Piketty was nice enough to talk with me about his work on a Skype call last month.Though patronizing your adversary works for Bill Gates too;
As I told him, I agree with his most important conclusions, and I hope his work will draw more smart people into the study of wealth and income inequality—because the more we understand about the causes and cures, the better. I also said I have concerns about some elements of his analysis, which I’ll share below.We fail to see why any of the three above points of agreement between Gates and Piketty are true (or at least supported by some empirical evidence). Especially that last one--how's that LBJ inspired War on Poverty been going? However, when the loveable tycoon with the bad haircut gets going, he's formidable;
I very much agree with Piketty that:
- High levels of inequality are a problem—messing up economic incentives, tilting democracies in favor of powerful interests, and undercutting the ideal that all people are created equal.
- Capitalism does not self-correct toward greater equality—that is, excess wealth concentration can have a snowball effect if left unchecked.
- Governments can play a constructive role in offsetting the snowballing tendencies if and when they choose to do so.
Take a look at the Forbes 400 list of the wealthiest Americans. About half the people on the list are entrepreneurs whose companies did very well (thanks to hard work as well as a lot of luck). Contrary to Piketty’s rentier hypothesis, I don’t see anyone on the list whose ancestors bought a great parcel of land in 1780 and have been accumulating family wealth by collecting rents ever since. In America, that old money is long gone—through instability, inflation, taxes, philanthropy, and spending.
You can see one wealth-decaying dynamic in the history of successful industries. In the early part of the 20th century, Henry Ford and a small number of other entrepreneurs did very well in the automobile industry. They owned a huge amount of the stock of car companies that achieved a scale advantage and massive profitability. These successful entrepreneurs were the outliers. Far more people—including many rentiers who invested their family wealth in the auto industry—saw their investments go bust in the period from 1910 to 1940, when the American auto industry shrank from 224 manufacturers down to 21. So instead of a transfer of wealth toward rentiers and other passive investors, you often get the opposite. I have seen the same phenomenon at work in technology and other fields.Through the simple mechanism of an entrepreneur coming along with a better idea that fills the needs of the consuming public, at prices they willingly pay. Which is in stark contrast to government programs that fail to meet their promised goals. (Remember Bill's point #3 above; 'governments can play a constructive role...')
And Gates is clearly correct here;
I am also disappointed that Piketty focused heavily on data on wealth and income while neglecting consumption altogether. Consumption data represent the goods and services that people buy—including food, clothing, housing, education, and health—and can add a lot of depth to our understanding of how people actually live.Which is, in the early 21st century, pretty darn well for even the lowest income earners in the USA, Canada and Europe. Thanks to all that Kapital improving labor productivity.