Thomas Piketty lectured on his 2013 bestseller, “Capital in the Twenty-First Century,” last Friday in Memorial Auditorium. “Capital” explores wealth and income inequality in U.S. and western European economies. This lecture was part of a joint venture between the Stanford Economics Department and the McCoy Family Center for Ethics in Society, which hosted Piketty as part of their Kenneth Arrow lecture series.
Piketty is currently a professor at the Paris School of Economics. He received his Ph.D. in economics from the London School of Economics.
In addition to “Capital,” Piketty has written more than 12 books and has written numerous articles for publications such as the Journal of Political Economy, the Quarterly Journal of Economics and the American Economic Review. His work focuses on the interactions between economic development and the distribution of wealth and income.
In a New York Times column, Paul Krugman, an American economist at the City University of New York, called “Capital in the Twenty-First Century” the “most important economics book of the year — and maybe the decade.”
In his lecture, Piketty stated that wealth and income inequality is increasing in the United States while, at the same time, decreasing in Europe. Piketty held that this inequality is due to the rising inequality of labor income, citing that the minimum wage in the U.S. today is much lower than that of 1960 after adjusting for economic conditions.
“The rise in U.S. inequality is mostly due to rising inequality of labor income,” Piketty said.
He claims this inequality can be attributed to changing supply and demand for skills, the race between education and technology, globalization, more unequal access to skills in the U.S. and the unprecedented rise of top managerial compensation.
Ultimately, Piketty proposed progressive taxation to remedy the United States’ wealth inequality. This requires revisiting the shared Western system of taxation, which he believes should be regulated in a more transparent and democratic way through a progressive tax. However, tax reforms are not enough to remedy wealth inequality, according to Piketty.
In his lecture, he refuted the popular interpretation of the “Kuznets Curve,” an economics graph that shows how income inequality eventually diminishes through the effects of market forces following the industrialization of a country. Piketty claims that in the U.S., wealth inequality is always much greater than income inequality.
Because the role of institutions and policies becomes more important when this wealth-capital ratio is greater, according to Piketty, only a broad-based approach such as the one he suggests can sufficiently address inequality.
“The ideal solution involves a broad combination of institutions, including progressive taxation, education, social and labor laws, financial transparency [and] economic democracy,” Piketty said.
Piketty maintained that other solutions, such as authoritarian political-economic controls, like those exercised by China, may not adequately address wealth inequality in the long run.
“In the long run, you need different groups rising at, more or less, the same speed [to eliminate economic equality],” Piketty said.
Piketty highlights what he calls a holistic interpretation of economic theory within the context of historical development. He views his work more as a social science. Various humorous remarks shed light on his criticism of economists, whom he says “often extrapolate economic trends from little data.”
He also feels that those in his line of work often try to over-complicate and quantify the study of economics as a science in instances where a more straightforward or humanistic approach should be used.
Contact Stefan Lacmanovic at stefanl ‘at’ stanford.edu.