of beliefs and perceptions as much for economics." He lists the following: 1. Conservative revolution in the 1980s w/ in Anglo Saxon countries, 2. The theory of marginal productivity and the race between technology and education, 3. The prevailing social norms of the country, e.g. the American tendency to choose 'winners,' 4. Meritocratic extremism, 5. Paying for luck, 6. The very large decrease in the top marginal income tax rate in Anglo-Saxon countries after 1980, which gave top executives much stronger incentives to seek large raises, 7. The decrease in top marginal income tax rates led to the explosion of top incomes, which helped fund political coffers and 'reward' legislators. pp. 332-335

8. The best way to increase wages and reduce wage inequalities in the long run is to invest in education and skills. pg. 313. It's also the case that technological progress is a big factor.

9. A patrimonial middle class was one of the major innovations of the 20th century, at least for Europe. There was already one in the New World.

10. The social state was another major innovation among all wealthy countries in the 20th century. There was a sweeping fiscal reform led by Keynes and others that increased access to education, health, and public pensions for all. The U.S. had among the highest progressive tax rates for a time. pg. 478

11. 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." pg. 510. This is important because it suggests that there's ample fuel for competitive, entrepreneurial fire even at lower levels of income for top management.

12. Piketty argues that the best way to ensure healthy democratic social states and lower levels of inequality is a progressive global tax on capital, coupled with a very high level of international financial transparency to close the tax haven loopholes. pg. 515

I would like nothing more than to sit down with Piketty and pose a few questions. Here are some of them:

1. Piketty shares Vautrin's lecture from Balzac's book Pere Goriot, arguing that the standard of living of the wealthiest French people in nineteenth-century France greatly exceeded that to which one could aspire on the basis of income from labor alone. Piketty then asks: "Under such conditions, why work? And why behave morally at all? Since social inequality was in itself immoral and unjustified, why not be thoroughly immoral and appropriate capital by whatever means are available?" But are there not many reasons that keep people from unrestrained grasping of capital, such as religious convictions about the purpose of life, satisfaction found within family life, and alternative life occupations to managing and/or consuming vast quantities of capital?

2. On page 314, Piketty criticizes the very sharp income discontinuity between income levels, and points out that this is a problem for the theory of marginal productivity, since it's difficult to observe any discontinuity in the skill levels or productivity between the 9% and the 1%. But could not even the slightest marginal increase in productivity result in very large rewards when it comes to leading multi-national corporations (MNCs)? Could it be that the U.S. has a particularly high number and quality of MNCs? Coke, Apple, Google, Microsoft, IBM, GE, etc.

3. On page 348, Piketty calls out the U.S. for flip-flopping on the issue of inequality. He points out that a century ago, it was obvious to everyone that the New World was by nature less inegalitarian than old Europe, and that this difference was a source of pride. But he says that for several decades now, the world has grown accustomed to the U.S. being more inegalitarian than Europe, and that this is also a source of pride to Americans, who often make inequality out to be a prerequisite to entrepreneurial dynamism. He says these positions are "strictly opposite," but could it not be the case that individual freedom underlies both American positions? In other words, Americans may have been proud at the turn of the 20th century of their freedom to achieve, as well as proud in 2010 of their freedom to achieve, and this may be an underlying continuity of position.

4. On page 473, Piketty states that not only are some incomes indecent, but are also economically useless. What does this mean? Is some capital more productive than other capital? Is venture capital best? Or perhaps government capital going towards public works? Are other forms of capital more egalitarian than others? Perhaps income going straight to consumption contributes to a service economy and therefore a distancing of social statuses based on occupation and opportunities in life over time? But is this is a problem if the opportunity for inter-generational mobility continue to exist? Are these opportunities being closed by the presence of very high incomes and levels of capital?

5. On page 527, Piketty states that inheritance, income, and capital taxes are all desirable and complementary, but is not most capital working capital that fuels the economy? In other words, is this capital better off in the hands of government, who will use it for the public good vs. private hands that will use it for other purposes? Do public institutions do more 'public good' than private institutions?

6. On page 530, Piketty states that, "the owners of capital claim a substantial share of national income without working . . ." Is this really true? By what definition of work? Did / do Jobs and Gates and Buffett not work? Or do heirs not work when they devote themselves to the humanities, arts, or abstract sciences? Were not many of the advancements in civilization during the Enlightenment due to additional leisure time created by the returns to capital?
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Mike Austin - We've never met but have many mutual friends in Boston. I can tell from your reading and review of Capital that it was a thought-provoking exercise to say the least. I'd love to discuss my thoughts about it with you sometime.

Austin Mike wrote: "Austin - We've never met but have many mutual friends in Boston. I can tell from your reading and review of Capital that it was a thought-provoking exercise to say the least. I'd love to discuss my..."

Mike- I agree! Will you be in Boston or Utah at all this summer?

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