Capital in the 21st Century by Thomas Piketty - Essay Example

Topic: Capital in the 21st century by Thomas Piketty a. Capital in the 21st century: Chapter 7 Chapter seven of Capital in the 21st century which is titled “Inequality and Concentration: Preliminary Bearings” makes an introduction of the third main division of work associated with him: “The Structure of Inequality.” The chapter starts with a clear distinction between income that comes for labour and inherited wealth. The author also demonstrates that, for the upper class that existed in the eighteenth and nineteenth century, labour was not critical to maintaining wealth. The idea of equality that is manifested in the classic image of America develops specifically from the presumably meritocratic character of income that is derived from labour instead of wealth that has been inherited. As the author correctly notes, the situation should not be oversimplified and he suggests that rejecting inherited wealth would lead to an equal society. On the other hand, the power of hereditary wealth cannot be used in the demonstration of particular thresholds of disparity typical of the developed nations in the twentieth century. At a particular point in the twentieth century, hard work was the guaranteed way of achieving a good living, then the considerable changes associated with the interwar era made things different. The changes have little involvement with the increase in the productivity of workers as compared to the effect that was felt by the very rich in the interwar era. The societies that were exceptionally imbalanced had been developed based on extreme concentrations of wealth, which made it possible for a small class of individuals to survive on capital income alone. The working rich did not simply overtake the rest of the population during the interwar period. The author dedicates most chapter seven in his book to a comprehensive walk through the data that explains the elements that influenced changes in distribution of income throughout the last century. The distribution of income for the French was extremely compressed by the interwar era, but disparity started to increase swiftly in the after the war because of the quick recovery and increased focus on reconstruction than on distributional concerns. This tendency in the direction of increased disparity stopped by the political changes that took place on the late sixties, but disparity started increasing again in the early nineties. In the division of his analysis, Piketty tries to develop a clear distinction between the contemporary definition of labour and inheritance, and the dissimilarity between income form labour and income from wealth. He continues to demonstrate that disparity in regard to capital is often greater that the inequality in relation to labour (Piketty & Goldhammer, 2014). This occurrence can be validated in the current inequality between income disparity and wealth disparity. The upper ten percentage of the labour income scatter typically earns almost a third of the labour income, while the top ten percentage of the capital income scatter usually owns more than a half of the total wealth (Piketty & Goldhammer, 2014). The prevailing income gap in the United States is characterised by thirty five percent for the upper decile and a quarter for the lowest five decile, whereas the distribution of wealth is seventy percent for the upper decile and five percent for the lowest half. In comparison, reasonably equal wealth distribution was about thirty percent for the upper decile and twenty five percent for the lower half for a place like Scandinavia in the seventies. Undeniably, this difference does not seek to challenge the tangible disparity of incomes. In actual fact, the author states that in the United States income that was derived from labour was highly undistributed in the 1920s (Piketty & Goldhammer, 2014). This is a frightening revelation that was developed from a study that included an assessment of the French Ancien Regime. Nevertheless, wealth has seen a historical decrease with the development of the patrimonial middle class (Piketty & Goldhammer, 2014). The decade between 1900 and 1910 had an increased concentration of capital which was more extreme that can be seen in the present times especially in all the European nations. Nonetheless, as demonstrated by his data, the twenty first century seems placed to easily move into levels of inequality that are similar to the levels that had been recorded before the war. The broad point developed by the author is that in most of the places in the world, data that is associated with the top incomes is available, including the data that is associated with the emerging markets. Inequality was at its lowest point in the sixties and seventies but after that it started rising again. The level of increase was more in the Anglophone economies while it was unmatched in America which has developed to become a blazing new ground. America has unique characteristics among the rich economies which have allowed it to return and surpass the levels of income concentration that were recorded at the start of the twentieth century. Amazingly, it has achieved thus through a noteworthy rise in labour-income disparity. Piketty points out to key approaches through which fundamental disparity can develop. He refers to the first one a hyper-patrimonial society which is a typical approach to the amassing and transmission of wealth or inheritance. Thus approach was dominant in the typically unequal societies like the Belle Époque as well as those in Britain where recorded breaking inequality was evident. The second method which Piketty calls hyper-accumulation describes the society he considers hyper-meritocratic even though he is sceptical the meritocratic attributes of this society and is curious whether a society comprised of super-managers would be more applicable. In the second kind of society which has developed recently especially in the United States, ultra-high incomes from labour instead of inherited wealth dominate the top of the income pyramid (Piketty & Goldhammer, 2014). This particular kind of hyper-accumulation is characteristic of the wall-street tenets where extreme wealth is not connected to trade or commercial initiatives, even though the highest incomes are usually created in the financial sectors. b. Criticism of arguments in Capital in the 21st century by Thomas Piketty In his development of the American experience, Thomas Piketty comes up with two arguments that have led to considerable debate. Criticism 1 The first argument is associated with secular stagnation where Piketty argues that in the 80s, approximately a third of the labour income of the entire nation was received by the top ten percent. In the next thirty years that followed, the initial share recorded an increase of approximately fifteen percentage points. This demonstrates a huge move in terms of the purchasing power of the people who have less likelihood to spend and this implies that sufficient demand became more difficult to develop in a situation where borrowing was not possible for the ones who are expected to use the marginal dollar. In regard to the extents, the shift in income that was recorded is considerably more than the simultaneous increase in the current account deficits that are associated with America. According to Piketty’s point of view, disparity is a larger dynamic in stagnation then in the worldwide inequality. The controversy arises from the one exhibition of insufficient demand that is associated with too much saving which is a decreasing real interest rate. Seeing as the real interest rate is reducing, various critics are of the opinion that there is no way that the growth rate can be less than the interest rate which raises the value of wealth in the economy. The real interest rates that are associated with risk free debts have been almost at zero for most of the decade that has passed when considered in the short term. On the other hand, the long term real interest rate associated with the risk free debts has been on the decreases foe several decades with the figures going below the potential of the economy to grow since around 2005. Piketty’s work does not focus on risk free interest as his rate of return on capital is all the income from wealth every year added together and considered as a share of the nation’s wealth. Putting money in the debt of the American government has seldom paid less, but this does not mean that the wealthy are in a position to acquire capital incomes that are bigger than the rate of growth from the fortunes they have. Criticism 2 The second contentious argument is associated with the sources the disparity that is seen in America. According to Piketty, the supply as well as demand for abilities is important in the determination of employment income’s delivery in the the end. When shorter periods are considered, the policies with smaller margins such as the minimum wage are very important. Explaining this phenomenon of odd performance in relation to the income of the top one percent in America needs a different approach. This is because other economies that are the same as America’s such as Britain have faced a progressive top income share but it has not been as intense as the one seen in America. Efficiencies are difficult to assess among the top executives and their remuneration typically depends on the sympathetic boards who have the same ideas regardless of the rate that is prevailing. In the American economy, this group gives itself huge raises that are considered as being impractical in other similar economies. Even though this may be inaccurate, Piketty recognises that the prevailing income gaps in America demonstrate the actual differences in probability. This means that they spread of efficiencies at the top and bottom of the band is more in the contemporary America compared to South Africa during the apartheid period. References Piketty, T., & Goldhammer, A. (2014). Capital in the twenty-first century. Cambridge Massachusetts: The Belknap Press of Harvard University Press, Read More