Piketty Was Right

French economist Thomas Piketty became a teen heartthrob a few years ago by positing that the rate of return on capital is naturally greater than the rate of economic growth, which means the rich will get richer until we tie them all up and rob them. Was he correct? New research says: O Yeah!

Piketty’s 2014 book Capital, 700 pages of dense prose about centuries-old tax rolls, was a smash hit, just as you would expect. Naturally, a controversy ensued among the less “haterade”-drinking economists, who argued that Piketty’s central assertion about the inevitable growth of inequality may have been wrong. Now, though, we have new research that says that the dynamic of doom may be even stronger than Piketty imagined.

New research on the rate of return of all types of assets finds, among other things, this:

Our research also speaks directly to the relationship between r, the rate of return on wealth, and g, the growth rate of the economy. The gap between r minus g figures prominently in the current debate on inequality sparked by Piketty (2014). A robust finding in this paper is that r is much higher than g. On a global level and across most countries the weighted rate of return on capital was twice as high as the growth rate in the past 150 years.

WHAT DOES THIS MEAN? It means that, historically speaking, the amount of money you can earn just by sitting on your ass investing money will grow much faster than the money you will earn from working at a regular job will. Which means that the rich will get richer, and continue to widen the gap between themselves and the non-rich. Which means that in order to avoid having the sort of destabilizing and grossly unjust growth of inequality that we have right now in America, either the government needs to act forcefully to redistribute wealth, or you need a nice plague/ world war/ bloody revolution.