This week's book was 'Capital in the Twenty-First Century' written by Thomas Piketty. This was a long book that consisted of 700+ pages and read a little like a thesis. Needless to say, it wasn't the easiest read.
The main premise of this book is that the private rate of return on capital can be significantly higher for long periods of time than the rate of growth of income and output. This inequality implies that wealth that is accumulated in the past (in which inheritance plays a big part) grows faster than output and wages, therefore creating further divergence in wealth distribution.
Furthermore, labor income becomes less and less important as one moves up within the top income decile. Although housing is the favorite investment of the middle class, true wealth always consists primarily of financial and business assets.
With growth rates of 1-1.5% in the long run and a return on capital of 4-5%, the past will continue to devour the future. Having greater transparency, cooperation and fairer tax systems will help converge capital inequality. It still feels like we are a long way from that though.
The main premise of this book is that the private rate of return on capital can be significantly higher for long periods of time than the rate of growth of income and output. This inequality implies that wealth that is accumulated in the past (in which inheritance plays a big part) grows faster than output and wages, therefore creating further divergence in wealth distribution.
Furthermore, labor income becomes less and less important as one moves up within the top income decile. Although housing is the favorite investment of the middle class, true wealth always consists primarily of financial and business assets.
With growth rates of 1-1.5% in the long run and a return on capital of 4-5%, the past will continue to devour the future. Having greater transparency, cooperation and fairer tax systems will help converge capital inequality. It still feels like we are a long way from that though.
