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Down the Lane with Piketty

Here’s a letter to the Washington Post:

Charles Lane correctly notes that Thomas Piketty overlooks the practical difficulties of raising taxes without also raising barriers to the entrepreneurship and effort that improve everyone’s living standards (“Thomas Piketty identifies and important ill of capitalism but not its cure,” May 15).  But the problems with Piketty’s analyses run much deeper than this oversight.  Piketty’s main thesis – that capital in free markets (absent calamities such as war) automatically grows at an average annual rate of at least 4 percent, so that those individuals with more wealth than others today will be those individuals with even more wealth than others tomorrow – is difficult to square with reality.

Consider, for example, that 21 of the still-living 100 richest Americans of only five years ago are no longer in that group today.*  That’s a greater than 20 percent turnover in a mere half-decade – and this turnover isn’t likely explained by the financial crisis.  As reported by Larry Summers (who is no libertarian): “When Forbes compared its list of the wealthiest Americans in 1982 and 2012, it found that less than one tenth of the 1982 list was still on the list in 2012, despite the fact that a significant majority of members of the 1982 list would have qualified for the 2012 list if they had accumulated wealth at a real rate of even 4 percent a year.”**

Real-world market economies are far more dynamic and churning than Professor Piketty and his fans realize.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

* I discovered this fact by comparing the richest 100 people on the latest Forbes list of the 400 richest Americans (published in September 2013) with the richest 100 people on the Forbes list of richest Americans published in September 2008.  (I looked only at the richest 100 Americans, rather than 400, simply because I hadn’t the time to go through all 400 names on each list.  If a Cafe patron would like to look at all 400 names and report the results, I’d be grateful.  Note that I count as falling off the list only people who were on the list in 2008 and not on the list in 2013 yet who were still alive in September 2013, when the most recent list was compiled.)

** Lawrence H. Summers, “The Piketty Puzzle,” Democracy, Spring 2014.


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