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Top Incomes Over the Twentieth Century: A Contrast Between Continental European and English-Speaking Countries. Edited by Anthony Atkinson and Thomas.
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It looks at why top incomes shares fell markedly in the first half of the 20th century and why, more recently, there has been a striking difference in the top income distribution between continental Europe and English-speaking OECD countries, like the UK, USA, and Australia.

Written by the top names in the field, this seminal work provides rich pickings for those with an interest in inequality, development, the economic impact of war, taxation, economic history, and executive compensation. Atkinson , Thomas Piketty Limited preview - Atkinson , Thomas Piketty No preview available - Thomas Piketty's "Capital in the 21st century" may be one of the most important recent economics books.

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It jointly treats theory of growth, functional distribution of income, and interpersonal income inequality. It envisages a future of relatively slow growth with the rising share of capital incomes, and widening income inequality. This tendency could be checked only by worldwide taxation of capital. Acemoglu, Daron and James Robinson , Why nations fail: the origins of power, prosperity and poverty, Crown Books. Alvaredo, Facundo, Anthony B. Atkinson, Anthony B. University of Oxford, Discussion papers in social and economic history, No.

But this presumes a constant or rising saving ratio. Since he imagines returns to capital as largely reinvested, he finds this a plausible assumption. I am much less sure. At the simplest level, consider a family with current income of and wealth of as opposed to a family with current income of and wealth of One would expect the former family to have a considerably higher saving ratio.

Do rising shares in top incomes affect income inequality as a whole? - Leiden Law Blog

In other words, there is a self-correcting tendency Piketty abstracts from whereby rising wealth leads to declining saving. The largest single component of capital in the United States is owner-occupied housing. The phenomenon is broader. The determinants of levels of consumer spending have been much studied by macroeconomists. When Forbes compared its list of the wealthiest Americans in and , it found that less than one tenth of the list was still on the list in , despite the fact that a significant majority of members of the list would have qualified for the list if they had accumulated wealth at a real rate of even 4 percent a year.

Thomas Piketty: New thoughts on capital in the twenty-first century

They did not, given pressures to spend, donate, or misinvest their wealth. In a similar vein, the data also indicate, contra Piketty, that the share of the Forbes who inherited their wealth is in sharp decline. But if it is not at all clear that there is any kind of iron law of capitalism that leads to rising wealth and income inequality, the question of how to account for rising inequality remains.


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The share of the top 1 percent of American income recipients has risen from below 10 percent to above 20 percent in some recent years. More than half of the income gains enjoyed by Americans in the twenty-first century have gone to the top 1 percent. The only groups that have outpaced the top 1 percent have been the top. Piketty, being a meticulous scholar, recognizes that at this point the gains in income of the top 1 percent substantially represent labor rather than capital income, so they are really a separate issue from processes of wealth accumulation.

So why has the labor income of the top 1 percent risen so sharply relative to the income of everyone else? No one really knows. Certainly there have been changes in prevailing mores regarding executive compensation, particularly in the English-speaking world. It is conceivable, as Piketty argues, that as tax rates have fallen, executives have gone to more trouble to bargain for super high salaries, effort that would not have been worthwhile when tax rates were high though I think it is equally plausible that higher tax rates would pressure executives to extract more, so as to maintain their post-tax income levels.

There is plenty to criticize in existing corporate-governance arrangements and their lack of resistance to executive self-dealing.

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There are certainly abuses. I think, however, that those like Piketty who dismiss the idea that productivity has anything to do with compensation should be given a little pause by the choices made in firms where a single hard-nosed owner is in control. The executives who make the most money are not for most part the ones running public companies who can pack their boards with friends. Rather, they are the executives chosen by private equity firms to run the companies they control. This is not in any way to ethically justify inordinate compensation—only to raise a question about the economic forces that generate it.

The rise of incomes of the top 1 percent also reflects the extraordinary levels of compensation in the financial sector. While anyone looking at the substantial resources invested in trading faster by nanoseconds has to worry about the over-financialization of the economy, much of the income earned in finance does reflect some form of pay for performance; investment managers are, for example, compensated with a share of the returns they generate.

And there is the basic truth that technology and globalization give greater scope to those with extraordinary entrepreneurial ability, luck, or managerial skill. Think about the contrast between George Eastman, who pioneered fundamental innovations in photography, and Steve Jobs. Jobs had an immediate global market, and the immediate capacity to implement his innovations at very low cost, so he was able to capture a far larger share of their value than Eastman.

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This type of scenario is pervasive. Most obviously, the best athletes and entertainers benefit from a worldwide market for their celebrity.

But something similar is true for those with extraordinary gifts of any kind. For example, I suspect we will soon see the rise of educator superstars who command audiences of hundreds of thousands for their Internet courses and earn sums way above the traditional dreams of academics. It will be the devastating consequences of robots, 3-D printing, artificial intelligence, and the like for those who perform routine tasks.

Already there are more American men on disability insurance than doing production work in manufacturing. And the trends are all in the wrong direction, particularly for the less skilled, as the capacity of capital embodying artificial intelligence to replace white-collar as well as blue-collar work will increase rapidly in the years ahead. From his perspective, differences between capitalism as practiced in the English-speaking world and in continental Europe are of second order relative to the underlying forces at work.

So he is led to far-reaching policy proposals as the principal redress for rising inequality. In particular, Piketty argues for an internationally enforced progressive wealth tax, where the rate of tax rises with the level of wealth.