Moje výpisky z Pikettyho, neurovnané

When the rate of return on capital exceeds the rate of growth of output and income, as it did in the nineteenth century and seems quite likely to do again in the twenty-first, capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based.

Intellectual and political debate about the distribution of wealth has long been based on an abundance of prejudice and a paucity of fact.

The concrete, physical reality of inequality is visible to the naked eye and naturally inspires sharp but contradictory political judgments. Peasant and noble, worker and factory owner, waiter and banker: each has his or her own unique vantage point and sees important aspects of how other people live and what relations of power and domination exist between social groups, and these observations shape each person’s judgment of what is and is not just. Hence there will always be a fundamentally subjective and psychological dimension to inequality, which inevitably gives rise to political conflict that no purportedly scientific analysis can alleviate. Democracy will never be supplanted by a republic of experts—and that is a very good thing.

Given this dialogue of the deaf, in which each camp justifies its own intellectual laziness by pointing to the laziness of the other, there is a role for research that is at least systematic and methodical if not fully scientific. Expert analysis will never put an end to the violent political conflict that inequality inevitably instigates.

The price system plays a key role in coordinating the activities of millions of individuals—indeed, today, billions of individuals in the new global economy. The problem is that the price system knows neither limits nor morality.

But it is important for now to understand that the interplay of supply and demand in no way rules out the possibility of a large and lasting divergence in the distribution of wealth linked to extreme changes in certain relative prices.

The central argument was simple: What was the good of industrial development, what was the good of all the technological innovations, toil, and population movements if, after half a century of industrial growth, the condition of the masses was still just as miserable as before, and all lawmakers could do was prohibit factory labor by children under the age of eight?

Like his predecessors, Marx totally neglected the possibility of durable technological progress and steadily increasing productivity, which is a force that can to some extent serve as a counterweight to the process of accumulation and concentration of private capital.

He probably suffered as well from having decided on his conclusions in 1848, before embarking on the research needed to justify them.

Malthus, Ricardo, Marx, and many others had been talking about inequalities for decades without citing any sources whatsoever or any methods for comparing one era with another or deciding between competing hypotheses. Now, for the first time, objective data were available.

If the question of inequality is again to become central, we must begin by gathering as extensive as possible a set of historical data for the purpose of understanding past and present trends. For it is by patiently establishing facts and patterns and then comparing different countries that we can hope to identify the mechanisms at work and gain a clearer idea of the future.

In each case, we tried to use the same types of sources, the same methods, and the same concepts. Deciles and centiles of high incomes were estimated from tax data based on stated incomes (corrected in various ways to ensure temporal and geographic homogeneity of data and concepts). National income and average income were derived from national accounts, which in some cases had to be fleshed out or extended. Broadly speaking, our data series begin in each country when an income tax was established (generally between 1910 and 1920 but in some countries, such as Japan and Germany, as early as the 1880s and in other countries somewhat later). These series are regularly updated and at this writing extend to the early 2010s.

Unfortunately, data are available for fewer countries than in the case of income inequality. In a few cases, however, estate tax data extend back much further in time, often to the beginning of the nineteenth century, because estate taxes predate income taxes.

Inequality is not necessarily bad in itself: the key question is to decide whether it is justified, whether there are reasons for it.

What are the major conclusions to which these novel historical sources have led me? The first is that one should be wary of any economic determinism in regard to inequalities of wealth and income. The history of the distribution of wealth has always been deeply political, and it cannot be reduced to purely economic mechanisms.

The second conclusion, which is the heart of the book, is that the dynamics of wealth distribution reveal powerful mechanisms pushing alternately toward convergence and divergence. Furthermore, there is no natural, spontaneous process to prevent destabilizing, inegalitarian forces from prevailing permanently.

Over a long period of time, the main force in favor of greater equality has been the diffusion of knowledge and skills.

I will show that this spectacular increase in inequality largely reflects an unprecedented explosion of very elevated incomes from labor, a veritable separation of the top managers of large firms from the rest of the population. One possible explanation of this is that the skills and productivity of these top managers rose suddenly in relation to those of other workers. Another explanation, which to me seems more plausible and turns out to be much more consistent with the evidence, is that these top managers by and large have the power to set their own remuneration, in some cases without limit and in many cases without any clear relation to their individual productivity, which in any case is very difficult to estimate in a large organization.

When the rate of return on capital significantly exceeds the growth rate of the economy (as it did through much of history until the nineteenth century and as is likely to be the case again in the twenty-first century), then it logically follows that inherited wealth grows faster than output and income.

My conclusions are less apocalyptic than those implied by Marx’s principle of infinite accumulation and perpetual divergence (since Marx’s theory implicitly relies on a strict assumption of zero productivity growth over the long run). In the model I propose, divergence is not perpetual and is only one of several possible future directions for the distribution of wealth.

it is important to note that the fundamental r > g inequality, the main force of divergence in my theory, has nothing to do with any market imperfection.

It is possible to imagine public institutions and policies that would counter the effects of this implacable logic: for instance, a progressive global tax on capital. But establishing such institutions and policies would require a considerable degree of international coordination. It is unfortunately likely that actual responses to the problem—including various nationalist responses—will in practice be far more modest and less effective.Read more at location 575 • Delete this highlight Note: ideologie, jak rika "bohuzel" Edit Some readers will no doubt be surprised that I accord special importance to the study of the French case and may suspect me of nationalism. I should therefore justify my decision. One reason for my choice has to do with sources. The French Revolution did not create a just or ideal society, but it did make it possible to observe the structure of wealth in unprecedented detail. The system established in the 1790s for recording wealth in land, buildings, and financial assets was astonishingly modern and comprehensive for its time. The Revolution is the reason why French estate records are probably the richest in the world over the long run.

It has been the demographic growth of the New World that has ensured that inherited wealth has always played a smaller role in the United States than in Europe. This factor also explains why the structure of inequality in the United States has always been so peculiar, and the same can be said of US representations of inequality and social class.

many commentators continue to believe, as Leroy-Beaulieu did a little more than a century ago, that ever more fully guaranteed property rights, ever freer markets, and ever “purer and more perfect” competition are enough to ensure a just, prosperous, and harmonious society. Unfortunately, the task is more complex.

Furthermore, I would like to see justice achieved effectively and efficiently under the rule of law, which should apply equally to all and derive from universally understood statutes subject to democratic debate.Read more at location 646 • Delete this highlight Note: ale vic ma bohaty skrz progresi Edit I did not find the work of US economists entirely convincing. To be sure, they were all very intelligent, and I still have many friends from that period of my life. But something strange happened: I was only too aware of the fact that I knew nothing at all about the world’s economic problems. My thesis consisted of several relatively abstract mathematical theorems. Yet the profession liked my work. I quickly realized that there had been no significant effort to collect historical data on the dynamics of inequality since Kuznets, yet the profession continued to churn out purely theoretical results without even knowing what facts needed to be explained. And it expected me to do the same. When I returned to France, I set out to collect the missing data.

To put it bluntly, the discipline of economics has yet to get over its childish passion for mathematics and for purely theoretical and often highly ideological speculation, at the expense of historical research and collaboration with the other social sciences.

The truth is that economics should never have sought to divorce itself from the other social sciences and can advance only in conjunction with them.

As I already noted, and as I will frequently show in what follows, the history of income and wealth is always deeply political, chaotic, and unpredictable. How this history plays out depends on how societies view inequalities and what kinds of policies and institutions they adopt to measure and transform them. No one can foresee how these things will change in the decades to come.

Inequality of wealth—and of the consequent income from capital—is in fact always much greater than inequality of income from labor.

At this stage, suffice it to say that most countries, whether wealthy or emergent, are currently in much more balanced situations than one sometimes imagines. In France as in the United States, Germany as well as Great Britain, China as well as Brazil, and Japan as well as Italy, national income is within 1 or 2 percent of domestic product. In all these countries, in other words, the inflow of profits, interest, dividends, rent, and so on is more or less balanced by a comparable outflow.

To simplify the text, I use the words “capital” and “wealth” interchangeably, as if they were perfectly synonymous.

The other major limitation of official national accounts, apart from their lack of historical perspective, is that they are deliberately concerned only with aggregates and averages and not with distributions and inequalities. We must therefore draw on other sources to measure the distribution of income and wealth and to study inequalities. National accounts thus constitute a crucial element of our analyses, but only when completed with additional historical and distributional data.

The population of the planet is close to 7 billion in 2012, and global output is slightly greater than 70 trillion euros, so that global output per capita is almost exactly 10,000 euros. If we subtract 10 percent for capital depreciation and divide by 12, we find that this yields an average per capita monthly income of 760 euros, which may be a clearer way of making the point. In other words, if global output and the income to which it gives rise were equally divided, each individual in the world would have an income of about 760 euros per month.

To sum up, global inequality ranges from regions in which the per capita income is on the order of 150–250 euros per month (sub-Saharan Africa, India) to regions where it is as high as 2,500–3,000 euros per month (Western Europe, North America, Japan), that is, ten to twenty times higher. The global average, which is roughly equal to the Chinese average, is around 600–800 euros per month.

Furthermore, if we look at the historical record, it does not appear that capital mobility has been the primary factor promoting convergence of rich and poor nations. None of the Asian countries that have moved closer to the developed countries of the West in recent years has benefited from large foreign investments, whether it be Japan, South Korea, or Taiwan and more recently China.

To sum up, historical experience suggests that the principal mechanism for convergence at the international as well as the domestic level is the diffusion of knowledge. In other words, the poor catch up with the rich to the extent that they achieve the same level of technological know-how, skill, and education, not by becoming the property of the wealthy.

it is important to decompose the growth of output into two terms: population growth and per capita output growth. In other words, growth always includes a purely demographic component and a purely economic component, and only the latter allows for an improvement in the standard of living. In public debate this decomposition is too often forgotten, as many people seem to assume that population growth has ceased entirely, which is not yet the case—far from it,

In 2013–2014, for example, global economic growth will probably exceed 3 percent, thanks to very rapid progress in the emerging countries. But global population is still growing at an annual rate close to 1 percent, so that global output per capita is actually growing at a rate barely above 2 percent (as is global income per capita).

Here we see the phenomenon known as the demographic transition: the continual increase in life expectancy is no longer enough to compensate for the falling birth rate, and the pace of population growth slowly reverts to a lower level.

Capital-dominated societies in the past, with hierarchies largely determined by inherited wealth (a category that includes both traditional rural societies and the countries of nineteenth-century Europe) can arise and subsist only in low-growth regimes. I will consider the extent to which the probable return to a low-growth regime, if it occurs, will affect the dynamics of capital accumulation and the structure of inequality.

One should be wary, however, of the conventional wisdom that modern economic growth is a marvelous instrument for revealing individual talents and aptitudes. There is some truth in this view, but since the early nineteenth century it has all too often been used to justify inequalities of all sorts, no matter how great their magnitude and no matter what their real causes may be, while at the same time gracing the winners in the new industrial economy with every imaginable virtue.

All of these examples show how futile and reductive it is to try to sum up all these change with a single index, as in “the standard of living increased tenfold between date A and date B.” When family budgets and lifestyles change so radically and purchasing power varies so much from one good to another, it makes little sense to take averages, because the result depends heavily on the weights and measures of quality one chooses, and these are fairly uncertain, especially when one is attempting comparisons across several centuries.

It is important to bear this reality in mind as I proceed, because many people think that growth ought to be at least 3 or 4 percent per year. As noted, both history and logic show this to be illusory.

Relative price movements can play an even more decisive role in Ricardo’s theory based on the principle of scarcity: if certain prices, such as those for land, buildings, or gasoline, rise to very high levels for a prolonged period of time, this can permanently alter the distribution of wealth in favor of those who happen to be the initial owners of those scarce resources.

This world collapsed for good with World War I. To pay for this war of extraordinary violence and intensity, to pay for soldiers and for the ever more costly and sophisticated weapons they used, governments went deeply into debt. As early as August 1914, the principal belligerents ended the convertibility of their currency into gold. After the war, all countries resorted to one degree or another to the printing press to deal with their enormous public debts.

Between 1913 and 1950, inflation in France exceeded 13 percent per year (so that prices rose by a factor of 100), and inflation in Germany was 17 percent per year (so that prices rose by a factor of more than 300). In Britain and the United States, which suffered less damage and less political destabilization from the two wars, the rate of inflation was significantly lower: barely 3 percent per year in the period 1913–1950.

In terms of asset structure, twenty-first-century capital has little in common with eighteenth-century capital. The evolutions we see are again quite close to what we find happening in Britain and France. To put it simply, we can see that over the very long run, agricultural land has gradually been replaced by buildings, business capital, and financial capital invested in firms and government organizations. Yet the overall value of capital, measured in years of national income, has not really changed.

at the beginning of the eighteenth century, the total value of farmland represented four to five years of national income, or nearly two-thirds of total national capital. Three centuries later, farmland was worth less than 10 percent of national income in both France and Britain and accounted for less than 2 percent of total wealth. This impressive change is hardly surprising: agriculture in the eighteenth century accounted for nearly three-quarters of all economic activity and employment, compared with just a few percent today.

Concretely, imagine a government that runs deficits on the order of 5 percent of GDP every year for twenty years (to pay, say, the wages of a large number of soldiers from 1795 to 1815) without having to increase taxes by an equivalent amount. After twenty years, an additional public debt of 100 percent of GDP will have been accumulated. Suppose that the government does not seek to repay the principal and simply pays the annual interest due on the debt. If the interest rate is 5 percent, it will have to pay 5 percent of GDP every year to the owners of this additional public debt, and must continue to do so until the end of time. In broad outline, this is what Britain did in the nineteenth century. For an entire century, from 1815 to 1914, the British budget was always in substantial primary surplus: in other words, tax revenues always exceeded expenditures by several percent of GDP—an amount greater, for example, than the total expenditure on education throughout this period. It was only the growth of Britain’s domestic product and national income (nearly 2.5 percent a year from 1815 to 1914) that ultimately, after a century of penance, allowed the British to significantly reduce their public debt as a percentage of national income.

Still, it was hardly sufficient to prevent an enormous accumulation of public deficits during two world wars: Britain was fully mobilized to pay for the war effort without undue dependence on the printing press, with the result that by 1950 the country found itself saddled with a colossal debt, more than 200 percent of GDP, even higher than in 1815. Only with the inflation of the 1950s (more than 4 percent a year) and above all of the 1970s (nearly 15 percent a year) did Britain’s debt fall to around 50 percent of GDP

Germany was the country that, more than any other, drowned its public debt in inflation in the twentieth century. Despite running large deficits during both world wars (the public debt briefly exceeded 100 percent of GDP in 1918–1920 and 150 percent of GDP in 1943–1944), inflation made it possible in both instances to shrink the debt very rapidly to very low levels: barely 20 percent of GDP in 1930 and again in 1950

Note first of all that this was a phenomenon that affected all European countries. All available sources indicate that the changes observed in Britain, France, and Germany (which together in 1910 and again in 2010 account for more than two-thirds of the GDP of Western Europe and more than half of the GDP of all of Europe) are representative of the entire continent: although interesting variations between countries do exist, the overall pattern is the same.

In fact, the budgetary and political shocks of two wars proved far more destructive to capital than combat itself. In addition to physical destruction, the main factors that explain the dizzying fall in the capital/income ratio between 1913 and 1950 were on the one hand the collapse of foreign portfolios and the very low savings rate characteristic of the time (together, these two factors, plus physical destruction, explain two-thirds to three-quarters of the drop) and on the other the low asset prices that obtained in the new postwar political context of mixed ownership and regulation (which accounted for one-quarter to one-third of the drop).

The shocks of the twentieth century struck America with far less violence than Europe, so that the capital/income ratio remained far more stable: it oscillated between four and five years of national income from 1910 to 2010 (see Figure 4.6), whereas in Europe it dropped from more than seven years to less than three before rebounding to five or six (see Figures 3.1–2).

To sum up, the world of 1913 was one in which Europe owned a large part of Africa, Asia, and Latin America, while the United States owned itself.

The basic point is that small variations in the rate of growth can have very large effects on the capital/income ratio over the long run.

For example, given a savings rate of 12 percent, if the rate of growth falls to 1.5 percent a year (instead of 2 percent), then the long-term capital/income ratio β = s / g will rise to eight years of national income (instead of six). If the growth rate falls to 1 percent, then β = s / g will rise to twelve years, indicative of a society twice as capital intensive as when the growth rate was 2 percent. In one respect, this is good news: capital is potentially useful to everyone, and provided that things are properly organized, everyone can benefit from it. In another respect, however, what this means is that the owners of capital—for a given distribution of wealth—potentially control a larger share of total economic resources. In any event, the economic, social, and political repercussions of such a change are considerable.

In other words, countries with similar growth rates of income per capita can end up with very different capital/income ratios simply because their demographic growth rates are not the same.

The first principle to bear in mind is, therefore, that the accumulation of wealth takes time: it will take several decades for the law β = s / g to become true. Now we can understand why it took so much time for the shocks of 1914–1945 to fade away, and why it is so important to take a very long historical view when studying these questions. At the individual level, fortunes are sometimes amassed very quickly, but at the country level, the movement of the capital/income ratio described by the law β = s / g is a long-run phenomenon.

In passing, note how useful it is to represent the historical evolution of the capital/income ratio in this way and thus to exploit stocks and flows in the national accounts. Doing so might make it possible to detect obvious overvaluations in time to apply prudential policies and financial regulations designed to temper the speculative enthusiasm of financial institutions in the relevant countries.

In other words, by 2100, the entire planet could look like Europe at the turn of the twentieth century, at least in terms of capital intensity. Obviously, this is just one possibility among others. As noted, these growth predictions are extremely uncertain, as is the prediction of the rate of saving. These simulations are nevertheless plausible and valuable as a way of illustrating the crucial role of slower growth in the accumulation of capital.

This may contribute to the impression that modern capital is more “dynamic.” But since the data we have concerning investment in traditional rural societies are limited and imprecise, it is difficult to say more.

For the eighteenth and nineteenth centuries, estimates of the value of the capital stock are probably more accurate than estimates of the flows of income from labor and capital. This remains largely true today. That is why I chose to emphasize the evolution of the capital/income ratio rather than the capital-labor split, as most economic researchers have done in the past.

For example, it is difficult to believe that the average returns on capital of close to 10 percent that we observe in France (and to a lesser degree in Britain) during periods of postwar reconstruction are simply pure returns on capital. It is likely that such high returns also include a nonnegligible portion of remuneration for informal entrepreneurial labor.

yet the increase in the capital/income ratio drives capital’s share of income toward or perhaps beyond historic peaks because the long-run elasticity of substitution of capital for labor is apparently greater than one. This is perhaps the most important lesson of this study thus far: modern technology still uses a great deal of capital, and even more important, because capital has many uses, one can accumulate enormous amounts of it without reducing its return to zero.

In those days, the implicit hypothesis was that growth of production, and especially of manufacturing output, was explained mainly by the accumulation of industrial capital. In other words, output increased solely because every worker was backed by more machinery and equipment and not because productivity as such (for a given quantity of labor and capital) increased. Today we know that long-term structural growth is possible only because of productivity growth. But this was not obvious in Marx’s time, owing to lack of historical perspective and good data.

To sum up: modern growth, which is based on the growth of productivity and the diffusion of knowledge, has made it possible to avoid the apocalypse predicted by Marx and to balance the process of capital accumulation. But it has not altered the deep structures of capital—or at any rate has not truly reduced the macroeconomic importance of capital relative to labor.

I begin by noting that in all societies, income inequality can be decomposed into three terms: inequality in income from labor; inequality in the ownership of capital and the income to which it gives rise; and the interaction between these two terms.

The statistical measures of income inequality that one finds in the writings of economists as well as in public debate are all too often synthetic indices, such as the Gini coefficient, which mix very different things, such as inequality with respect to labor and capital, so that it is impossible to distinguish clearly among the multiple dimensions of inequality and the various mechanisms at work. By contrast, I will try to distinguish these things as precisely as possible.

the upper 10 percent of the labor income distribution generally receives 25–30 percent of total labor income, whereas the top 10 percent of the capital income distribution always owns more than 50 percent of all wealth (and in some societies as much as 90 percent). 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).

Deciles and centiles are defined separately for income from labor, ownership of capital, and total income (from both labor and capital), with the third being a synthesis of the first two dimensions and thus defining a composite social hierarchy. It is always essential to be clear about which hierarchy one is referring to. In traditional societies, the correlation between the two dimensions was often negative (because people with large fortunes did not work and were therefore at the bottom of the labor income hierarchy). In modern societies, the correlation is generally positive but never perfect (the coefficient of correlation is always less than one). For example, many people belong to the upper class in terms of labor income but to the lower class in terms of wealth, and vice versa. Social inequality is multidimensional, just like political conflict.

In concrete terms, if the average wage is 2,000 euros a month, the egalitarian (Scandinavian) distribution corresponds to 4,000 euros a month for the top 10 percent of earners (and 10,000 for the top 1 percent), 2,250 a month for the 40 percent in the middle, and 1,400 a month for the bottom 50 percent, where the more inegalitarian (US) distribution corresponds to a markedly steeper hierarchy: 7,000 euros a month for the top 10 percent (and 24,000 for the top 1 percent), 2,000 for the middle 40 percent, and just 1,000 for the bottom 50 percent.

The most striking fact is no doubt that in all these societies, half of the population own virtually nothing: the poorest 50 percent invariably own less than 10 percent of national wealth, and generally less than 5 percent. In France, according to the latest available data (for 2010–2011), the richest 10 percent command 62 percent of total wealth, while the poorest 50 percent own only 4 percent. In the United States, the most recent survey by the Federal Reserve, which covers the same years, indicates that the top decile own 72 percent of America’s wealth, while the bottom half claim just 2 percent.

The inescapable reality is this: wealth is so concentrated that a large segment of society is virtually unaware of its existence, so that some people imagine that it belongs to surreal or mysterious entities. That is why it is so essential to study capital and its distribution in a methodical, systematic way.

The upper decile of the wealth distribution is itself extremely unequal, even more so than the upper decile of the wage distribution. When the upper decile claims about 60 percent of total wealth, as is the case in most European countries today, the share of the upper centile is generally around 25 percent and that of the next 9 percent of the population is about 35 percent.

Tens of millions of individuals—40 percent of the population represents a large group, intermediate between rich and poor—individually own property worth hundreds of thousands of euros and collectively lay claim to one-quarter to one-third of national wealth: this is a change of some moment. In historical terms, it was a major transformation, which deeply altered the social landscape and the political structure of society and helped to redefine the terms of distributive conflict. It is therefore essential to understand why it occurred.

Note, too, that inequality of total income is closer to inequality of income from labor than to inequality of capital, which comes as no surprise, since income from labor generally accounts for two-thirds to three-quarters of total national income.

I want to insist on this point: the key issue is the justification of inequalities rather than their magnitude as such. That is why it is essential to analyze the structure of inequality.

In addition, Gini coefficients and other synthetic indices tend to confuse inequality in regard to labor with inequality in regard to capital, even though the economic mechanisms at work, as well as the normative justifications of inequality, are very different in the two cases. For all these reasons, it seemed to me far better to analyze inequalities in terms of distribution tables indicating the shares of various deciles and centiles in total income and total wealth rather than using synthetic indices such as the Gini coefficient.

Second, the significant compression of income inequality over the course of the twentieth century was due entirely to diminished top incomes from capital. If we ignore income from capital and concentrate on wage inequality, we find that the distribution remained quite stable over the long run.

If top incomes from capital had not decreased, income inequality would not have diminished in the twentieth century.

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.

To sum up: the top decile always encompasses two very different worlds: “the 9 percent,” in which income from labor clearly predominates, and “the 1 percent,” in which income from capital becomes progressively more important (more or less rapidly and massively, depending on the period).

In other words, “the 1 percent” by itself accounts for roughly three-quarters of the decrease in inequality between 1914 and 1945, while “the 9 percent” explains roughly one-quarter. This is hardly surprising in view of the extreme concentration of capital in the hands of “the 1 percent,” who in addition often held riskier assets.

The foregoing discussion demonstrates the usefulness of breaking income down by centiles and income source. If we had tried to analyze the interwar dynamic by using a synthetic index such as the Gini coefficient, it would have been impossible to understand what was going on. We would not have been able to distinguish between income from labor and income from capital or between short-term and long-term changes.

This is a crucial point: the facts show quite clearly that the financial crisis as such cannot be counted on to put an end to the structural increase of inequality in the United States.

Specifically, if we consider the total growth of the US economy in the thirty years prior to the crisis, that is, from 1977 to 2007, we find that the richest 10 percent appropriated three-quarters of the growth. The richest 1 percent alone absorbed nearly 60 percent of the total increase of US national income in this period. Hence for the bottom 90 percent, the rate of income growth was less than 0.5 percent per year.

Quite obviously, if the increase in inequality had been accompanied by exceptionally strong growth of the US economy, things would look quite different. Unfortunately, this was not the case: the economy grew rather more slowly than in previous decades, so that the increase in inequality led to virtual stagnation of low and medium incomes.

Several points call for additional comment. First, this unprecedented increase in wage inequality does not appear to have been compensated by increased wage mobility over the course of a person’s career.

This is a significant point, in that greater mobility is often mentioned as a reason to believe that increasing inequality is not that important. In fact, if each individual were to enjoy a very high income for part of his or her life (for example, if each individual spent a year in the upper centile of the income hierarchy), then an increase in the level characterized as “very high pay” would not necessarily imply that inequality with respect to labor—measured over a lifetime—had truly increased.

And what we find is that the increase in wage inequality is identical in all cases, no matter what reference period we choose.38 In other words, workers at McDonald’s or in Detroit’s auto plants do not spend a year of their lives as top managers of large US firms, any more than professors at the University of Chicago or middle managers from California do. One may have felt this intuitively, but it is always better to measure systematically wherever possible.Read more at location 5203 • Delete this highlight Note: trochu odflakl wage mobility Edit Recent research, based on matching declared income on tax returns with corporate compensation records, allows me to state that the vast majority (60 to 70 percent, depending on what definitions one chooses) of the top 0.1 percent of the income hierarchy in 2000–2010 consists of top managers. By comparison, athletes, actors, and artists of all kinds make up less than 5 percent of this group.42 In this sense, the new US inequality has much more to do with the advent of “supermanagers” than with that of “superstars.”

Why is inequality of income from labor, and especially wage inequality, greater in some societies and periods than others? The most widely accepted theory is that of a race between education and technology. To be blunt, this theory does not explain everything. In particular, it does not offer a satisfactory explanation of the rise of the supermanager or of wage inequality in the United States after 1980.

or of wage inequality in the United States after 1980. TheRead more at location 5270 Note: kontrast teorie s daty Edit I also called attention to the importance of changes in the minimum wage for explaining the evolution of wage inequalities in France since 1950, with three clearly identified subperiods: 1950–1968, during which the minimum wage was rarely adjusted and the wage hierarchy expanded; 1968–1983, during which the minimum wage rose very rapidly and wage inequalities decreased sharply; and finally 1983–2012, during which the minimum wage increased relatively slowly and the wage hierarchy tended to expand.4 At the beginning of 2013, the minimum wage in France stood at 9.43 euros per hour.

Clearly, the minimum wage has an impact at the bottom of the distribution but much less influence at the top, where other forces are at work.

More generally, insofar as employers have more bargaining power than workers and the conditions of “pure and perfect” competition that one finds in the simplest economic models fail to be satisfied, it may be reasonable to limit the power of employers by imposing strict rules on wages. For example, if a small group of employers occupies a monopsony position in a local labor market (meaning that they are virtually the only source of employment, perhaps because of the limited mobility of the local labor force), they will probably try to exploit their advantage by lowering wages as much as possible, possibly even below the marginal productivity of the workers. Under such conditions, imposing a minimum wage may be not only just but also efficient, in the sense that the increase in wages may move the economy closer to the competitive equilibrium and increase the level of employment.

Nevertheless, the minimum wage should not be frozen.

complementary, moreover). Nevertheless, the minimum wage should not be frozen. WageRead more at location 5431 Note: ajajaj, proc should Edit In addition, the top 1 percent (and even more the top 0.1 percent) have seen their remuneration take off. This is a very specific phenomenon, which occurs within the group of college graduates and in many cases separates individuals who have pursued their studies at elite universities for many years. Quantitatively, the second phenomenon is more important than the first. In particular, as shown in the previous chapter, the overperformance of the top centile explains most (nearly three-quarters) of the increase in the top decile’s share of US national income since 1970.

the top decile’s share of US national income since 1970.12 ItRead more at location 5465 Note: diva se na decily, parada Edit The second difficulty—and no doubt the major problem confronting the marginal productivity theory—is that the explosion of very high salaries occurred in some developed countries but not others. This suggests that institutional differences between countries rather than general and a priori universal causes such as technological change played a central role.

Broadly speaking, the rise of the supermanager is largely an Anglo-Saxon phenomenon. Since 1980 the share of the upper centile in national income has risen significantly in the United States, Great Britain, Canada, and Australia (see Figure 9.2).

In the 1970s, the upper centile’s share of national income was quite similar across countries. It ranged from 6 to 8 percent in the four English-speaking countries considered, and the United States did not stand out as exceptional: indeed, Canada was slightly higher, at 9 percent, whereas Australia came in last, with just 5 percent of national income going to the top centile in the late 1970s and early 1980s. Thirty years later, in the early 2010s, the situation is totally different. The upper centile’s share is nearly 20 percent in the United States, compared with 14–15 percent in Britain and Canada and barely 9–10 percent in Australia (see Figure 9.2).13 To a first approximation, we can say that the upper centile’s share in the United States increased roughly twice as much as in Britain and Canada and about three times as much as in Australia and New Zealand.14 If the rise of the supermanager were a purely technological phenomenon, it would be difficult to understand why such large differences exist between otherwise quite similar countries.

Note, moreover, that the United States, contrary to what many people think today, was not always more inegalitarian than Europe—far from it. Income inequality was actually quite high in Europe at the beginning of the twentieth century. This is confirmed by all the indices and historical sources. In particular, the top centile’s share of national income exceeded 20 percent in all the countries of Europe in 1900–1910 (see Figures 9.2–4).

Actual inequality may be even greater. But the fact that the highest incomes declared in household surveys in these same countries are generally only 4 to 5 times as high as the average income (suggesting that no one is really rich)—so that, if we were to trust the household survey, the top centile’s share would be less than 5 percent—suggests that the survey data are not very credible. Clearly, 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. As long as these official estimates of inequality fail to combine survey data with other data systematically gleaned from tax records and other government sources, it will be impossible to apportion macroeconomic growth properly among various social groups or among the centiles and deciles of the income hierarchy. This is true, moreover, of wealthy countries as well as

nearly 90 percent. The top centile alone owned 45–50 percent of the nation’s wealth in 1800–1810; its share surpassed 50 percent in 1850–1860 and reached 60 percent in 1900–1910.6

financial globalization has made it more and more difficult to measure wealth and its distribution in a national framework: inequality of wealth in the twenty-first century will have to be gauged more and more at the global level. Despite these uncertainties, however, there is no doubt that inequality of wealth today stands significantly below its level of a century ago: the top decile’s share is now around 60–65 percent, which, though still quite high, is markedly below the level attained in the Belle Époque. The essential difference is that there is now a patrimonial middle class, which owns about a third of national wealth—a not insignificant amount.

The primary reason for the hyperconcentration of wealth in traditional agrarian societies and to a large extent in all societies prior to World War I (with the exception of the pioneer societies of the New World, which are for obvious reasons very special and not representative of the rest of the world or the long run) is that these were low-growth societies in which the rate of return on capital was markedly and durably higher than the rate of growth.Read more at location 6077 • Delete this highlight Note: Az tady to zminuje, skoro v pulce knihy! V kazdy recenzi to je. Edit Under these assumptions, we find that the return on capital, net of taxes (and losses), fell to 1–1.5 percent in the period 1913–1950, which was less than the rate of growth. This novel situation continued in the period 1950–2012 owing to the exceptionally high growth rate. Ultimately, we find that in the twentieth century, both fiscal and nonfiscal shocks created a situation in which, for the first time in history, the net return on capital was less than the growth rate. A concatenation of circumstances (wartime destruction, progressive tax policies made possible by the shocks of 1914–1945, and exceptional growth during the three decades following the end of World War II) thus created a historically unprecedented situation, which lasted for nearly a century. All signs are, however, that it is about to end. If fiscal competition proceeds to its logical conclusion—which it may—the gap between r and g will return at some point in the twenty-first century to a level close to what it was in the nineteenth century

Note, finally, that if the difference r − g surpasses a certain threshold, there is no equilibrium distribution: inequality of wealth will increase without limit, and the gap between the peak of the distribution and the average will grow indefinitely. The exact level of this threshold of course depends on savings behavior: divergence is more likely to occur if the very wealthy have nothing to spend their money on and no choice but to save and add to their capital stock.

For example, the wealthiest 1 percent of Parisians in the Belle Époque had capital income roughly 80–100 times as great as the average wage of that time, which enabled them to live very well and still reinvest a small portion of their income and thus increase their inherited wealth.33 From 1872 to 1912, the system appears to have been perfectly balanced: the wealthiest individuals passed on to the next generation enough to finance a lifestyle requiring 80–100 times the average wage or even a bit more, so that wealth became even more concentrated. This equilibrium clearly broke down in the interwar years: the wealthiest 1 percent of Parisians continued to live more or less as they had always done but left the next generation just enough to yield capital income of 30–40 times the average wage; by the late 1930s, this had fallen to just 20 times the average wage. For the rentiers, this was the beginning of the end. This was probably the most important reason for the deconcentration of wealth that we see in all European countries (and to a less extent in the United States) in the wake of the shocks of 1914–1945.

To sum up: the fact that wealth is noticeably less concentrated in Europe today than it was in the Belle Époque is largely a consequence of accidental events (the shocks of 1914–1945) and specific institutions such as taxation of capital and its income. If those institutions were ultimately destroyed, there would be a high risk of seeing inequalities of wealth close to those observed in the past or, under certain conditions, even higher. Nothing is certain: inequality can move in either direction. Hence I must now look more closely at the dynamics of inheritance and then at the global dynamics of wealth. One conclusion is already quite clear, however: 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.

Second, and even more important, the wealth of French historical sources allows us to calculate inheritance flows in two different ways, using data and methods that are totally independent. What we find is that the two evolutions shown in Figure 11.1 (which I have labeled “fiscal flow” and “economic flow”) are highly consistent, which is reassuring and demonstrates the robustness of the historical data. This consistency also helps us to decompose and analyze the various forces at work.

This is precisely what happened in France: the ratio μ of average wealth at death to average wealth of the living rose sharply after 1950–1960, and this gradual aging of wealth explains much of the increased importance of inherited wealth in recent decades.

The most striking fact is no doubt the impressive aging of wealth throughout the nineteenth century, as capital became increasingly concentrated. In 1820, the elderly were barely wealthier on average than people in their fifties (which I have taken as a reference group): sexagenarians were 34 percent wealthier and octogenarians 53 percent wealthier. But the gaps widened steadily thereafter. By 1900–1910, the average wealth of sexagenarians and septuagenarians was on the order of 60–80 percent higher than the reference group, and octogenarians were two and a half times wealthier. Note that these are averages for all of France.

The war reset all counters to zero, or close to zero, and inevitably resulted in a rejuvenation of wealth. In this respect, it was indeed the two world wars that wiped the slate clean in the twentieth century and created the illusion that capitalism had been overcome.

Such predictions are obviously highly uncertain and are of interest primarily for their illustrative value. The evolution of inheritance flows in the twenty-first century depends on many economic, demographic, and political factors, and history shows that these are subject to large and highly unpredictable changes. It is easy to imagine other scenarios that would lead to different outcomes: for instance, a spectacular acceleration of demographic or economic growth (which seems rather implausible) or a radical change in public policy in regard to private capital or inheritance (which may be more realistic).Read more at location 6926 • Delete this highlight Note: Prizna nedostky Edit the comparison with disposable income reflects today’s reality in a more concrete way and shows that inherited wealth already accounts for one-fifth of household monetary resources (available for saving, for example) and will soon account for a quarter or more.

The rebound began with cohorts born in 1930–1950, who inherited in 1970–1990, and for whom inheritance accounted for 12–14 percent of total resources. But it is above all for cohorts born in 1970–1980, who began to receive gifts and bequests in 2000–2010, that inheritance regained an importance not seen since the nineteenth century: around 22–24 percent of total resources. These figures show clearly that we have only just emerged from the “end of inheritance” era, and they also show how differently different cohorts born in the twentieth century experienced the relative importance of savings and inheritance: the baby boom cohorts had to make it on their own, almost as much as the interwar and turn-of-the-century cohorts, who were devastated by war.

Thus far I have examined only averages. One of the principal characteristics of inherited wealth, however, is that it is distributed in a highly inegalitarian fashion.

For the first time in history, no doubt, one could live better by obtaining a job in the top centile rather than an inheritance in the top centile: study, work, and talent paid better than inheritance.

The most worrisome aspect of this defense of meritocracy is that one finds the same type of argument in the wealthiest societies, where Jane Austen’s points about need and dignity make little sense. In the United States in recent years, one frequently has heard this type of justification for the stratospheric pay of supermanagers (50–100 times average income, if not more). Proponents of such high pay argued that without it, only the heirs of large fortunes would be able to achieve true wealth, which would be unfair. In the end, therefore, the millions or tens of millions of dollars a year paid to supermanagers contribute to greater social justice.48 This kind of argument could well lay the groundwork for greater and more violent inequality in the future. The world to come may well combine the worst of two past worlds: both very large inequality of inherited wealth and very high wage inequalities justified in terms of merit and productivity (claims with very little factual basis, as noted). Meritocratic extremism can thus lead to a race between supermanagers and rentiers, to the detriment of those who are neither.Read more at location 7261 • Delete this highlight Note: Troska ideologie Edit But these are the exceptions that prove the rule,

As the figure shows, in the nineteenth century about 10 percent of a cohort inherited amounts greater than this. This proportion fell to barely more than 2 percent for cohorts born in 1910–1920 and 4–5 percent for cohorts born in 1930–1950. According to my estimates, the proportion has already risen to about 12 percent for cohorts born in 1970–1980 and may reach or exceed 15 percent for cohorts born in 2010–2020. In other words, nearly one-sixth of each cohort will receive an inheritance larger than the amount the bottom half of the population earns through labor in a lifetime.

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 problem is simply that the entrepreneurial argument cannot justify all inequalities of wealth, no matter how extreme. The inequality r > g, combined with the inequality of returns on capital as a function of initial wealth, can lead to excessive and lasting concentration of capital: no matter how justified inequalities of wealth may be initially, fortunes can grow and perpetuate themselves beyond all reasonable limits and beyond any possible rational justification in terms of social utility.

How can these facts be explained? By economies of scale in portfolio management. Concretely, Harvard currently spends nearly $100 million a year to manage its endowment. This munificent sum goes to pay a team of top-notch portfolio managers capable of identifying the best investment opportunities around the world. But given the size of Harvard’s endowment (around $30 billion), $100 million in management costs is just over 0.3 percent a year. If paying that amount makes it possible to obtain an annual return of 10 percent rather than 5, it is obviously a very good deal. On the other hand, a university with an endowment of only $1 billion (which is nevertheless substantial) could not afford to pay $100 million a year—10 percent of its portfolio—in management costs.

In particular, it is important to stress that the currently prevalent fears of growing Chinese ownership are a pure fantasy. The wealthy countries are in fact much wealthier than they sometimes think. The total real estate and financial assets net of debt owned by European households today amount to some 70 trillion euros. By comparison, the total assets of the various Chinese sovereign wealth funds plus the reserves of the Bank of China represent around 3 trillion euros, or less than one-twentieth the former amount.

The issue of unequal access to higher education is increasingly a subject of debate in the United States. Research has shown that the proportion of college degrees earned by children whose parents belong to the bottom two quartiles of the income hierarchy stagnated at 10–20 percent in 1970–2010, while it rose from 40 to 80 percent for children with parents in the top quartile.30 In other words, parents’ income has become an almost perfect predictor of university access.

Tuition fees create an unacceptable inequality of access, but they foster the independence, prosperity, and energy that make US universities the envy of the world.

To be sure, if one wants to maintain total taxes at about 50 percent of national income, it is inevitable that everyone must pay a substantial amount. But instead of a slightly progressive tax system (leaving aside the very top of the hierarchy), one can easily imagine a more steeply progressive one.9 This would not solve all the problems, but it would be enough to improve the situation of the least skilled significantly.

The progressive tax thus represents an ideal compromise between social justice and individual freedom.

All told, over the period 1932–1980, nearly half a century, the top federal income tax rate in the United States averaged 81 percent.

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.

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.

The primary purpose of the capital tax is not to finance the social state but to regulate capitalism.

An 0.1 percent tax on capital would be more in the nature of a compulsory reporting law than a true tax. Everyone would be required to report ownership of capital assets to the world’s financial authorities in order to be recognized as the legal owner, with all the advantages and disadvantages thereof. As noted, this was what the French Revolution accomplished with its compulsory reporting and cadastral surveys. The capital tax would be a sort of cadastral financial survey of the entire world, and nothing like it currently exists.

given the very high level of private wealth in Europe today, a progressive annual tax on wealth at modest rates could bring in significant revenue. Take, for example, a wealth tax of 0 percent on fortunes below 1 million euros, 1 percent between 1 and 5 million euros, and 2 percent above 5 million euros. If applied to all member states of the European Union, such a tax would affect about 2.5 percent of the population and bring in revenues equivalent to 2 percent of Europe’s GDP.24 The high return should come as no surprise: it is due simply to the fact that private wealth in Europe today is worth more than five years of GDP, and much of that wealth is concentrated in the upper centiles of the distribution.25 Although a tax on capital would not by itself bring in enough to finance the social state, the additional revenues it would generate are nevertheless significant.

To avoid divergence of the wealth distribution (that is, a steadily increasing share belonging to the top centiles and thousandths), which on its face seems to be a minimal desirable objective, it would probably be necessary to levy rates of about 5 percent on the largest fortunes. If a more ambitious goal is preferred—say, to reduce wealth inequality to more moderate levels than exist today (and which history shows are not necessary for growth)—one might envision rates of 10 percent or higher on billionaires. This is not the place to resolve the issue.

Once again, financial transparency and a progressive global tax on capital are the right answers.

How can a public debt as large as today’s European debt be significantly reduced? There are three main methods, which can be combined in various proportions: taxes on capital, inflation, and austerity. An exceptional tax on private capital is the most just and efficient solution.

The right solution is a progressive annual tax on capital. This will make it possible to avoid an endless inegalitarian spiral while preserving competition and incentives for new instances of primitive accumulation.

But these new approaches themselves succumb at times to a certain scientistic illusion. It is possible, for instance, to spend a great deal of time proving the existence of a pure and true causal relation while forgetting that the question itself is of limited interest. The new methods often lead to a neglect of history and of the fact that historical experience remains our principal source of knowledge. We cannot replay the history of the twentieth century as if World War I never happened or as if the income tax and PAYGO pensions were never created.Read more at location 10165 • Delete this highlight