Editors’ note: As Justin Wolfers points out in the New York Times, r>g is not Thomas Piketty’s main argument, and “he likely would have joined the majority view in disagreeing with the claim the survey asked about.” We also regret the error of using 'income inequality' interchangeably with ‘wealth inequality’ and have corrected that within the blog post.
In the spring of this year, French economist Thomas Piketty released Capital in the Twenty-First Century, a book that used centuries of economic data to argue that capitalist economies ultimately lead to severe wealth inequality in which all wealth is inherited. He contends that the rate of return on capital is always higher than economic growth. Therefore, those with capital will always out-earn those who are simply working.
This week, the IGM Forum economists were asked if Piketty is correct (and their answers have jumpstarted the debate). They considered whether the gap between returns on growth rates and the economic growth rate is the “most powerful force” creating wealth inequality in the United States since the 1970s. Overwhelmingly, forum members disagreed with this notion, mostly because they saw other contributors to inequality.
“Many other factors affect inequality including technological change, globalization, increasing returns to education, and others,” wrote Janet Currie of Princeton with her vote. Stanford’s Robert Hall noted that other factors make wealth by noting, “A glance at the biographies of the truly rich shows most came from upper middle class families. Good luck and some skill produced the wealth.”
Others completely rejected Piketty’s argument. William Nordhaus of Yale wrote, “Is this an inside joke? Bureau of Economic Analysis estimates show little change in rate of return.” Stanford’s Caroline Hoxby wrote with her vote that the “argument has poor theory and negligible empirics.”
David Autor of MIT rejected not only Piketty’s argument, but the premise in the question that wealth inequality is growing. “It is not clear yet if wealth inequality has risen in the US: different data sources give different answers. It is premature to identify the causes of a non-fact!”
Nearly 15 percent of the IGM Forum members were uncertain about Piketty’s argument, but their thinking did not stray far from those who disagreed. “There are certainly a host of other factors related to technical change, other government policies and globalization,” commented Yale’s Judith Chevalier with her uncertain vote. In a similar vein, Harvard’s Oliver Hart observed “I would imagine there are many factors: labor-saving technology, globalization, the decline of unions and lower tax rates.”
University of California, Berkeley economist Hilary Hoynes provided the panel’s only agree vote, but since she left no comment with her ballot, we cannot provide an explanation of her thinking. Overall, however, it is safe to say that if the overwhelming majority of the economists that make up the IGM Forum do not support Piketty’s thesis about the causes of wealth inequality, his argument likely needs some work.
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