Before you read on: Piketty is famous for a short formula. What does it say?
Piketty's formula is r > g: the return on capital (r) tends to exceed economic growth (g).
- Born
- 1971 in Clichy, France
- Nationality
- French
- Work
- Professor at the Paris School of Economics and EHESS; co-director of the World Inequality Lab
- Key works
- US top income study with Emmanuel Saez (2001; published 2003); Capital in the Twenty-First Century (2013 in French, 2014 in English); Capital and Ideology (2019 in French)
- Field
- Long-run income and wealth inequality, and how taxes shape it
What Piketty was reacting to
After 1945, many economists expected inequality to ease as countries grew richer, a link proposed by Simon Kuznets.
Piketty questioned this view. He argued that economists had neglected who owns wealth because long-run data were missing, so he built that data from tax records. With Emmanuel Saez, he also argued that technology rewarding skill could not explain the whole century's pattern of pay gaps.
Piketty's key ideas
Can you name Piketty's four key ideas?
r is the yearly return on capital, such as rent or profit; g is the economy's growth rate. When r is above g, existing wealth tends to grow faster than incomes from work. Piketty warned this could bring back patrimonial capitalism, where wealth comes mainly from inheritance.
Can you think of an example?
If wealth earns 5% a year and the economy grows 3%, a family reinvesting its returns outpaces average incomes.
The share of income or wealth held by the top 10% or 1%, estimated from tax and estate records, which capture the very rich better than surveys.
Can you think of an example?
Piketty and Saez used tax returns to trace US top income shares back to 1913.
Inequality was very high before 1914, fell sharply to 1945, stayed low in the 1950s and 1960s, then rose again. Piketty linked the fall to wars, the Great Depression and the policies that followed.
Can you think of an example?
In Europe the top tenth's income share fell from about 45-50% before 1914 to about 30% by the 1950s. In the United States it later climbed to nearly 50%.
A yearly tax on net wealth, with rates rising as fortunes grow. Piketty proposed a global one, enforced by banks sharing account details across borders.
Can you think of an example?
Piketty called a worldwide version utopian, and suggested regional wealth taxes as a more realistic step.