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Capital in the Twenty-First Century

Posted 4/25/2014 5:29am by Eugene Wyatt. - "...from Capital in the Twenty-First Century by Thomas Piketty. Amid increased concern over growing inequality, a European economist has garnered global attention and stirred controversy with his recent claim that the world is entering a period of inequality similar to what existed in Europe prior to 1914. Added to that controversy is his recommendation that a progressive tax on capital is the solution. In one quote, his assessment of recent U.S. income tax cuts is that they will "eventually contribute to rebuild[ing] a class of rentiers in the U.S., whereby a small group of wealthy but untalented children controls vast segments of the U.S. economy and penniless, talented children simply can't compete....there is a decent probability that the U.S. will look like Old Europe prior to 1914 in a couple of generations."

The principal destabilizing force has to do with the fact that the private rate of return on capital, r, can be significantly higher for long periods of time than the rate of growth of income and output, g. The inequality r > g implies that wealth accumulated in the past grows more rapidly than output and wages. This inequality expresses a fundamental logical contradiction. The entrepreneur inevitably tends to become a rentier, more and more dominant over those who own nothing but their labor. Once constituted, capital reproduces itself faster than output increases. The past devours the future. 

Growth, according to M. Piketty, can be encouraged by "investing in education, knowledge, etc." (and even the most remedial: how to eat and what) but...

The problem is enormous, and there is no simple solution. Growth can of course be encouraged by investing in education, knowledge, and non polluting technologies. But none of these will raise the growth rate...(the sufficiently).

Capital in the Twenty-First Century, 2014 Thomas Piketty

It's a rather pessimistic projection that only war brought us out of the inequalities of the earlier Gilded Age—particularly if you believe as M. Piketty does: that we are in another pre-1914 economy of inequality. No one will want to tax capital as he suggests to solve the problem. War has been started for less significant reasons.