The Piketty Argument
Professor Thomas Piketty at the Paris School of Economics argues in his
2013 book Capital in the 21st Century that the economy contains forces
that naturally lead to growing income and wealth inequality. His
argument begins with the observation that high-income individuals
generally have more accumulated wealth than do low-income individuals.
Over time, this accumulated stock of wealth generates new income at a
rate given by the return to capital. At the same time, for most people in
low- or middle-income groups, whose income overwhelmingly comes
from their labour efforts rather than from their accumulated assets,
income grows on average at the economy’s per capita growth rate. Piketty
then argues that if the return to capital exceeds the economy’s growth
rate, there will naturally be growing income and wealth inequality.
Piketty’s argument thus provides an explanation for why a given amount
of income inequality may naturally rise over time, especially if the
economy’s overall growth rate is low.