Friday, June 20, 2014

Science Magazine Explains Capital in The 21st Century in Five Pages

The current issue of Science provided Piketty and a colleague a platform to condense the essence of his thesis in five pages.  Only five graphs are used to describe the changes in income and wealth inequality in Europe and the US over an extensive period of time.  Each of the graphs has links to PowerPoint slides that can be used for teaching, or for better understanding the data and their implications.  There are important differences between Europe and the US in the distribution of wealth and income.  Some of the differences are explained by the effects of war and depression, and other differences are best explained by the effects of institutional arrangements. For example, the growth in income inequality in the US is explained by changes in corporate governance.  Europe and the US are subject to similar global and technological forces, but executive compensation has grown faster in the US because of differences in corporate governance.

The article is peppered with links to the data sets and the studies that were used to develop the major topics under discussion.  Piketty was also very careful in his analysis of the data.  He discusses the strengths and weaknesses of the data and he is cautious in his interpretation of the data. The careful reader can evaluate Piketty's presentation of the data and his conclusions without undue reliance on others who have raised questions about his objectivity.  The future is impossible to predict but tax competition between nations is accelerating the growth in income and wealth inequality.  Moreover, growth in national income is on a lower trend as result of slower growth in the labor force and the rate of productivity growth.  The gap between the rates of return on wealth and labor is likely to increase without changes in our institutions.  According to Piketty, the size of that gap has an important relationship to the growth in wealth and income inequality.

No comments:

Post a Comment