Wednesday, January 29, 2014


in fact, I never took a course in Economics, something I now regret, but it nevertheless seems plausible that capitalism would increase income inequality over the long run for much the same reason that unless prohibited, capitalist production naturally leads to monopolies. In other words, in both the corporate and private capitalist realms, there is a natural tendency for the concentration of wealth.

I'm writing this because Thomas Piketty, a real economist, recently published a book that reaches a similar conclusion using real data:
Capitalism, according to Piketty, confronts both modern and modernizing countries with a dilemma: entrepreneurs become increasingly dominant over those who own only their own labor. In Piketty’s view, while emerging economies can defeat this logic in the near term, in the long run, “when pay setters set their own pay, there’s no limit,” unless “confiscatory tax rates” are imposed.

Piketty proposes instead that the rise in inequality reflects markets working precisely as they should: “This has nothing to do with a market imperfection: the more perfect the capital market, the higher” the rate of return on capital is in comparison to the rate of growth of the economy. The higher this ratio is, the greater inequality is.

No comments: