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Wealth inequality may not work the way Piketty thinks

Aug 09 2016 08:42
Andrew Mayeda

Washington - There's yet more evidence that Thomas Piketty may have got it wrong on what causes global inequality.

Piketty became a hero of the Occupy movement with the publication two years ago of "Capital in the Twenty-First Century," a 696-page doorstopper that became an unlikely New York Times best seller.

READ: Matthew Lester: Thomas Piketty’s Inequality 101 (Wealth taxes) – no easy solution

In it, the French economist uses historical data to show how wealth is growing faster than gross domestic product–and how the gap is worsening inequality. His prescription? A tax on the super-rich.

But a new working paper by International Monetary Fund economist Carlos Goes says there's little empirical support for Piketty's central assertion.

Goes found that inequality actually dropped when the gap grew between capital returns and economic growth in at least 75% of the 19 advanced economies that he studied.

READ: Newsmaker: Thomas Piketty – capital and critics

The results echo the research by MIT economist Daron Acemoglu and James Robinson of the University of Chicago, among others.

"Inequality is a complex phenomenon and its trends are very sluggish," Goes writes in the paper, which doesn't represent the official view of the Washington-based IMF.

"It is certainly possible that the long-term relationships Piketty proposes exist and are simply not captured by the 30 years of data for the 19 advanced economies included in this sample."

READ: Piketty blames apartheid for SA’s high inequality

Researchers may have to look elsewhere to unlock the key to global inequality.

Goes cites a few theories about the roots of inequality: growing premiums paid for skills combined with falling union membership, or technological innovation.

Last but not least, it may also be worsened by the tendency for the one percent to marry among themselves.  


WATCH: New thoughts on capital in the twenty-first century

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