The French academic economist Thomas Piketty has sought to clarify his view of rising inequality in a new paper to be published by a U.S. academic journal, a year after the U.S. translation of his book Capital in the Twenty-First Century renewed debate over inequality and became a bestseller.
In a paper that will appear in the American Economic Review this spring and is available now on Piketty’s personal site, Piketty claims that his views on inequality are “not well captured in the discussion that has surrounded my book.”
Piketty seeks in his new writings to downplay the importance for understanding inequality of one of the most famous aspects of his book, namely the relationship between the rate of profit on investments and economic growth.
Instead, he writes, factors such as government policy and taxes were more important in determining the recent increase in income inequality and will be more useful in forecasting the future of inequality.
Piketty’s book collated data on trends in wealth distribution for a number of countries over the course of centuries and sought to derive economic laws that determine those trends.
Famously, Piketty claimed that a major driver of the variations in wealth inequality was the difference between the return on capital, such as investments, and economic growth — an identity expressed in notation as r > g.
With economic growth slowing, Piketty warned, wealth inequality could grow inexorably over time, leading to what he called “patrimonial capitalism.”
But the r > g relationship was meant to describe wealth inequality and not the rising income inequality of the past 30 years, Piketty now clarifies. In other work, Piketty has documented the rising income share of the top 1 percent of income earners using tax data.
“I do not view r > g as the only or even the primary tool for considering changes in income and wealth in the twentieth century, or for forecasting the path of inequality in the twenty-first century,” Piketty writes in his new paper.
Instead, rising income inequality in the U.S. results from inequality in access to education, changes in corporate governance, and lower tax rates, Piketty says.
He maintains that a high gap between r and g was the main cause of the run-up in wealth inequality in the late 19th century that only ended with the destruction of World War I. It could become a major factor in shaping wealth inequality again, Piketty maintains, but it has not driven the trends of the past half-century.
Piketty also published an article of his reflections on the publication of his book in the winter edition of the Journal of Economic Perspectives, addressing some specific criticisms.
In that article, Piketty describes Capital in the Twenty-First Century as an “analytical historical narrative” based on the new wealth inequality data he published. “In this way,” he wrote, “I hope I can contribute to placing the study of distribution and of the long-run back at the center of economic thinking. Many 19th century economists, including Thomas Malthus, David Ricardo, and Karl Marx, put the distribution question at the center of political economy.”
When it was translated into English in the spring of 2014, Piketty’s book became a red-hot topic of discussion among economists and non-economists alike, especially after a U.S. book tour that had the MIT-educated economist meet with Obama administration economists and visit multiple cities.
While it was received with fulsome praise among many American readers on the political left, Capital in the Twenty-First Century also received criticism from many top economists who disagreed with Piketty’s assessment of the laws shaping wealth trends.
