When was the last time you read something to understand a
viewpoint? Remember reading a textbook
for class that presented historical data analysis to identify trends and then
predicted the impact of those trends on the future, ending with recommendations
for addressing those future outcomes? That
is, when did you last read something that made you think hard? This book was a real exercise for my thinking.
I remember taking a class my junior year of college called “Money
and Banking”. It was heavy on economic
theory (M1 and M2, as I recall) and pushed the limits of my understanding. It must have planted a seed though because
when I heard of this book I reserved it at the library to see what all the fuss
was about. It has stirred a lot of
discussion about the best ways to address the inequalities of wealth in the
world.
To start with, you have to accept that there are
inequalities (there will always be the poor among us) and that it is something
that should be addressed because it leads to conflict.
I’m all for some having more than others. It
just doesn’t make sense to me that everyone with their individual uniqueness
should have exactly equal levels of wealth, as measured by income and capital,
so I’m not advocating the dreaded “redistribution of wealth” theory.
It’s the extremes that I believe should be
eliminated, and not just at the bottom of the pile. “The rich get richer and the poor get poorer”
is not inevitable in my way of thinking.
For Piketty, his research indicates it may be and he proposes ways to
prevent it.
Specifically, he recommends a global, progressive annual
capital tax that would impact the highest income levels. This would be a tax on
wealth, i.e., what you own in terms of land (the traditional asset), goods
(buildings, houses, companies) and financial investments (stocks, bonds and the
like). The proposal has created a
firestorm of controversy that no doubt has others struggling to read this tome,
which is a good exercise in my opinion. His
recommendation rests a lot on the assumption of continuing low growth for the foreseeable
future, something his critics have pounced on.
Piketty comes to his recommendation by analyzing income and
capital and labor wages and growth rates over the last three centuries, since
the beginning of modern industrial civilization or the late 1700’s to the
present. This is no small feat. There’s lots of scholarly explanation that
requires re-reading and breaks from reading to process, sort of like interval running.
There are many more tidbits drawn from his research; I made
note of those that struck me and list them for my own reference. I’m glad I struggled through this book and
would recommend it for those looking for a 10K level of reading.
P22 over a long period of time the main force in favor of
greater equality has been the diffusion of knowledge and skills.
Capital income ratio – concept that income is a flow of good
produced and distributed in a timeframe (usually a year) and capital is a
stock, the total wealth owned at a particular time that came from wealth either
appropriated or accumulated over time.
The ratio of a nation’s capital to income (he represents with the Greek
letter “B”) has historically been that capital is 5 to 6 times greater than
income.
Definition of the word “autarky” - the quality of being
self-sufficient. Usually the term is applied to political states or their
economic systems.
Diffusion of knowledge has been main contributor to global
growth and equality.
[This book contributes to that growth]
P 88 according to UN, India will be most populous county in
the world by 2020.
P 121 the advantage of owning things is that one can
continue to consume and accumulate without having to work
P 224 some people think we’ve gone from a civilization based
on capital, inheritance and kinship to one based on human capital and
talent…capital has not disappeared.
P 244 Inequality in respect to capital is always greater
than inequality in respect to labor (wages).
Income from capital distribution is always greater than income from
labor.
P 246 Intergenerational warfare has not replaced class
warfare.
P 278 [wealth was concentrated (held by a small % of
population) before WWI – WWI and II readjusted playing field due to highly
progressive tax on income and inheritance that did not exist before 1920 but it
has been re-established almost to the same levels by 2010] Bottom line is there are more with
ridiculous income from labor in 21st century.
P 279 Income from capital rises sharply and income from
labor decreases rapidly at top of income levels.
P 290 In U.S. the top
10% share of wealth went from 30-35% of national income to 45-50% from 1970 to
2010.
P 297 In his mind, no doubt that the increase in inequality
contributed to the financial crisis of 2008-09.
From 1977-2007, richest 10% in US got 75% of growth. Top 1% got 60% of the increase in
income. Bottom 90% ratio of income
growth was less than 0.5 % per year. Low
growth was a major factor.
P 302 The top 0.1% (centile) of the population by income or
wealth consists of top managers (of organizations)
P 307 Over long run, education and technology are decisive
determinants of wage levels.
P 333 Change in senior management compensation has played
key role in evolution of wage inequality
P 335 phenomenon of “pay for luck” – when sales and profits
increase for external [to the organization] reasons, exec pay rises most
rapidly.
P 375 Inequality of wealth would not return to 19th
century levels because of taxes, decrease in capital’s share of income, the rate
of return on capital and income rate of growth compared to 19th
century.
P 377 Inheritance will predominate over savings (r > g) because
the rate of return on capital is greater than the growth rate
P 406 For cohorts born 1970-1980 inheritance is 22 to 24% of
total resources. Baby boomers had to
make it on their own.
P 416 Thinking in the 19th century was that if there
had not been a sufficient wealthy minority, no one would have been able to
worry about anything but survival.
P 417 Thinking in the 20th century was that without
high pay to execs only heirs of large fortunes would be able to achieve true
wealth, which is unfair and therefore high pay is a form of social justice. This is meritocratic extremism, the idea that
pay levels are awarded based on merit and contributing to social justice is
part of the merit.
P 421 In 1970-80 cohort, 12-14% will receive inheritance
equivalent to a lifetime of labor income received by the bottom 50%.
P 444 [recommends] a progressive annual tax on the largest
fortunes worldwide [to close inequality gap]
P 453 Inflation is a tax on wealth that is not invested.
P 463 [argues that ownership of a country by other countries
is less a threat than ownership by its own and the world’s super rich.]
P 477 Historic increase in government tax revenues during
the 20th century were used to pay for the creation of the social
state.
P 478 Fiscal revolution of 20th century made
possible the social revolutions of access to education, health and security in
retirement (public pensions).
P 479 total social spending of 25-35% of national income –
reflects constitution [creation] of the social state.
P 480 fundamental social rights – access to education,
health and retirement.
P 486 No easy way to achieve real equality of education.
P 489 PAYGO systems
[like social security where past generation supports/pays for the present] will
continue because converting to other method leaves a generation out.
P 490 One of the most important reforms for 21st
century to make is to establish a unified retirement scheme with equal rights
for everyone regardless of complexity of career path.
P 512 Skyrocketing exec pay is explained by bargaining model
[lower marginal tax rates encourage negotiation for higher pay].
P 514 – the New World may be on verge of becoming the Old
Europe of 21st century’s globalized economy [because of trend toward
lower progressive income tax].
P 521 Proposes a global progressive annual capital tax fed
by automated reporting of all assets, not just income.
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