The denizens of Forbes’ 400 Rich List and Billionaire’s Row would have been ecstatic yesterday when French economist Thomas Piketty, much-heralded author of “Capital in the Twenty-First Century” made his debut at the Kennedy School of Government to a standing room crowd including Harvard faculty members and local investment managers. The entire affair was introduced with splendid reverence by former Treasury Secretary Larry Summers.
“Capital in the Twenty-First Century” is bound to be one of the most talked about books of 2014, as it raises to a new crescendo the much-debated and alarming rise in the disparity of wealth not only in the US, but around the globe. It is already the first Harvard University published book to make it to the best-seller list of the New York Times in a very long time.
Piketty’s research, he claims, suggests that the top of the wealth distribution is growing at a pace three times faster than any other group. He calls the “the return to the patrimonial society,” suggesting that Forbes’ list of billionaires globally is about to become a far larger number of individuals and will be held in even greater powerful positions in their societies than before. The left is going to find this a very scary concept.
I await the scathing diatribes against Piketty’s research. However, the economists around me in the crowded Harvard classroom assure me Piketty has collected a mass of statistics comparing the growth of income in relation to the growth of capital, and finds capital expanding at a much greater rate.
I thought I heard Piketty allege that the level of taxes is not as salient as the rate of economic growth compared to the accumulation of capital. I guess the simplest way to explain it is that the average rate of stock gains per year over history has been running at 6%-7%, which is about triple the rate of economic growth in the US and Europe right now. So, if you are an entrepreneur with a stock everyone wants to own, your wealth is going to magnify faster than if your holdings expand in line with annual economic growth.
Or as Martin Wolf put it in the Financial Times of London: “In normal times capitalists save a sufficiently large share of their returns to ensure that their capital will grow at least as fast as the economy. This is especially likely to be true of the seriously wealthy, who are also likely to enjoy the highest returns. Small fortunes are eaten; big ones are not. The tendency for capital to grow faster than the economy is also more likely when the growth of the economy is relatively slow, either because of demographics or because technical progress is weak.”
As we are not seeing moderate rises in wealth, undoubtedly we will be living with immoderate rises in power to the rich. Piketty underscores the predicament of rising inequality. Maybe these new oligarchs had better become subject to ”the far higher marginal tax rates on top incomes and a progressive global wealth tax.” Sounds to me the new oligarchs are going to be emigrating to the low or no wealth tax regimes that will always exist.
This debate over Piketty’s books is going to be one of the liveliest intellectual issues of 2014 and beyond. Forbes Magazine ought to be in the forefront of the debate and take a stance on what is most right for the United States economy and democracy.
( Courtesy Forbes & Harvard University ……. Source …….. Our Freelance Contributor in The United States & New africa Business News )