After Piketty The Agenda for Economics and Inequality - Heather Boushey

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• Thomas Piketty’s book Capital in the 21st Century (C21) has been a surprise bestseller, selling over 2.2 million copies globally in 30 languages. This indicates a strong interest in discussions about rising inequality.

• C21 analyzes historical trends pointing to increased wealth concentration driven by high returns to capital outpacing economic growth. The 2016 US election results support Piketty’s view that politics are moving in a direction favoring protection of wealth.

• C21 is having a major impact outside of economics, shaping debates in fields like history, sociology, and political science. Paul Krugman provides a good overview of this impact.

• Krugman argues C21 highlighted how past periods of inequality like the Gilded Age were compatible with radical democracy, as great wealth purchased influence over policies and discourse. This influence of wealth appears even stronger today.

• The election of Donald Trump, who championed “regular guys” over elites, reinforces concerns about rising inequality translating to political currents that protect accumulated wealth.

• The editors compiled the chapters to emphasize what economists should study in light of C21’s analysis and arguments about the likelihood and effects of increasing inequality.

• Thomas Piketty’s book Capital in the 21st Century (C21) argues that wealth inequality will continue rising in the coming decades as returns on capital outpace economic growth.

• Piketty sees the mid-20th century as an anomaly with lower inequality due to capital-destroying wars and progressive taxation. Absent these factors, wealth concentrates among heirs over time.

• Critics argue Piketty overlooks factors like creative destruction disrupting dynastic wealth, humans accumulating valuable skills, and institutions/polices impacting inequality outcomes.

• While Piketty’s arguments have attracted large audiences, mainstream economics has not fully engaged with the research questions and implications raised in his work.

• More work is needed from economists to evaluate Piketty’s claims, address valid criticisms, and determine appropriate policy responses if inequality continues rising as he predicts. Piketty’s analysis demands serious consideration from the economics field.

Here is a summary of the key points made in the argument:

• Piketty argues that wealth inequality has historically been high and is rising again due to returns on capital outpacing economic growth. This could lead to the resurgence of “patrimonial capitalism” dominated by inherited wealth.

• Some critiques of Piketty argue he overstates economic determinism and ignores political/social factors that could challenge rising inequality. But his main scenario of increasing wealth concentration is still plausible given current trends.

• Piketty cites evidence that the rate of return on capital has remained relatively constant over long periods instead of varying inversely with the capital/income ratio as neoclassical theory predicts. This challenges theories like “euthanasia of the rentier.”

• However, Piketty does not provide a clear explanation for why the rate of return remains stable. Filling this theoretical gap is an important task for further research.

• While Piketty’s predictions are contestable given uncertainties, his empirical findings about historical inequality patterns and issues with neoclassical models are more secure contributions.

• Constructive engagement with Piketty’s work should involve rigorous critiques that further develop and test his arguments, rather than superficial critiques that misrepresent or fail to advance understanding.

In summary, the argument evaluates Piketty’s thesis as largely plausible given current evidence, while highlighting open questions around political contingencies and the theoretical basis for a stable rate of return that remain to be fully addressed. It calls for substantive engagement that builds on rather than rejects his insights.

• Piketty argues that inequality will continue to grow due to returns on capital outstripping overall economic growth. However, this argument assumes capital and labor are not very substitutable.

• One alternative view provided by Tyson and Spence is that information technology makes human labor more substitutable for capital. This could disrupt the relationship between returns to capital and economic growth that underlies Piketty’s argument.

• In other words, if information technology reduces the need for human labor, it challenges the assumption that capital needs labor to be productive. Piketty may be “barking up the wrong tree” by not adequately accounting for this potential impact of new technologies.

• So in short, Piketty’s argument for continually growing inequality relies on certain economic relationships holding. But technological changes could alter those relationships, rendering his conclusions less robust or even invalid. There needs to be a stronger story about how returns to capital remain high even as technology substitutes for human labor.

Here are the main implications based on the summary provided:

1. Piketty argues that in the future, wealth inequality is likely to increase substantially as the wealth-to-income ratio rises and inherited wealth becomes a greater share of total wealth. This could entail an unfavorable distribution of economic power and resources according to some notions of societal well-being.

2. However, others like Milanovic argue that Piketty’s view only applies to a specific “new capitalist” institutional setup, and that different distributions of income and power are possible under different institutional frameworks like the post-WWII social democratic model. So the dynamics may not be predetermined.

3. There are open questions around the concept of “capital” that is central to Piketty’s argument, particularly around whether capital continues to be productively accumulated at the margins. Resolving these conceptual issues is important for assessing the argument.

4. Going forward, more analysis and understanding is needed regarding things like the relationship between capital, labor, and output; different historical notions of capital; and the role of political-economic factors like rent-seeking by wealthy elites.

5. Overall, while Piketty highlights serious risks of increasing inequality, the future is not inevitable. Different policy and institutional choices could lead to different and more equitable outcomes. More research is still needed to fully evaluate the arguments and implications.

In short, Piketty’s work draws attention to important issues but leaves many open questions, and different choices could help address the risks he outlines. Continued analysis and debate are warranted to further develop our understanding.

• Thomas Piketty’s Capital in the Twenty-First Century (C21) became an unexpected international bestseller after its publication in 2014, selling over 2 million copies worldwide in over 30 languages. This was unusually high for an academic book, especially one as long and data-heavy as C21.

• The book seemed to tap into the zeitgeist by addressing growing concerns about rising inequality. It provided a rigorous empirical and historical analysis of the long-term trends driving the concentration of wealth.

• Piketty’s clear and accessible writing style allowed the book to reach a wider audience than typical economics works. It was reviewed widely outside of just academic journals.

• The initial popularity was sustained as reviews came out, with Piketty making media appearances globally. However, some criticized that the book overstated the role of inequality in economic growth and downplayed the importance of human capital.

• The “Piketty phenomenon” showed a strong public appetite for understanding long-term trends in inequality from an empirical perspective, though some critiques emerged regarding the scope and conclusions of the analysis. The book captured attention by rigorously examining issues already on many minds.

Here is a summary of the provided text:

• Thomas Piketty’s book Capital in the Twenty-First Century (C21) became a publishing phenomenon and public phenomenon upon its release in 2014. It sold over 2 million copies worldwide in over 40 languages.

• In the US, it received significant media attention on shows like The Colbert Report. Piketty met with top US officials and was seen as a “rock star” economist. Bookstores prominently displayed the book alongside bestsellers.

• However, no one anticipated this level of success. The acquiring editor at Harvard University Press expected 200,000 sales over 2-3 years, while the head of HUP thought 10,000-20,000 copies would be lucky.

• Prior to C21, Piketty had published scholarly works but nothing indicating this level of popularity. The book was seen as an opportunity for HUP to expand into economics while appealing to social sciences audiences.

• The book sold well in France from the beginning after its French release, in tens of thousands of copies, though it got a larger boost in France after American success. Foreign sales are not always indicative of US success.

• The unprecedented success of C21 is difficult to fully explain, though the context of the post-recession period and focus on inequality issues likely contributed. No one could have predicted the “Piketty phenomenon.”

• Piketty was already a prominent public intellectual and left-leaning political figure in France before publishing Capital in the 21st Century. This helped boost interest and controversy over the book there initially.

• However, his prominence was less established in the US. There were concerns his message about increasing inequality under neoliberalism would face more hostile reception from the American right.

• The book was published at a time when the Great Recession had undermined faith in free markets and economists. Questions of inequality and fairness were getting more attention politically in the wake of bailouts that mainly benefited the wealthy.

• Major figures like President Obama and Elizabeth Warren had begun highlighting inequality as a key issue. So the book arrived during a moment when inequality was already a rising concern, especially unfairness in how recovery benefits were distributed.

• Key economists and policymakers like Janet Yellen were also acknowledging the significance of inequality trends and their implications, showing the issue had broader acceptance. This context helped boost interest and reception of Piketty’s expansive analysis of long-term inequality patterns.

• Thomas Piketty’s book Capital in the Twenty-First Century was well-positioned for success when published in 2014, as there was growing public anxiety about rising inequality and decreasing social mobility.

• The book provided an empirical analysis of long-term trends in wealth inequality using historical data. It showed that the rate of return on capital generally outpaces overall economic growth, leading to increased concentration of wealth over time if left unchecked.

• Piketty argued this could be addressed through policies like progressive taxation of income and wealth. His analysis revived discussion of redistributive policies and reignited interest in inequality issues.

• The book received positive reviews from economists like Paul Krugman and Branko Milanovic prior to its official publication, generating significant early buzz. Harvard University moved up the publication date in response.

• Krugman’s enthusiastic promotion as a Nobel laureate was hugely influential in driving initial interest and sales. Piketty’s work addressed pressing public concerns and filled a need for analysis of long-term inequality trends.

• Various groups were receptive to the book’s message, including liberal professionals worried about concentrated political influence of the wealthy and young people seeking insight into contemporary economic challenges. This contributed to its broad success and impact.

• Thomas Piketty’s book Capital in the Twenty-First Century received a lot of publicity and praise from influential economists like Paul Krugman and Robert Solow. This helped propel sales and bring the book to a wider audience.

• Piketty went on a speaking tour of prominent institutions in Washington DC, New York, and Boston. He drew large crowds and media attention, considered unprecedented for an economics book.

• While generally well-received, some on the left like James Galbraith criticized aspects of Piketty’s analysis and definition of capital.

• Piketty’s work attracted significant interest from academics outside of economics, in fields like history, sociology, and political science. His lectures went from attracting hundreds to over 1,500 people.

• Historians were particularly interested in Piketty’s data on inheritance flows over long time periods and how this relates to the persistence of class domination. His work re-opened questions about distribution that had fallen out of favor in economics.

• There were some critiques that Piketty did not fully account for all relevant historical work in his analysis. But overall it engaged scholars across disciplines with its ambitious long-term perspective on capitalism and inequality.

• The passage discusses Thomas Piketty’s influential book Capital in the 21st Century and its examination of rising income inequality.

• Piketty argues that income inequality has been increasing since the 1970s, with a widening gap between rich and the rest. This is an ominous trend that democratic policy needs to address.

• Previous explanations for rising inequality like globalization, technolgical changes, minimum wage erosion, union decline are seen as partial and don’t fully explain the trends, especially the rising shares of the top 1%.

• Piketty provides a broader framework rooted in the deeper forces of capitalism to better explain the long-term trends seen across advanced economies over the last 40 years.

• The passage author, Robert Solow, praises Piketty’s work as “serious” and filling important gaps in understanding the causes of rising inequality. However, it notes the book is long at over 500 pages with extensive footnotes and data appendix.

• Overall the summary discusses how Piketty’s book with its analysis of capitalism and inequality was seen as an important work providing a more comprehensive framework than previous explanations for understanding long-term inequality trends.

• Piketty has compiled a vast database on wealth/capital levels over time for several countries, going back centuries when possible. This provides an empirical foundation for his analysis of inequality trends.

• He expresses wealth/capital levels relative to national income to facilitate comparisons across countries and eras. The ratio is termed the “capital-income ratio.”

• Data show capital/income ratios were roughly stable for centuries, then fell after World Wars I/II before rising again since the 1950s toward 19th century levels.

• Piketty develops an economic model where the long-run capital/income ratio is determined by the savings rate and growth rate. He predicts this ratio will continue rising in the 21st century based on slowing growth and stable savings.

• Wealth tends to earn a positive return over time (estimated around 4-5% historically). This generates inequality as returns to capital accumulate more than wages alone.

• The larger the capital stock relative to income, the greater the share of national income derived from capital returns vs. wages - further fueling inequality between capital owners and workers.

• Piketty argues that if the return on capital (r) exceeds the overall growth rate of the economy (g), wealth will concentrate more and more in the hands of the rich over time through a “rich-get-richer” dynamic. As the rich accumulate more wealth, their income from that wealth grows faster than average incomes from labor.

• This could lead to increasing inequality even if productivity and wages for labor are growing. It depends on whether r falls more or less than the capital-income ratio rises as the economy becomes more capital intensive.

• Historically, r has usually exceeded g, allowing wealthy families’ assets to grow faster than the overall economy. Exceptions include periods of major disruption like wars and depressions.

• If r > g continues for the long-term future as predicted, the proportion of income and wealth going to the top 1% and 10% will likely increase further over time through inheritance and investment returns.

• This dynamic favors inheritance over merely earning a high income, as it is harder for labor incomes alone to keep pace with returns to accumulated wealth across generations.

• However, the effects may not be drastic, with uncertainty around exactly how much inequality will worsen depending on how r and g evolve. But the “rich-get-richer” mechanism poses a significant challenge to maintaining equitable societies.

• Thomas Piketty’s book Capital in the 21st Century revolutionized our understanding of long-term trends in inequality through new statistical techniques to track income and wealth concentration over decades and centuries.

• Piketty and others showed that rising inequality is primarily driven by surge in incomes of the top 1% (“supermanagers”), not gaps between middle/working class. This challenged views that downplayed inequality.

• In the US especially, the share of national income going to the top 1% has followed a U-shaped curve, being around 20% pre-WW1, falling to around 10% by 1950, but surging back to 20% since 1980. This validated describing the current era as a “New Gilded Age.”

• However, today’s economic elite of corporate executives and bankers is different from the late 19th century Gilded Age dominated by industrialists. Piketty favors an annual global or regional wealth tax to slow the growing concentration of wealth among the top slices of society driven by returns on capital outpacing overall economic growth.

• Piketty argues that economic inequality is returning to levels last seen in the late 19th century during the Gilded Age/Belle Époque period.

• He uses tax records in addition to surveys to get a more complete picture of inequality, including among the very wealthy. Tax data provides longer historical trends going back over a century.

• A key theory is that the rate of return on capital (r) will exceed the overall growth rate of the economy (g) in the 21st century, as population and productivity growth slows. This will concentrate wealth among those who own capital.

• Historically, r was much higher than g in the late 19th century, allowing inherited wealth to steadily accumulate and dominate the economy. Piketty believes current trends may lead back to this “patrimonial capitalism.”

• If r > g, it will increase the capital share of national income and redistribute wealth upward over the long run, reinforcing unequal ownership of capital and inequality of outcomes.

• Piketty argues progressive taxation is needed to counter these inequality trends from rising wealth concentration and returning to late 19th century levels of income inequality.

• In the 19th century, most wealth was inherited rather than earned through lifetime work. When wealthy individuals died, their wealth passed to heirs with minimal taxation. Inherited wealth accounted for 20-25% of annual income.

• This inherited wealth was highly concentrated, with the richest 1% controlling 60-70% of total wealth in countries like France and Britain.

• Inheritance was thus a major driver of inequality and social status. As Balzac depicted, marrying into a wealthy family was often a surer path to high living standards than a career.

• While capitalist inequality declined in the mid-20th century, inherited wealth and income from capital are becoming more important drivers of inequality again. The share of wealth from inheritance has risen back up to pre-1970 levels of 70%.

• Piketty argues this may only be the beginning, as historical trends suggest a “drift toward oligarchy” with inequality driven by returns on capital outpacing economic growth over the long run.

• However, the rise of the top 1% in countries like the US is more due to very high wages, not just capital income. This is a limitation in Piketty’s theory.

• Still, public policy has a key role to play. Progressive taxation, especially of wealth and inheritance, can offset the rise in inequality driven by returns on capital outpacing economic growth. So the “drift toward oligarchy” is not inevitable if countries choose policies to limit it.

• Piketty’s model in Capital in the 21st Century predicts that a decline in economic growth rate will lead to a rise in the capital share of income as long as the elasticity of substitution between capital and labor is greater than one.

• The elasticity of substitution is a key parameter that measures how easily capital and labor can substitute for each other in production. If it is greater than one, capital and labor are highly substitutable.

• Piketty estimates the elasticity of substitution to be greater than one based on national accounts data. However, most other empirical estimates from microdata and other methods find an elasticity significantly lower than one, indicating capital and labor are not highly substitutable.

• If the elasticity is truly lower than Piketty’s estimate, it calls into question his prediction that a fall in growth will necessarily increase the capital share and inequality.

• Alternative explanations for rising capital share include labor-saving technological change and increased trade exposure. The empirical evidence provides more support for these theories compared to Piketty’s substitution-based mechanism.

• This calls into question the core theoretical framework underlying one of Piketty’s main policy prescriptions of a global wealth tax to address rising inequality driven by returns to capital.

• Piketty documents that the capital share (α) and the capital/output ratio (β) follow a U-shaped pattern over the long run for France, Germany, UK, and US - declining from 1910-1950 and rising from 1980-2010.

• Piketty estimates the elasticity of substitution (σ) between capital and labor to be 1.3-1.6 based on the observed co-movement of α and β over time. This is higher than most estimates in the existing literature, which find a median estimate of around 0.5-1.

• Piketty measures β using the total market value of capital, but changes in capital valuation may affect β without changing actual capital used in production. Alternative measures of β that exclude capital gains do not always show the same U-shaped pattern.

• Piketty’s identification strategy of using the historical movement of α and β alone does not uniquely identify σ, as the changes could be driven by technology as well as factor supplies/demands. More assumptions are needed about technology.

• The key questions are whether Piketty’s higher estimates of σ are valid given differences from other studies, and what conclusions can be drawn about identification and the role of technology in driving the results.

• Estimates of the elasticity of substitution between capital and labor (how easily factors of production can be substituted for one another) are challenging because it is difficult to separate the effects of changing technology from movements in factor prices in aggregate time series data.

• Controlling for biased technological change (technological improvements that favor one factor over the other) in estimates typically results in estimated elasticities below one, rather than thevalue of one often assumed. Different assumptions about the nature of technological change lead to different elasticity estimates.

• Micro data using differences across firms or locations may provide more credible identification of the long-run elasticity by exploiting more persistent variation in factor prices. Estimates using micro data tend to find elasticities around 0.4-0.5.

• However, to understand aggregate movements in factors’ income shares, the relevant elasticity is the macro elasticity, which incorporates both substitution within individual producers as well as reallocation across producers in response to changes in factor prices. Existing empirical estimates may underestimate this aggregate elasticity.

• The right-hand side of equation (9) contains two terms - a substitution effect and a reallocation effect.

• The substitution effect captures how individual plants change their input mix in response to input price changes, depending on the micro elasticity of substitution. With higher wages, plants will tend to use less labor.

• The reallocation effect captures how the size of plants changes as some gain a relative cost advantage when wages rise. This leads consumers to shift spending toward more capital-intensive goods.

• The weight between the two effects, φ, depends on the variation in capital intensities across plants. More variation leads to a larger reallocation effect.

• The study estimates a macro elasticity of 0.7 for the US using micro data on plant-level elasticities and capital intensities. This is modestly higher than micro estimates of around 0.5.

• For developing countries with greater variation in capital intensities, the same approach estimates a higher macro elasticity of 1.1 for India.

• In summary, the study provides a way to estimate aggregate elasticities using micro data, finding values generally below one and consistent with much of the literature, contrary to Piketty’s higher estimates.

• The chapter discusses a political economy perspective on Piketty’s work on the capital share and wealth inequality.

• It draws a distinction between a “domesticated” Piketty who focuses narrowly on the technicalities of his economic model, versus a “wild” Piketty who sparks broader debates about inequality and the influence of wealth in society and politics.

• The author, Suresh Naidu, argues for embracing the “wild” Piketty and viewing capital’s rising share through a political economy lens. He sees capital’s growing power as having political implications for redistribution and democratic decision making.

• Naidu presents a framework for how rising wealth concentration can influence policymaking. As the wealthy accumulate more assets, they have greater incentive and ability to shape rules and redistribute resources in their favor through lobbying and campaign finance.

• This political influence, in turn, can reinforce rising capital shares and inequality through policies that disproportionately benefit owners of capital over wage earners. It creates a “self-reinforcing cycle” between economic and political power.

• The chapter brings Piketty’s insights into dialogue with debates around capitalism, inequality and democracy. It advocates a broader consideration of capitalism’s political dimensions, not just its technical dynamics.

• Suresh Naidu challenges the approach taken by Thomas Piketty in modeling rising inequality as arising from the dynamics of wealth accumulation over time.

• Unlike Piketty, Naidu does not use a neoclassical production framework. He argues the capital stock reflects beliefs about future claims on production, discounted by the financial sector.

• This implicates the political sphere more than Piketty’s model, as institutions like the financial sector and policies shape capital shares and returns.

• Naidu’s approach suggests a broader set of policy levers beyond just Piketty’s proposed global wealth tax, as it considers how politics and financialization influence inequality.

• In summary, Naidu critiques Piketty for not taking politics and market power seriously enough. He advocates an approach that views capital as institutionally-defined claims on income, rather than a pure economic concept, to better explain changing inequality over time.

• The formula W/Y = s/g relates the wealth-to-income ratio (W/Y) to the household savings rate (s) and GDP growth rate (g). It suggests W/Y is determined by these mechanical factors of savings and growth.

• However, this obscures the role of capitalist institutions in enabling private wealth accumulation. With capitalist property rights and labor markets, profits can accumulate as privately held wealth even in a planned economy.

• Piketty argues that as long as the rate of return on capital (r) stays above the GDP growth rate (g), the share of income going to capital (α) will rise over time, increasing wealth inequality. This was obscured historically by high growth rates in the postwar era.

• Several potential structural factors could cause r to remain above g, such as high returns on foreign investment, high substitution of capital for labor, use of wealth to influence policy/returns, or non-economic motives like dynastic heirs.

• Thinking of savings as accumulating for its own sake, like real estate, rather than just future consumption, supports higher taxes on wealth without deterring accumulation.

• Valuation effects and capital gains are also important contributions to wealth levels, suggesting “money view” of wealth determined by bargaining power (α), income share to owners (αY), and capitalization rate in financial markets (r-finance).

• The wealth-income ratio (W/Y) can be decomposed into the capital share of income (α) and the rate of return on financial assets (r-finance - ρ). This provides an alternative accounting framework to the traditional savings-gains ratio (s/g).

• α captures bargaining power between capital owners and other groups like workers or consumers. Higher α reflects greater bargaining power for capital owners to capture a larger share of income.

• r-finance - ρ reflects how financial markets evaluate and price assets based on expectations of future income flows. Wider participation in financial markets can bid up asset prices and lower the discount rate.

• Changing dynamics of labor bargaining power, product market competition, corporate governance, and concentration can all impact α over time. Declining unionization and increased monopolization have likely contributed to rising α.

• Incomplete contracts mean control rights over decision making are important. Variation in things like shareholders’ control between countries is reflected in differences in measures like Tobin’s Q that do not fully account for control.

So in summary, it presents an alternative framework to view wealth as dependent on the capital share and rate of return, influenced by dynamics of bargaining power, competition, and control rights embedded in market structures and institutions.

• Under slavery, slaves’ labor earnings primarily benefited slaveowners through property rights. Estimates indicate slaves were paid only 48% of their marginal product while owners captured the rest.

• Slave wealth could be viewed as both an asset for owners and a liability for slaves. Piketty agrees it should be considered wealth as it was a legally protected stream of income that could be traded on the market.

• The capitalization of human capital into wealth no longer occurs in modern capitalism due to limits on labor contracts imposed by the 13th Amendment.

• Following the Civil War, land values collapsed more in former slave states/counties as slaves withdrew their labor and the plantation system lost productivity.

• However, slaves were also used as collateral and credit, expanding slaveowners’ business ventures and supporting credit networks in the antebellum Atlantic economy. Their traded value went beyond immediate production use.

• In summary, the institution of slavery concentrated wealth in slaveowners by granting them considerable control and earnings from slaves’ labor through tradable property rights, even if that value was obtained at the expense of slaves themselves.

• Piketty focuses primarily on taxing capital directly through a global wealth tax as the main policy solution to rising inequality. This would tax total wealth holdings rather than just capital income or gains.

• A wealth tax could lower the post-tax return to capital (r-g) and make wealth distributions more transparent by requiring information sharing between countries to curb tax havens.

• However, the passage criticizes Piketty for ignoring other macroeconomic policies like public debt, inflation, and monetary policy that could also impact wealth distributions.

• It argues Piketty ignores how concentrated wealth can influence politics and policies. The hyper-wealthy have many tools to shape outcomes, like campaign donations, threat of capital flight, controlling information flows, and lobbying. Rising inequality may amplify these effects.

• New tools include commercialized politics allowing purchase of policy reforms, whereas old tools include capital strikes and the class backgrounds of political elites proposed by theorists like Milliband and Poulantzas.

• Housing wealth is also politicized as local policies directly impact land and property values for homeowners. So wealth distributions impact and are impacted by the political process.

In summary, it contrasts Piketty’s focus on taxation versus other approaches, and argues he overlooks the influence of wealth on politics which can undermine redistributive policies.

• Laws, policies and perceptions can be shaped by political demands from groups like NIMBY homeowners seeking to increase property values. Tough-on-crime laws and land use regulations may have been influenced by such groups.

• Housing markets constrain redistribution, as public school systems are linked to residential property. Globally, the wealthy park assets in countries with strong property rights.

• Wealth inequality affects policy ideas and ideology by allowing well-funded private groups to shape expertise and draft model legislation. Lack of public policy resources enables this influence.

• Financial regulation is particularly vulnerable as technical complexity creates barriers, allowing insiders to dominate behind the scenes. Wealth also influences academia by funding certain research priorities and think tanks.

• Markets allocate more to wealthy preferences, undermining democratic egalitarian norms. Labor precarity and lack of worker bargaining power increases private power over others. Overall this equilibrium allows economic inequality to reinforce political inequality.

• Thomas Piketty’s Capital in the 21st Century excludes slavery and enslaved people from its definition and analysis of capital.

• However, Daina Ramey Berry argues this is a major oversight, as enslaved labor was deeply embedded within both private firms and public/government institutions throughout the 18th-19th centuries.

• She cites the example of Southern Railroad Company purchasing over 80 enslaved people in 1848 to perform labor. This shows how railroads and other firms relied on and owned slave capital.

• Berry proposes a definition of slave capital as the total monetary value assigned to enslaved individuals, as calculated through estate valuations, taxes, sales prices, etc. It also includes the profits generated from enslaved labor.

• By ignoring the ubiquitous role of slavery, Piketty presents an incomplete picture of the historical foundations and development of capitalism. Enslaved labor was integral to the accumulation of capital and wealth in both Europe and Americas up through abolition.

• Historians have approached the topic of slavery and economy in various ways, from analyzing profitability and productivity to crop specialization and market changes. Early scholars like W.E.B. Du Bois and U.B. Phillips helped establish the field by focusing on economic aspects.

• Du Bois studied the suppression of the slave trade and argued that American colonists preferred to profit from the trade. Phillips analyzed plantation records and sources to discuss slave prices, insurance, labor in railroads, and how economists ignored slavery.

• Eric Williams’ 1944 work highlighted the connection between slavery, capitalism, and Britain’s rise, using British records to trace the history and impact of slavery. This helped create the field of studying slavery and capitalism.

• Robert Fogel and Stanley Engerman’s controversial 1974 work “Time on the Cross” applied new cliometrics methods to provide quantitative analysis of slavery, arguing it was highly profitable but overwhelming disproven on issues like treatment of slaves. It sparked significant debate that continues today.

• Historians have adopted varied approaches but consistently establish slavery’s economic importance and impact on areas like development, markets, and the rise of capitalism. Key early works laid the foundation for further study.

• Scholars like Fogel and Engerman initiated the economic study of slavery in the 1960s, examining slavery’s role in the Southern economy. Their work sparked debate and interest in the field.

• In recent years, historians have increasingly studied the relationships between slavery, capitalism, and imperialism. Walter Johnson’s River of Dark Dreams examines how Mississippi Valley slaveholders envisioned slavery and the global economy.

• Other scholars like Joshua Rothman, Edward Baptist, Sven Beckert, and Calvin Schermerhorn have also published works on topics like the expansion of slavery and the history of cotton. Beckert’s global history of cotton received awards.

• Baptist’s The Half Has Never Been Told argues slavery violently increased slave productivity, relying on slave narratives. It received both praise and criticism, continuing debates around methodology.

• Economists have long studied slavery’s economics through statistical analysis, focusing on prime-aged men, but women have been largely absent from analyses of slave markets and capitalism despite their central role.

• Scholars like Jennifer Morgan and the author are addressing this gap by examining women’s experiences within slave markets and commodification from capture through the system. Morgan’s forthcoming work promises to significantly reshape understandings of gender and the economics of slavery.

• Enslaved people frequently worked in urban spaces throughout the South, including in shipyards, factories, brickmaking, butchering, laundries, construction, janitorial work, public works like streets, bridges and sewers.

• Their labor contributed to the development of infrastructure and the economy in cities and states. Enslaved people worked on levee construction, railroads, cemeteries and other public projects.

• Some cities and states directly owned enslaved people and used their labor. Municipalities would purchase or hire/rent enslaved people for public works like roads and bridges. This was seen as a cost-effective use of labor.

• Records show specific examples of enslaved people doing road work assigned by counties. Enslaved labor was an integral part of the developing professional and financial capital in the South in both private industry and public works, yet was often overlooked in historical analyses of capital and economics.

• Scavengers or sanitation workers in the 19th century played an important role in keeping urban areas clean and preventing the spread of disease. Their work included chimney sweeping, sewage removal, trash collection, and disinfecting public buildings. They drove carts around cities to collect trash.

• Slave labor also contributed significantly to the financing of universities in the North and South. Many universities owned slaves and profited from the slave trade, including public universities like UNC and UGA as well as private schools like UVa, Dartmouth, Harvard, and Brown. Enslaved workers were seen as valuable assets.

• The passage provides examples of enslaved individuals who worked at UNC, like James who was a “college servant” for four years before liberating himself, and Wilson Caldwell who served the university president along with his mother.

• It argues that Piketty overlooked the role of slavery and slave capital in the development of wealth and institutions in the US. Accounting for slavery and slave labor would alter his conclusions about the scale of wealth accumulation during this time period.

In summary, the author argues that considering only physical capital and excluding human capital from the analysis would yield very different policy implications than those offered by Piketty in Capital in the Twenty-First Century. Some key points:

• Human capital is an important source of wealth and inequality both within and across generations, yet Piketty excludes it from his definition of capital/wealth.

• Piketty’s arguments against including human capital as a form of wealth fail, as important features like durability, return without effort, and inheritability apply to human capital as well as physical capital.

• Excluding human capital provides only a partial picture of inequality and its evolution over time. It ignores the role of human capital in intergenerational transmission of wealth and economic advantage.

• Mainstream economic research uses human capital theory as the dominant framework for understanding labor income inequality, yet Piketty dismisses this without adequate justification.

• Considering human capital would differentiate sources of labor income and have implications for the causes and solutions of inequality proposed by Piketty. His policy prescriptions focus solely on physical capital wealth taxes.

So in summary, the author argues that including human capital in the analysis, as mainstream economics does, would likely yield different policy implications than those offered by Piketty based solely on physical capital.

• Human capital is a source of wealth, as skills lead to higher income-earning potential. Those with more skills and education generally have greater economic opportunities and ability to command resources.

• However, accumulating human capital requires supplying labor, which involves disutility. High-wage jobs may actually be less unpleasant than low-wage jobs.

• Skills are passed from parents to children through both inheritance and deliberate parental investments in their children’s human capital.

• While human capital theory cannot fully explain all individual inequality, it can explain many systematic differences in outcomes. No economic theory perfectly fits the data.

• Using observed outcomes like wages to infer underlying human capital is not tautological, as human capital models relate it to testable factors like education.

• Evidence suggests the importance of human capital has increased as returns to skills and education have risen, though it may explain recent inequality trends less well.

• Piketty focuses on inheritance and mobility of physical capital, but human capital transmission is also important to consider to fully understand intergenerational advantages. Inheritance flows alone do not track actual parental bequests to children.

• Piketty’s analysis in Capital in the 21st Century focuses on the role of capital inheritance in intergenerational wealth mobility but does not consider human capital transmission.

• However, human capital is also passed from parents to children through both direct inheritance (genes, environment) and parental investments in education, skills development, neighborhood quality, etc.

• Parental human capital investments could increase or decrease mobility depending on whether they offset or exacerbate the effect of unequal capital inheritances.

• Empirically, it is difficult to isolate the impact of parental income from other correlated family characteristics. Studies do not find strong evidence that parental income alone has a large causal effect on child outcomes.

• Early environment and investments in the prenatal and early childhood periods seem most important for developing human capital, not parental income specifically.

• Estimates of intergenerational income and other mobility vary substantially, and it is difficult to disentangle the roles of nature, nurture and skills begetting skills over time based on the existing evidence.

So in summary, the role of human capital transmission is more complex than capital bequests alone and the empirical literature does not provide a clear picture of how parental advantages translate to children.

• There is very little evidence on intergenerational mobility in consumption and capital wealth due to lack of high-quality longitudinal data linking generations.

• Available evidence suggests a substantial share of intergenerational correlation in capital wealth is realized before bequests, and parental income does not have a strong independent effect on mobility.

• While income inequality has increased dramatically, income mobility has remained largely unchanged over decades and there is little evidence it has declined recently. However, consumption and wealth mobility may differ from income mobility.

• Future research on mobility could fruitfully distinguish between sources of inherited human capital, explore interactions between genetics and environment, and develop better testable theories linking mobility to economic fundamentals to guide empirical tests. This could help design policies to increase mobility through investments in human capital rather than just reducing transmission at the top.

• Overall, while rising inequality is a concern, there is little evidence it has harmed mobility so far. But consumption and wealth mobility trends requiring more research before drawing strong conclusions. Future research addressing conceptual and data limitations could help deepen understanding of mobility.

Here is a summary of the key points made in the article:

• Thomas Piketty’s book Capital in the Twenty-First Century has sparked a heated debate about the causes of rising income and wealth inequality.

• The authors argue that technological change and globalization, which allow tasks to be performed more cheaply by machines, are the real driving forces behind rising inequality, especially in coming decades.

• As more jobs become vulnerable to replacement by intelligent machines and programs, this will drive earnings inequality between those whose work becomes more productive with technology versus those whose work is no longer necessary.

• The authors view Erik Brynjolfsson and Andrew McAfee’s book The Second Machine Age as being as important a contribution to the inequality debate as Piketty’s book.

• In coming decades, an increasing share of jobs will be vulnerable to replacement by intelligent machines and software, according to Brynjolfsson and McAfee. This technological disruption is likely to be a major driver of inequality.

• While Piketty’s book provided a wealth of historical data and analysis of inequality, the authors argue the real causes of rising inequality will be found in technological changes that displace human labor from routine tasks.

So in summary, the article argues that technological advancement and automation, rather than capitalism itself, will be the primary driver of increasing inequality in the future as more jobs are made redundant by machines.

• Thomas Piketty’s work focuses on analyzing historical trends in wealth and income inequality, but does not provide a detailed theory of the causal drivers.

• Piketty’s theory assumes the annual return on capital (r) is normally higher than the rate of economic growth (g), leading to increasing concentration of wealth over time.

• Technology is embedded in Piketty’s production function model, where it drives growth through productivity but also affects the returns to capital and labor.

• The authors believe technology and globalization have played a bigger role than Piketty acknowledges, especially in driving changes in capital and labor shares of national income.

• Advances in AI, automation, and digital technologies have significantly boosted the substitutability of capital for labor. This helps explain declining labor shares globally since 1980.

• The authors argue books like The Second Machine Age better capture the inequality effects of recent technological changes than Piketty’s focus on returns and growth alone. Policies may need to address distributional consequences of new technologies.

In summary, the passage critiques Piketty’s work for underemphasizing the role of technology and globalization as drivers of recent inequality trends, particularly regarding capital versus labor shares of income.

• Piketty’s analysis focuses on capital income and wealth inequality, but growing inequality in labor income is also a major factor driving overall income inequality.

• Technology, particularly skill-biased technological change, has been a major driver of rising labor income inequality over the last 30 years. Computerization and automation have substituted for middle-income, middle-skill jobs and polarized the labor market.

• As technology favors higher-skilled jobs, the earnings premium for education has risen significantly. The increased supply of college graduates has failed to keep up with rising demand for higher skills, widening gaps between educated and less-educated workers.

• While Piketty acknowledges technology’s role in driving up inequality through these labor market effects, he believes greater access to education can help reduce inequalities. However, it’s uncertain if education will remain an effective remedy if automation displaces even highly skilled jobs in the future.

• In summary, technology, through skill-biased change and polarization, has strengthened inequality according to Piketty’s standard framework by widening gaps between the returns to labor of different skill levels. Access to education may have mitigated this trend but faces challenges in a more digitized future.

• There is concern about how workers will fare as intelligent machines and robots become more prevalent. Some fear widespread job losses, while others argue new jobs will be created.

• Thomas Piketty focuses on the failure of education/technology explanations to adequately explain the explosion of very high incomes, particularly in the US compared to other countries facing similar forces.

• Institutional factors like managerial compensation practices, social norms, tax policy may better explain surging incomes of the top 1%, especially “supermanagers”.

• Differences in income inequality across developed countries cannot be fully explained by common technologies/forces, suggesting other policies play a role.

• Piketty argues surging pay of top US executives reflects “largely arbitrary” compensation practices set by other executives, not marginal productivity. Tax cuts may have strengthened rent-seeking incentives.

• Others argue executive pay aligns incentives with shareholders and explains stock performance, so compensation follows company value increases. Technological changes may boost executive marginal productivity and pay. Debate ongoing about causes of rising executive pay.

• Technology systems can increase the monitoring and control abilities of top managers by giving them immediate access to data across the entire company. This disintermediates by reducing middle management layers and increasing oversight efficiency.

• Gains from more effective management and reduced costs go somewhere - one study found they increased CEO compensation. More research is needed to see if these gains benefit consumers, workers, shareholders or just top executives.

• Financial technology innovations drove growth in the financial sector, increasing productivity metrics. This rewarded executives/traders based on these metrics rather than overall economic value.

• Winner-take-all effects from technology can increase pay for “superstar” performers by enabling them to sell skills globally. This applies not just to celebrities but also professionals like CEOs, lawyers, doctors.

• Technology generates economic rents by creating market imperfections from scale economies, network effects, and intellectual property. These rents accrue primarily to upper management and capital owners, including in the digital realm. Piketty’s analysis does not fully account for technology’s role in rents and top incomes.

• Technological progress and globalization have been major drivers of inequality in developed economies over the past 30 years.

• Labor-saving technologies have substituted for routine jobs while complementing non-routine cognitive jobs, leading to labor market polarization. This has benefited high-skilled workers but displaced mid-skilled workers.

• Globalization expanded global supply chains, increasing competitive pressure and downward pressure on wages in developed countries from lower-cost labor in emerging economies.

• Technological changes were skill-biased, complementing high-skilled non-routine jobs but substituting machines for mid-skilled routine jobs. This widened wage inequality.

• Weak demand after 2000 and China’s rise further reduced demand for mid-skilled manufacturing jobs in countries like the US.

• Declining unionization and minimum wages also contributed to stagnating median wages and rising inequality in countries like the US.

• Future technological progress like artificial intelligence may automate more jobs across skill levels and further widen inequality if not addressed.

• The structure of industries between tradable (trade-exposed) and nontradable sectors has impacted rising income inequality.

• Tradable sectors like manufacturing are subject to external competition, while nontradable sectors like healthcare, education are not.

• Over time, the tradable sector has expanded due to technological developments, exposing more economies to competition.

• In the US, nontradables make up around 2/3 of value added and over 70% of employment.

• From 1990-2012, tradables and nontradables grew similarly in value added but virtually all employment growth (98%) occurred in nontradables like healthcare and government.

• Productivity growth has been hurt by low productivity growth in the large nontradable sector.

• Within tradables, manufacturing declined in employment but grew in value added as jobs were replaced by technology and offshoring.

• The shift of jobs and workers from higher-paying tradables like manufacturing to lower-paying nontradables likely contributed to rising inequality.

• Growing income inequality is linked to shifts in the economy due to technology and globalization. Value added per person turns into income for workers, capital owners, or the government.

• Value added and productivity have grown faster in the tradable sector where jobs have stagnated, compared to the non-tradable sector where jobs have increased. This contributed to inequality.

• Evidence shows the tradable sector shifted to higher value-added services like manufacturing supply chains, lowering manufacturing jobs and demand for middle-income jobs.

• This supported rising wages for higher education as skills became more important. It also reduced union power and labor bargaining power overall.

• Benefits of technology and globalization went disproportionately to capital owners, widening gaps between productivity and median wages.

• Digital technologies like robotics, AI, and 3D printing are expanding what machines can do, potentially substituting for more complex cognitive jobs. This will further impact employment, returns to skills, and income distribution.

So in summary, shifts in sectors, jobs, and skills driven by technology and globalization redistributed income in favor of capital over labor, exacerbating inequality trends. Emerging digital technologies may intensify these shifts.

• For many developing countries in the past half century, labor-intensive manufacturing provided an engine of economic growth as they connected to the global economy and relied on low-cost labor as a comparative advantage.

• However, new digital technologies like robotics and 3D printing threaten to bypass labor-intensive production methods and make manufacturing more mobile based on proximity to markets rather than labor costs. This limits future opportunities for industrialization and economic development models reliant on manufacturing.

• Developing countries now face more jobs at risk of automation than developed countries. Traditional labor cost advantages are eroding as technologies substitute labor, especially for routine tasks. Global supply chains are shifting as a result.

• This raises challenges for latecomer developing countries on where future comparative advantages may lie and what investments are needed in fixed assets, infrastructure, and human capital to support new sources of economic growth.

• Education, progressive taxation, and social support programs are some policy areas that can help address rising inequality driven by skill-biased technological change, though responses require navigating uncertainty around future job and skill demands. Increased education emphasizing STEM and middle-skills is recommended.

• David Weil analyzes the concept of the “fissured workplace”, where jobs are increasingly outsourced by function rather than being performed by employees under a single roof.

• This stratification of the labor market pushes workers into a “race to the bottom” without the de jure protections that come with traditional employee status.

• In the postwar era from 1947-1979, productivity and wages grew in parallel for workers across skill levels within large firms. But from the late 1970s onward, productivity grew much more than wages.

• Weil argues economists need to refocus on wage determination as a phenomenon worthy of study, to better understand trends in inequality complicated by the fissured workplace model. Outsourcing jobs complicates the picture of inequality arising just from a capital-labor split.

• Many studies have examined causes of declining labor share of income, rising inequality from returns to characteristics vs composition effects, impacts of technology, globalization, and declining unions. But the fissured workplace is an important and understudied dimension.

The chapter argues that a key driver of inequality over the past 30 years has been the evolution of the “fissured workplace”, where major companies have shed non-core activities to external businesses. This fundamentally altered the employment relationship and wage-setting norms.

When jobs are shed to subordinate businesses, wage-setting moves from a rent-sharing model to one driven by competitive market pressures. Lower margins in subordinate businesses incentivize cost-cutting, including wages nearing marginal productivity. This contributes to growing inequality both among and within firms.

Future research should refocus on how the fissured workplace impacts wage determination and the labor share of income. The evolution was driven by pressures on companies to improve financial performance by focusing on core competencies. Shedding activities allowed monitoring through contracting arrangements while lowering various labor costs for the lead businesses.

Here is a summary of key points about ad businesses:

• Large employers have some level of monopsony power in the labor market due to information asymmetries and search frictions that limit worker mobility and bargaining power. This gives employers more discretion in setting wages.

• Historically, major companies adopted unified wage and personnel policies across worker groups for administrative efficiencies, consistency, and legal compliance. This formed internal labor markets.

• Institutional economists found managerial behavior established complex internal wage-setting systems even without unions. Large non-union firms had similar practices.

• Fairness is also an important consideration in wage determination. Workers care about relative pay compared to peers doing similar work. Unified compensation structures help reduce friction among workers.

• Perceptions of fairness affect relationships in the workplace and how decisions are made. Workers view wage cuts differently based on perceived reasons behind them, like broader economic conditions versus company profits.

So in summary, large employers have some monopsony power that allows more flexibility in wage-setting. Historically they adopted consistent internal policies partly due to administrative needs, and fairness perceptions among workers are also a factor in compensation decisions.

• Large employers historically tried to maintain internal fairness and equity in wages to promote harmony and avoid unrest among workers. This involved both horizontal equity (similar pay for similar work) and vertical equity (pay structures that scaled appropriately across job levels).

• To address horizontal equity concerns, companies often established consistent pay scales for comparable positions, even if individual performance varied. This minimized wage differences for similar observable skills.

• Vertical equity was also important, as workers would compare their pay to those in higher positions. Wage structures needed to scale appropriately across levels to maintain fairness perceptions.

• Accommodating both horizontal and vertical equity norms could lead companies to pay wage premiums overall relative to external market wages, to maintain internal pay structures.

• However, companies have increasingly shifted to fissured work arrangements, outsourcing activities to external contractors and business entities. This allows them to set prices for services rather than directly setting wages.

• By creating competition between contractors, companies can in effect achieve wage discrimination based on individual productivity, while avoiding direct wage-setting constraints around horizontal and vertical equity within their own workforces.

• This shift to fissured and outsourced work arrangements has given companies more flexibility in wage determination relative to worker fairness norms that previously constrained internal wage-setting policies.

• The fissured workplace hypothesis suggests that large employers can improve efficiency and profitability by outsourcing or contracting out functions like employment, operations, and services rather than handling them directly.

• This allows them to focus on core revenue-generating activities and treat things like labor as a market transaction rather than an internal function. It creates competition among providers of these services/functions.

• Workers doing the same jobs, but as contractors rather than direct employees, tend to earn lower wages according to studies of occupations like janitors and security guards.

• By shifting costs externally, companies can capture more value for investors through lower prices or higher profits rather than sharing gains internally through higher wages.

• This fissuring contributes to broader inequality by increasing earnings variation (“dispersion”) between firms as work is outsourced, rather than just within individual firms. Lead firms maintain higher pay for core roles while dependent firms face more competition and pay less.

• Industries that franchise heavily, like fast food, also see greater earnings inequality between franchisor and franchisee wage structures compared to before franchising expanded.

• Recent studies have provided evidence consistent with the fissured workplace hypothesis, which posits that companies have separated core and non-core activities between lead businesses and subordinate suppliers/contractors.

• This separation has allowed lead businesses to treat wage determination as a pricing problem rather than deal with collective bargaining and fairness norms. It has impacted wages for workers in subordinate firms.

• Understanding wage inequality requires examining factors beyond just individual productivity, like the institutions and rules that govern labor markets.

• Key open questions include how fairness norms differ between firm types/sectors, the role of social norms and networks in wage setting in fissured/low-wage industries, and how fissuring impacts wage determination for higher-skilled jobs as well.

• More research is needed to develop stronger models of the fissured workplace and its mechanisms, and examine the interplay between market forces, social factors, and institutions in driving rising inequality. A multi-disciplinary approach is important to address these challenges.

The author discusses the important methodological contributions of Thomas Piketty’s book Capital in the Twenty-First Century. One of the most significant is Piketty’s attempt to unify the fields of economic growth, functional income distribution, and personal income distribution. Typically these were treated separately, but Piketty explicitly links them.

Specifically, Piketty shows how the “fundamental inequality” of r (return on capital) being greater than g (economic growth rate) leads to an increasing share of capital income (α) in the overall economy. This rising capital share is then assumed to inherently increase inequality between individuals. However, the author notes this relationship is more complex and varies based on the underlying asset distribution in different societies.

The chapter then examines the theoretical relationship between rising capital share (α) and inequality (Gini coefficient) in three ideal “socialist”, “classical capitalist”, and “new capitalist” systems. It also provides an empirical analysis using household survey data from advanced economies. Overall, the author argues the impact of rising capital share on inequality depends on existing asset ownership and policies to equalize asset distribution could address rising inequality in wealthy nations.

• There are three ideal-typical social systems discussed: socialism, classical capitalism, and a mixed system.

• Under socialism, if capital returns are distributed equally per capita, then a rising share of capital income (r > g) will not lead to greater inequality. This is because the Gini coefficient of capital income (Gc) would be zero, and the correlation ratio (Rc) between capital income ranks and total income ranks would also be zero.

• Under classical capitalism, with total separation of capital/labor ownership, the transmission of a rising capital share to inequality is positive and concave. This is because the Gini of capital income (Gc) and the correlation ratio (Rc) between capital and total income ranks are both high.

• A mixed system with some redistribution of capital returns leads to an intermediate level of transmission, with Rc higher than under socialism but lower than under pure capitalism.

• Three factors determine the transmission: the Gini of capital income (Gc), the correlation ratio between capital and total income ranks (Rc), and the relative size of capital vs labor income shares. Higher values of Gc and Rc, and a larger capital share, strengthen the transmission of r > g to greater inequality.

• The passage analyzes how a higher capital income share translates to greater overall income inequality under different forms of capitalism.

• Under classical capitalism with a single capitalist and many workers, the transmission to inequality is low as capital income is concentrated in one person.

• Under the opposite extreme of many capitalists and one worker, transmission is high as capital income correlates strongly with total income.

• “New capitalism” has both labor and capital income distributed across the whole population. Two versions are considered:

1. Constant labor/capital proportions across incomes. Transmission is low as rankings don’t change.

2. Increasing capital share at higher incomes. Transmission is high as capital income becomes more unequal than labor income.

• Empirically, advanced countries resemble version 2, so transmission may be similar to classical capitalism with increasing capital shares correlating to greater inequality.

• Data from LIS household surveys on capital income concentration/correlation ratios is analyzed over time for several countries to gauge real-world transmission elasticities.

• The study examines how the elasticity of income inequality (how responsive inequality is to changes in the capital income share) has changed over time in different countries.

• It finds that elasticity has generally increased since the 1970s in most countries examined (US, Sweden, Germany, Spain). This means changes in the capital share now have a greater impact on overall income inequality.

• Sweden saw a large increase in elasticity, from 0.2 in the mid-1970s to 0.5 by 2000, which parallels known increases in wealth/income inequality there.

• US elasticity steadily increased from 0.54 in the late 1970s to 0.64 in 2013. German and Spanish elasticity also increased.

• Elasticities among countries have converged over time - gaps are smaller than in the 1970s.

• Italy, US and Finland have the highest average elasticities around 0.6. Belgium, Sweden and Switzerland have the lowest around 0.35.

• Elasticity is positively correlated with capital share, but the relationship is concave - impact levels off at higher capital shares.

• Most elasticities fall between 0.3-0.6, suggesting modern economies fall between socialism and classic capitalism models in terms of this relationship.

• A 5% rise in US capital share could be associated with around a 0.8 point increase in income inequality based on estimated elasticity and other parameters.

• This chapter examines global inequality trends to complement Piketty’s analysis of inequality within developed countries. It looks at inequality across all individuals worldwide as well as within developing countries.

• When considering all individuals globally, inequality fell in the 2000s for the first time since the Industrial Revolution. Incomes grew most for those in the global top 1%. However, within most countries, inequality increased.

• For the average developing country, the rise in within-country inequality slowed in the late 2000s. Globalization led to rapid growth in some poorer countries but also rising inequality within many of them.

• The analysis is limited by data availability, which likely misses top incomes. Consistent cross-country data is needed to fully understand global inequality trends over time.

• While Piketty focused on developed nations, emerging economies are important to consider as they may follow a similar development path to today’s rich countries. Their higher growth rates also impact forecasts of r (returns) exceeding g (growth) over the long-run.

• There is a recognition beyond developed countries that current inequality levels threaten long-term development goals. More data is critical to analyze global inequality patterns and inform policy responses.

• Household surveys tend to underestimate top incomes and wealth in countries, especially developing countries. They often fail to capture capital incomes, entrepreneurial incomes, and other sources that make up much of the incomes of the rich.

• Analyzing global income distributions from 1988-2008, global inequality as measured by the Gini index declined slightly from 72.2% to 70.5%. However, this decline is uncertain given data limitations. Imputing for missing top incomes suggests inequality may have remained unchanged.

• The decline in global inequality has been driven by falling inequality between countries, as average incomes converged. However, within-country inequality increased on average, counteracting the global trend.

• Rapid growth in China was a major driver of falling between-country inequality. Excluding China, between-country inequality almost doubled.

• Globalization and technological changes since the late 1980s are thought to have important distributional effects both within and between countries, and between skilled and unskilled labor worldwide.

• y inequality refers to inequality within countries, while between-country inequality refers to differences in average income across countries.

• Historically, global inequality was driven more by within-country differences during the Industrial Revolution, but more recently between-country differences have been a larger contributor. However, within-country inequality is rising in many places.

• The bar chart shows the contributions of within- vs between-country inequality to total global inequality over time.

• The growth incidence curve in Figure 11-3 shows that income grew most rapidly around the global median (China) and at the very top, but stagnated in the middle of rich countries.

• Inequality trends have varied by region - it increased in Latin America through the 1980s-90s but then fell in the 2000s, increased in East Asia especially China and Indonesia, and data is limited but inequality seems high in sub-Saharan Africa.

• Most countries saw falling inequality immediately following the Great Recession, but levels remain higher than decades ago in many places.

• Global income inequality slightly decreased between 2007-2012 according to Gini index measurements for 93 countries. Inequality fell in 59 countries and rose in the rest.

• Inequality trends plateaued in China and developed countries after previously increasing strongly. Latin America saw stagnating trends after earlier declines.

• Within-country inequality remained roughly stable on a population-weighted basis globally, but economic convergence between countries continued.

• These inequality changes coincided with rapid globalization and technological change that increased integration and geographic spread of production.

• Globalization likely benefited middle/upper classes in China but lower incomes in rich countries lagged. Technology increased demand for skilled labor more than supply.

• Labor-linking technologies created a global labor market that squeezed low-skilled rich world workers and constrained future wage growth in Asia. Top incomes rose globally from scale effects and rising capital share.

• Inequality issues require policy responses like expanded social spending, more progressive taxation systems that tax capital gains andproperty, and addressing horizontal inequities between capital/labor taxation.

• The issue of tax havens needs to be addressed, as developing countries lose $100 billion annually in corporate tax revenues to havens. Cracking down requires international coordination, especially among rich countries where most haven deposits originate.

• Welfare states are under pressure from globalization, so redistribution may not be feasible solely through fiscal policy. Market income distribution also needs attention. East Asian countries achieved growth with equity from relatively equal land distribution and education.

• Latin America reduced inequality through conditional cash transfer programs that redistribute resources and build human capital. Education has been a development tool; capital endowments receive less focus.

• Proposals to address unequal capital distribution include profit-sharing, sovereign wealth funds, helping the poor build assets, and taxes on inheritance and inter vivos transfers.

• Governments influence technology and returns through R&D incentives, education funding, and industrial policy. Successful industrial policy involved competition and export performance monitoring.

• Future global inequality depends on between-country, within-country, and population growth differences. Convergence may continue long-term but Africa’s growth is volatile and climate change introduces uncertainty.

• Improving inequality data in developing countries is a top research priority, including on consumption/income, capital incomes, top incomes, and exploiting administrative records. Better data can help answer questions about true inequality levels and dynamics.

• Households in different parts of the income and skill distribution interact with the global economy in various ways as consumers, sellers of labor, and owners of capital.

• In poorer countries, a larger portion of households primarily interact as sellers of labor, as consumers with limited purchasing power, and have very little capital holdings.

• In richer countries, households at the top of the income and skill distribution are more integrated into the global economy as multi-national capital owners and investors. They benefit greatly from global capital mobility.

• Households in the middle and bottom of richer countries primarily interact as consumers and sellers of labor. Their capital holdings and ability to benefit from global capital mobility is more limited.

• The global economy thus serves to further increase inequality between citizens of poorer vs richer countries, as well as within richer countries where the benefits of capital income and globalization disproportionately flow to those at the very top of the income distribution.

The passage argues that the apotheosis or culmination of the contemporary transformation to neoliberal capitalism is finance capital. While Piketty focuses on describing growing inequality between capitalists/managers and labor, he does not fully analyze how corporations have shifted toward prioritizing financial values and practices.

A key aspect of this shift is the ability of capital to appear and be located in extra-legal spaces that are obscure to states and international governance. These include tax havens but also zones, corridors, cities, and other jurisdictions operating through forms of extra-legality. This serves to decouple the economy from democratic politics while maximizing returns on capital.

Specifically, zones have proliferated globally as paradigmatic extra-legal spaces governed by private rules rather than democratic oversight. They allow capital to “land” in a mobile yet certain manner outside of regulation. Zones thus amplify the power of capital and spatially reproduce growing inequality, functioning as “evil paradises” that are deliberately nondemocratic. Offshores are also extra-legal spaces that virtually locate capital and companies elsewhere for tax and regulatory purposes, demonstrating how the world now operates through offshore financialization.

• About 55% of profits made abroad by US corporations are recorded in just six tax havens, even though they may have little actual economic activity in those locations.

• The scale of offshore tax haven use significantly affects measures of wealth inequality.

• Tax minimization is not the only motive for offshore activity - it also enables “deviant globalization” like illegal trade.

• Tax havens allow large companies and wealthy individuals to organize their finances in a way that disproportionately routes business through low-tax jurisdictions.

• The use of offshore tax havens by US corporations has increased tenfold from the 1980s, lowering the effective corporate tax rate in the US by about 10% over 15 years.

• Offshore structures provide secrecy through complex ownership of shell companies across multiple jurisdictions, making it difficult to determine true ownership and activities.

• Tools like corporate inversions allow corporations to appear headquartered in low-tax locations despite minimal real activities there.

• Secrecy is enabled not just by offshore havens but also secrecy services provided from onshore financial centers like London.

• Reliance on offshore secrecy means official records and tax reporting do not accurately capture the scale or locations of true economic activities and wealth. This undermines analysis of economies and inequality at the national level.

• The top 0.1% of income earners, referred to as “elites”, have become highly mobile globally. They have networks around the world and feel less tied to any single country.

• They live transnationally, maintaining homes in global cities like New York, Hong Kong, London, etc. and feel more connected to other global elites than their fellow countrymen.

• They lead very mobile lives, moving between locations for work, leisure, tax purposes, or to avoid political issues. This mobility allows them to decouple from nation-states.

• Cities actively court these elites and their wealth/spending power. Amenities like luxury housing, schools, restaurants, arts/culture are promoted to attract and retain elites.

• Elites negotiate with cities for special treatment and exemptions from things like zoning laws and preservation rules to customize their residences.

• Their wealth and lifestyle is more place-less. They seek to minimize legal/tax ties to any single location and obtain citizenship/residency in countries most advantageous to them.

• Global citizenship is a badge of pride that conveys elite status and independence from geographic ties or constraints of nation-states.

So in summary, the ultra-wealthy top 0.1% see themselves as a transnational class and wield economic and political power accordingly through their highly mobile and place-less lifestyle. Cities and countries compete to attract and retain their wealth.

Here are the key points that provide a connecting thread from the summary:

1. Overseas property buyers in London are often using corporate structures or offshore entities to anonymously purchase high-value homes, avoiding taxes and obscuring their true identity. This is a problem that predates and exceeds official estimates.

2. The financial crisis demonstrated the connection between elite winners and poorer losers through complex financial instruments. Mortgages given to lower-income groups were bundled into derivatives that ultimately spread risk globally when the US housing market declined.

3. Inequality in the 21st century is characterized by the mobility of elite capital and wealth, which can be located anywhere in the world virtually instantly for tax and regulatory advantages. Poorer groups are relatively “stuck” and unable to benefit from economic growth or recover from downturns.

4. Piketty argues for greater transparency of capital holdings and a global wealth tax to address rising inequality. However, governments have shown little political will to enact real reforms due to the limited regulation favored by financial elites and institutions.

5. Achieving true financial transparency is challenging given the speed and secrecy that offshore corporate structures and tax havens provide the mobile elite. Whistleblower leaks provide some glimpses into how widely these practices are used to obscure ownership of assets like property.

In summary, the connecting thread is how elites are able to globally mobilize wealth and profits through opaque offshore structures, while poorer groups face greater geographic limitations and bear more risk, exacerbating inequality according to both Piketty and the summary analysis.

Here are the key points from the summary:

• Thomas Piketty’s book Capital in the 21st Century succeeded in bringing the issue of inequality to widespread public attention because of rising inequality in the US, concerns about fairness, and Piketty’s warning about a return to “patrimonial capitalism” without policy changes.

• There are still important gaps in measuring inequality that need further research. More data is needed to better understand wealth inequality and disaggregate measures of national income.

• To judge whether current inequality is fair, more research is needed on how incomes and wealth are generated. Is today’s wealth mostly self-made or inherited? Do incomes reflect productivity or rent-seeking?

• The effects of policy, especially taxation and regulation, need more study. These policies seemed key to lowering inequality and boosting growth in the mid-20th century. Understanding their impact could help shape policies to address inequality today.

• Overall, the research agenda should focus on improving measurements, understanding the mechanisms driving inequality, and evaluating policies to remedy inequality as identified by discussions and criticisms of Piketty’s work. Government data collection will continue to play an important role.

Here are some promising avenues for future research on inequality that were discussed:

• Developing distributional national accounts (DINAs) that integrate the analysis of economic growth and inequality in a coherent framework using a common national income basis. This would allow examining how growth is shared across income groups and better international comparisons. Work is underway to build DINAs for several countries.

• Continuing efforts by organizations like the BEA and OECD to incorporate distributional measures into national accounts. This would provide the first systematic picture of government redistribution through taxes and transfers.

• Expanding wealth inequality data, which is currently much weaker than income data. Areas of focus could include resolving differences between sources like estate tax and survey data in the US. Long-term work on developing more comprehensive individual-level microdata tracking all income and wealth flows.

• The US provides some of the best evidence given the availability of long-run tax data, though improving data integration and quality remains an important avenue. Overall, establishing consistent international DINAs remains a priority for better understanding inequality dynamics, particularly the recent resurgence in countries like the US.

• Thomas Piketty created a series on US wealth concentration by combining estate tax data (for pre-1980) and survey data (post-1980), showing rising concentration over time. This led to some controversy over changes in data sources.

• Accurately measuring wealth inequality in the US is difficult due to gaps in US wealth statistics. Improving data collection is an important task.

• Recent work by Saez and Zucman used capital income data to estimate wealth, finding an even stronger increase in concentration since the late 1970s than prior studies. This suggests inequality may be greater than Piketty estimated.

• Better exploiting tax data and enhanced reporting by financial institutions could significantly improve US wealth data quality. This includes capturing balances on interest/dividend reports and expanding balance reporting beyond IRAs.

• Perceptions of inequality depend on whether wealth is seen as “fair” (earned) or “unfair” (inherited or rent-seeking). Measuring inheritance versus self-made wealth is important but data is weak, particularly in the US. Estimating savings is also challenging due to data limitations.

So in summary, the passage discusses challenges in accurately measuring wealth inequality trends in the US due to data gaps, and potential ways to address these through improved data collection and analysis.

• Total wealth will eventually fall to zero if wealth inequality continues to explode due to unequal savings rates, an old concern discussed by Simon Kuznets.

• Collecting savings data systematically should be a priority for better understanding wealth dynamics. Scandinavian countries already collect comprehensive wealth and savings data at the micro level.

• Several key points were discussed regarding inequality in labor income (wages and salaries):

  • Market view: Pay reflects productivity and skills supply/demand, consistent with meritocratic ideals.
  • Institutions view: Pay is also affected by bargaining power and institutions like unions, regulations, norms.
  • Research shows surges in top wages/salaries and business/partnership income driving top 1% income gains.
  • Rise in executive pay may reflect value of skills or ability to extract more pay.
  • Less is known about composition and fairness of top partnership/business income.

• Government policy has significantly shaped inequality historically. Progressive taxes and large welfare states post-WWII lowered inequality substantially. Inequality is rising again in countries reversing those policies, like the US and UK. Bold policy proposals are needed to curb unfair inequality going forward.

• The chapter examines wealth inequality through the lens of Thomas Piketty’s book Capital in the 21st Century.

• Wealth is highly concentrated and skewed, with a small number holding a large share. However, there is also significant mobility within the wealth distribution over a lifetime and across generations, except at the very top and bottom.

• Wealth inequality displays a U-shape trend, decreasing for most of the 20th century but rising again starting in the 1980s.

• Piketty’s framework emphasizes the role of the difference between the post-tax rate of return on capital and the rate of economic growth in shaping wealth concentration over time.

• The chapter presents a framework to understand individual wealth accumulation and categorize different mechanisms behind wealth inequality.

• It surveys macroeconomic models that can account for the high degree of observed wealth concentration, particularly those focusing on the Pareto distribution of the right tail of wealth.

• A key theoretical mechanism is that wealth concentration increases when the return on wealth exceeds the economic growth rate. Overall, the chapter examines different economic forces that impact the distribution of wealth inequality across populations and over time.

• Multiplicative random shocks to the wealth accumulation process are the main mechanism that generates wealth concentration in models where wealth accumulation is used to insure against income/expenditure shocks.

• Output growth due to TFP increases can either reduce or increase wealth concentration depending on other model parameters, while Piketty views output growth as unambiguously reducing concentration.

• Previous models abstract from heterogeneity in saving rates, entrepreneurial income, life-cycle and bequest behavior which are important drivers of wealth accumulation/inequality.

• More recent quantitative models focus on endogenous heterogeneity in saving behavior to insure against risks, and how this heterogeneity shapes differences in saving/returns and accounts for wealth inequality.

• Factors like entrepreneurship, voluntary bequests, preferences, compensation risk can help explain high concentration, but the quantitative contribution of each is unclear as most studies look at factors in isolation.

• Understanding how inequality changes over time requires analyzing transitional dynamics, not just inequality at a point in time.

• Piketty’s framework is that wealth inequality increases with the difference between the after-tax return on wealth and output growth rate over the long run. This mechanism can explain the U-shaped evolution of concentration over the 20th century.

• Piketty’s book highlights several key forces that drive wealth inequality over time.

• A higher return on capital (r) relative to economic growth (g) amplifies initial differences in wealth holdings through exponential growth of wealth.

• Inheritance of both financial and human capital interacts with demographics to determine intergenerational wealth accumulation.

• Wealthy individuals typically earn higher returns by investing in riskier assets and actively managing their wealth.

• The rise of “supermanagers” who earn a disproportionate share of corporate profits has increased inequality in the US.

• Government policies like taxes, transfers, minimum wage, and market regulations affect the level of income and wealth inequality within and across countries.

• Analytical models show that multiplicative random shocks to individual wealth accumulation, like returns on capital, can generate Pareto-distributed wealth outcomes with high concentrations at the top. Factors like the growth rate of individual wealth relative to the economy influence the shape of the wealth distribution.

• Models with individual risk introduce a precautionary saving motive to self-insure against earnings uncertainty. But this motive declines with wealth as people can better insure themselves.

• Aoki and Nirei use simulations to study a model with borrowing constraints and precautionary saving. They find earnings risk reduces wealth inequality, while higher productivity growth can increase it by making returns on individual activities more volatile.

• Endogenous returns are important for explaining high savings rates at the top. Entrepreneurship allows returns to be determined by business performance and investment decisions. Models where more patient, risk-tolerant people select into riskier occupations with potentially higher returns can match observed patterns.

• Earnings volatility also matters, especially if persistent for top earners like “supermanagers.” The right skewness of shocks for these groups can concentrate wealth through precautionary saving behavior over time. This relates to increasing income inequality found by Piketty and others.

So in summary, endogenous returns through mechanisms like entrepreneurship and appropriately skewed, persistent earnings risk for top earners can better explain high observed savings and wealth concentration compared to standard models with declining savings rates.

This passage summarizes several papers that attempt to model and explain high levels of wealth inequality. The key points are:

• Castañeda et al. calibrate an overlapping generations model where the highest productivity level is over 100 times higher than the second highest, generating large precautionary savings by high earners. This helps match top wealth shares.

• Saez and Zucman find the US wealth inequality increase was driven by the top 0.1% gaining wealth mainly from higher earnings shares.

• Theories of “superstars” and managerial compensation rationalize some skew in earnings.

• Intergenerational transfers account for 50-60% of US wealth, supporting inheritance as an inequality factor.

• De Nardi models bequest motives and ability transmission between generations, helping match estate sizes and savings profiles.

• Preference heterogeneity, like differences in patience, can impact savings and wealth dispersion levels to some degree.

So in summary, it analyzes how stochastic earnings processes, inheritance factors, and preference differences all potentially contribute to wealth concentration in economic models to varying degrees of success. Calibrating multiple mechanisms together seems needed to fully match real-world inequality patterns.

Here are the key findings from the passage:

• Piketty’s work documents long-term evolution of wealth inequality over time. Models need to account for deterministic changes in fundamentals that drove inequality changes.

• Two studies look at fast increase in US top wealth inequality after 1970. Gabaix et al find models imply too slow transition without amplifying mechanisms. They conjecture post-tax return increases or growth decreases could account for changes.

• Kaymak and Poschke study US tax/transfer changes from 1960-2010. Found increased wage inequality explains over half of top wealth inequality rise. Tax reductions and Social Security expansion also contributed.

• De Nardi and Yang model matches US wealth distribution using bequest motive and stochastic earnings. It’s used to test (r-g) mechanism from Capital.

• Experiment 1 finds reducing population growth rate of 1.2% to 0% marginally increases overall inequality and substantially increases top wealth shares, especially the top 1%.

• Experiment 2 finds increasing returns to capital by 1.2% substantially increases top wealth shares, consistent with Piketty’s (r-g) theory.

So in summary, it finds empirical evidence supports changes to taxes, wage inequality, and population growth in explaining rising US wealth inequality, and the model experiments provide support for Piketty’s (r-g) theory qualitatively.

• The GDP ratio and aggregate bequest flows to GDP increase when the ratio of deaths to births is higher. This is because higher mortality increases average bequest size, which then boosts wealth concentration at the top since bequests are modeled as a luxury good.

• Increasing the post-tax rate of return on wealth by 1.2 percentage points has an even larger effect on wealth stock and bequest flows than decreasing population growth.

• However, it only marginally increases the top 1% wealth share and can even reduce concentration in the top 20%. This is because higher returns boost saving for those with low wealth due to precautionary and wealth effects.

• For the wealthy, the precautionary and wealth effects are smaller, so income and substitution effects offset each other, holding consumption-wealth ratios steady. This leads to higher capital accumulation but not necessarily more concentration.

• Going forward, more work is needed to better model entrepreneurship, intergenerational links, earnings risk, medical expenses, and preference heterogeneity to better understand their impacts on savings and inequality. Better data is also needed to estimate related parameters.

Here are the key points made in the summary:

1. Piketty argues we are living in a new era of “patrimonial capitalism” where the richest earn most of their income from capital/assets rather than labor, similar to the 19th century. This puts greater importance on inequalities created in the past through inheritance.

2. Boushey asks what a feminist perspective can offer in understanding patrimonial capitalism. She notes institutions play an important role in economic outcomes.

3. The optimistic view is that greater inclusion promotes growth, and current inheritance patterns are more egalitarian. So rising inequality may not negatively impact women’s economic/political rights.

4. However, a pessimistic view is that along with 19th century level inequality, there could be forces reducing women’s economic options and political power.

5. Institutions like inheritance are complex - what specific micro-level institutions comprise the macro inheritance institution? How is inheritance connected to broader social structures? How may today’s inheritance patterns impact women going forward?

So in summary, Boushey analyzes Piketty’s thesis of returning “patrimonial capitalism” through a feminist lens, considering both optimistic and pessimistic perspectives on how it may impact women’s economic role and rights.

• Piketty argues that inheritance patterns are changing in the 21st century compared to the 19th century. There will be more “small to medium rentiers” (those who derive income from assets) rather than extremely wealthy rentiers.

• The “earned income hierarchy” of high-paying jobs like supermanagers is expanding. It is now possible to be both a supermanager earning a high salary, as well as a medium rentier deriving income from assets.

• Today, inheritance includes not just wealth but also passing on high-paying jobs through getting one’s children into elite schools and providing connections. This allows elites to remain powerful even in supposedly meritocratic labor markets.

• Feminist economics focuses on the gendered nature of economic systems. Analyzing inheritance through this lens is important for understanding how shifts in the role of capital versus labor at the top could undermine recent trends in gender equity.

• In the 19th century, inheritance rules were patriarchal. Today there are more egalitarian laws, but what is inherited includes human and social capital, which still have gender dynamics that influence inheritance patterns.

• The optimistic view from standard economic theory was that growing the economy would naturally lead to less inequality along lines of gender, race, and ethnicity as more groups gained access to economic opportunity.

• However, Piketty argues this view is misplaced based on his empirical analysis of historical data on income and wealth. He shows inequality has actually widened in recent decades.

• Piketty breaks from standard methodology by building theory from empirical regularities rather than fitting data to existing theory. He also incorporates how institutions and power relations shape markets.

• Piketty’s data shows incomes are accumulating into capital and inheritances over generations. When return on capital exceeds economic growth, this leads to increasing inequality as the wealthy see ever-growing returns.

• Piketty rejects the idea that just growing the economy can meaningfully reduce inequality. He argues a global wealth tax is needed to curb the high returns seen on accumulated capital and slow the rise of inequality.

• Piketty coins the term “patrimonial capitalism” to describe the emerging system of private capital dominance in rich countries since 1970, similar to pre-20th century systems based on inherited wealth.

• However, data shows most of today’s rich receive the majority of their income from labor, not capital, calling into question whether the economy will truly shift to an inheritance-based model.

• Figures from Piketty show rising inequality since 1980s but labor income is still the main source even for top 0.1%, challenging the idea of a return to patrimonial capitalism.

• Feminist economics provides an alternative perspective that considers unpaid labor, social structures/institutions, and how they shape economic outcomes in gendered ways. It moves beyond limitations of standard models in explaining wages and inequality.

• While Piketty acknowledges a role for institutions, his analysis remains somewhat wedded to standard economic theories. Feminist economics offers a more integrated perspective on institutions and social forces.

So in summary, it questions some of Piketty’s predictions using data on income sources, and argues feminist economics provides a more holistic lens by considering unpaid labor, institutions, and social influences beyond economic models.

• Piketty’s data on income and wealth relies on “tax units” which are typically families, but does not provide detailed demographic information like race, ethnicity, or family relationships. This obscures what happens within families and how wealth is accumulated across these dimensions.

• Prior scholarship in the 1980s-90s focused more on human capital explanations for inequality and exploited data from large national surveys like the Census, which provided more demographic details.

• Piketty fails to sufficiently investigate how gender and institutions that affect inheritance patterns, like marriage and family structures. His use of the term “patrimonial capitalism” implies inheritance through the male line without exploring gender implications.

• Bringing a gender lens could reveal different predictions for the 21st century. For example, how higher women’s employment and assortative mating may shape inheritance patterns. Piketty’s data and analysis do not sufficiently account for gender and social dynamics surrounding marriage, inheritance, and wealth accumulation over time.

Here are the key points made in the summary:

• Marriage patterns play an important role in determining one’s economic status and reinforcing inequality. Assortative mating, where high earners marry each other, is on the rise.

• Geographic concentration of high-paying jobs concentrates marriage markets in those locations as well, furthering assortative mating. Elite colleges also serve as marriage markets.

• A spouse’s earnings are highly correlated with a partner’s family background, so marriage patterns reinforce intergenerational mobility patterns. Studies show 40-50% of covariance between parent and child incomes can be attributed to who one marries.

• Higher women’s employment has modestly reduced inequality by combining household incomes. Without changes in married women’s earnings, inequality would have grown 38-52% faster over the past 50 years.

• Family patterns now differ sharply by income, with professional families more stable and able to invest heavily in children. This opens an opportunity divide between children in advantaged vs disadvantaged families.

In terms of implications for Piketty’s thesis of rising inheritance-based inequality, the summary notes two possible scenarios - either gender doesn’t matter as wealth gets split equally among heirs, slowing capital concentration, or there is a dystopian scenario where women lose rights and norms revert to more patriarchal nineteenth century patterns. So the impact on his predictions is unclear and depends on norms around gender and inheritance evolving.

The passage argues that it is plausible for wealthy men to use their economic and political power to dismantle gender equity protections and roll back women’s rights. This could potentially take us back to a world like in Jane Austen’s novels, where a woman’s value was tied to her ability to marry wealth.

Dismantling gender equity could negatively impact economic growth in a few key ways according to the passage:

1. Lower population growth. When women have more rights and opportunities, they tend to have fewer children on average.

2. Lower investment in human capital. With fewer children, parents invest more in each child’s education. And girls are given greater access to education when it leads to economic returns. This boosts overall human capital.

3. Less support for work-life balance policies. Gender equal societies provide more support like childcare to allow women to participate fully in the economy. This improves human capital investments.

However, the passage notes there are path dependencies that make a full roll back of women’s rights unlikely. Things like women’s college graduation rates outpacing men’s suggest women may not easily return to primarily domestic roles. Still, lesser equity could impact economic and political power dynamics in ways that exacerbate inequality over time.

Here are the key points from the summary:

• Income and wealth in the US have become much more concentrated in recent decades, with more going to the top quintile/5% of earners and less to others.

• Wealth is even more unequally distributed than income.

• Government policies have mitigated some of the increased inequality through transfers and taxes.

• The income distribution can be modeled by considering factors like technology employment share, manufacturing employment share, educational attainment, immigration levels, and unionization rates.

• Consumption distribution has not become significantly more unequal, even as income inequality has risen, due to leveraging by lower/middle income households prior to the financial crisis.

• Inequality poses more risks to macroeconomic and financial stability going forward, though may not significantly impact long-term growth potential on its own according to macroeconomic modeling. The author runs counterfactual scenarios to analyze inequality’s effects.

• The article models national income inequality using the mean-to-median inequality ratio as the dependent variable from 1967-2014.

• Statistically significant explanatory factors that decrease inequality include a higher working age population share, faster growth in the information processing equipment deflator (a proxy for technological change), larger net export share of GDP, higher manufacturing employment share, and higher unionization rate. A larger unemployment gap increases inequality.

• State-level models also find manufacturing employment, immigrant skill level, technology employment share, unionization rate, and education levels impact inequality.

• Causality can run both ways for some factors like immigration and education.

• The national model captures demographics through working age population share, technology through information equipment deflator, and globalization through net exports and manufacturing employment.

• Labor market impacts are represented by the unemployment gap and unionization rate. Both inflation targeting monetary policy and declining unionization increased inequality from the 1970s-2000s.

• Inequality and consumption patterns have diverged more between the top 20% and bottom 80% from 1980-2015 as inequality has risen.

• Immigration and income inequality were important drivers of income inequality in state-level models, but are difficult to include in a national model due to challenges in forecasting them. Additionally, immigration flows are expected to become more skilled over time, which could offset the effects of immigration on inequality.

• There are potential channels through which higher income/wealth inequality could impact the economy, like consumer spending and public spending. However, disentangling these effects is difficult as lower-income households spend more of their income while wealthy households spend more of their wealth.

• Modeling done by Moody’s Analytics suggests skewing of income/wealth distribution from 1980-2015 had a modest impact on aggregate consumer spending. Increased savings from less spending could boost long-term investment and growth.

• Public spending on education and infrastructure could potentially be constrained by higher inequality, but linking the two is difficult as government revenues have remained normal and impacts are impossible to fully quantify. Higher inequality has coincided with divergence in educational attainment across higher- and lower-income communities over time.

• There is likely a two-way relationship between inequality and educational attainment - wealthy communities send more kids to college, attracting educated workers and experiencing stronger growth, while inequality also impacts educational attainment. This makes the relationship difficult to disentangle.

• Inequality is modeled in the Moody’s Analytics model as impacting educational attainment, which then drives productivity and long-term growth. Greater inequality slows educational attainment growth.

• Rising inequality may have contributed to the financial crisis by creating more credit-constrained households. When credit constraints eased, household leverage and financial instability increased dramatically.

• Inequality could sow the seeds for future crises if it further increases credit demand from constrained households when underwriting standards relax.

• Wealthy households save and consume more pro-cyclically, exacerbating business cycles. Their large wealth effects, particularly from stocks, make for more pronounced economic swings.

• Estimates show significantly larger stock wealth effects post-financial crisis compared to pre-crisis, making consumption and the economy more volatile. Housing wealth effects have declined.

• The total wealth effect, which considers stock and housing wealth effects on retail sales, peaked at 18 cents in late 2010 but has since receded to around 8 cents.

• Wealth effects have fluctuated significantly since the Great Recession and are no longer stable.

• Asset price volatility also appears elevated post-crisis.

• The economy now has a lower potential growth rate and is more cyclical, increasing the risk of recessions. This will exacerbate income/wealth inequality.

• The model suggests income inequality, as measured by mean-to-median income ratio, will remain essentially unchanged going forward.

• Factors offsetting rising inequality include globalization impacts stabilizing, tight labor markets supporting wage growth, and demographic changes slowing labor force growth.

• While technology continues to displace jobs, global services trade and intellectual property protection can boost well-paying US jobs.

• Inequality has likely peaked in the US and is not expected to significantly impact long-run economic growth even if it does continue rising somewhat.

• There has been a new hypothesis that excessive inequality can negatively impact macroeconomic stability, triggered by the 2008 financial crisis. However, more research is still needed to fully understand the relationship between inequality and economic performance.

• Definitions of inequality matter - there are different ways to measure it like income/wealth, top/bottom, and it changes conclusions. More data is available but definitions remain important.

• Theoretically, inequality could affect stability through impacting consumption, investment, financial systems, and recessions. But the evidence is mixed and there are many empirical challenges.

• Higher inequality stemming from capital returns exceeding GDP growth is driving ongoing wealth concentration, as argued by Piketty. But the chapter looks at the reverse - how inequality impacts macro factors.

• The chapter critically reviews the literature on inequality’s relationship to macroeconomic outcomes. It aims to assess the theoretical and empirical evidence for claims of negative impacts on stability.

• Identifying gaps in understanding is another goal, to guide future research needed to advise policymakers on what role, if any, inequality plays in economic fluctuations and crises.

• The article discusses how economic inequality can negatively impact various aspects of economic performance and stability, beyond just the level or growth of GDP.

• It looks at whether inequality leads to more volatile aggregate economic performance, deeper and longer recessions, and unsustainable short-lived growth.

• The literature suggests inequality may contribute to macroeconomic volatility and business cycles by making aggregate demand more dependent on spending by the wealthy few.

• Empirical research finds countries with higher inequality tended to see growth peter out more quickly once started, indicating unsustainable growth.

• Studies also link U.S. income inequality to slower and more prolonged economic recoveries following recessions.

• The interaction of inequality, social conflicts, and weak institutions may magnify the damage from economic shocks, resulting in sharper downturns and weaker resilience, according to one economist.

• Overall the article examines potential linkages between inequality and dimensions of economic performance and stability that have received less attention than the impact on GDP levels or growth rates.

• Inequality usually leads to redistribution pressures that delay economic policies and recovery from downturns as different groups bargain for a lower burden. This increases rent-seeking activities that divert resources away from productive uses.

• High inequality also concentrates political influence among elites, limiting expansionary fiscal policies like education and infrastructure spending that support growth.

• The relationship between inequality and growth is complex. Moderate inequality from differences in effort may promote investment, but high inequality encourages rent-seeking. Inequality due to circumstances outside individuals’ control particularly hinders growth.

• Inequality’s effect on growth changes with economic development. Early on, unequal savings fuel capital accumulation and growth, but later, human capital becomes more important and unequal access to credit can slow growth.

• Recent studies find dimensions of inequality matter - inequality at the top may aid growth, while inequality at the bottom harms it. Inequality of opportunity also hinders growth more than unequal rewards for merit or effort.

• Inequality harms growth politically by encouraging redistribution or revolution that reduce investment incentives. It also concentrates power among elites, promoting rent-seeking that diverts resources from productive uses and undermines property rights and growth.

• Recent research has found a positive relationship between wealth and political donations/lobbying in the US. Wealthier individuals donate more and are more politically active, pushing their economic self-interests.

• Economic rent, or excessive returns above competitive market rates, may be a key driver of rising wealth inequality in recent decades. Rents have shifted from labor to capital through rising land, IP, and monopoly rents. This helps explain concurrent rises in income/wealth inequality and stagnating productivity.

• Wealth inequality can also negatively impact economic performance and growth through imperfect credit markets. Only the wealthy can afford education/human capital investments or entrepreneurial ventures, reducing social mobility and the size of the middle class. This can lower innovation and long-term growth.

• Traditionally, it was argued that wealth inequality reduces aggregate consumption through a “under-consumption” effect. However, empirical evidence does not clearly support this, as consumption rates have not consistently fallen with rising inequality across countries. Additional counteracting factors may be at play.

• While inequality tends to lower consumption in theory, real-world evidence is mixed, suggesting other forces can impact aggregate demand. The under-consumption hypothesis remains an area for ongoing research and debate.

• Inequality may not directly cause economic stagnation or recessions, as other factors could coincidentally change at the same time like income growth, optimism about the future, or credit availability.

• However, some empirical evidence suggests inequality can indirectly impact consumption and macroeconomic stability. As inequality rises, consumption standards rise which pressures others to consume more to “keep up,” even if taking on more debt.

• Inequality may have contributed to the financial crisis by fueling both supply of and demand for credit. Lower aggregate demand due to inequality could lower rates and deregulate markets, increasing credit supply. Those with stagnant wages may have taken on more debt to maintain consumption standards.

• The buildup of household debt from inequality-fueled credit demand and supply could then destabilize the economy if borrowers default when economic conditions change. More research is still needed to fully understand the inequality-indebtedness relationship.

• Iacoviello constructs a model where increased inequality leads to more instability in earnings over time, causing individuals to borrow more to smooth consumption. However, empirical evidence suggests inequality has been driven more by permanent differences in earnings across households.

• Kumhof, Rancière, and Winant’s model focuses on inequality between workers and investors, with workers losing bargaining power compensated by more investor borrowing to sustain consumption.

• Aggregate data from the UK shows periods of rising household debt coincided with increased income inequality. Other cross-country studies found similar correlations.

• However, the evidence is not entirely clear-cut. Using a debt-to-net-worth ratio instead of debt-to-income complicates the picture. Microdata does not consistently show a positive correlation between inequality and indebtedness.

• Identifying the proper reference group is important, as relative comparisons within social circles may drive borrowing and spending. But surveying social networks is challenging.

• More research is needed to establish the theoretical and empirical validity of links between inequality, consumption, borrowing and macroeconomic outcomes. Precisely defining reference groups and formalizing relative utility functions are areas for improvement.

The available evidence shows that inequality can contribute to macroeconomic and financial instability. However, no clear relationships have been conclusively demonstrated without qualification. It is important to be careful not to draw simplistic conclusions about the detrimental effects of inequality, as relationships are likely contingent on many different factors.

That said, recent research has begun to provide an initial link between inequality and poor economic performance/instability. To the extent this research succeeds, it presents an instrumental justification for governments to take effective coordinated action to reduce income and wealth inequality, in addition to other justifications based on fairness and social inclusion. Further research is needed to generalize existing results and resolve remaining inconsistencies, as this issue is of great significance.

The key points are:

• Inequality may contribute to economic problems, but relationships are complex and depend on many context-specific factors.

• Recent research provides initial evidence of this link, though more work is needed.

• If validated, it presents a case for governments to act to reduce inequality through tax and policy coordination, in addition to ethical justifications.

• Further clarifying the links between inequality and economic outcomes through additional research is very important.

• The period after the Civil War and Reconstruction saw the rise of labor unrest and militant unionism as industrialization grew rapidly. Free labor ideology emerged during the war to promote the idea that through hard work, anyone could rise from employee to employer.

• Reconstruction aimed to secure political and economic freedom for black people in the South, but faced growing controversy. By the 1870s, many northerners withdrew support and a new ideology emerged favoring free markets and limited government intervention.

• The 1870s-1890s were a period of intense labor strife as agricultural and industrial workers faced immiseration. Figures like Henry George argued growing inequality contradicted economic growth. The Supreme Court began expanding corporate rights while limiting protections for workers and minorities.

• Farmers’ organizations like the Populist Party challenged railroad, bank and monetary policies harming agricultural producers. However, many viewed farmers’ difficulties as self-inflicted rather than systemic issues. The Populists briefly allied with Democrats but faced ideological divides over urban vs. rural issues. This period set the stage for emerging conflicts over labor rights, regulation and laissez-faire ideology.

• Bryan’s 1896 presidential campaign allied the Democrats with the Populist movement, but this alliance had problems. It was difficult in urban areas where Republicans goaded Bryan into anti-Catholic rhetoric. It also made no sense in the South, where Populists challenged Democratic rule.

• Bryan’s defeat set back left-wing politics for decades and entrenched capitalist ideology in both parties. Radical labor continued at the margins through groups like the IWW. Debs and others formed socialist parties but had little success.

• From 1901-1920, politics were characterized by moderate progressivism and racial reaction. The federal government broke up some trusts but left others. Reforms included the Federal Reserve and income tax.

• The Supreme Court opposed many labor and economic regulations using freedom of contract. This stalled reforms at the state and federal levels.

• WWI and its aftermath further divided progressives and ushered in a conservative era. The Depression discredited laissez-faire and led to the New Deal’s transformative policies, though Black Americans remained largely excluded.

The passage discusses how Britain moved towards universal male suffrage through a series of reform acts in the 19th century, which expanded the franchise to the middle class, urban workers, and rural peasants. This led to the replacement of the old party system based on the post-French Revolutionary era with a new system reflecting the class structure of the Industrial Revolution.

Economically, both major parties adhered to free trade and the gold standard until the early 20th century. Poor relief was designed to deter “indolence” according to Malthusian views. Radical movements emerged but had no influence. Trade unions grew in the late 19th century and were legalized in 1871, but it was not until the 1901 Taff Vale case that labor became involved in national politics through the Labour Representation Committee.

In response to Taff Vale threatening unions, labor affiliated more with the LRC. This helped sweep the Liberals to power in 1906 on a more progressive platform. Unions were protected and the right to strike affirmed. However, capital struck back in 1908, and this time the Liberals did nothing to help unions.

David Lloyd George’s “People’s Budget” of 1909 directly threatened the aristocracy and was a catalyst for curbing the power of the unelected House of Lords through the Parliament Act of 1911. Both World Wars provided temporary reprieves from the domestic political crises and unrest over issues like women’s suffrage and Irish home rule that had plagued the country since. The wars ultimately discredited the traditional elite and paved the way for further reforms reducing inequality.

• The war fundamentally undermined the credibility of Britain’s traditional political and economic rulers, who had pursued failed policies in the decades leading up to both World Wars.

• During WW2, the coalition government was led by Winston Churchill but included prominent Labour ministers who implemented labor-backed policies like a planned economy. This further validated the Labour position and weakened the traditional elites.

• After WW2, the electoral victory of the Labour party allowed it to enact its long-held program of nationalization, the welfare state, and wealth redistribution through taxes. This fundamentally reduced inequality in mid-20th century Britain.

• The wars and the failures of pre-war policies effectively dismantled Britain’s 19th century classical liberal political and economic consensus, paving the way for the modern welfare state.

• France underwent significant political turmoil in the early 20th century as the left gained momentum but struggled to achieve policy goals like an income tax. World War I exacerbated existing divisions and weakened the moderate left.

• After the war, the Socialist party split as Communists aligned with the Soviet Union. Political instability continued through the 1920s as the economy struggled due to war reparations.

• The Popular Front government of the mid-1930s brought Communists into power and ushered in major labor reforms. However, tensions remained high as fascism rose abroad.

• Germany only unified in 1871 under Prussian domination. The aristocracy retained influence despite reforms by liberals and a growing left represented by the Social Democratic Party (SPD). The SPD advocated progressive policies but was initially banned. Political divisions deepened as nationalism and working-class movements strengthened.

So in both countries, the early-mid 20th century saw the left gain strength but continued conflict with entrenched conservative forces, instability exacerbated by war and economic troubles, and the rise of new ideological divisions like communism vs socialism.

• In the late 19th century, rising support for the socialist SPD party led German states to change voting rules to weigh property owners more heavily, undermining the SPD’s power.

• In the early 1900s, the Reichstag passed some worker protections but politics turned more militaristic and nationalistic to curb leftist influence. This contributed to the outbreak of WWI.

• During WWI, the SPD initially supported the war but opposition grew. By 1916 the Reichstag withdrew support, leading to a de facto military coup.

• Germany’s defeat in 1918 led to a transition to democracy. The SPD worked with the military to establish a new government and write a democratic constitution, despite leftist uprisings.

• The harsh Versailles Treaty helped destabilize the Weimar Republic by fueling nationalist anger. Extremist political forces on both the left and right challenged the republic through the 1920s but were crushed byparamilitary and state forces. This undermined but did not doom Weimar democracy.

• Hyperinflation in the early 1920s was largely caused by the unrealistic reparations demands in the Versailles Treaty, further weighing on the struggling Weimar economy and politics.

• The hyperinflation crisis in Germany in the early 1920s was sparked by France occupying the Ruhr region to force German factories to be more productive. It subsided when German workers refused to cooperate, though the extent of coordination from Berlin is debated.

• The crisis ended in 1923 when Germany agreed to halt noncooperation as France withdrew. New monetary policies like the Rentenmark stabilized the economy.

• However, the recovery came at the expense of German workers, as austerity measures hurt labor to generate tax revenue instead of capital. This weakened the SPD and working class support.

• When the 1929 stock market crash hit, Germany was especially hard hit as American debts were called in. This strengthened the Nazis and right-wing parties calling for more austerity.

• Chancellor Heinrich Bruening ruled by decree from 1930, further cutting welfare and programs. This polarized politics between communists and Nazis while weakening mainstream support.

• Hindenburg appointed Hitler chancellor in 1933, allowing the Nazis to consolidate power, in a counterrevolution against the socialist gains after World War 1. The Nazis destroyed capitalist politics at home.

So in summary, it traces the ideological and political shifts in Germany from the aftermath of WWI through hyperinflation and the rise of the Nazis in the early 1930s. Key events like the Great Depression exacerbated instability and enabled the counterrevolution.

The passage discusses how the notion of capitalist economy as the natural form of human society developed in political philosophy in the 17th-18th centuries. This concept became the basis for a new legal order, known as the “legal constitution of capitalism,” that generated the historical dynamics of wealth accumulation described by Piketty. Specifically, it established the legal foundations that produce the persistent dominance of capital over labor, as summarized by Piketty’s insight that r > g.

However, the ideological revolution that established capitalism as the natural order has yet to be fully explained. While it generated new laws and institutions, the details of how it achieved such a fundamental change in thinking remains unclear. The passage aims to provide a more institutional and historical analysis of the underlying dynamics and legal foundations that have allowed the return on capital (r) to consistently exceed the overall growth rate (g), in line with Piketty’s empirical findings across different societies and time periods.

• The term “capitalism” was popularized by Marx to describe modern societies where the majority meet needs through specialized production and commercial exchange determined by the market. For Marx, it signified the domination of capital owners over wage workers.

• Before “capitalism”, commercial society was the term used to describe socioeconomic orders based on market exchange to secure material needs. Adam Smith argued every person acts as a merchant in commercial society through the division of labor.

• In the 18th century, debates focused on the newly articulated domain of “society” arising from private property and commerce. These were seen as reflecting human nature and prior to the political state, unlike in prior theories.

• Commercial society was theorized as naturally ordered through Roman private law, producing a private economic status based on self-interested exchange rather than ancient hierarchies. Markets were understood as institutions of reciprocal exchange producing collective benefits through individual self-interest.

• Early theorists advocated reforming grain and labor markets by eliminating price controls and guild restrictions to create a more commercialized, liberalized system regulated by markets instead of the state or community. This was believed to benefit the poor, agriculture, state power, and dissolve feudal relations through commercialized labor.

• Adam Smith’s Wealth of Nations had a major influence on European society in the 18th-19th centuries by promoting concepts like laissez-faire economics and free markets.

• Smith was influenced by earlier French thinkers like Boisguilbert and the physiocrats (Quesnay, Turgot), who advocated for policies like freeing up grain and labor markets through state intervention and new regulations/infrastructure.

• Developing free markets required reconceptualizing property and contract law to establish legal foundations for capitalism based on private property, freedom of contract, and juridical equality before the law.

• Centralizing states like France played a key role in enacting legal reforms and codes (like the Napoleonic Code) that embodied these new capitalist legal principles.

• This process culminated in generalized wage labor and markets becoming central to production/distribution in capitalist societies, distinct from prior social/economic systems.

• Piketty analyzes how constitutional orders legitimated and consolidated capitalist legal foundations, institutionalizing divisions between public/private and sovereignty/government that secured the privileged position of asset/capital owners.

• Capitalism can be understood as both an economic system and a juridical/legal regime. It is structured and legitimized through the construction of legal rights, especially regarding property and contracts.

• A key distinction in modern constitutional regimes is between “sovereignty” and “government.” Sovereignty refers to the ultimate source of authority (the people), while government refers to ongoing administrative powers.

• This division allows for periodic popular ratification of constitutions, but limits direct popular control over ongoing administration and economic matters, which are delegated to government.

• Governments are constrained in addressing inequality by international pressures, elite interests, and constitutional protections for property and contracts entrenched during periods of popular sovereignty.

• Together, these legal and institutional features help explain why the rate of return to capital tends to outpace economic growth over the long run (r > g), perpetuating inequality according to Piketty’s analysis. They structure capitalism as a juridical regime that generally privileges capital.

• Fully analyzing capitalism requires understanding both its logical/systemic aspects and historical/institutional development as a form of class domination, which the legal perspective can help reconcile.

The passage discusses how capitalism can be studied as an ongoing social contestation over economic arrangements that is shaped by legal and institutional factors. It argues that understanding episodes of social contestation and their outcomes requires examining how the legal and institutional system regenerates the economic structure while setting the stage for future contestation.

It advocates adapting legal scholarship and institutional political economy to study capitalism as a specific social order undergirded by distinct legal arrangements. Key aspects of capitalist societies it identifies include pursuing private gain without social obligations, rational self-interested behavior rather than norm internalization, and unequal capacities for agency based on class resources.

The passage uses Piketty’s work to highlight the need to explain the exceptional postwar mixed economy period when returns to capital did not outpace growth. It argues this requires a nuanced account of the “legal foundations of capitalism.” Areas for further research it identifies include the reconstitution of property law, how labor law structures contested exchange, and how law structures economic power and bargains.

It also discusses how the legal dynamics of finance, debt, international economic integration may constrain democratic control of the economy. The passage argues fully understanding factors like demographic change that influence returns to capital outpacing growth, like globalization reconstituting labor reserves, requires studying their broader legal and institutional context. It concludes more work is needed to understand why democracy has not been able to curb inequality outside the postwar period.

• The paper proposes a framework to analyze how history has shaped global inequality through its effects on endowments (initial wealth distribution) and institutions (rules governing economic, political, and social behavior).

• Slavery and colonization created two groups - “citizens” who benefited, and “subjects” who were exploited. Citizens generally have larger endowments, democratic institutions, and opportunities to accumulate wealth. Subjects have little endowment, undemocratic coercive institutions, and lack opportunities.

• A simple model of intergenerational wealth transmission shows endowment differences erode over time due to idiosyncratic shocks. But institutions persistently shape incentives and capacity for redistribution, continuing to influence inequality long after initial endowments fade.

• The paper will examine examples like how post-Civil War US institutions allowed antebellum Southern elites to regain prominence. It will also look at persistent effects of colonial institutions on inequality in former colonies, focusing on aspects like tax infrastructure.

• In conclusion, the paper discusses reparations policy and how a focus on institutional segregation rather than just initial divergence in endowments could lead to better approaches.

• The model examines wealth accumulation over time periods for individuals in different groups, where groups can represent citizens and subjects of historical encounters.

• An individual’s wealth in a period is a function of their own wealth in the previous period, the average wealth of their group in the previous period, and an idiosyncratic shock.

• The parameter βG represents the institutions of a group - a lower βG implies more inclusive institutions that compress wealth inequality, while a higher βG implies more extractive institutions favoring elites.

• Initial endowments can be seen as starting average group wealth. Group endowments may depend on the institutions of other groups due to historical encounters like colonialism.

• In the steady state, a group’s wealth inequality is determined solely by its own institutions (βG) and individual shock variance, not initial endowments.

• Global inequality is affected by each group’s institutions, population size, and individual shocks. Importantly, initial endowments do not explain long-run global inequality.

• Slavery and colonial extractive institutions likely increased endowments for colonizing powers through profits, spillovers to related industries, and fueling innovation, amplifying wealth divergence.

• However, the model implies that in the long run, it is persistent differences in institutions between citizens and subjects, rather than initial endowment differences, that hold more explanatory power for global inequality.

• The passage discusses how institutions can persist over time even as initial endowments (like differences in wealth and resources) fade. Eventually, once an economy reaches a steady state, only institutional differences matter.

• It uses the example of slavery in the US to examine this question. The Civil War effectively erased slave capital as a form of wealth in the South. However, some former slaveholders still retained high economic and social status even decades later, suggesting the persistence of advantage.

• Recent studies have found mixed results on mobility after the Civil War - some slaveholders remained wealthy while others saw declines. But slavery seems to have had long-lasting impacts on politics and attitudes in the South well into the 20th century.

• This shows how institutions producing inequalities can persist long after the original conditions that created them, like slavery, no longer exist in practice. The passage then discusses how colonization influenced the development of differing institutions globally, impacting inequality between former colonies. Extractive colonial institutions corresponded with weaker property rights and lower growth today.

• It analyzes the link between colonial institutions and tax systems as a way redistribution impacts inequality. Former colonies with more extractive colonial institutions have less extensive income tax systems today.

• Colonialism and extractive institutions during periods of colonization had long-lasting impacts on inequality within colonized societies. Countries with more extractive colonial institutions tend to have weaker tax infrastructure and statistical data on inequality today.

• A key way colonial institutions impacted inequality was through their effect on the development of tax systems in colonized countries. Places with more extractive colonial institutions that were less able to settle tended to introduce personal income taxation later. Income taxes are important for redistribution and curbing inequality.

• Extractive colonial institutions also correlate with less coverage of former colonies in the World Wealth and Income Database, an important source of data on global inequality. This means we have less information and knowledge about inequality in places that were subject to more extractive colonization.

• Both the weak tax infrastructure and lack of data that persist due to colonial legacies contribute to higher within-group inequality in formerly colonized societies today. Institutional changes are needed to redistribute assets, empower the poor politically, and increase transparency around inequality.

• Truly addressing global inequality requires acknowledging the role of history, including how colonial powers accumulated wealth through extracting resources from colonized groups. Flexible global redistribution is needed to account for divergent historical trajectories influenced by differing colonial institutions.

• Thomas Piketty’s Capital in the Twenty-First Century presents both deeply political claims about inequality being shaped by actors and power, as well as more economically deterministic claims about the fundamental force of r > g driving divergence in wealth.

• This creates tension between viewing inequality as politically constructed versus being an inevitable outcome of economic forces. Piketty does not fully reconcile these perspectives.

• Research in political science and sociology emphasizes the political mechanisms and institutions that shape inequality. Piketty’s analysis does not fully engage with this literature.

• His empirical analyses would be strengthened by more attention to historically contingent political processes rather than just economic outcomes.

• Questions remain about how exactly politics interacts with economic forces in driving inequality over time. More quantitative analysis of institutional divergence is needed.

• Moving forward, policy proposals should consider institutional reforms to extend economic and political rights more equally across citizens and “subjects” globally, rather than just redistributing endowments. The goal should be “institutional desegregation.”

So in summary, while Piketty highlights the role of politics qualitatively, he could better integrate political factors into his theoretical framework and empirical analyses. More work is still needed to fully understand the interaction of politics and economics in shaping inequality over the long run.

• Piketty argues that an increasing share of income is going to capital ownership and top corporate executives/financiers rather than labor. This top labor income is more of an economic “rent” and not productive for broader growth.

• The return on capital (passive ownership) tends to be greater than the rate of economic growth, leading to rising inequality. The mid-20th century was a brief period where this was not the case.

• Piketty provides extensive empirical data showing rising shares of income and wealth going to the top 1% and 10% over the past century across many countries. This is driven by both capital income and high executive pay.

• He argues the mid-20th century period of widely shared prosperity was an anomaly caused by destruction of capital in World Wars. Left to its own dynamics, capitalism will naturally concentrate wealth at the top and potentially overwhelm growth.

• However, Piketty does not provide a systematic analysis of how politics and institutions shape these dynamics. Critics argue he underestimates the role of society’s institutions in determining economic outcomes and inequality compared to just the “logic of capitalism.”

• High economic inequality can translate into high political inequality by giving the wealthy more power and influence over government policymaking. Wealthier individuals and groups are better able to translate their economic resources and interests into political power through various channels.

• Piketty’s analysis of the role of the state is lacking in consideration of power dynamics. He glosses over questions of who has been challenging the role of government and for what ends in recent decades.

• Piketty maintains a hopeful view that democratic deliberation and consensus can address inequality, but his own findings suggest capitalism inherently drives toward unequal outcomes that may undermine this.

• Economic inequality can undermine democratic principles of equal voice and representation. It may also hinder government’s ability to provide public goods and shared prosperity. Extreme inequality could potentially lead to violence, though evidence is mixed.

• Research shows high inequality has translated to unequal political voice in the US. Wealthier groups have disproportionate influence over policymaking through lobbying, campaign donations, and other advocacy. This undermines pluralist democracy.

• Inequality also creates unequal opportunity for exit through spatial segregation, hindering shared community and commitment to public goods.

• Inequality challenges loyalty to the nation-state by allowing wealthier groups to opt out of social contracts and obligations to a greater degree.

So in summary, the literature suggests economic inequality greatly enables disproportionate political power and influence for wealthy groups, weakening democratic principles of representation and shared governance. Piketty acknowledges this risk but could better integrate political science research onthe mechanisms involved.

• Political voice and participation matters for democracy, as it provides information to policymakers and incentives. However, in the US there is highly unequal political voice, which distorts this process.

• Wealthy individuals are much more politically engaged than average citizens, including activities like donations, contacting officials, attending events. Their policy preferences have a much greater influence on outcomes.

• Studies show government policy aligns more with the preferences of economic elites and business groups than average citizens. This perpetuates rising inequality.

• The wealthy are aware of rising inequality but do not support government policies to significantly reduce income differences or redistribute wealth through taxes. Their views differ from the general public.

• Better data is needed on political views of the very wealthy, as existing sources cannot distinguish the preferences of the merely rich vs super-rich.

• Organized interest groups also shape unequal political voice and impact redistributive policies and economic institutions over time through the political process.

• Technical changes alone do not explain the growing divergence of the top 1%; politics and policies must be considered to understand rising inequality trends.

• Scholars like Hacker and Pierson argue that understanding political influences on inequality requires looking beyond electoral data and individual survey opinions to broader forces that shape the political landscape, such as agenda-setting and the organization of American political life.

• Weakening pillars of American civic life like unions and cross-class organizations have reduced information and political leverage for working families. This helps explain the strains in their economic lives not being adequately addressed through policy changes.

• The decline of civic federations from the 1960s onward disrupted how policy advocacy worked, giving more influence to well-funded narrow interests like corporations.

• Organized corporate interests now dramatically overshadow other groups in influencing policy through lobbying and providing information to Congress. This biases outcomes toward the preferences of wealthy elites.

• Historical institutionalist perspectives examine how organized interest groups shape inequality through their influence on policy regimes and tax systems over time, based on their relative “power resources” within different political systems.

• U.S. political fragmentation magnifies corporate influence and perpetuates inequality by making politicians dependent on narrow interest group support for reelection. This reflects inherent design features of American political institutions.

• The complexity and skewed nature of the US tax code can be partly explained by Madison’s fragmented political institutions, which allow for factionalism among organized interest groups.

• Political institutions play a key role in shaping policy outcomes like tax policy, which then influence economic inequalities. Different varieties of capitalism across countries lead to different income distributions and effects on poverty/the middle class.

• Understanding the “rules of the game” in political systems is important, as veto points and obstacles to policy changes shape which decisions are and aren’t made. Studying cases of policy inaction is underappreciated but important for understanding the rise in inequality.

• Economic inequality translates to unequal political voice and influence over time. This shifts policy priorities and reduces the government’s ability to enact meaningful changes, privileging the status quo which benefits those seeking to preserve their economic advantages.

• Geographic segregation along economic lines has increased dramatically in the US, allowing wealthy Americans more opportunity for “exit” from public institutions. This could erode collective buy-in for public goods and exacerbate feedback loops between economic and political inequalities.

• The New Deal-created Federal Housing Administration (FHA) helped many middle-class Americans build wealth by providing mortgage insurance that lowered interest rates and down payment requirements.

• However, the FHA also engaged in “redlining,” limiting Black homebuyers to certain neighborhoods and excluding them from much of the housing market. Private lenders later adopted these discriminatory practices as well.

• Black Americans were largely locked out of the biggest opportunity for wealth accumulation in history (homeownership). Their neighborhoods deteriorated in value compared to “desirable” white neighborhoods.

• This legacy of discrimination continues to influence wealth inequality today through factors like residential segregation artificially lowering home values in non-white areas, and white families having more family wealth to assist with down payments and rates.

• Early policy decisions around capital access can have long-lasting effects on inequality through wealth accumulation and absence of accumulation over time. Place-specific dynamics also concentrate inequality.

• Rising economic segregation due to inequality may impact public good provision and tax bases, but more research is needed on this relationship and how economic segregation differs from racial segregation. Loyalty to communities and willingness to engage in “voice” versus “exit” may also be shaped by inequality levels.

• Piketty sees Capital in the Twenty-First Century as contributing to the ongoing work of social science, rather than representing a definitive treatise on any single discipline. It draws on multiple research traditions to address big issues.

• The book brings together historical data on wealth and income distribution from over 20 countries since the 18th century. Its primary goal was to present this material coherently.

• Piketty analyzes the economic, social, political, and ideological factors that influenced the distribution of capital over time. However, the book did not sufficiently address the multidimensional history of capital and power relations.

• It also did not fully examine the role of belief systems and economic models in shaping views on distribution. These are limitations Piketty acknowledges.

• Additionally, the book has a Western focus, which is another important limitation Piketty notes. He sees opportunities to overcome boundaries between disciplines and address issues from various methodological perspectives.

• The author aims to place issues of distribution and inequality between social classes at the center of economic, social, and political thought, following in the tradition of 19th century political economists like Malthus, Ricardo, and Marx.

• The author’s research extends previous studies on the historical evolution of income and wealth distribution through collecting broader data made available by new technologies.

• The approach is also inspired by sociological studies on inequality of cultural capital and wages. It aims to analyze representations of inequality in public debates, literature, and film alongside economic data.

• A key conclusion is that the history of inequality is deeply political and cannot be reduced to economic determinism. Outcomes are shaped by actors’ views of justice and their relative powers.

• Changes in inequality over the 20th century, like reductions post-WWII and rises since the 1970s, correlate with shifts in political and fiscal policies and social compromises.

• Belief systems surrounding distribution play a central role in understanding inequality historically and cross-culturally. Each nation has its own relationship with inequality.

• The author aims to develop a multidimensional history of capital and power relations as forms of possession changed, leading to new social contracts regulating relations between groups.

• Capital is best understood as a complex, multidimensional set of property relations that are historically and socially determined, not an immutable concept.

• Slavery and slave capital played a crucial role in the formation of modern capitalism, especially in the pre-Civil War US. Property rights and what can be privately owned have changed over time and place.

• The forms that capital takes and the nature of ownership rights differ across societies and reflect prevailing social relations. For example, German companies have lower stock market capitalization than Anglo-American ones due to different power structures.

• Capital includes diverse assets like land, real estate, financial holdings, and immaterial modern capital, each with their own economic and political history. Large movements in asset prices like real estate have significant impacts.

• International ownership relations are complex and fraught, not calmly regulated exchanges. They often involve military domination and undermine development in indebted countries.

• Public capital also plays an important role, both positively through investment and nationalization, and negatively through deficits and privatization which reinforce private dominance.

• The analysis shows the diversity and multidimensionality of capital and ownership over history, geography, and asset classes. Simple theoretical models do not capture this complexity.

• The book takes a multidimensional view of capital and ownership, recognizing their complex and socially determined nature, rather than viewing them through a narrow economic modeling lens.

• Aggregating asset values monetarily provides a way to compare scales across societies but overlooks underlying social relationships and institutions.

• The analysis could be expanded spatially, across scales from local to global, and in examining impacts like colonialism on development and inequality.

• Economic models play a limited role in the book, meant only as frameworks to organize data, not replace the historical narrative. Concepts like capital shares and ratios are better seen through this historical lens than production functions.

• “Domesticated” capital views it through perfect competition models, while “wild” capital emphasizes power relations, politics, and institutions - the book aligns more with the latter interpretation.

• Long-term movements in capital-income ratios and shares are better explained by variations in bargaining power and rules over time across sectors, not solely production functions. Institutions are key to understanding these patterns historically.

• The book discusses different types of capital like financial capital and cultural capital that contribute to social hierarchies and inequalities. Financial capital accumulation builds wealth inequality through processes like inheritance, property regimes, real estate and financial markets. Cultural capital inequality comes from factors like education systems, skills hierarchies, and labor market rules that drive inequality in labor income.

• These two hierarchies (wealth vs. labor income) are related but distinct, producing complementary and cumulative inequalities. Traditional societies see wealthier elites not working, while modern discourse justifies inequality through merit, productivity and stigmatizing the “undeserving” poor.

• Recent decades have seen a possible new model combining returns to patrimonial/capitalistic inequality with cultural domination through unequal access to education, weaker unions, large executive pay. This combines financial and cultural capital at a scale beyond the postwar period.

• To understand twenty-first century inequality production, Marx’s observations on capital must be combined with Bourdieu’s concepts of cultural and symbolic capital domination. However, the book is limited by its Western-centered approach given data limitations in examining non-Western inequality regimes.

• The book is very focused on Western countries like Europe, North America and Japan due to limitations in data availability from other parts of the world. However, more data is now becoming available for countries like Brazil, Korea, Mexico, India, China, etc.

• Efforts are ongoing to expand the World Wealth and Income Database to include more emerging countries and cover more of the income/wealth distribution, as well as other dimensions of inequality like gender. This will allow for more global and regional analyses of inequality trends.

• While data availability was a major factor, the book is also inherently Western-centered because it focuses on the role of World Wars in reducing inequality in Europe/North America in the 20th century.

• However, it is important to move beyond this Western lens and learn from other countries’ experiences with different inequality regimes related to factors like apartheid, slavery, oil wealth, caste systems, etc.

• Western ideology portrays modern inequality as based on merit rather than status, but discrimination and lack of opportunity are still issues. Countries can learn from policies in places like India to promote greater equality of access.

• Going forward, a more global and multidimensional analysis of inequality dynamics and the social/political factors driving institutional change is needed.

• Thomas Piketty’s book Capital in the Twenty-First Century became an unexpected worldwide phenomenon upon its publication in 2014. It sold millions of copies and was critically acclaimed.

• The book used extensive historical data to show how wealth inequality has increased over the long run when the rate of return on capital exceeds the overall economic growth rate. This challenged conventional economic thought.

• Piketty traveled widely presenting his findings. His data-driven argument resonated with public concerns about rising inequality. However, the book was also subject to substantive academic critiques on some of its conclusions and data analysis.

• The success of the book highlighted shifts in media consumption and the potential for academic works to engage broader audiences. It also contributed to debates around economic and political reforms to address wealth concentration. While an important work, the author notes it was only an introduction to further studying capital and inequality in the 21st century.

This article critiques some aspects of the economic model and assumptions presented in Thomas Piketty’s book “Capital in the Twenty-First Century”.

It argues that Piketty’s assumption of a constant net saving rate is problematic and could overstate how much the capital/output ratio rises when growth falls. Alternative assumptions like a constant gross savings rate would mitigate this effect.

It also critiques Piketty’s use of a Cobb-Douglas production function, saying a Constant Elasticity of Substitution (CES) function would be more realistic. This allows for varying returns to scale rather than diminishing returns.

Some studies have found that trends in housing wealth account for a significant portion of increasing wealth inequality. But Piketty’s model focuses only on non-housing capital. Including housing could change his conclusions about the dynamics of the wealth distribution.

Overall, the article raises valid critiques of some parametric assumptions in Piketty’s theoretical modeling framework, but does not dispute the main qualitative implications of his work on rising inequality driven by returns to capital outpacing economic growth. Alternative specifications could refine but not necessarily undermine his overall conclusions.

Here is a summary of the document ‘ciences-po-economics-discussion-papers’:

• It discusses the relationship between the net and gross elasticity of substitution, defined as the percentage change in factor prices resulting from a 1% change in the capital-labor ratio. The net elasticity is always lower than the gross elasticity due to differences in net and gross capital shares.

• It reviews various empirical estimates of the elasticity of substitution from previous studies, which generally find values between 0.4-0.7. Different methodologies and data sources account for some variation in estimates.

• It discusses how biased technological change, where technology favors one factor over the other, can impact the elasticity of substitution over time. Empirical estimates suggest a rising elasticity in the US of about 0.4 percentage points per year.

• It examines the impact of globalization and trade on labor shares and wages. Studies find imports from China reduced US manufacturing employment and wages, especially in more import-competing industries. However, trade can also spur productivity through competition effects.

• Technological changes like computers and automation have also contributed to changes in labor shares by substituting for some jobs and complementing others. Customer self-service technologies in sectors like retail have reduced demand for some roles.

So in summary, it reviews the economic literature on estimating the elasticity of substitution and discusses factors like globalization, technology and trade that have impacted labor shares and the demand for labor.

Here is a summary of the key points from the readings:

• Daron Acemoglu in “The Great Reversal in the Demand for Skill and Cognitive Tasks” (2016) analyzes how technological change has affected the relative demand for skills since the 1980s. He finds that technologies prior to 1980 increased demand for cognitive tasks and skills, but more recent technologies have substituted for tasks previously performed by workers across a wide range of skill levels.

• Acemoglu in “When Does Labor Scarcity Encourage Innovation?” (2010) develops a theoretical model analyzing how labor market conditions influence firms’ innovation incentives. He finds that labor scarcity encourages innovation that substitutes capital for labor when workers are abundant but encourages innovation complimentary to labor when workers are scarce.

• In “Labor- and Capital-Augmenting Technical Change” (2013), Acemoglu further develops his theory of directed technical change. He models how the direction of technological change is determined by both supply factors in the innovation process and demand factors in product and labor markets. The type of technological change that emerges depends on the relative strengths of these supply and demand factors.

• Slavery reveals historical prices of human capital, as slaves functioned like other forms of wealth/capital that was traded, invested in, and used as collateral.

• Piketty argues capital’s share of national income was higher in the late 19th/early 20th century (35-40%) compared to today (25-30%).

• Studies show labor’s share of income increased in the mid-20th century before declining after 1979, while human capital’s share followed a U-shape over the 20th century.

• Data suggests the rich save more of their income compared to others, but there is heterogeneity in saving and bequest motives. Having children does not seem to determine saving or bequest behaviors.

• Inherited wealth may have become less important as the share of women among the very wealthy, a proxy for inheritance, has fallen since the 1960s. Great fortunes destruction in early 20th century also reduced role of inheritance.

• Overall, the essay discusses how concepts of human capital, wealth, savings, and bequests relate to Piketty’s framework on changing distributions of capital versus labor income over time.

The passage explains that Piketty’s argument about the rise of inherited wealth relies on the assumption that high-income individuals will save and bequeath their wealth in similar ways as before World War I. However, this assumption is untested and may not hold true.

The passage notes two potential issues with Piketty’s assumption. First, it suggests Piketty’s argument underestimates the relative decline in the importance of inherited capital over earned capital. Second, it argues the fundamental economic mechanisms influencing saving and bequest behaviors may be different now compared to the late 19th/early 20th century.

So in summary, while Piketty analyzes long-term trends in wealth inequality, the passage questions one of the core assumptions underlying his argument - that the behaviors of high-income individuals regarding saving and passing on wealth will mimic historical patterns from over a century ago. This assumption remains untested according to the passage.

Here is a summary of the key points from Bitler et al.:

• Bitler et al. studied the effects of the Head Start early childhood program on later life outcomes.

• They found that the gains from Head Start were highly heterogeneous, with the largest treatment effects accruing to the most deprived recipients.

• This result is consistent with Deming’s earlier findings on Head Start. Specifically, Bitler et al. and Deming both found that Head Start had the greatest benefits for children from the most disadvantaged backgrounds.

• The gains were largest for children who were the most in need of intervention due to factors like low parental education, income, etc. This suggests Head Start is most effective at improving outcomes for children facing the most barriers to learning and development.

So in summary, Bitler et al. argue that Head Start had the biggest positive impacts on children from very disadvantaged backgrounds, consistent with Deming’s prior research, indicating the program is better targeted at helping those most in need.

Here is a summary of the key points made in the passages cited:

• Labor markets are complex and worker wages are influenced by factors beyond just supply and demand, like employer bargaining power, search costs, internal fairness norms, and implicit contracts between employers and employees over compensation and job security.

• The rise of the “fissured workplace” has increased employer monitoring and control over work standards while weakening implicit contracts, as companies outsource and contract out work.

• Early institutional economists argued employer market power came from barriers like search costs and household labor supply decisions. More recent research emphasizes monopsony power from lack of alternative jobs.

• Internal pay structures reflect both external market conditions and ideas of horizontal and vertical fairness within firms. Managers cite fairness concerns as a major reason for maintaining equitable pay scales.

• Implicit contracts recognize firms seek to recover costs of training and compensate for quasi-fixed labor costs, shaping long-term compensation policies.

• Behavioral experiments show fairness plays a role in wage determination beyond rational self-interest, as people reject unequal offers even when it costs them. This impacts workplace pay determination and response to cuts.

• Firm size also influences wages, though reasons for this “employer size-wage effect” are debated between institutional, efficiency wage and bargaining power explanations.

Here is a summary of the key papers and findings:

• Charles Brown, James Hamilton, and James Medoff (1990) found that wages varied significantly across employers of different sizes, with larger firms paying higher wages on average.

• Erica Groshen (1991) identified five reasons for wage variations across employers, including differences in product market conditions, compensation policies, worker quality, capital intensity, and unionization rates.

• Matissa Hollister (2004) found that the effect of firm size on wages declined by about one-third between 1988 and 2003 in the US.

• Binnur Balkan and Semih Tumen (2016) found larger firm size wage effects in informal jobs versus formal jobs in Turkey, raising questions about differences in wage-setting within formal versus informal sectors.

• Orley Ashenfelter et al. (2010) summarized papers providing evidence of monopsony power in labor markets, allowing employers to pay wages below workers’ marginal productivity.

• James Rebitzer and Lowell Taylor discussed problems from complex monitoring where workers have multiple effort aspects that are complementary but not all observable, making independent contracting preferable.

• Studies by Matthew Dey et al. (2010), Katherine Abraham and Susan Taylor (1996), and Samuel Berlinski (2008) analyzed the impacts of contracting out on wages and found evidence that contracting reduces wages, particularly in low-wage occupations like janitorial work.

• Papers by David Weil and others investigated the impacts of fissuring and franchising on labor standards compliance and earnings. Overall the literature suggests fissuring contributes to rising inequality between and within firms.

• The chapter discusses the increasing share of capital income in personal income and its implications for personal income inequality.

• Studies show capital’s share of national income has been rising globally since the 1980s, contributing to rising income inequality.

• A rising capital share increases inequality if capital is more concentrated/unequally distributed than labor income.

• Piketty’s theory that r (return on capital) will tend to exceed g (economic growth rate) over the long-run increases capital’s dominance. However, some argue this need not inevitably be the case.

• The chapter develops the concept of “new capitalism” with a more egalitarian distribution of capital ownership. This could reduce inequality even with a rising capital share, by making capital income less concentrated.

• Key aspects of “new capitalism” include higher capital diffusion through public pension funds, lower wealth concentration, and a rise in “new rich” with both high capital and labor incomes.

• Mechanisms like randomly allocating some portion of capital income could help equalize income distribution under new capitalism.

• However, questions remain about how close current societies have come to realizing the egalitarian distribution of capital envisaged under “new capitalism.”

The passage argues that under a hypothetical “new capitalism 2” system, the relationship between greater capital income share and rising inequality would be severed. This is because the rate of return (Rc) on capital would still equal 1, even if the transmission link between capital income share and individual inequality was broken.

It cites two papers that discuss trends related to rising capital income shares (Karabarbounis and Neiman 2014; Taylor, Ömer, and Rezai 2015) and argues Piketty recognized the need for taxation and redistribution policies to complement each other to address issues of wealth concentration and private capital governance.

It then assumes some “stickiness” or consistency in the rate of return on capital (Rc) over time as part of considering how a “new capitalism 2” system may function. The overall point is that delinking capital income share from inequality would require changing the economic structure and policies around capital returns and ownership.

Here is a summary of the key points from Branko Milanovic’s book “Global Inequality”:

• Milanovic uses different data sources to analyze global income inequality over time, considering both absolute and relative differences in incomes across countries.

• He finds that global inequality declined in the 20th century due to reductions in inequality within countries, but has increased again since the 1980s/1990s due to rising inequality between countries as developing countries have grown rapidly.

• Within countries, inequality trends have varied regionally. Inequality increased in rich countries and declined in some developing regions like East Asia and Latin America, but increased or stagnated in others like Sub-Saharan Africa.

• Forces like globalization, trade openness, technological changes and tax policies have all impacted inequality within and between countries over time in complex ways.

• Milanovic argues for considering both relative inequality measures as well as absolute income differences to fully understand global inequality patterns and changes over time.

That covers the key points regarding Branko Milanovic’s analysis of global income inequality trends and determinants in his book “Global Inequality.” Let me know if you need any clarification or have additional questions.

Here is a summary of the key points from “World Investment Report 2015: Performing International Investment Governance”:

• Global foreign direct investment (FDI) flows declined by 16% in 2014, continuing a downward trend from their peak in 2007. Developed economies saw the largest decline while FDI to developing countries remained stable.

• FDI is becoming more concentrated in large developing countries like China and Brazil. Countries need effective investment policies and rule of law to attract more inclusive FDI that benefits broader development goals.

• Investor-state dispute settlement (ISDS) mechanisms in international investment agreements (IIAs) are increasingly controversial. More transparency and public participation is needed to improve perception problems with ISDS.

• The rise of bilateral and regional trade agreements has led to a complex web of overlaps and inconsistencies in international investment rulemaking. Simplification and harmonization is needed.

• The report calls for upgrading the UN Conference on Trade and Development (UNCTAD) to a full-fledged international investment governance body that can help facilitate reform cooperation between countries.

• Overall international investment governance must balance investment protection and the policy space needed by governments to pursue public welfare objectives like sustainable development.

Here is a summary of the key points from the sources provided:

• J. Urry’s book Offshoring (2014) discusses how the largest transnational companies use offshore subsidiaries located in tax havens like Bermuda, Luxembourg, Ireland, Singapore and Switzerland to minimize their tax exposure.

• G. Zucman’s book Hidden Wealth of Nations analyzes how worldwide private financial wealth held in offshore accounts has grown significantly. An estimated $7.6 trillion of private financial assets are held offshore, equal to 8% of global household wealth.

• The edited collection Deviant Globalization by N. Gilman et al. observes how “black market economies” use globalization’s infrastructure to exploit regulatory gaps for illicit goods and services.

• Additional sources discuss economic zones and special economic zones as spaces that provide sites for tax avoidance, wealth concealment and circumvention of laws and regulations, but are connected through corporations, technologies and standards to form a “global spatial operating system.”

• Offshore finance industries and private bankers in London and elsewhere facilitate tax avoidance and concealment of wealth for wealthy elites and ultra-high net worth individuals through complex legal and financial structures.

• researchers since Piketty have worked to improve data on income and wealth inequality through projects like Distributional National Accounts that provide consistent long-run datasets across countries

• collecting comprehensive tax data is important for measuring inequality trends at the top end, including earning, wealth, and inheritance taxes

• accessing administrative data from governments and other institutions can help supplement traditional surveys with more complete data on incomes, wealth, education etc.

• while studies have estimated top wealth shares using estate tax data, comprehensive statistics on the entire distribution of wealth are still limited, so continued work using capitalized income methods or other approaches is needed

• ongoing efforts to refine national accounts standards and implement them consistently internationally will strengthen inequality research going forward

So in summary, the research agenda focuses on improving data quality and consistency over long time periods through projects like Distributional National Accounts, better utilizing administrative records, and further developing methods to comprehensively measure wealth inequality.

Here is a summary of the key papers and models discussed in the question:

• Piketty (2014) presents the seminal r > g model which predicts rising wealth inequality when the return on capital r exceeds the economic growth rate g. This model is influential in explaining long-run trends in wealth concentration.

• Benhabib et al (2015) and Aoki and Nirei (2015) develop Bewley-type models where agents face idiosyncratic capital income risk. These models can generate Pareto-like wealth distributions consistent with empirical patterns.

• Dynan et al (2004) find empirical evidence that higher-income households save more out of their incomes, potentially contributing to rising wealth gaps.

• Atkinson (1983) and other studies document long-term trends in rising wealth inequality in countries like the US and UK over the 20th century.

• Charles and Hurst (2003) and other papers analyze intergenerational wealth mobility and correlations between parent and child wealth levels using longitudinal data. They find moderate but significant correlations.

• Mulligan (1997) and others explore the role of parental transfers and priorities in shaping children’s economic outcomes and wealth positions across generations.

So in summary, the papers examine theoretical macro models, empirical evidence on savings and wealth dynamics, and analyses of intergenerational links and mobility to understand inequality in household balance sheets. The focus is on explaining long-term trends toward more concentrated wealth-holding.

Here is a summary of the key papers and concepts related to the distribution of wealth and redistributive policies:

• Benhabib and Bisin (2006) develop a model analyzing the distribution of wealth and effects of redistributive policies in an economy with finitely-lived agents.

• Jones (2015) examines the relationship between Pareto’s analysis of income/wealth inequality and Piketty’s empirical findings on rising inequality.

• Early papers like Wold and Whittle modeled wealth distributions statistically, while later works like Benhabib et al. (2011, 2014) incorporated economic optimization into models producing Pareto-like wealth distributions.

• Piketty and Zucman (2014) use empirical data to analyze long-run trends in inherited wealth.

• The role of entrepreneurship in propagating wealth inequality is analyzed in papers by Quadrini (2009), Buera (2008), De Nardi et al. (2007), and Cagetti and De Nardi (2006).

• Heterogeneity in factors like risk preferences, time preferences, income/wealth shocks, and bequest motives can also generate unequal wealth distributions over time.

• Empirical studies by Saez/Zucman, Piketty/Saez, and Guvenen et al. document long-term trends in top wealth shares and income/earnings inequality in countries like the US.

• Papers evaluate impacts of taxes, transfers, technology, entrepreneurship on the evolution of observed wealth concentration over decades.

Here is a summary of key points from the provided text:

• The chapter presents a feminist interpretation and critique of Thomas Piketty’s theory of capital accumulation and wealth inequality as described in Capital in the Twenty-First Century.

• It argues Piketty’s framework overlooks important economic contributions of women, including unpaid household labor and care work traditionally performed by women. Incorporating women’s economic roles leads to a more complete picture of inequality.

• Feminist economics pays closer attention to issues like intersectionality of inequality across gender and race. Inheritance patterns differ across racial groups due to histories like slavery.

• Accounting for women’s rising labor force participation, household production, and human capital accumulation challenges the prediction that returns to capital will inevitably grow larger than economic growth.

• A feminist perspective considers how labor market structures, discrimination, and social policies impact inequality over time, not just returns to wealth. This provides a more nuanced analysis of the dynamics of wealth accumulation.

• In sum, the chapter puts forth a feminist critique that broadens and enriches Piketty’s framework on capital and inequality by centering issues of gender and unpaid work.

• Patrimonie is a gender-neutral term in French that means wealth, inheritance, or heritage. It refers to both the economic and cultural wealth of a nation.

• Museums are said to preserve ‘le patrimoine national,’ which means the national heritage or wealth.

• The translator was concerned about directly translating patrimonie to patrimony in English, since patrimony has gendered connotations.

• After discussion, they decided to keep it close to the original French term and let the text provide context for how the author, Thomas, was using the term in that context. The goal was to maintain fidelity to the original French meaning as much as possible.

• In summary, patrimonie is a gender-neutral French term referring to a nation’s overall wealth and cultural inheritance, which the translation aimed to preserve through context even if not directly translating the word.

• The author thanks several people for their helpful comments and contributions in improving the chapter, especially Joe Hasell whose comments greatly improved it.

• References are made to works by Piketty on capital in the 21st century, Stiglitz on macroeconomic fluctuations and inequality, and Atkinson on policies to address inequality.

• The chapter aims to discuss the link between inequality and economic performance without addressing political or social instability. It references theoretical works linking income distribution, investment, and economic growth cycles.

• It also references works showing how inequality increased after 1970 in many countries and how the wealthy were less impacted by recessions. Issues around banking crises, sovereign debt, and economic recoveries are also discussed.

• The next sections will analyze the theoretical arguments in more depth regarding how inequality may positively or negatively impact growth, as well as the empirical evidence on this relationship from cross-country and panel regressions. The role of inequality of opportunity versus outcome will also be considered.

Here is a summary of the key points from Politics 11, no. 1 (2013): 51–73:

• The article examines the relationship between inequality and economic growth. Excessive inequality can harm growth through several channels such as credit market imperfections, risk aversion, policy impact, and political economy factors.

• Credit market imperfections, like lack of collateral, asymmetry of information, and limited liability can restrict access to capital for some groups. This misallocates resources and reduces aggregate productivity and growth.

• High income inequality increases risk aversion at the lower end of income distribution as they need to devote more to necessities. This decreases aggregate demand and long-run growth potential.

• High inequality shapes policies toward the wealthy and hurts investments in public goods like education that benefit all. It also skews policies toward short-term gains to win elections rather than long-term growth.

• Politically powerful wealthy groups can influence rules and policies to protect and increase theirwealth at the expense of wider economic opportunities, mobility and growth. This increases instability.

• The article analyzes different theoretical models and empirical studies on this topic and discusses implications for policies aimed at more inclusive and sustainable economic growth.

Here is a summary of the key points from the section “The ildup phase” discussed in Aghion, Banerjee, and Piketty’s work “Dualism”:

• There was an initial “buildup” phase of increasing dualism in many developing countries in the post-WW2 era. Dualism refers to a separation between a modern high-productivity sector and a low-productivity traditional sector.

• In this buildup phase, industrialization and urbanization began to take off, fueled by import substitution policies. However, agricultural productivity in rural areas remained low due to a lack of infrastructure and investments.

• This caused a widening gap in productivity and wages between the urban industrial sector and rural agricultural sector. The economy became increasingly dualistic with a minority in high-productivity jobs and a majority stuck in low-productivity work.

• The increase in urban-rural and sectoral dualism was driven both by market forces as labor moved to higher productivity sectors, as well as policies like protectionism that subsidized industrialization over agricultural development.

• Over time, if unaddressed, this dualism could constrain growth by limiting agricultural productivity gains and hindering structural transformation of the economy to more modern high-productivity sectors.

That covers the key summary points regarding the “buildup phase” discussed in the referenced paper on the dualism framework. Let me know if any part needs more clarification!

• Hyperinflations in Weimar Germany in the early 1920s, known as perinflations, were caused by an extremely onerous reparations schedule imposed by the Allies after World War 1 that made tax increases unable to support the level of reparations demanded.

• The hyperinflations ended when the Allies decided to moderate their reparations claims and allow the Weimar government and other postwar governments to exist and function.

• Right-wing historians at the time and contemporary to the 1970s stagflation blamed the hyperinflation on the Versailles Treaty, Germany’s defeat, and social welfare spending by the left-wing Weimar government.

• Some modern historians see the hyperinflation as a deliberate attempt by Germany to evade valid reparations through inflation, viewing the Allied moderate policy later as appeasement that enabled the Nazi rise to power.

• The historiography of the Weimar hyperinflation is complex with multiple interpretations; the article cited provides more analysis of the different views.

The passage discusses the origins and development of laissez-faire economic ideas and classical liberal thought. It mentions that the slogan “laissez-faire, laissez-passer” is often credited to Vincent de Gournay in the 18th century, but may have originated earlier. It then provides historical context on the Physiocrats and Adam Smith, and discusses how early economic thinkers like Pierre de Boisguilbert influenced later philosophers.

The passage examines the complexity of the fact-value distinction in economics. It notes debates around when and how modern notions of “the economy” and capitalism emerged. Key thinkers discussed include Karl Polanyi, Edward Thompson, Foucault and Marx. Constitutional developments in France, America and ideas of sovereignty vs government are also analyzed in relation to the emergence of capitalist legal structures. The passage concludes by discussing debates around juristocracy and democratic constitutionalism.

• The chapter discusses the historical origins of global inequality, referring to theories of inclusive vs. extractive political and economic institutions. It examines how colonialism established institutionalized segregation that shaped divergent trajectories.

• Slavery and the Atlantic slave trade were central to the rise of capitalism and industrialization in Europe. African slave labor produced goods and generated wealth that financed further development.

• Extractive institutions in colonies undermined inclusive development there, transferring resources to the colonizing powers. Lasting impacts include unequal distribution of wealth, power and human capital across societies today.

• Studies find intergenerational transmission of advantages from slave ownership and colonial roles. Families descended from European colonists and slaveholders still show higher status on average compared to those with roots in subjected populations.

• Nonlinear dynamics mean institutions may self-replicate features of past inequality over time through similar distributional effects, complicating simple models of static, historically determined institutions. The legacy of slavery and colonialism continues to shape contemporary inequality.

• Ta-Nehisi Coates argues in his article “The Case for Reparations” that policies like slavery, Jim Crow laws, and federal redlining contributed to denying African Americans access to homeownership, a major form of wealth building in the US.

• He traces this line of continuity over the 20th century and argues that even as explicit discriminatory policies ended, new institutions emerged to maintain racial inequalities.

• His view is that past institutions shape present outcomes through “institutional path dependence,” where replacing one extractive institution does not undo its distributional effects.

• The US experience supports rethinking how historical institutions continue affecting contemporary racial inequalities through mechanisms like path dependence and the emergence of new discriminatory policies or practices.

• Coates presents a persuasive historical institutionalist argument about how institutions can dynamically preserve racial hierarchies over long periods through subtle replacement or evolution of discriminatory policies and systems.

Here are summaries of two key passages from Exit, Voice, and Loyalty by Albert Hirschman:

Page 272: Hirschman discusses how loyalty acts as a mitigating force against exit. High levels of customer loyalty make exit less attractive as an option for customers who are dissatisfied with the quality of a firm’s products. This loyalty gives the firm leeway to lower quality some without losing as many customers to exit.

Page 274: Hirschman introduces the concept of “perverse effects” that can sometimes result from the use of exit, voice, or loyalty as responses to deterioration. For example, allowing exit as the main response could undermine incentives for voice among those remaining in the relationship, as improvements are less likely. Or very high loyalty could discourage voice by making exit appear unnecessary. Balance among the three responses is desirable to avoid perverse effects.

Here is a summary of the key points about redistribution of tax revenues from the referenced passage:

• Tony Atkinson advocated for substantial redistribution of tax revenues to reduce inequality. He argued that the rise in top income shares threatens democracy.

• Piketty acknowledges that substantial redistribution is necessary to curb the rise in inequality and stabilize inherited wealth’s share of national wealth. However, he is skeptical that voters will support high progressive tax rates given rentiers’ political influence.

• Piketty advocates for a global tax on capital as a way to curb the power of rentiers and finance social spending. However, he notes many practical obstacles to implementing such a tax.

• While some degree of redistribution is inevitable, Piketty doubts it will be enough to fully counteract the concentration of wealth driven by r>g. Strong progressive taxation faces political obstacles due to rentiers’ influence.

• Atkinson and Piketty both argue redistribution is needed to reduce inequality and stabilize inheritances, but Piketty is more skeptical it can be implemented at a level sufficient to fully offset r>g given rentiers’ political power. A global capital tax could help but faces major challenges.

• Ts refers to time series/time series data. Piketty discusses problems measuring inequality over long periods of time using inconsistent time series data.

• Krugman wrote critically about rising inequality and the “new Gilded Age” in the US.

• Piketty’s seminal work Capital in the 21st Century uses time series data to analyze long-run trends in inequality, defining capital’s share of income.

• Some historians used time series data to study inequality trends related to slavery in the US South.

• Feminist economists also analyze inequality trends, noting impacts on gender.

• Measuring inequality over long periods poses challenges with inconsistent time series data.

• Piketty discusses capital’s rising share of income over the long run based on his time series analysis.

So in summary, it touches on the use of time series data in understanding long-run trends in economic inequality, including debates about measurement issues and analyses by economists like Piketty and Krugman as well as historians studying topics like slavery.

• Piketty analyzes data on income from corporate managers, elites, labor capital, physical capital, wages, and capital. He looks at inequality in income as well as wealth inequality vs income inequality.

• Technology is a key driver of rising inequality as it substitutes capital for labor and favors higher-skilled workers. It contributes to polarization in labor markets.

• Human capital theory explains inequality through differences in education, skills, and experience. Intergenerational transmission of human capital impacts mobility.

• Inheritance is a major source of wealth accumulation and resilience over generations. It raises concerns about inequality of opportunity.

• Tax data and surveys provide information on incomes, but inheritance data comes largely from estate/wealth tax records when they exist. The Luxembourg Income Study also analyzes inequality globally.

• Macroeconomic analysis examines how inequality may impact economic performance and stability through things like financial crises, political capture, and falling demand.

• Policy remedies discussed include strengthenng labor unions, increasing taxes, boosting public investments like education, and reining in rents. But technology also enables social solutions like basic income support.

• Piketty’s analysis sheds light on long-term historical trends in inequality dating back centuries and warns of a possible return to 19th century levels without intervention. He advocates inheritance and carbon taxes.

• Nielsen, Eric cited on pages 558 and 658n30 regarding wealth inequality estimates.

• Nirei, Makoto cited on pages 332-333 regarding savings rates and wealth inequality.

• Discussion of non-tradable sectors of the economy on pages 190-195 and how they relate to wealth and income inequality.

• Douglass North cited on page 503 regarding the role of institutions in shaping economic outcomes.

• Jaromir Nosal cited on page 336 regarding endogenous interest rates and wealth inequality.

• Ronald Oaxaca cited on pages 590-591n8 regarding intergenerational mobility and discrimination.

• Barack Obama cited on pages 35 and 45 and 569n17 regarding policies relating to inequality.

• Ezra Oberfield cited on pages 89-90 regarding multi-country growth rates.

• Filippo Occhino cited on page 237 regarding capital-labor substitution.

• Occupy Wall Street movement discussed on page 34 regarding protest of wealth inequality.

• Walter Oi cited on page 591n12 regarding dual labor markets.

• Arthur M. Okun cited on pages 17 and 634n38 regarding measures of inequality and unemployment.

• Discussion focuses on key individuals, studies, concepts, and policies relevant to understanding economic inequality and its evolution over time.

Here is a summary of some of the key entries from fanie, 318 and Starbucks (firm), 612n58:

• fanie - No summary for this entry was requested.

• 318 - No summary provided for this page number reference.

• Starbucks (firm) - Starbucks is a large international coffee company mentioned in note 58 on page 612. No further details were provided for the summarized entries.