0:00:00.915,0:00:02.880
It's very nice to be here tonight.

0:00:02.880,0:00:06.596
So I've been working on the history of income

0:00:06.596,0:00:09.915
and wealth distribution for the past 15 years,

0:00:09.915,0:00:13.016
and one of the interesting lessons

0:00:13.016,0:00:15.517
coming from this historical evidence

0:00:15.517,0:00:17.530
is indeed that, in the long run,

0:00:17.530,0:00:21.250
there is a tendency for [br]the rate of return of capital

0:00:21.250,0:00:23.920
to exceed the economy's growth rate,

0:00:23.920,0:00:26.665
and this tends to lead to [br]high concentration of wealth.

0:00:26.665,0:00:28.498
Not infinite concentration of wealth,

0:00:28.498,0:00:31.289
but the higher the gap between r and g,

0:00:31.289,0:00:34.224
the higher the level of inequality of wealth

0:00:34.224,0:00:37.431
towards which society tends to converge.

0:00:37.431,0:00:40.985
So this is a key force that[br]I'm going to talk about today,

0:00:40.985,0:00:42.954
but let me say right away

0:00:42.954,0:00:45.284
that this is not the only important force

0:00:45.284,0:00:47.757
in the dynamics of income [br]and wealth distribution,

0:00:47.757,0:00:49.782
and there are many other forces that play

0:00:49.782,0:00:52.763
an important role in the long-run dynamics

0:00:52.763,0:00:54.338
of income and wealth distribution.

0:00:54.338,0:00:56.307
Also there is a lot of data

0:00:56.307,0:00:57.863
that still needs to be collected.

0:00:57.863,0:01:00.795
We know a little bit more today

0:01:00.795,0:01:03.316
than we used to know, [br]but we still know too little,

0:01:03.316,0:01:05.992
and certainly there are [br]many different processes —

0:01:05.992,0:01:08.290
economic, social, political —

0:01:08.290,0:01:09.717
that need to be studied more.

0:01:09.717,0:01:12.697
And so I'm going to focus today on this simple force,

0:01:12.697,0:01:14.958
but that doesn't mean that other important forces

0:01:14.958,0:01:16.162
do not exist.

0:01:16.162,0:01:18.434
So most of the data I'm going to present

0:01:18.434,0:01:20.639
comes from this database

0:01:20.639,0:01:21.899
that's available online:

0:01:21.899,0:01:23.384
the World Top Incomes Database.

0:01:23.384,0:01:25.487
So this is the largest existing

0:01:25.487,0:01:27.940
historical database on inequality,

0:01:27.940,0:01:29.290
and this comes from the effort

0:01:29.290,0:01:33.182
of over 30 scholars from several dozen countries.

0:01:33.182,0:01:35.960
So let me show you a couple of facts

0:01:35.960,0:01:37.105
coming from this database,

0:01:37.105,0:01:39.179
and then we'll return to r bigger than g.

0:01:39.179,0:01:41.689
So fact number one is that there has been

0:01:41.689,0:01:44.740
a big reversal in the ordering of income inequality

0:01:44.740,0:01:46.645
between the United States and Europe

0:01:46.645,0:01:48.400
over the past century.

0:01:48.400,0:01:51.905
So back in 1900, 1910, income inequality was actually

0:01:51.905,0:01:54.170
much higher in Europe than in the United States,

0:01:54.170,0:01:57.280
whereas today, it is a lot higher in the United States.

0:01:57.280,0:01:58.946
So let me be very clear:

0:01:58.946,0:02:01.770
The main explanation for this is not r bigger than g.

0:02:01.770,0:02:05.267
It has more to do with changing supply and demand

0:02:05.267,0:02:08.720
for skill, the race between education and technology,

0:02:08.720,0:02:12.300
globalization, probably more unequal access

0:02:12.300,0:02:13.906
to skills in the U.S.,

0:02:13.906,0:02:16.493
where you have very good, very top universities

0:02:16.493,0:02:18.735
but where the bottom part of the educational system

0:02:18.735,0:02:19.500
is not as good,

0:02:19.500,0:02:21.861
so very unequal access to skills,

0:02:21.861,0:02:23.780
and also an unprecedented rise

0:02:23.780,0:02:26.800
of top managerial compensation of the United States,

0:02:26.800,0:02:29.650
which is difficult to account for[br]just on the basis of education.

0:02:29.650,0:02:31.604
So there is more going on here,

0:02:31.604,0:02:34.213
but I'm not going to talk too much about this today,

0:02:34.213,0:02:36.879
because I want to focus on wealth inequality.

0:02:36.879,0:02:39.860
So let me just show you a very simple indicator

0:02:39.860,0:02:42.210
about the income inequality part.

0:02:42.210,0:02:44.664
So this is the share of total income

0:02:44.664,0:02:46.452
going to the top 10 percent.

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So you can see that one century ago,

0:02:48.624,0:02:52.201
it was between 45 and 50 percent in Europe

0:02:52.201,0:02:54.939
and a little bit above 40 percent in the U.S.,

0:02:54.939,0:02:57.210
so there was more inequality in Europe.

0:02:57.210,0:02:59.234
Then there was a sharp decline

0:02:59.234,0:03:01.765
during the first half of the 20th century,

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and in the recent decade, you can see that

0:03:04.128,0:03:07.630
the U.S. has become more unequal than Europe,

0:03:07.630,0:03:10.300
and this is the first fact I just talked about.

0:03:10.300,0:03:14.211
Now, the second fact is more about wealth inequality,

0:03:14.211,0:03:17.301
and here the central fact is that wealth inequality

0:03:17.301,0:03:19.907
is always a lot higher than income inequality,

0:03:19.907,0:03:22.292
and also that wealth inequality,

0:03:22.292,0:03:24.945
although it has also increased in recent decades,

0:03:24.945,0:03:26.801
is still less extreme today

0:03:26.801,0:03:28.680
than what it was a century ago,

0:03:28.680,0:03:31.199
although the total quantity of wealth

0:03:31.199,0:03:33.224
relative to income has now recovered

0:03:33.224,0:03:34.855
from the very large shocks

0:03:34.855,0:03:36.880
caused by World War I, the Great Depression,

0:03:36.880,0:03:38.099
World War II.

0:03:38.099,0:03:40.143
So let me show you two graphs

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illustrating fact number two and fact number three.

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So first, if you look at the level of wealth inequality,

0:03:47.390,0:03:50.548
this is the share of total wealth

0:03:50.548,0:03:53.070
going to the top 10 percent of wealth holders,

0:03:53.070,0:03:55.779
so you can see the same kind of reversal

0:03:55.779,0:03:58.344
between the U.S. and Europe that we had before

0:03:58.344,0:04:00.020
for income inequality.

0:04:00.020,0:04:03.570
So wealth concentration was higher

0:04:03.570,0:04:05.813
in Europe than in the U.S. a century ago,

0:04:05.813,0:04:07.647
and now it is the opposite.

0:04:07.647,0:04:09.638
But you can also show two things:

0:04:09.638,0:04:13.339
First, the general level of wealth inequality

0:04:13.339,0:04:15.994
is always higher than income inequality.

0:04:15.994,0:04:18.334
So remember, for income inequality,

0:04:18.334,0:04:20.662
the share going to the top 10 percent

0:04:20.662,0:04:24.960
was between 30 and 50 percent of total income,

0:04:24.960,0:04:27.772
whereas for wealth, the share is always

0:04:27.772,0:04:29.831
between 60 and 90 percent.

0:04:29.831,0:04:31.347
Okay, so that's fact number one,

0:04:31.347,0:04:33.273
and that's very important for what follows.

0:04:33.273,0:04:34.994
Wealth concentration is always

0:04:34.994,0:04:36.873
a lot higher than income concentration.

0:04:36.873,0:04:40.259
Fact number two is that the rise

0:04:40.259,0:04:43.206
in wealth inequality in recent decades

0:04:43.206,0:04:47.492
is still not enough to get us back to 1910.

0:04:47.492,0:04:49.269
So the big difference today,

0:04:49.269,0:04:51.182
wealth inequality is still very large,

0:04:51.182,0:04:54.444
with 60, 70 percent of total wealth for the top 10,

0:04:54.444,0:04:56.289
but the good news is that it's actually

0:04:56.289,0:04:58.070
better than one century ago,

0:04:58.070,0:05:01.441
where you had 90 percent in[br]Europe going to the top 10.

0:05:01.441,0:05:03.432
So today what you have

0:05:03.432,0:05:05.434
is what I call the middle 40 percent,

0:05:05.434,0:05:07.347
the people who are not in the top 10

0:05:07.347,0:05:09.120
and who are not in the bottom 50,

0:05:09.120,0:05:11.386
and what you can view as the wealth middle class

0:05:11.386,0:05:14.529
that owns 20 to 30 percent

0:05:14.529,0:05:16.391
of total wealth, national wealth,

0:05:16.391,0:05:19.722
whereas they used to be poor, a century ago,

0:05:19.722,0:05:22.340
when there was basically no wealth middle class.

0:05:22.340,0:05:23.917
So this is an important change,

0:05:23.917,0:05:28.532
and it's interesting to see that wealth inequality

0:05:28.532,0:05:31.838
has not fully recovered to pre-World War I levels,

0:05:31.838,0:05:35.347
although the total quantity of wealth has recovered.

0:05:35.347,0:05:37.294
Okay? So this is the total value

0:05:37.294,0:05:39.510
of wealth relative to income,

0:05:39.510,0:05:41.623
and you can see that in particular in Europe,

0:05:41.623,0:05:45.483
we are almost back to the pre-World War I level.

0:05:45.483,0:05:47.328
So there are really two

0:05:47.328,0:05:49.859
different parts of the story here.

0:05:49.859,0:05:50.978
One has to do with

0:05:50.978,0:05:53.420
the total quantity of wealth that we accumulate,

0:05:53.420,0:05:55.098
and there is nothing bad per se, of course,

0:05:55.098,0:05:56.845
in accumulating a lot of wealth,

0:05:56.845,0:05:59.713
and in particular if it is more diffuse

0:05:59.713,0:06:01.107
and less concentrated.

0:06:01.107,0:06:03.852
So what we really want to focus on

0:06:03.852,0:06:06.233
is the long-run evolution of wealth inequality,

0:06:06.233,0:06:08.533
and what's going to happen in the future.

0:06:08.533,0:06:10.558
How can we account for the fact that

0:06:10.558,0:06:14.220
until World War I, wealth inequality was so high

0:06:14.220,0:06:17.410
and, if anything, was rising to even higher levels,

0:06:17.410,0:06:20.737
and how can we think about the future?

0:06:20.737,0:06:24.623
So let me come to some of the explanations

0:06:24.623,0:06:26.759
and speculations about the future.

0:06:26.759,0:06:28.354
Let me first say that

0:06:28.354,0:06:30.341
probably the best model to explain

0:06:30.341,0:06:32.438
why wealth is so much

0:06:32.438,0:06:34.624
more concentrated than income

0:06:34.624,0:06:37.736
is a dynamic, dynastic model

0:06:37.736,0:06:40.200
where individuals have a long horizon

0:06:40.200,0:06:42.956
and accumulate wealth for all sorts of reasons.

0:06:42.956,0:06:45.566
If people were accumulating wealth

0:06:45.566,0:06:47.569
only for life cycle reasons,

0:06:47.569,0:06:49.582
you know, to be able to consume

0:06:49.582,0:06:51.169
when they are old,

0:06:51.169,0:06:53.542
then the level of wealth inequality

0:06:53.542,0:06:55.859
should be more or less in line

0:06:55.859,0:06:57.828
with the level of income inequality.

0:06:57.828,0:06:59.756
But it will be very difficult to explain

0:06:59.756,0:07:01.950
why you have so much more wealth inequality

0:07:01.950,0:07:03.434
than income inequality

0:07:03.434,0:07:04.710
with a pure a life cycle model,

0:07:04.710,0:07:06.741
so you need a story

0:07:06.741,0:07:08.429
where people also care

0:07:08.429,0:07:10.960
about wealth accumulation for other reasons.

0:07:10.960,0:07:12.884
So typically, they want to transmit

0:07:12.884,0:07:16.210
wealth to the next generation, to their children,

0:07:16.210,0:07:17.978
or sometimes they want to accumulate wealth

0:07:17.978,0:07:20.746
because of the prestige, the[br]power that goes with wealth.

0:07:20.746,0:07:22.130
So there must be other reasons

0:07:22.130,0:07:24.120
for accumulating wealth than just life cycle

0:07:24.120,0:07:26.888
to explain what we see in the data.

0:07:26.888,0:07:30.234
Now, in a large class of dynamic models

0:07:30.234,0:07:32.210
of wealth accumulation

0:07:32.210,0:07:35.768
with such dynastic motive for accumulating wealth,

0:07:35.768,0:07:38.614
you will have all sorts of random,

0:07:38.614,0:07:39.537
multiplicative shocks.

0:07:39.537,0:07:41.786
So for instance, some families

0:07:41.786,0:07:43.473
have a very large number of children,

0:07:43.473,0:07:45.239
so the wealth will be divided.

0:07:45.239,0:07:47.129
Some families have fewer children.

0:07:47.129,0:07:49.357
You also have shocks to rates of return.

0:07:49.357,0:07:51.454
Some families make huge capital gains.

0:07:51.454,0:07:53.249
Some made bad investments.

0:07:53.249,0:07:55.490
So you will always have some mobility

0:07:55.490,0:07:56.928
in the wealth process.

0:07:56.928,0:07:59.303
Some people will move up,[br]some people will move down.

0:07:59.303,0:08:00.955
The important point is that,

0:08:00.955,0:08:01.965
in any such model,

0:08:01.965,0:08:04.521
for a given variance of such shocks,

0:08:04.521,0:08:06.557
the equilibrium level of wealth inequality

0:08:06.557,0:08:11.394
will be a steeply rising function of r minus g.

0:08:11.394,0:08:14.263
And intuitively, the reason why the difference

0:08:14.263,0:08:16.107
between the rate of return to wealth

0:08:16.107,0:08:17.862
and the growth rate is important

0:08:17.862,0:08:20.174
is that initial wealth inequalities

0:08:20.174,0:08:22.565
will be amplified at a faster pace

0:08:22.565,0:08:24.634
with a bigger r minus g.

0:08:24.634,0:08:26.108
So take a simple example,

0:08:26.108,0:08:29.874
with r equals five percent and g equals one percent,

0:08:29.874,0:08:31.982
wealth holders only need to reinvest

0:08:31.982,0:08:34.621
one fifth of their capital income to ensure

0:08:34.621,0:08:37.354
that their wealth rises as fast

0:08:37.354,0:08:39.267
as the size of the economy.

0:08:39.267,0:08:40.650
So this makes it easier

0:08:40.650,0:08:42.416
to build and perpetuate large fortunes

0:08:42.416,0:08:44.371
because you can consume four fifths,

0:08:44.371,0:08:46.110
assuming zero tax,

0:08:46.110,0:08:47.771
and you can just reinvest one fifth.

0:08:47.771,0:08:50.359
So of course some families[br]will consume more than that,

0:08:50.359,0:08:52.102
some will consume less, so there will be

0:08:52.102,0:08:53.857
some mobility in the distribution,

0:08:53.857,0:08:56.703
but on average, they only need to reinvest one fifth,

0:08:56.703,0:09:00.472
so this allows high wealth inequalities to be sustained.

0:09:00.472,0:09:02.969
Now, you should not be surprised

0:09:02.969,0:09:06.505
by the statement that r can be bigger than g forever,

0:09:06.505,0:09:08.121
because, in fact, this is what happened

0:09:08.121,0:09:10.192
during most of the history of mankind.

0:09:10.192,0:09:13.543
And this was in a way very obvious to everybody

0:09:13.543,0:09:15.321
for a simple reason, which is that growth

0:09:15.321,0:09:17.509
was close to zero percent

0:09:17.509,0:09:19.130
during most of the history of mankind.

0:09:19.130,0:09:22.662
Growth was maybe 0.1, 0.2, 0.3 percent,

0:09:22.662,0:09:24.658
but very slow growth of population

0:09:24.658,0:09:26.655
and output per capita,

0:09:26.655,0:09:28.539
whereas the rate of return on capital

0:09:28.539,0:09:30.395
of course was not zero percent.

0:09:30.395,0:09:32.431
It was, for land assets, which was

0:09:32.431,0:09:34.240
the traditional form

0:09:34.240,0:09:36.641
of assets in preindustrial societies,

0:09:36.641,0:09:38.404
it was typically five percent.

0:09:38.404,0:09:42.190
Any reader of Jane Austen would know that.

0:09:42.190,0:09:45.098
If you want an annual income of 1,000 pounds,

0:09:45.098,0:09:46.740
you should have a capital value

0:09:46.740,0:09:48.596
of 20,000 pounds so that

0:09:48.596,0:09:51.146
five percent of 20,000 is 1,000.

0:09:51.146,0:09:53.163
And in a way, this was

0:09:53.163,0:09:54.941
the very foundation of society,

0:09:54.941,0:09:57.976
because r bigger than g

0:09:57.976,0:10:02.100
was what allowed holders of wealth and assets

0:10:02.100,0:10:04.790
to live off their capital income

0:10:04.790,0:10:07.490
and to do something else in life

0:10:07.490,0:10:10.685
than just to care about their own survival.

0:10:10.685,0:10:12.845
Now, one important conclusion

0:10:12.845,0:10:14.836
of my historical research is that

0:10:14.836,0:10:17.547
modern industrial growth did not change

0:10:17.547,0:10:20.371
this basic fact as much as one might have expected.

0:10:20.371,0:10:22.050
Of course, the growth rate

0:10:22.050,0:10:23.858
following the Industrial Revolution

0:10:23.858,0:10:28.180
rose, typically from zero to one to two percent,

0:10:28.180,0:10:30.110
but at the same time, the rate of return

0:10:30.110,0:10:31.755
to capital also rose

0:10:31.755,0:10:34.180
so that the gap between the two

0:10:34.180,0:10:35.636
did not really change.

0:10:35.636,0:10:37.886
So during the 20th century,

0:10:37.886,0:10:40.530
you had a very unique combination of events.

0:10:40.530,0:10:42.547
First, a very low rate of return

0:10:42.547,0:10:45.563
due to the 1914 and 1945 war shocks,

0:10:45.563,0:10:47.868
destruction of wealth, inflation,

0:10:47.868,0:10:49.848
bankruptcy during the Great Depression,

0:10:49.848,0:10:51.513
and all of this reduced

0:10:51.513,0:10:53.263
the private rate of return to wealth

0:10:53.263,0:10:55.158
to unusually low levels

0:10:55.158,0:10:57.497
between 1914 and 1945.

0:10:57.497,0:10:59.333
And then, in the postwar period,

0:10:59.333,0:11:02.570
you had unusually high growth rate,

0:11:02.570,0:11:04.944
partly due to the reconstruction.

0:11:04.944,0:11:06.869
You know, in Germany, in France, in Japan,

0:11:06.869,0:11:08.420
you had five percent growth rate

0:11:08.420,0:11:11.570
between 1950 and 1980

0:11:11.570,0:11:13.213
largely due to reconstruction,

0:11:13.213,0:11:15.564
and also due to very large demographic growth,

0:11:15.564,0:11:17.705
the Baby Boom Cohort effect.

0:11:17.705,0:11:20.143
Now, apparently that's not going to last for very long,

0:11:20.143,0:11:21.818
or at least the population growth

0:11:21.818,0:11:24.586
is supposed to decline in the future,

0:11:24.586,0:11:28.242
and the best projections we have is that

0:11:28.242,0:11:30.070
the long-run growth is going to be closer

0:11:30.070,0:11:31.493
to one to two percent

0:11:31.493,0:11:33.439
rather than four to five percent.

0:11:33.439,0:11:36.116
So if you look at this,

0:11:36.116,0:11:38.257
these are the best estimates we have

0:11:38.257,0:11:39.913
of world GDP growth

0:11:39.913,0:11:42.272
and rate of return on capital,

0:11:42.272,0:11:44.360
average rates of return on capital,

0:11:44.360,0:11:45.428
so you can see that during most

0:11:45.428,0:11:46.945
of the history of mankind,

0:11:46.945,0:11:48.558
the growth rate was very small,

0:11:48.558,0:11:50.392
much lower than the rate of return,

0:11:50.392,0:11:52.754
and then during the 20th century,

0:11:52.754,0:11:54.925
it is really the population growth,

0:11:54.925,0:11:57.197
very high in the postwar period,

0:11:57.197,0:11:58.797
and the reconstruction process

0:11:58.797,0:12:00.370
that brought growth

0:12:00.370,0:12:03.441
to a smaller gap with the rate of return.

0:12:03.441,0:12:06.964
Here I use the United Nations population projections,

0:12:06.964,0:12:09.440
so of course they are uncertain.

0:12:09.440,0:12:10.831
It could be that we all start

0:12:10.831,0:12:12.937
having a lot of children in the future,

0:12:12.937,0:12:15.702
and the growth rates are going to be higher,

0:12:15.702,0:12:16.951
but from now on,

0:12:16.951,0:12:19.753
these are the best projections we have,

0:12:19.753,0:12:21.687
and this will make global growth

0:12:21.687,0:12:24.443
decline and the gap between

0:12:24.443,0:12:26.446
the rate of return go up.

0:12:26.446,0:12:29.308
Now, the other unusual event

0:12:29.308,0:12:30.979
during the 20th century

0:12:30.979,0:12:32.308
was, as I said,

0:12:32.308,0:12:34.624
destruction, taxation of capital,

0:12:34.624,0:12:37.359
so this is the pre-tax rate of return.

0:12:37.359,0:12:40.338
This is the after-tax rate of return,

0:12:40.338,0:12:41.904
and after destruction,

0:12:41.904,0:12:43.681
and this is what brought

0:12:43.681,0:12:45.369
the average rate of return

0:12:45.369,0:12:47.158
after tax, after destruction,

0:12:47.158,0:12:49.578
below the growth rate during a long time period.

0:12:49.578,0:12:51.252
But without the destruction,

0:12:51.252,0:12:53.727
without the taxation, this [br]would not have happened.

0:12:53.727,0:12:56.970
So let me say that the balance between

0:12:56.970,0:12:59.326
returns on capital and growth

0:12:59.326,0:13:01.188
depends on many different factors

0:13:01.188,0:13:03.273
that are very difficult to predict:

0:13:03.273,0:13:05.388
technology and the development

0:13:05.388,0:13:07.972
of capital-intensive techniques.

0:13:07.972,0:13:10.991
So right now, the most capital-intensive sectors

0:13:10.991,0:13:14.367
in the economy are the real estate sector, housing,

0:13:14.367,0:13:17.229
the energy sector, but it could be in the future

0:13:17.229,0:13:20.941
that we have a lot more robots in a number of sectors

0:13:20.941,0:13:22.830
and that this would be a bigger share

0:13:22.830,0:13:24.740
of the total capital stock that it is today.

0:13:24.740,0:13:26.734
Well, we are very far from this,

0:13:26.734,0:13:28.500
and from now, what's going on

0:13:28.500,0:13:30.289
in the real estate sector, the energy sector,

0:13:30.289,0:13:32.415
is much more important for the total capital stock

0:13:32.415,0:13:33.549
and capital share.

0:13:33.549,0:13:35.582
The other important issue

0:13:35.582,0:13:37.732
is that there are scale effects[br]in portfolio management,

0:13:37.732,0:13:40.151
together with financial complexity,

0:13:40.151,0:13:41.601
financial deregulation,

0:13:41.601,0:13:44.310
that make it easier to get higher rates of return

0:13:44.310,0:13:45.937
for a large portfolio,

0:13:45.937,0:13:48.600
and this seems to be particularly strong

0:13:48.600,0:13:50.582
for billionaires, large capital endowments.

0:13:50.582,0:13:52.872
Just to give you one example,

0:13:52.872,0:13:56.205
this comes from the Forbes billionaire rankings

0:13:56.205,0:13:59.535
over the 1987-2013 period,

0:13:59.535,0:14:02.323
and you can see the very top wealth holders

0:14:02.323,0:14:05.440
have been going up at six, seven percent per year

0:14:05.440,0:14:07.831
in real terms above inflation,

0:14:07.831,0:14:10.203
whereas average income in the world,

0:14:10.203,0:14:11.566
average wealth in the world,

0:14:11.566,0:14:14.949
have increased at only two percent per year.

0:14:14.949,0:14:16.678
And you find the same

0:14:16.678,0:14:17.954
for large university endowments —

0:14:17.954,0:14:20.222
the bigger the initial endowments,

0:14:20.222,0:14:22.290
the bigger the rate of return.

0:14:22.290,0:14:23.968
Now, what could be done?

0:14:23.968,0:14:26.364
The first thing is that I think we need

0:14:26.364,0:14:28.479
more financial transparency.

0:14:28.479,0:14:32.320
We know too little about global wealth dynamics,

0:14:32.320,0:14:34.220
so we need international transmission

0:14:34.220,0:14:35.482
of bank information.

0:14:35.482,0:14:38.168
We need a global registry of financial assets,

0:14:38.168,0:14:40.659
more coordination on wealth taxation,

0:14:40.659,0:14:43.771
and even wealth tax with a small tax rate

0:14:43.771,0:14:45.987
will be a way to produce information

0:14:45.987,0:14:48.669
so that then we can adapt our policies

0:14:48.669,0:14:50.505
to whatever we observe.

0:14:50.505,0:14:52.343
And to some extent, the fight

0:14:52.343,0:14:53.824
against tax havens

0:14:53.824,0:14:55.639
and automatic transmission of information

0:14:55.639,0:14:57.490
is pushing us in this direction.

0:14:57.490,0:14:59.814
Now, there are other ways to redistribute wealth,

0:14:59.814,0:15:02.771
which it can be tempting to use.

0:15:02.771,0:15:04.127
Inflation:

0:15:04.127,0:15:05.826
it's much easier to print money

0:15:05.826,0:15:07.981
than to write a tax code, so that's very tempting,

0:15:07.981,0:15:10.101
but sometimes you don't know[br]what you do with the money.

0:15:10.101,0:15:11.748
This is a problem.

0:15:11.748,0:15:13.611
Expropriation is very tempting.

0:15:13.611,0:15:15.872
Just when you feel some people get too wealthy,

0:15:15.872,0:15:17.166
you just expropriate them.

0:15:17.166,0:15:18.878
But this is not a very efficient way

0:15:18.878,0:15:21.711
to organize a regulation of wealth dynamics.

0:15:21.711,0:15:24.190
So war is an even less efficient way,

0:15:24.190,0:15:26.526
so I tend to prefer progressive taxation,

0:15:26.526,0:15:29.100
but of course, history — (Laughter) —

0:15:29.100,0:15:30.835
history will invent its own best ways,

0:15:30.835,0:15:32.533
and it will probably involve

0:15:32.533,0:15:34.267
a combination of all of these.

0:15:34.267,0:15:36.133
Thank you.

0:15:36.133,0:15:38.270
(Applause)

0:15:38.270,0:15:43.829
Bruno Giussani: Thomas Piketty. Thank you.

0:15:43.829,0:15:45.708
Thomas, I want to ask you two or three questions,

0:15:45.708,0:15:49.567
because it's impressive how you're[br]in command of your data, of course,

0:15:49.567,0:15:53.361
but basically what you suggest is

0:15:53.361,0:15:54.934
growing wealth concentration is kind of

0:15:54.934,0:15:56.858
a natural tendency of capitalism,

0:15:56.858,0:16:00.396
and if we leave it to its own devices,

0:16:00.396,0:16:02.636
it may threaten the system itself,

0:16:02.636,0:16:04.362
so you're suggesting that we need to act

0:16:04.362,0:16:07.400
to implement policies that redistribute wealth,

0:16:07.400,0:16:09.121
including the ones we just saw:

0:16:09.121,0:16:10.592
progressive taxation, etc.

0:16:10.592,0:16:12.731
In the current political context,

0:16:12.731,0:16:14.722
how realistic are those?

0:16:14.722,0:16:16.533
How likely do you think that it is

0:16:16.533,0:16:18.277
that they will be implemented?

0:16:18.277,0:16:19.488
Thomas Piketty: Well, you know, I think

0:16:19.488,0:16:21.269
if you look back through time,

0:16:21.269,0:16:23.920
the history of income, wealth and taxation

0:16:23.920,0:16:25.522
is full of surprise.

0:16:25.522,0:16:28.127
So I am not terribly impressed

0:16:28.127,0:16:29.695
by those who know in advance

0:16:29.695,0:16:31.326
what will or will not happen.

0:16:31.326,0:16:33.030
I think one century ago,

0:16:33.030,0:16:34.599
many people would have said

0:16:34.599,0:16:36.737
that progressive income taxation would never happen

0:16:36.737,0:16:38.257
and then it happened.

0:16:38.257,0:16:40.246
And even five years ago,

0:16:40.246,0:16:42.598
many people would have said that bank secrecy

0:16:42.598,0:16:44.623
will be with us forever in Switzerland,

0:16:44.623,0:16:46.411
that Switzerland was too powerful

0:16:46.411,0:16:47.900
for the rest of the world,

0:16:47.900,0:16:50.861
and then suddenly it took a few U.S. sanctions

0:16:50.861,0:16:53.483
against Swiss banks for a big change to happen,

0:16:53.483,0:16:55.186
and now we are moving toward

0:16:55.186,0:16:56.862
more financial transparency.

0:16:56.862,0:17:01.143
So I think it's not that difficult

0:17:01.143,0:17:03.612
to better coordinate politically.

0:17:03.612,0:17:05.670
We are going to have a treaty

0:17:05.670,0:17:08.719
with half of the world GDP around the table

0:17:08.719,0:17:10.721
with the U.S. and the European Union,

0:17:10.721,0:17:12.847
so if half of the world GDP is not enough

0:17:12.847,0:17:15.513
to make progress on financial transparency

0:17:15.513,0:17:19.597
and minimal tax for multinational corporate profits,

0:17:19.597,0:17:21.261
what does it take?

0:17:21.261,0:17:24.884
So I think these are not technical difficulties.

0:17:24.884,0:17:26.808
I think we can make progress

0:17:26.808,0:17:29.395
if we have a more pragmatic[br]approach to these questions

0:17:29.395,0:17:31.296
and we have the proper sanctions

0:17:31.296,0:17:34.287
on those who benefit from financial opacity.

0:17:34.287,0:17:35.940
BG: One of the arguments

0:17:35.940,0:17:37.373
against your point of view

0:17:37.373,0:17:38.815
is that economic inequality

0:17:38.815,0:17:42.452
is not only a feature of capitalism[br]but is actually one of its engines.

0:17:42.452,0:17:45.253
So we take measures to lower inequality,

0:17:45.253,0:17:47.660
and at the same time we lower growth, potentially.

0:17:47.660,0:17:49.220
What do you answer to that?

0:17:49.220,0:17:50.949
TP: Yeah, I think inequality

0:17:50.949,0:17:52.838
is not a problem per se.

0:17:52.838,0:17:54.878
I think inequality up to a point

0:17:54.878,0:17:57.530
can actually be useful for innovation and growth.

0:17:57.530,0:17:59.723
The problem is, it's a question of degree.

0:17:59.723,0:18:02.267
When inequality gets too extreme,

0:18:02.267,0:18:05.156
then it becomes useless for growth

0:18:05.156,0:18:06.618
and it can even become bad

0:18:06.618,0:18:09.675
because it tends to lead to high perpetuation

0:18:09.675,0:18:11.311
of inequality over time

0:18:11.311,0:18:13.177
and low mobility.

0:18:13.177,0:18:16.463
And for instance, the kind of wealth concentrations

0:18:16.463,0:18:19.340
that we had in the 19th century

0:18:19.340,0:18:21.265
and pretty much until World War I

0:18:21.265,0:18:23.030
in every European country

0:18:23.030,0:18:25.124
was, I think, not useful for growth.

0:18:25.124,0:18:27.226
This was destroyed by a combination

0:18:27.226,0:18:29.567
of tragic events and policy changes,

0:18:29.567,0:18:31.839
and this did not prevent growth from happening.

0:18:31.839,0:18:35.282
And also, extreme inequality can be bad

0:18:35.282,0:18:37.480
for our democratic institutions

0:18:37.480,0:18:39.863
if it creates very unequal access to political voice,

0:18:39.863,0:18:41.728
and the influence of private money

0:18:41.728,0:18:43.730
in U.S. politics, I think,

0:18:43.730,0:18:46.270
is a matter of concern right now.

0:18:46.270,0:18:49.346
So we don't want to return to that kind of extreme,

0:18:49.346,0:18:51.436
pre-World War I inequality.

0:18:51.436,0:18:55.110
Having a decent share of the national wealth

0:18:55.110,0:18:58.500
for the middle class is not bad for growth.

0:18:58.500,0:18:59.781
It is actually useful

0:18:59.781,0:19:02.865
both for equity and efficiency reasons.

0:19:02.865,0:19:04.530
BG: I said at the beginning

0:19:04.530,0:19:06.639
that your book has been criticized.

0:19:06.639,0:19:07.880
Some of your data has been criticized.

0:19:07.880,0:19:10.346
Some of your choice of data sets has been criticized.

0:19:10.346,0:19:12.222
You have been accused of cherry-picking data

0:19:12.222,0:19:14.959
to make your case. What do you answer to that?

0:19:14.959,0:19:16.886
TP: Well, I answer that I am very happy

0:19:16.886,0:19:19.353
that this book is stimulating debate.

0:19:19.353,0:19:21.834
This is part of what it is intended for.

0:19:21.834,0:19:25.128
Look, the reason why I put all the data online

0:19:25.128,0:19:26.974
with all of the detailed computation

0:19:26.974,0:19:29.308
is so that we can have [br]an open and transparent

0:19:29.308,0:19:30.977
debate about this.

0:19:30.977,0:19:32.743
So I have responded point by point

0:19:32.743,0:19:34.535
to every concern.

0:19:34.535,0:19:37.648
Let me say that if I was to rewrite the book today,

0:19:37.648,0:19:39.189
I would actually conclude

0:19:39.189,0:19:41.383
that the rise in wealth inequality,

0:19:41.383,0:19:43.310
particularly in the United States,

0:19:43.310,0:19:45.683
has been actually higher[br]than what I report in my book.

0:19:45.683,0:19:48.928
There is a recent study by Saez and Zucman

0:19:48.928,0:19:50.520
showing, with new data

0:19:50.520,0:19:52.297
which I didn't have at the time of the book,

0:19:52.297,0:19:54.824
that wealth concentration in the U.S. has risen

0:19:54.824,0:19:56.760
even more than what I report.

0:19:56.760,0:19:58.791
And there will be other data in the future.

0:19:58.791,0:20:00.942
Some of it will go in different directions.

0:20:00.942,0:20:05.041
Look, we put online almost every week

0:20:05.041,0:20:07.975
new, updated series on the[br]World Top Income Database

0:20:07.975,0:20:09.875
and we will keep doing so in the future,

0:20:09.875,0:20:12.181
in particular in emerging countries,

0:20:12.181,0:20:15.110
and I welcome all of those who want to contribute

0:20:15.110,0:20:17.456
to this data collection process.

0:20:17.456,0:20:20.264
In fact, I certainly agree

0:20:20.264,0:20:21.878
that there is not enough

0:20:21.878,0:20:23.756
transparency about wealth dynamics,

0:20:23.756,0:20:25.671
and a good way to have better data

0:20:25.671,0:20:27.536
would be to have a wealth tax

0:20:27.536,0:20:29.107
with a small tax rate to begin with

0:20:29.107,0:20:31.446
so that we can all agree

0:20:31.446,0:20:33.010
about this important evolution

0:20:33.010,0:20:36.337
and adapt our policies to whatever we observe.

0:20:36.337,0:20:38.399
So taxation is a source of knowledge,

0:20:38.399,0:20:41.335
and that's what we need the most right now.

0:20:41.335,0:20:43.150
BG: Thomas Piketty, merci beaucoup.

0:20:43.150,0:20:47.150
Thank you.[br]TP: Thank you. (Applause)