Wednesday, May 28, 2014

An interesting point about the Piketty big picture

From The Atlantic:
The future is dire, he concludes, because he expects the economies of the countries he surveyed to grow at a rate of 1 to 1.5 percent per year, while the average return on capital increases at a rate of 4 to 5 percent per year. Inequality, in other words, is bound to rise....

It is not accurate to assert that in countries like Russia, Nigeria, Brazil, and China, the main driver of economic inequality is a rate of return on capital that is larger than the rate of economic growth. A more holistic explanation would need to include the massive fortunes regularly created by corruption and all kinds of illicit activities. In many countries, wealth grows more as a result of thievery and malfeasance than as a consequence of the returns on capital invested by elites (a factor that is surely at work too)....

Most of the roughly 20 nations from which Piketty forms his analysis classify as high-income countries and rank among the least-corrupt in the world, according to Transparency International. Unfortunately, most of humanity lives in countries where “c > h” and dishonesty is the primary driver of inequality. This point has not attracted as much attention as Piketty’s thesis. But it should. 

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