Piketty’s Missing Rentiers

Thomas Piketty predicts that interest rates will rise substantially above the growth rate, capital will accumulate, and the rich will get richer through inheritance and capital income, rather than through outlandish salaries and stock options. But unearned income is not what is driving the current rise in inequality.

CAMBRIDGE – Most reviews of Thomas Piketty’s book Capital in the Twenty-First Century have already been written since its startling rise to the top of bestseller lists in April. But I thought it wise to read the volume in its entirety before offering my thoughts. It has taken me five months, but I have finally finished it.

One thing that the book has in common with Karl Marx’s Capital is that it serves as a rallying point for those concerned about inequality, regardless of whether they understand or agree with Piketty’s particular argument. To be fair, whereas very little of what Marx wrote was based on carefully collected economic statistics, and much of it was bizarre, much of what Piketty writes is based on carefully collected economic statistics, and very little of it is bizarre.

In the United States, income inequality by most measures has been rising since 1981, and by 2007 had approximately re-attained its early-twentieth-century peak. The same is true in the United Kingdom, Canada, and Australia. In these countries, income inequality declined sharply from 1914 to 1950, as it did in France, Germany, Japan, and Sweden. But in the latter group, the income distribution is now far more egalitarian than it was at peak inequality a hundred years ago.

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