boushey ta x e s a s po l ci y · 2014-08-14 · a x e s a s p o l ci y capital in the twenty-first...

Boushey

84 Challenge/May–June 2014

HeatHer bousHey is executive director and chief economist at the Washington Center for Equitable Growth, Washington, DC.

Taxes as Policy

Capital in the twenty-First Century, by Thomas Piketty. Cambridge: Belknap, Harvard University Press, 2014. $39.95. 685 pages.

Heather Boushey

The Past Devours the Future

Like many economists, I am up early on the first Friday of every month to interpret the Bureau of Labor Sta-tistics’ release of new data on U.S. employment and earnings. I feel “in the know” to be poring over a de-tailed spreadsheet seeking to discern what a 0.1-percentage-point change in the employment rate means as I watch global markets reacting to that same number in real time. Knowing that President Barack Obama and congressional leaders will have to react to the new data adds a little bit of grandeur to what could otherwise be an early morning plod through tables and figures.

Paris School of Economics pro-fessor Thomas Piketty understands the enormous power of economic data. In his new book, Capital in the Twenty-First Century, translated from its original French by Arthur Goldhammer, he starts from the premise that we need to follow the money. Piketty combines a treasure

trove of data with his motivating question—“What do we really know about how wealth and income have evolved since the eighteenth century, and what lessons can we derive from that knowledge for the century now under way” (p. 1)—to lay out his contribution to that holy grail of economics: a unified theory of capi-talism. Unlike the reigning economic theories of the mid- to late twentieth century, Piketty’s data tour de force does not end with an optimistic as-sessment that “a rising tide lifts all boats.”1 Through nearly 700 pages of data and analysis, Piketty concludes that, left to its own devices, capital will calcify as “the past tends to devour the future” (p. 348) because “powerful forces” push toward “an extremely high level of inequality” (p. 27). While countervailing forces exist, Piketty’s analysis of the data leads him to conclude that those equitable trends are overwhelmed in our time by the forces that lead to greater inequality.

Throughout the book, I was amused by the subtle and not-so-

Challenge, vol. 57, no. 3, May/June 2014, pp. 84–96.© 2014 M.E. Sharpe, Inc. All rights reserved. Permissions: www.copyright.com

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Review of Capital in the Twenty-First Century

Challenge/May–June 2014 85

subtle discourse with economists, both dead and living. Piketty has many trenchant remarks about the U.S. economics profession. He argues that economic issues are political and does not mince words when cri-tiquing other economists for spend-ing too little time delving into real- world problems using actual data:

Economists are all too often preoccupied with petty math-ematical problems of interest only to themselves. This obses-sion with mathematics is an easy way of acquiring the appearance of scientificity without having to answer the far more complex questions posed by the world we live in. (p. 32)

He is also in a dialogue with the dead. Capital in the Twenty-First Cen-tury is, of course, the namesake of Das Kapital, and from page 1, Piketty is having a conversation with Marx about method, theory, and politics. Like Marx, Piketty seeks to engage with the world, not just develop abstract theory. His analysis begins with the data and ends with calls for real-world engagement. But Piketty’s theory is of capital, not capitalism. Where Marx sought to understand capitalism by focusing on the process of production and thus began with “the commodity,” Piketty starts with distribution. This decision leads him to a very different policy solution.

This is a stunning book and one that deserves a place in the syllabus of every Economics 101 course as well as on the bookshelf (or Kindle) of every serious economic policy-

maker. Piketty argues that the rapid productivity gains and shared pros-perity of the post–World War II era were a “historically unprecedented” situation, not the natural order of our economy or a permanent new normal. Whether and how we can recreate an era of shared prosper-ity is the defining economic issue of our times. Piketty has given us a great deal to think about. The an-swers we have considered are either to get government out of the way so that capitalism can heal itself or to reinvigorate the welfare state and go back to the model of the New Deal. Neither has been very satisfying, and it is exciting to be considering something new.

Capital, Not CapitalismWhile Piketty relies on extensive his-torical data, he defines the category of capital ahistorically. Whatever form capital takes—physical, finan-cial, land, or whatever—in whatever economic system, its effect on the economy is the same. Piketty’s analysis applies to all sorts of econo-mies—China, Russia, France, and the United States. It is a general theory of capital.

Piketty examines capital as a consistent economic category over the preceding 2,000 years. He makes extensive use of the detailed histori-cal data that he and his colleagues—Paris School of Economics professor Facundo Alvaredo, Oxford University professor Anthony Atkinson, and Uni-versity of California–Berkeley profes-sor Emmanuel Saez, among many

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others—have compiled on incomes from all over the world. Their World Top Incomes Database is, according to Piketty, the “largest historical database available concerning the evolution of income inequality” (p. 17). Capital in the Twenty-First Century is first and foremost a testament to years of painstaking work to compile detailed historical data on income and wealth and an explicit call for others to join in this kind of research.

Piketty defines capital to include “all forms of real property (includ-ing residential real estate) as well as financial and professional capital (plants, infrastructure, machinery, patents, and so on) used by firms and government agencies” (p. 46). The definition includes both capital involved in the production process as well as that used as a store of value. This is more akin to a standard defi-nition of wealth, and in fact he uses the two terms interchangeably (p. 47). This definition allows him to argue that there are essentially two kinds of income: the kind we earn by the sweat of our labor and everything else. In defining capital this way, he distinguishes his analysis from others and somewhat elliptically, in a direct rebuttal to Das Kapital, rejects the idea that the definition of “capital” “should apply only to those components of wealth directly employed in the production process” (p. 47).

This point is vividly made in the opening of the first chapter. Piketty describes a miners’ strike for higher wages at the Marikana platinum mine in South Africa against their London-

based mine owners. On August 16, 2012, police fired on and killed 34 miners. He uses this example to fo-cus our attention on who gains from production. Before the end of the page, however, he pivots from the struggle over wages in one firm to “respective shares of global income going to labor and capital” (p. 39). The remainder of the chapter focuses on defining income and capital and is where he first makes his argument that all capital is the same.

In this way, from the beginning, Piketty departs from Marx and a host of other scholars and economists who believe that a capitalist economy is decidedly different from other eco-nomic systems. One very interesting implication is how this definition allows him to resurrect the idea of the rentier, someone who gets his or her income from economic rents, such as land, monopolies, patents, or interest, rather from earning it through either investing directly in the production process or through labor. In Marx’s view, rentiers were a class that was diminishing in impor-tance to our economic system, and he argued they would disappear over time. We hear very little of a rentier class in standard economic thinking today. Yet by examining capital as he defines it over hundreds of years, Piketty concludes that we should not have so quickly relegated rentiers to the dustbin of history.

Starting with distribution and rejecting the idea that capitalism is decidedly different from other eco-nomic systems leads to very differ-ent political implications. Whereas



Marx’s economic analysis led him to call for a revolutionary overthrow of the capitalist system, Piketty’s leads him to suggest raising taxes. This is not as anodyne as it would appear. Piketty wants to use the full force of the state to drive down the rate of return on capital so that capital no longer poses a threat to the economic and political structure.

This idea reconfigures the instru-ments of political action. For much of the twentieth century, we saw strikes on the shop floor as emblem-atic of the conflict between the haves and the have-nots. Piketty’s analysis pushes us to see the world differ-ently, to move beyond the battles of the past two centuries. He wants us to see taxation as the real vehicle of struggle. In his view, taxes are not important for what the government can buy but, rather, because they are the most effective way of boosting economic growth by containing a naturally unequal economic system. In order to have the kind of eco-nomic growth we saw in the middle of the twentieth century, we do not need workers to take over the means of production, we need to focus the state’s apparatus on taxing capital.

There Is Nothing Natural About ItPiketty is not just rethinking the past, He also rejects deeply held tenets of today’s standard economic think-ing. Most importantly, he rejects the idea that the economy will natu-rally move toward an equilibrium

of greater equality. In 1955, Simon Kuznets, then president of the Ameri-can Economic Association, told his peers that inequality would typically increase as economies began the pro-cess of economic development, but as the country grew and an increas-ingly large share of the population took advantage of industrialization, inequality would fall. We now know that there is no certainty to this path. The U.S. economy, like other devel-oped economies, is at a high level of development, yet inequality has been rising for decades and is higher than ever before. Piketty suggests that Kuznets’s statement was more politics than economics, as “the intent of his optimistic predictions was quite simply to maintain the un-derdeveloped countries ‘within the orbit of the free world’” (p. 14).

Not only is lower inequality not the natural outcome of capitalism but Piketty also concludes that the wartime and postwar eras of the twentieth century were historically unique and created by politics, not market forces. The years of strong economic growth, rapidly rising productivity when the functional distribution shifted in favor of labor, and personal incomes became more equitably distributed—known in the United States as the postwar “Golden Age” and in France as Les Trente Glorieuses—were also years with a low capital–output ratio, a low net return on capital, and high taxation. They were not, however, years in which a new equilibrium would be automati-cally recreated by the invisible hand of the market. Piketty argues that

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these postwar trends were the result of unique historical shocks, namely, two world wars, which temporarily altered the relationship between the rate of return on capital and economic growth, creating a unique moment in economic history:

A concatenation of circum-stances (wartime destruction, progressive tax policies made possible by the shocks of 1914–1945, and exceptional growth during the three decades fol-lowing the end of World War II) thus created a historically unprecedented situation, which lasted for nearly a century. (p. 356)

It is important to note that unlike many scholars, Piketty does not think that this postwar golden age was the result of labor wins on the shop floor or the expansion of the welfare state, important as those were. For him, it was the destruction of capital caused by the two world wars and taxes levied on high incomes and estates to pay for those wars. Politics led to policies that meant that, for the first time, the rate of return on capital fell below the rate of growth. This is a stunning revelation. The success of the welfare state is not due to what it buys in the form of social stability but, rather, to the taxes to pay for it, which regulate capital in a highly functional way.

Piketty comes to this conclusion in three figures in chapter 10 (fig-ures 10.9, 10.10, and 10.11), where he shows that the rate of return on capital has traditionally outpaced the

rate of growth. He argues that when the rate of return on capital is higher than the rate of growth, according to his data, for all but that one-time golden age, this outcome reinforces inequality and a high capital-to-income ratio. Higher incomes going to capital transform into a more concentrated stock of accumulated capital, which then continues to reproduce itself. This happens both because the rate of return that capital can generate is typically greater in larger quantities and because highly concentrated capital translates into high inheritances:

Whenever the rate of return on capital is significantly and durably higher than the growth rate of the economy, it is all but inevitable that inheritance (of fortunes accumulated in the past) predominates over sav-ing (wealth accumulated in the present). . . . Wealth originating in the past automatically grows more rapidly, even without labor, than wealth stemming from work, which can be saved. Almost inevitably, this tends to give lasting, disproportionate importance to inequalities cre-ated in the past, and therefore to inheritance. (pp. 377–78)

This is at the heart of his unified theory. He combines what he calls the two laws of capitalism with the historical fact that the rate of return on capital is larger than the rate of growth, concluding that inequality will continue to rise. He does not argue that this is predetermined; he



shows data that for most of the past millennium, with the exception of the period from World War I to the 1970s, the rate of return on capital was greater than the rate of growth. When the rate of return on capital is higher than the rate of growth and the share of income from capital rises, if not every penny of capital returns are consumed, then more remains for owners of capital for reinvestment. This, in turn, leads the capital to grow as a share of national income, further increasing the capital-to-income ratio. Accumulated wealth will be able to grow faster than new wealth, and—voilà—inequality con-tinues its march forward.

In Piketty’s view, there are no natural forces pushing the economy naturally toward an egalitarian out-come. Only political action—and here he recommends a global tax on capital—can avert this outcome.

Education Will Not Save UsThe idea that market forces do not automatically produce optimal out-comes will lead economists to spend a great deal of time tapping on their keyboards. Many will argue that to-day’s rapidly improving technology and diffusion of skills will push the economy toward a more egalitarian outcome. For them to be correct, though, they must explain why the share of income going to the top 10 percent of earners since 1940 has fol-lowed a rough U-shape (p. 299; see his figure 8.7). Piketty points to the

conclusion that, at least in the case of the United States and likely in other cases, individual incomes have grown markedly unequal in ways that can-not be associated with merit and, in fact, look like rents, that is, above and beyond what would be normal in a competitive market. This is a very compelling argument.

Piketty agrees with the standard economic predictions that the key forces pushing toward a reduction in inequalities are the diffusion of tech-nologies and more broadly distribut-ed skills. But he points out that they have not been as dominant as one might expect. Technology diffusion certainly has promoted a process of catch-up for less developed econo-mies, though additional skills and training in the developed economies have not reduced inequalities, even as they contribute to productivity growth. At the very least, we would expect that as we move through the information economy, people should garner a greater share of national income, overcoming the historical dominance of labor, finance, or physical capital. This should show up as a sharply rising labor share of income. What we’ve seen, however, is “little evidence that labor’s share in national income has increased significantly in a very long time” (p. 22).

Piketty also points to data show-ing that higher incomes for those at the very top cannot be explained by changes in the demand and supply of skills or a rise in marginal productiv-ity, which are the standard predic-tions. He concludes that something

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other than differences in skills is driving top-end income inequality. Thus, he argues, the idea that the theory of marginal productivity can explain wages in the top percentiles is an “illusion” (p. 330). There are two elements to his argument. First, he points out that the rise in in-equality in the United States stems mostly from increased pay going to the top 10 percent of earners, and in particular to the top 1 percent rather than the remaining “9 percent” (p. 314). He examines differences in skill levels across the top 10 percent of earners (as measured by “years of education, selectivity of educa-tional institution, or professional experience” [p. 314]) and does not find any discontinuity between the top 1 percent and the remaining “9 percent” (ibid.). Therefore, wage dif-ferences in the top percentile cannot be explained by differences in educa-tion or skills.

Second, Piketty points out that “the main problem with the theory of marginal productivity is quite simply that it fails to explain the diversity of the wage distributions we observe in different countries at different times” (p. 308). Piketty examines data from a set of de-veloped countries with access to similar technology—Canada, the United Kingdom, Australia, and New Zealand—to show that the increase in the wages of the top 1 percent differ markedly across countries. Yet, given the similarity in technology, there should not be such large differences (p. 316). In addition, in countries such as Germany, Sweden, or Japan,

compared to English-speaking coun-tries, the share of income going to the top 1 percent has changed much less since 1980 (p. 317).

Wages, then, must be determined by factors other than marginal pro-ductivity. Piketty finds that over the period from 2000 to 2010, the over-whelming majority (60–70 percent) of the top 0.1 percent of earners in the United States was composed of highly paid managers (p. 302). The advent of “supermanagers” is an Anglo-Saxon phenomenon that Piketty characterizes as a new class of rentiers (p. 304). Even though the top earners are managers who work for their income, “if the best paid individuals set their own salaries (at least to some extent), the result may be greater and greater inequality” (p. 334). This new rentier class was able to rise “because U.S. and British corporations became much more tolerant of extremely generous pay packages after 1970” (p. 332).

Bequests: A New Rentier ClassCritics of Piketty may point out that, in the United States, the rise in income inequality obscures an important difference between the beginning and end of the twentieth century. After 1980, most of the in-crease in inequality was the result of a substantial rise in wage inequal-ity, which includes exercised stock options but not those that are not exercised, while increases in capital income account for only about a



third of the increase (p. 300). Com-paring incomes for the top 10 percent in 1929 and 2007, the years before the full onset of the Great Depression and the Great Recession, respectively, shows that in 1929 the top 1 percent earned the majority of their income from capital (essentially dividends and capital gains), but by 2007 wage income played a much larger role (pp. 301–2). Therefore, this must mean that the rise in inequality is due to talent or skills.

In fact, this instead demonstrates that we are seeing the rise of the importance of inheritances. Piketty makes the case that among the highest earners, income from em-ployment cannot be tied just to productivity but rather looks more like rent-seeking behavior, such as pay-and-benefits packages unrelated to the underlying performance of the companies run by these high earn-ers. This is where his definition of capital becomes critically important: he makes the argument that we have moved back to a rentier society, with all the attendant implications for innovation and entrepreneurship, even if the naked eye may see the specific form of the rents differently than they looked a century ago. That income from capital accumulation appears to be conferring important benefits to the children of high earn-ers further underscores how discon-nected salaries may be from merit, says Piketty.

As income inequality widens, the result will be increasing stocks of accumulated wealth, which over time will diminish the importance

of employment income among the elite. Larger stocks of capital natu-rally garner larger returns: “the rate of return varies widely with the type of asset, as well as with the size of individual fortunes (it is generally easier to obtain a good return if one begins with a large stock of capital), and this tends to amplify inequali-ties” (p. 202).

This growing concentration of capital in the hands of a small, ultra-wealthy elite means that capital will once again affect the decision of whether the wealthy will work or just live off their capital returns. Piketty vividly depicts this problem by sug-gesting that the motivations of the elite characters in the novels of nine-teenth-century authors Jane Austen or Honoré de Balzac may once again become the obsession of youth today. And if the young are focused on seek-ing to earn an inheritance through family or marriage rather than focus-ing on developing the human capital to earn wealth through employment, then this dynamic will have serious long-term economic implications. In societies where the capital-to-income ratio is high and the rate of return exceeds the rate of growth, forces will encourage entrepreneurs to turn into rentiers. Piketty is asking us to think through how today’s high income inequality calcifies into tomorrow’s concentration of capital, reducing the potential for innovative ideas to get a fair shake.

Further, there is growing evidence that the inheritances are not just about income. We must also under-stand the transmission of “human

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capital” from parents to children. University of Chicago professor and Nobel laureate James Heckman has noted that the most significant market failure in the United States today is not being able to choose your parents, in light of the impor-tant benefits that family confers on an individual’s future level of skill acquisition and earnings. This is clearly a problem for future eco-nomic growth.

The Next Generation

Piketty is part of a new generation of economists asking different questions than their teachers did. It seems that Generation X—those of us who, like Piketty, came into adulthood as the 1980s turned into the 1990s—are beginning from the premise articulated by presidential economics adviser Gene Sperling that “the rising tide will lift some boats, but others will run aground.”2 The only economic reality we have ever experienced is one where pro-ductivity gains go to the top, while leaving the vast majority to cope with stagnant wages, greater hours of work, and, most especially in the past decades, rising debt burdens. We’ve experienced first-hand the damage this has done to our generation and the ones that follow. U.S. youth take on debt to attend (and not necessar-ily even graduate) from college at prices that would have bought their parents a nice house in the suburbs. This is compounded by the fact that economists neither predicted nor

prevented the recent economic crisis. And, to add insult to injury, econo-mists have been unable to contain the damage. While the share of the U.S. population with a job remains just a few tenths of a percentage point above its Great Recession lows in 2009, profits are up, and those at the top have seen their incomes rise by 31 percent since then.3

To most Gen-Xers, the golden era of capitalism that they learned about in school feels about as real as Hogwarts, yet my teachers still ache for a way to return to the economy of their youth. Harkening back to the era of the New Deal–era welfare state, however, not only does not seem politically possible but also is not likely to solve our problems. We now live in an economy where about one in fourteen private-sector work-ers belongs to a union compared to one in three at unions’ height. And as important as New Deal–era policies were and are to working families and especially retirees, there are many new issues we must also address, such as the reality that most families no longer have a full-time, stay-at-home caregiver, yet our institutions have not been updated to address this economic and social reality.

There is room for optimism, how-ever. Piketty is not the first high-pro-file economist to write an important book to examine the intersection between inequality and growth or the role of politics in this dynamic. In their 2012 book Why Nations Fail, Massachusetts Institute of Technol-ogy economist Daron Acemoglu and Harvard University political scientist



James Robinson argued that inclusive political and economic institutions are associated with sustained eco-nomic growth and stability.4 Putting their thesis together with Piketty’s data may lead to the conclusion that high capital-to-income ratios may be self-reinforcing and that a lack of inclusive economic institutions hampers growth. These are exactly the questions we have been prod-ded with by none other than MIT emeritus and Nobel laureate Robert Solow, who said in the fall of 2013, “I really do think that this question of equitable growth is certainly one of the, if not the, central economic issue of our time.”5

A variety of economists are delving into this issue. Every day it seems as if more evidence is rolling in to show that today’s high inequality is affect-ing our economy in very real, often very negative ways. While we might be tempted to stop there and say that inequality may be a problem about values or fairness and, as such, is an is-sue best left to philosophers, it seems that we must also consider inequality a serious economic problem. In a new paper, International Monetary Fund economists Jonathan Ostry, Andrew Berg, and Charalambos G. Tsangarides examined the overall relationship between inequality and growth and found that inequality hampers growth and that redistribution has a benign effect on growth.6 This paper is only the tip of the iceberg consist-ing of ample scholarship.

Further, there is a long list of in-conclusive economic literature that examines the direct relationship

between inequality and growth, but there is also a growing awareness that the linkages may be indirect but still profoundly important. There is evidence, for example, showing that inequality may affect the develop-ment of human capital through how it affects parenting capacities or educational opportunities for to-day’s children—be it the benefits for those at the top or the lack thereof for those at the bottom. Inequality also may play a role in economic instability through its effects on borrowing or consumption, which affect economic demand. There is also growing evidence that inequal-ity is affecting how our political institutions function. A new study reported on National Public Radio recently found that constituents who identified themselves as donors but were otherwise identical to nondo-nor constituents were more likely to get a meeting with their elected representative.

Perhaps one of the most disturb-ing implications of Capital in the Twenty-First Century concerns our hopes in the United States that the next generation can achieve the American Dream. In the mid-twenti-eth century, one’s family income and connections became a less important marker of what a young person could become. Despite accumulating evi-dence to the contrary, the Silent Gen-eration (1928–45), the baby boomers (1946–64), Generation X (1965–80), and the early millennials (post-1980) still hold on to the optimism that no matter where children are born, they can become a leader in their

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fields. The days of needing to marry well were over; wealth could be ac-cumulated by an individual through work in one’s lifetime, rather than only inherited.

Yet new research by Harvard econ-omist Raj Chetty and his colleagues shows that while economic mobility has not fallen in the United States, many localities provide limited op-portunities for children to move up the income ladder.7 Heckman has spearheaded a body of empirically grounded research showing that the skills and experiences that children have before they even enter school can make all the difference in their earnings as an adult when they are in the labor market. It seems that skills or aptitudes are passed on to families who have greater resources. Wealthier families provide better opportunities for their children: a larger safety net, access to credit, more opportunities for education and skills development.

Reversing Calcification Through TaxationPiketty provides solutions that are worthy of our attention. The last section of the book argues that if we want to reduce income inequality, we must raise taxes on capital, and we must do this in a globally coor-dinated fashion. He believes higher taxes on capital are necessary in part because, in his view, the only path forward for growth to be greater than the return on capital is to lower the rate of return. He is not sanguine

about the prospect of higher growth. In his view, we are at our limit, and any steps to increase growth above his estimates will likely result in disruptive and unbearable social and environmental transformations.

A first step would be for govern-ments to begin to compile data on capital income, in the same way that they have data on income from earnings. Knowing who owns capital could help societies understand how they want to respond to today’s high inequality. The government already tracks every tweet I send; I don’t think it’s unreasonable to follow the money and know who owns the wealth. This policy recommenda-tion is certainly not revolutionary, but that does not mean it will sail through Congress. One advantage that we have, however, is that we live in an era where developed economies are governed by democratically elect-ed, capable states with the proven power to tax incomes.

Whether you agree with him or not, Piketty is having a real-world impact. Already, he and his col-leagues engaged in the new analysis of the fundamentals of capitalism, including Emmanuel Saez, have captivated the imagination of a new social movement. In September 2011, protestors under the banner of Oc-cupy Wall Street took over Zuccotti Park in New York City with the slo-gan “We are the 99 percent.” This was a direct reference to the data that Piketty and Saez presented in their 2003 Quarterly Journal of Economics paper,8 in which they used U.S. tax records to document the vast growth



in the income gap between the top 1 percent and the rest of Americans. The Occupy movement itself may not prove to be historically enduring, but its chosen slogan continues to resonate in U.S. politics.

Where Do We Go Now?Has Piketty convinced us that “The past tends to devour the future” (p. 348)? Has he shown that we are likely to see ever-increasing inequality un-less we take action? Looking ahead to the twenty-first century, Piketty’s predictions hinge on a few assump-tions—that the 1990–2010 value of return on capital will continue apace but that taxes on capital will fall to 10 percent for 2012–50 and 0 percent in 2050–2100. Given the direction of fiscal policy in developed nations, especially in the wake of the Great Recession, it is not unreasonable to assume that governments will not have the political will or power to increase capital taxes in the near future. Policy makers in developed-country democracies obviously have the ability to raise tax rates, but for Piketty the assumption they will not is useful, as it establishes the outer bound on the rate of return if policy-makers choose to eliminate all capital taxes. I will certainly be watching to see if he is right and how this plays out in the years to come.

Piketty provides a convincing case that there is nothing natural about equitable growth and that there is a crucial role to be played by policy-makers. Having a deeper understand-

ing of the sharp about-face caused by the devastating wars of the early to mid-twentieth century and the action taken to deal with these crises—and how those begat economic success—is certainly a motivator for those of us who care about policy.

I agree with Piketty that we should worry whether income inequality is calcifying into wealth inequality. I am far less concerned about whether his predictions about the rate of re-turn on capital or the rate of growth are precisely true. As Keynes said, in the long run, we are all dead, and I’m living in the here and now, where the top 1 percent take home an aston-ishing 22 percent of total national income, leaving too many unable to tap into the benefits of economic growth.9 This is not a sustainable system. And I am compelled by the emerging economic evidence that this is not good for the economy in the medium to long run either.

Notes1. John F. Kennedy, “Remarks in He-

ber Springs, Arkansas, at the Dedication of Greers Ferry Dam,” October 3, 1963, available at www.presidency.ucsb.edu/ws/index.php?pid=9455/.

2. Gene Sperling, “How to Refloat These Boats,” Washington Post, De-cember 18, 2005, available at www.washingtonpost.com/wp-dyn/content/article/2005/12/17/AR2005121700028.html.

3. Emmanuel Saez, “Striking It Richer: The Evolution of Top Incomes in the United States (Updated with 2012 Preliminary Estimates),” Univer-

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sity of California–Berkeley, September 3, 2013, available at http://elsa.berkeley.edu/~saez/saez-UStopincomes-2012.pdf.

4. Daron Acemoglu and James Rob-inson, Why Nations Fail: The Origins of Power, Prosperity, and Poverty (New York: Crown Business, 2012).

5. A (Longer) Interview with Robert M. Solow, Washington Center for Equitable Growth, Washington, DC, 2013, available at http://equitablegrowth.org/work/a-longer-interview-with-robert-m-solow/.

6. Jonathan D. Ostry, Andrew Berg, and Charalambos G. Tsangarides, “Re-distribution, Inequality, and Growth,” Discussion Note, IMF Staff Discussion Note, International Monetary Fund, Washington, DC, February 2014, www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf.

7. Raj Chetty et al., “Is the United States Still a Land of Opportunity? Re-cent Trends in Intergenerational Mobil-ity,” Working paper, National Bureau of Economic Research, Cambridge, MA, January 2014, www.nber.org/papers/w19844/; Raj Chetty et al., Where Is the Land of Opportunity? The Geography of Intergenerational Mobility in the United States, Working paper, National Bureau of Economic Research, Cambridge, MA, January 2014, www.nber.org/papers/w19843/.

8. Thomas Piketty and Emmanuel Saez, “Income Inequality in the United States, 1913–1998,” Quarterly Journal of Economics 118, no. 1 (February 2003): 1–39.

9. Saez, “Striking It Richer.”

To order reprints, call 1-800-352-2210; outside the United States, call 717-632-3535.

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