Tuesday, May 6, 2014

Piketty: The End of Growth

After building a theoretical framework for income and output and the rate of return on capital, Thomas Piketty turns to growth: demographic growth and economic growth.

His idea is that the current era shows a bell-curve of growth.  It starts with the demographic bulge that started after 1700 and the economic bulge the started after 1800.  Obviously, he writes, it's all going to end.

Piketty points out that there were about 600 million humans on the earth in 1700 and 7 billion right now.
If this pace were to continue for the next three centuries the world's population would exceed 70 billion in 2300.
The fact is that the world population growth rate peaked at about 1.8% per year in about 1950-1990, according to a chart on page 80.  Now the growth rate is coming down, and it's expected to continue to go down.

Piketty thinks that economic growth is on a similar path.  Growth in Europe and North America peaked in 1950-1990 and in the last 20 years from 1990-2012 it has trended lower.  The rest of the world will go the same way once it has caught up to the West.

Thus (in a chart on page 100) Piketty forecasts that world per-capita economic growth will peak at 2.5% per capita per year in 2012-2030 and will be down to 1.2% per capita per year by the end of the century.

A world of slow growth, economic and/or demographic, is a world where opportunity to rise is reduced.  This means that the world will return to the world of Jane Austen and Balzac novels.  Back in those days, before 20th century inflation and modern growth, the average person subsisted on about £30 per year. But the average Austen or Balzac family knew that you needed about £600 to £1,000 a year to live "free from need."  Mostly, they inherited their wealth.

In those days, before the modern era, where the population and the economy were both pretty static, inequalities persisted from generation to generation.

In the last century we have see persistent inflation; this has obscured the monetary benchmarks of the pre-inflationary world.  But the future is likely to return to something similar, wealth through inheritance rather than wealth through growth, unless we do something about it.


Part One: Income and Capital

Income and Output

End of Growth

Part Two: The Dynamics of the Capital/Income Ratio

Changes in Capital

New World Capital and Slavery

Capital/income Ratio in the Long Run

Capital's Share of Income

Part Three: The Structure of Inequality

Inequality and Its Concentration

Two Worlds: France and the US

Inequality of Labor Income

Inequality of Capital Ownership

Merit and Inheritance in the Long Run

Global Inequality of Wealth in the 21st Century

Part Four: Regulating Capital in the Twenty-First Century

A Social State for the 21st Century

Rethinking the Progressive Income Tax

A Global Tax on Capital

The Question of the Public Debt


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