WEBVTT 00:00:00.915 --> 00:00:02.880 It's very nice to be here tonight. NOTE Paragraph 00:00:02.880 --> 00:00:06.596 So I've been working on the history of income 00:00:06.596 --> 00:00:09.915 and wealth distribution for the past 15 years, 00:00:09.915 --> 00:00:13.016 and one of the interesting lessons 00:00:13.016 --> 00:00:15.517 coming from this historical evidence 00:00:15.517 --> 00:00:17.530 is indeed that, in the long run, 00:00:17.530 --> 00:00:21.250 there is a tendency for the rate of return of capital 00:00:21.250 --> 00:00:23.920 to exceed the economy's growth rate, 00:00:23.920 --> 00:00:26.665 and this tends to lead to high concentration of wealth. 00:00:26.665 --> 00:00:28.498 Not infinite concentration of wealth, 00:00:28.498 --> 00:00:31.289 but the higher the gap between r and g, 00:00:31.289 --> 00:00:34.224 the higher the level of inequality of wealth 00:00:34.224 --> 00:00:37.431 towards which society tends to converge. NOTE Paragraph 00:00:37.431 --> 00:00:40.985 So this is a key force that I'm going to talk about today, 00:00:40.985 --> 00:00:42.954 but let me say right away 00:00:42.954 --> 00:00:45.284 that this is not the only important force 00:00:45.284 --> 00:00:47.757 in the dynamics of income and wealth distribution, 00:00:47.757 --> 00:00:49.782 and there are many other forces that play 00:00:49.782 --> 00:00:52.763 an important role in the long-run dynamics 00:00:52.763 --> 00:00:54.338 of income and wealth distribution. 00:00:54.338 --> 00:00:56.307 Also there is a lot of data 00:00:56.307 --> 00:00:57.863 that still needs to be collected. 00:00:57.863 --> 00:01:00.795 We know a little bit more today 00:01:00.795 --> 00:01:03.316 than we used to know, but we still know too little, 00:01:03.316 --> 00:01:05.992 and certainly there are many different processes — 00:01:05.992 --> 00:01:08.290 economic, social, political — 00:01:08.290 --> 00:01:09.717 that need to be studied more. 00:01:09.717 --> 00:01:12.697 And so I'm going to focus today on this simple force, 00:01:12.697 --> 00:01:14.958 but that doesn't mean that other important forces 00:01:14.958 --> 00:01:16.162 do not exist. NOTE Paragraph 00:01:16.162 --> 00:01:18.434 So most of the data I'm going to present 00:01:18.434 --> 00:01:20.639 comes from this database 00:01:20.639 --> 00:01:21.899 that's available online: 00:01:21.899 --> 00:01:23.384 the World Top Incomes Database. 00:01:23.384 --> 00:01:25.487 So this is the largest existing 00:01:25.487 --> 00:01:27.940 historical database on inequality, 00:01:27.940 --> 00:01:29.290 and this comes from the effort 00:01:29.290 --> 00:01:33.182 of over 30 scholars from several dozen countries. 00:01:33.182 --> 00:01:35.960 So let me show you a couple of facts 00:01:35.960 --> 00:01:37.105 coming from this database, 00:01:37.105 --> 00:01:39.179 and then we'll return to r bigger than g. 00:01:39.179 --> 00:01:41.689 So fact number one is that there has been 00:01:41.689 --> 00:01:44.740 a big reversal in the ordering of income inequality 00:01:44.740 --> 00:01:46.645 between the United States and Europe 00:01:46.645 --> 00:01:48.400 over the past century. 00:01:48.400 --> 00:01:51.905 So back in 1900, 1910, income inequality was actually 00:01:51.905 --> 00:01:54.170 much higher in Europe than in the United States, 00:01:54.170 --> 00:01:57.280 whereas today, it is a lot higher in the United States. 00:01:57.280 --> 00:01:58.946 So let me be very clear: 00:01:58.946 --> 00:02:01.770 The main explanation for this is not r bigger than g. 00:02:01.770 --> 00:02:05.267 It has more to do with changing supply and demand 00:02:05.267 --> 00:02:08.720 for skill, the race between education and technology, 00:02:08.720 --> 00:02:12.300 globalization, probably more unequal access 00:02:12.300 --> 00:02:13.906 to skills in the U.S., 00:02:13.906 --> 00:02:16.493 where you have very good, very top universities 00:02:16.493 --> 00:02:18.735 but where the bottom part of the educational system 00:02:18.735 --> 00:02:19.500 is not as good, 00:02:19.500 --> 00:02:21.861 so very unequal access to skills, 00:02:21.861 --> 00:02:23.780 and also an unprecedented rise 00:02:23.780 --> 00:02:26.800 of top managerial compensation of the United States, 00:02:26.800 --> 00:02:29.650 which is difficult to account for just on the basis of education. 00:02:29.650 --> 00:02:31.604 So there is more going on here, 00:02:31.604 --> 00:02:34.213 but I'm not going to talk too much about this today, 00:02:34.213 --> 00:02:36.879 because I want to focus on wealth inequality. NOTE Paragraph 00:02:36.879 --> 00:02:39.860 So let me just show you a very simple indicator 00:02:39.860 --> 00:02:42.210 about the income inequality part. 00:02:42.210 --> 00:02:44.664 So this is the share of total income 00:02:44.664 --> 00:02:46.452 going to the top 10 percent. 00:02:46.452 --> 00:02:48.624 So you can see that one century ago, 00:02:48.624 --> 00:02:52.201 it was between 45 and 50 percent in Europe 00:02:52.201 --> 00:02:54.939 and a little bit above 40 percent in the U.S., 00:02:54.939 --> 00:02:57.210 so there was more inequality in Europe. 00:02:57.210 --> 00:02:59.234 Then there was a sharp decline 00:02:59.234 --> 00:03:01.765 during the first half of the 20th century, 00:03:01.765 --> 00:03:04.128 and in the recent decade, you can see that 00:03:04.128 --> 00:03:07.630 the U.S. has become more unequal than Europe, 00:03:07.630 --> 00:03:10.300 and this is the first fact I just talked about. 00:03:10.300 --> 00:03:14.211 Now, the second fact is more about wealth inequality, 00:03:14.211 --> 00:03:17.301 and here the central fact is that wealth inequality 00:03:17.301 --> 00:03:19.907 is always a lot higher than income inequality, 00:03:19.907 --> 00:03:22.292 and also that wealth inequality, 00:03:22.292 --> 00:03:24.945 although it has also increased in recent decades, 00:03:24.945 --> 00:03:26.801 is still less extreme today 00:03:26.801 --> 00:03:28.680 than what it was a century ago, 00:03:28.680 --> 00:03:31.199 although the total quantity of wealth 00:03:31.199 --> 00:03:33.224 relative to income has now recovered 00:03:33.224 --> 00:03:34.855 from the very large shocks 00:03:34.855 --> 00:03:36.880 caused by World War I, the Great Depression, 00:03:36.880 --> 00:03:38.099 World War II. NOTE Paragraph 00:03:38.099 --> 00:03:40.143 So let me show you two graphs 00:03:40.143 --> 00:03:43.000 illustrating fact number two and fact number three. 00:03:43.000 --> 00:03:47.390 So first, if you look at the level of wealth inequality, 00:03:47.390 --> 00:03:50.548 this is the share of total wealth 00:03:50.548 --> 00:03:53.070 going to the top 10 percent of wealth holders, 00:03:53.070 --> 00:03:55.779 so you can see the same kind of reversal 00:03:55.779 --> 00:03:58.344 between the U.S. and Europe that we had before 00:03:58.344 --> 00:04:00.020 for income inequality. 00:04:00.020 --> 00:04:03.570 So wealth concentration was higher 00:04:03.570 --> 00:04:05.813 in Europe than in the U.S. a century ago, 00:04:05.813 --> 00:04:07.647 and now it is the opposite. 00:04:07.647 --> 00:04:09.638 But you can also show two things: 00:04:09.638 --> 00:04:13.339 First, the general level of wealth inequality 00:04:13.339 --> 00:04:15.994 is always higher than income inequality. 00:04:15.994 --> 00:04:18.334 So remember, for income inequality, 00:04:18.334 --> 00:04:20.662 the share going to the top 10 percent 00:04:20.662 --> 00:04:24.960 was between 30 and 50 percent of total income, 00:04:24.960 --> 00:04:27.772 whereas for wealth, the share is always 00:04:27.772 --> 00:04:29.831 between 60 and 90 percent. 00:04:29.831 --> 00:04:31.347 Okay, so that's fact number one, 00:04:31.347 --> 00:04:33.273 and that's very important for what follows. 00:04:33.273 --> 00:04:34.994 Wealth concentration is always 00:04:34.994 --> 00:04:36.873 a lot higher than income concentration. NOTE Paragraph 00:04:36.873 --> 00:04:40.259 Fact number two is that the rise 00:04:40.259 --> 00:04:43.206 in wealth inequality in recent decades 00:04:43.206 --> 00:04:47.492 is still not enough to get us back to 1910. 00:04:47.492 --> 00:04:49.269 So the big difference today, 00:04:49.269 --> 00:04:51.182 wealth inequality is still very large, 00:04:51.182 --> 00:04:54.444 with 60, 70 percent of total wealth for the top 10, 00:04:54.444 --> 00:04:56.289 but the good news is that it's actually 00:04:56.289 --> 00:04:58.070 better than one century ago, 00:04:58.070 --> 00:05:01.441 where you had 90 percent in Europe going to the top 10. 00:05:01.441 --> 00:05:03.432 So today what you have 00:05:03.432 --> 00:05:05.434 is what I call the middle 40 percent, 00:05:05.434 --> 00:05:07.347 the people who are not in the top 10 00:05:07.347 --> 00:05:09.120 and who are not in the bottom 50, 00:05:09.120 --> 00:05:11.386 and what you can view as the wealth middle class 00:05:11.386 --> 00:05:14.529 that owns 20 to 30 percent 00:05:14.529 --> 00:05:16.391 of total wealth, national wealth, 00:05:16.391 --> 00:05:19.722 whereas they used to be poor, a century ago, 00:05:19.722 --> 00:05:22.340 when there was basically no wealth middle class. 00:05:22.340 --> 00:05:23.917 So this is an important change, 00:05:23.917 --> 00:05:28.532 and it's interesting to see that wealth inequality 00:05:28.532 --> 00:05:31.838 has not fully recovered to pre-World War I levels, 00:05:31.838 --> 00:05:35.347 although the total quantity of wealth has recovered. 00:05:35.347 --> 00:05:37.294 Okay? So this is the total value 00:05:37.294 --> 00:05:39.510 of wealth relative to income, 00:05:39.510 --> 00:05:41.623 and you can see that in particular in Europe, 00:05:41.623 --> 00:05:45.483 we are almost back to the pre-World War I level. 00:05:45.483 --> 00:05:47.328 So there are really two 00:05:47.328 --> 00:05:49.859 different parts of the story here. 00:05:49.859 --> 00:05:50.978 One has to do with 00:05:50.978 --> 00:05:53.420 the total quantity of wealth that we accumulate, 00:05:53.420 --> 00:05:55.098 and there is nothing bad per se, of course, 00:05:55.098 --> 00:05:56.845 in accumulating a lot of wealth, 00:05:56.845 --> 00:05:59.713 and in particular if it is more diffuse 00:05:59.713 --> 00:06:01.107 and less concentrated. 00:06:01.107 --> 00:06:03.852 So what we really want to focus on 00:06:03.852 --> 00:06:06.233 is the long-run evolution of wealth inequality, 00:06:06.233 --> 00:06:08.533 and what's going to happen in the future. 00:06:08.533 --> 00:06:10.558 How can we account for the fact that 00:06:10.558 --> 00:06:14.220 until World War I, wealth inequality was so high 00:06:14.220 --> 00:06:17.410 and, if anything, was rising to even higher levels, 00:06:17.410 --> 00:06:20.737 and how can we think about the future? NOTE Paragraph 00:06:20.737 --> 00:06:24.623 So let me come to some of the explanations 00:06:24.623 --> 00:06:26.759 and speculations about the future. 00:06:26.759 --> 00:06:28.354 Let me first say that 00:06:28.354 --> 00:06:30.341 probably the best model to explain 00:06:30.341 --> 00:06:32.438 why wealth is so much 00:06:32.438 --> 00:06:34.624 more concentrated than income 00:06:34.624 --> 00:06:37.736 is a dynamic, dynastic model 00:06:37.736 --> 00:06:40.200 where individuals have a long horizon 00:06:40.200 --> 00:06:42.956 and accumulate wealth for all sorts of reasons. 00:06:42.956 --> 00:06:45.566 If people were accumulating wealth 00:06:45.566 --> 00:06:47.569 only for life cycle reasons, 00:06:47.569 --> 00:06:49.582 you know, to be able to consume 00:06:49.582 --> 00:06:51.169 when they are old, 00:06:51.169 --> 00:06:53.542 then the level of wealth inequality 00:06:53.542 --> 00:06:55.859 should be more or less in line 00:06:55.859 --> 00:06:57.828 with the level of income inequality. 00:06:57.828 --> 00:06:59.756 But it will be very difficult to explain 00:06:59.756 --> 00:07:01.950 why you have so much more wealth inequality 00:07:01.950 --> 00:07:03.434 than income inequality 00:07:03.434 --> 00:07:04.710 with a pure a life cycle model, 00:07:04.710 --> 00:07:06.741 so you need a story 00:07:06.741 --> 00:07:08.429 where people also care 00:07:08.429 --> 00:07:10.960 about wealth accumulation for other reasons. 00:07:10.960 --> 00:07:12.884 So typically, they want to transmit 00:07:12.884 --> 00:07:16.210 wealth to the next generation, to their children, 00:07:16.210 --> 00:07:17.978 or sometimes they want to accumulate wealth 00:07:17.978 --> 00:07:20.746 because of the prestige, the power that goes with wealth. 00:07:20.746 --> 00:07:22.130 So there must be other reasons 00:07:22.130 --> 00:07:24.120 for accumulating wealth than just life cycle 00:07:24.120 --> 00:07:26.888 to explain what we see in the data. 00:07:26.888 --> 00:07:30.234 Now, in a large class of dynamic models 00:07:30.234 --> 00:07:32.210 of wealth accumulation 00:07:32.210 --> 00:07:35.768 with such dynastic motive for accumulating wealth, 00:07:35.768 --> 00:07:38.614 you will have all sorts of random, 00:07:38.614 --> 00:07:39.537 multiplicative shocks. 00:07:39.537 --> 00:07:41.786 So for instance, some families 00:07:41.786 --> 00:07:43.473 have a very large number of children, 00:07:43.473 --> 00:07:45.239 so the wealth will be divided. 00:07:45.239 --> 00:07:47.129 Some families have fewer children. 00:07:47.129 --> 00:07:49.357 You also have shocks to rates of return. 00:07:49.357 --> 00:07:51.454 Some families make huge capital gains. 00:07:51.454 --> 00:07:53.249 Some made bad investments. 00:07:53.249 --> 00:07:55.490 So you will always have some mobility 00:07:55.490 --> 00:07:56.928 in the wealth process. 00:07:56.928 --> 00:07:59.303 Some people will move up, some people will move down. 00:07:59.303 --> 00:08:00.955 The important point is that, 00:08:00.955 --> 00:08:01.965 in any such model, 00:08:01.965 --> 00:08:04.521 for a given variance of such shocks, 00:08:04.521 --> 00:08:06.557 the equilibrium level of wealth inequality 00:08:06.557 --> 00:08:11.394 will be a steeply rising function of r minus g. 00:08:11.394 --> 00:08:14.263 And intuitively, the reason why the difference 00:08:14.263 --> 00:08:16.107 between the rate of return to wealth 00:08:16.107 --> 00:08:17.862 and the growth rate is important 00:08:17.862 --> 00:08:20.174 is that initial wealth inequalities 00:08:20.174 --> 00:08:22.565 will be amplified at a faster pace 00:08:22.565 --> 00:08:24.634 with a bigger r minus g. 00:08:24.634 --> 00:08:26.108 So take a simple example, 00:08:26.108 --> 00:08:29.874 with r equals five percent and g equals one percent, 00:08:29.874 --> 00:08:31.982 wealth holders only need to reinvest 00:08:31.982 --> 00:08:34.621 one fifth of their capital income to ensure 00:08:34.621 --> 00:08:37.354 that their wealth rises as fast 00:08:37.354 --> 00:08:39.267 as the size of the economy. 00:08:39.267 --> 00:08:40.650 So this makes it easier 00:08:40.650 --> 00:08:42.416 to build and perpetuate large fortunes 00:08:42.416 --> 00:08:44.371 because you can consume four fifths, 00:08:44.371 --> 00:08:46.110 assuming zero tax, 00:08:46.110 --> 00:08:47.771 and you can just reinvest one fifth. 00:08:47.771 --> 00:08:50.359 So of course some families will consume more than that, 00:08:50.359 --> 00:08:52.102 some will consume less, so there will be 00:08:52.102 --> 00:08:53.857 some mobility in the distribution, 00:08:53.857 --> 00:08:56.703 but on average, they only need to reinvest one fifth, 00:08:56.703 --> 00:09:00.472 so this allows high wealth inequalities to be sustained. NOTE Paragraph 00:09:00.472 --> 00:09:02.969 Now, you should not be surprised 00:09:02.969 --> 00:09:06.505 by the statement that r can be bigger than g forever, 00:09:06.505 --> 00:09:08.121 because, in fact, this is what happened 00:09:08.121 --> 00:09:10.192 during most of the history of mankind. 00:09:10.192 --> 00:09:13.543 And this was in a way very obvious to everybody 00:09:13.543 --> 00:09:15.321 for a simple reason, which is that growth 00:09:15.321 --> 00:09:17.509 was close to zero percent 00:09:17.509 --> 00:09:19.130 during most of the history of mankind. 00:09:19.130 --> 00:09:22.662 Growth was maybe 0.1, 0.2, 0.3 percent, 00:09:22.662 --> 00:09:24.658 but very slow growth of population 00:09:24.658 --> 00:09:26.655 and output per capita, 00:09:26.655 --> 00:09:28.539 whereas the rate of return on capital 00:09:28.539 --> 00:09:30.395 of course was not zero percent. 00:09:30.395 --> 00:09:32.431 It was, for land assets, which was 00:09:32.431 --> 00:09:34.240 the traditional form 00:09:34.240 --> 00:09:36.641 of assets in preindustrial societies, 00:09:36.641 --> 00:09:38.404 it was typically five percent. 00:09:38.404 --> 00:09:42.190 Any reader of Jane Austen would know that. 00:09:42.190 --> 00:09:45.098 If you want an annual income of 1,000 pounds, 00:09:45.098 --> 00:09:46.740 you should have a capital value 00:09:46.740 --> 00:09:48.596 of 20,000 pounds so that 00:09:48.596 --> 00:09:51.146 five percent of 20,000 is 1,000. 00:09:51.146 --> 00:09:53.163 And in a way, this was 00:09:53.163 --> 00:09:54.941 the very foundation of society, 00:09:54.941 --> 00:09:57.976 because r bigger than g 00:09:57.976 --> 00:10:02.100 was what allowed holders of wealth and assets 00:10:02.100 --> 00:10:04.790 to live off their capital income 00:10:04.790 --> 00:10:07.490 and to do something else in life 00:10:07.490 --> 00:10:10.685 than just to care about their own survival. NOTE Paragraph 00:10:10.685 --> 00:10:12.845 Now, one important conclusion 00:10:12.845 --> 00:10:14.836 of my historical research is that 00:10:14.836 --> 00:10:17.547 modern industrial growth did not change 00:10:17.547 --> 00:10:20.371 this basic fact as much as one might have expected. 00:10:20.371 --> 00:10:22.050 Of course, the growth rate 00:10:22.050 --> 00:10:23.858 following the Industrial Revolution 00:10:23.858 --> 00:10:28.180 rose, typically from zero to one to two percent, 00:10:28.180 --> 00:10:30.110 but at the same time, the rate of return 00:10:30.110 --> 00:10:31.755 to capital also rose 00:10:31.755 --> 00:10:34.180 so that the gap between the two 00:10:34.180 --> 00:10:35.636 did not really change. 00:10:35.636 --> 00:10:37.886 So during the 20th century, 00:10:37.886 --> 00:10:40.530 you had a very unique combination of events. 00:10:40.530 --> 00:10:42.547 First, a very low rate of return 00:10:42.547 --> 00:10:45.563 due to the 1914 and 1945 war shocks, 00:10:45.563 --> 00:10:47.868 destruction of wealth, inflation, 00:10:47.868 --> 00:10:49.848 bankruptcy during the Great Depression, 00:10:49.848 --> 00:10:51.513 and all of this reduced 00:10:51.513 --> 00:10:53.263 the private rate of return to wealth 00:10:53.263 --> 00:10:55.158 to unusually low levels 00:10:55.158 --> 00:10:57.497 between 1914 and 1945. 00:10:57.497 --> 00:10:59.333 And then, in the postwar period, 00:10:59.333 --> 00:11:02.570 you had unusually high growth rate, 00:11:02.570 --> 00:11:04.944 partly due to the reconstruction. 00:11:04.944 --> 00:11:06.869 You know, in Germany, in France, in Japan, 00:11:06.869 --> 00:11:08.420 you had five percent growth rate 00:11:08.420 --> 00:11:11.570 between 1950 and 1980 00:11:11.570 --> 00:11:13.213 largely due to reconstruction, 00:11:13.213 --> 00:11:15.564 and also due to very large demographic growth, 00:11:15.564 --> 00:11:17.705 the Baby Boom Cohort effect. 00:11:17.705 --> 00:11:20.143 Now, apparently that's not going to last for very long, 00:11:20.143 --> 00:11:21.818 or at least the population growth 00:11:21.818 --> 00:11:24.586 is supposed to decline in the future, 00:11:24.586 --> 00:11:28.242 and the best projections we have is that 00:11:28.242 --> 00:11:30.070 the long-run growth is going to be closer 00:11:30.070 --> 00:11:31.493 to one to two percent 00:11:31.493 --> 00:11:33.439 rather than four to five percent. 00:11:33.439 --> 00:11:36.116 So if you look at this, 00:11:36.116 --> 00:11:38.257 these are the best estimates we have 00:11:38.257 --> 00:11:39.913 of world GDP growth 00:11:39.913 --> 00:11:42.272 and rate of return on capital, 00:11:42.272 --> 00:11:44.360 average rates of return on capital, 00:11:44.360 --> 00:11:45.428 so you can see that during most 00:11:45.428 --> 00:11:46.945 of the history of mankind, 00:11:46.945 --> 00:11:48.558 the growth rate was very small, 00:11:48.558 --> 00:11:50.392 much lower than the rate of return, 00:11:50.392 --> 00:11:52.754 and then during the 20th century, 00:11:52.754 --> 00:11:54.925 it is really the population growth, 00:11:54.925 --> 00:11:57.197 very high in the postwar period, 00:11:57.197 --> 00:11:58.797 and the reconstruction process 00:11:58.797 --> 00:12:00.370 that brought growth 00:12:00.370 --> 00:12:03.441 to a smaller gap with the rate of return. 00:12:03.441 --> 00:12:06.964 Here I use the United Nations population projections, 00:12:06.964 --> 00:12:09.440 so of course they are uncertain. 00:12:09.440 --> 00:12:10.831 It could be that we all start 00:12:10.831 --> 00:12:12.937 having a lot of children in the future, 00:12:12.937 --> 00:12:15.702 and the growth rates are going to be higher, 00:12:15.702 --> 00:12:16.951 but from now on, 00:12:16.951 --> 00:12:19.753 these are the best projections we have, 00:12:19.753 --> 00:12:21.687 and this will make global growth 00:12:21.687 --> 00:12:24.443 decline and the gap between 00:12:24.443 --> 00:12:26.446 the rate of return go up. NOTE Paragraph 00:12:26.446 --> 00:12:29.308 Now, the other unusual event 00:12:29.308 --> 00:12:30.979 during the 20th century 00:12:30.979 --> 00:12:32.308 was, as I said, 00:12:32.308 --> 00:12:34.624 destruction, taxation of capital, 00:12:34.624 --> 00:12:37.359 so this is the pre-tax rate of return. 00:12:37.359 --> 00:12:40.338 This is the after-tax rate of return, 00:12:40.338 --> 00:12:41.904 and after destruction, 00:12:41.904 --> 00:12:43.681 and this is what brought 00:12:43.681 --> 00:12:45.369 the average rate of return 00:12:45.369 --> 00:12:47.158 after tax, after destruction, 00:12:47.158 --> 00:12:49.578 below the growth rate during a long time period. 00:12:49.578 --> 00:12:51.252 But without the destruction, 00:12:51.252 --> 00:12:53.727 without the taxation, this would not have happened. 00:12:53.727 --> 00:12:56.970 So let me say that the balance between 00:12:56.970 --> 00:12:59.326 returns on capital and growth 00:12:59.326 --> 00:13:01.188 depends on many different factors 00:13:01.188 --> 00:13:03.273 that are very difficult to predict: 00:13:03.273 --> 00:13:05.388 technology and the development 00:13:05.388 --> 00:13:07.972 of capital-intensive techniques. 00:13:07.972 --> 00:13:10.991 So right now, the most capital-intensive sectors 00:13:10.991 --> 00:13:14.367 in the economy are the real estate sector, housing, 00:13:14.367 --> 00:13:17.229 the energy sector, but it could be in the future 00:13:17.229 --> 00:13:20.941 that we have a lot more robots in a number of sectors 00:13:20.941 --> 00:13:22.830 and that this would be a bigger share 00:13:22.830 --> 00:13:24.740 of the total capital stock that it is today. 00:13:24.740 --> 00:13:26.734 Well, we are very far from this, 00:13:26.734 --> 00:13:28.500 and from now, what's going on 00:13:28.500 --> 00:13:30.289 in the real estate sector, the energy sector, 00:13:30.289 --> 00:13:32.415 is much more important for the total capital stock 00:13:32.415 --> 00:13:33.549 and capital share. NOTE Paragraph 00:13:33.549 --> 00:13:35.582 The other important issue 00:13:35.582 --> 00:13:37.732 is that there are scale effects in portfolio management, 00:13:37.732 --> 00:13:40.151 together with financial complexity, 00:13:40.151 --> 00:13:41.601 financial deregulation, 00:13:41.601 --> 00:13:44.310 that make it easier to get higher rates of return 00:13:44.310 --> 00:13:45.937 for a large portfolio, 00:13:45.937 --> 00:13:48.600 and this seems to be particularly strong 00:13:48.600 --> 00:13:50.582 for billionaires, large capital endowments. 00:13:50.582 --> 00:13:52.872 Just to give you one example, 00:13:52.872 --> 00:13:56.205 this comes from the Forbes billionaire rankings 00:13:56.205 --> 00:13:59.535 over the 1987-2013 period, 00:13:59.535 --> 00:14:02.323 and you can see the very top wealth holders 00:14:02.323 --> 00:14:05.440 have been going up at six, seven percent per year 00:14:05.440 --> 00:14:07.831 in real terms above inflation, 00:14:07.831 --> 00:14:10.203 whereas average income in the world, 00:14:10.203 --> 00:14:11.566 average wealth in the world, 00:14:11.566 --> 00:14:14.949 have increased at only two percent per year. 00:14:14.949 --> 00:14:16.678 And you find the same 00:14:16.678 --> 00:14:17.954 for large university endowments — 00:14:17.954 --> 00:14:20.222 the bigger the initial endowments, 00:14:20.222 --> 00:14:22.290 the bigger the rate of return. NOTE Paragraph 00:14:22.290 --> 00:14:23.968 Now, what could be done? 00:14:23.968 --> 00:14:26.364 The first thing is that I think we need 00:14:26.364 --> 00:14:28.479 more financial transparency. 00:14:28.479 --> 00:14:32.320 We know too little about global wealth dynamics, 00:14:32.320 --> 00:14:34.220 so we need international transmission 00:14:34.220 --> 00:14:35.482 of bank information. 00:14:35.482 --> 00:14:38.168 We need a global registry of financial assets, 00:14:38.168 --> 00:14:40.659 more coordination on wealth taxation, 00:14:40.659 --> 00:14:43.771 and even wealth tax with a small tax rate 00:14:43.771 --> 00:14:45.987 will be a way to produce information 00:14:45.987 --> 00:14:48.669 so that then we can adapt our policies 00:14:48.669 --> 00:14:50.505 to whatever we observe. 00:14:50.505 --> 00:14:52.343 And to some extent, the fight 00:14:52.343 --> 00:14:53.824 against tax havens 00:14:53.824 --> 00:14:55.639 and automatic transmission of information 00:14:55.639 --> 00:14:57.490 is pushing us in this direction. 00:14:57.490 --> 00:14:59.814 Now, there are other ways to redistribute wealth, 00:14:59.814 --> 00:15:02.771 which it can be tempting to use. 00:15:02.771 --> 00:15:04.127 Inflation: 00:15:04.127 --> 00:15:05.826 it's much easier to print money 00:15:05.826 --> 00:15:07.981 than to write a tax code, so that's very tempting, 00:15:07.981 --> 00:15:10.101 but sometimes you don't know what you do with the money. 00:15:10.101 --> 00:15:11.748 This is a problem. 00:15:11.748 --> 00:15:13.611 Expropriation is very tempting. 00:15:13.611 --> 00:15:15.872 Just when you feel some people get too wealthy, 00:15:15.872 --> 00:15:17.166 you just expropriate them. 00:15:17.166 --> 00:15:18.878 But this is not a very efficient way 00:15:18.878 --> 00:15:21.711 to organize a regulation of wealth dynamics. 00:15:21.711 --> 00:15:24.190 So war is an even less efficient way, 00:15:24.190 --> 00:15:26.526 so I tend to prefer progressive taxation, 00:15:26.526 --> 00:15:29.100 but of course, history — (Laughter) — 00:15:29.100 --> 00:15:30.835 history will invent its own best ways, 00:15:30.835 --> 00:15:32.533 and it will probably involve 00:15:32.533 --> 00:15:34.267 a combination of all of these. NOTE Paragraph 00:15:34.267 --> 00:15:36.133 Thank you. NOTE Paragraph 00:15:36.133 --> 00:15:38.270 (Applause) NOTE Paragraph 00:15:38.270 --> 00:15:43.829 Bruno Giussani: Thomas Piketty. Thank you. NOTE Paragraph 00:15:43.829 --> 00:15:45.708 Thomas, I want to ask you two or three questions, 00:15:45.708 --> 00:15:49.567 because it's impressive how you're in command of your data, of course, 00:15:49.567 --> 00:15:53.361 but basically what you suggest is 00:15:53.361 --> 00:15:54.934 growing wealth concentration is kind of 00:15:54.934 --> 00:15:56.858 a natural tendency of capitalism, 00:15:56.858 --> 00:16:00.396 and if we leave it to its own devices, 00:16:00.396 --> 00:16:02.636 it may threaten the system itself, 00:16:02.636 --> 00:16:04.362 so you're suggesting that we need to act 00:16:04.362 --> 00:16:07.400 to implement policies that redistribute wealth, 00:16:07.400 --> 00:16:09.121 including the ones we just saw: 00:16:09.121 --> 00:16:10.592 progressive taxation, etc. 00:16:10.592 --> 00:16:12.731 In the current political context, 00:16:12.731 --> 00:16:14.722 how realistic are those? 00:16:14.722 --> 00:16:16.533 How likely do you think that it is 00:16:16.533 --> 00:16:18.277 that they will be implemented? NOTE Paragraph 00:16:18.277 --> 00:16:19.488 Thomas Piketty: Well, you know, I think 00:16:19.488 --> 00:16:21.269 if you look back through time, 00:16:21.269 --> 00:16:23.920 the history of income, wealth and taxation 00:16:23.920 --> 00:16:25.522 is full of surprise. 00:16:25.522 --> 00:16:28.127 So I am not terribly impressed 00:16:28.127 --> 00:16:29.695 by those who know in advance 00:16:29.695 --> 00:16:31.326 what will or will not happen. 00:16:31.326 --> 00:16:33.030 I think one century ago, 00:16:33.030 --> 00:16:34.599 many people would have said 00:16:34.599 --> 00:16:36.737 that progressive income taxation would never happen 00:16:36.737 --> 00:16:38.257 and then it happened. 00:16:38.257 --> 00:16:40.246 And even five years ago, 00:16:40.246 --> 00:16:42.598 many people would have said that bank secrecy 00:16:42.598 --> 00:16:44.623 will be with us forever in Switzerland, 00:16:44.623 --> 00:16:46.411 that Switzerland was too powerful 00:16:46.411 --> 00:16:47.900 for the rest of the world, 00:16:47.900 --> 00:16:50.861 and then suddenly it took a few U.S. sanctions 00:16:50.861 --> 00:16:53.483 against Swiss banks for a big change to happen, 00:16:53.483 --> 00:16:55.186 and now we are moving toward 00:16:55.186 --> 00:16:56.862 more financial transparency. 00:16:56.862 --> 00:17:01.143 So I think it's not that difficult 00:17:01.143 --> 00:17:03.612 to better coordinate politically. 00:17:03.612 --> 00:17:05.670 We are going to have a treaty 00:17:05.670 --> 00:17:08.719 with half of the world GDP around the table 00:17:08.719 --> 00:17:10.721 with the U.S. and the European Union, 00:17:10.721 --> 00:17:12.847 so if half of the world GDP is not enough 00:17:12.847 --> 00:17:15.513 to make progress on financial transparency 00:17:15.513 --> 00:17:19.597 and minimal tax for multinational corporate profits, 00:17:19.597 --> 00:17:21.261 what does it take? 00:17:21.261 --> 00:17:24.884 So I think these are not technical difficulties. 00:17:24.884 --> 00:17:26.808 I think we can make progress 00:17:26.808 --> 00:17:29.395 if we have a more pragmatic approach to these questions 00:17:29.395 --> 00:17:31.296 and we have the proper sanctions 00:17:31.296 --> 00:17:34.287 on those who benefit from financial opacity. NOTE Paragraph 00:17:34.287 --> 00:17:35.940 BG: One of the arguments 00:17:35.940 --> 00:17:37.373 against your point of view 00:17:37.373 --> 00:17:38.815 is that economic inequality 00:17:38.815 --> 00:17:42.452 is not only a feature of capitalism but is actually one of its engines. 00:17:42.452 --> 00:17:45.253 So we take measures to lower inequality, 00:17:45.253 --> 00:17:47.660 and at the same time we lower growth, potentially. 00:17:47.660 --> 00:17:49.220 What do you answer to that? NOTE Paragraph 00:17:49.220 --> 00:17:50.949 TP: Yeah, I think inequality 00:17:50.949 --> 00:17:52.838 is not a problem per se. 00:17:52.838 --> 00:17:54.878 I think inequality up to a point 00:17:54.878 --> 00:17:57.530 can actually be useful for innovation and growth. 00:17:57.530 --> 00:17:59.723 The problem is, it's a question of degree. 00:17:59.723 --> 00:18:02.267 When inequality gets too extreme, 00:18:02.267 --> 00:18:05.156 then it becomes useless for growth 00:18:05.156 --> 00:18:06.618 and it can even become bad 00:18:06.618 --> 00:18:09.675 because it tends to lead to high perpetuation 00:18:09.675 --> 00:18:11.311 of inequality over time 00:18:11.311 --> 00:18:13.177 and low mobility. 00:18:13.177 --> 00:18:16.463 And for instance, the kind of wealth concentrations 00:18:16.463 --> 00:18:19.340 that we had in the 19th century 00:18:19.340 --> 00:18:21.265 and pretty much until World War I 00:18:21.265 --> 00:18:23.030 in every European country 00:18:23.030 --> 00:18:25.124 was, I think, not useful for growth. 00:18:25.124 --> 00:18:27.226 This was destroyed by a combination 00:18:27.226 --> 00:18:29.567 of tragic events and policy changes, 00:18:29.567 --> 00:18:31.839 and this did not prevent growth from happening. 00:18:31.839 --> 00:18:35.282 And also, extreme inequality can be bad 00:18:35.282 --> 00:18:37.480 for our democratic institutions 00:18:37.480 --> 00:18:39.863 if it creates very unequal access to political voice, 00:18:39.863 --> 00:18:41.728 and the influence of private money 00:18:41.728 --> 00:18:43.730 in U.S. politics, I think, 00:18:43.730 --> 00:18:46.270 is a matter of concern right now. 00:18:46.270 --> 00:18:49.346 So we don't want to return to that kind of extreme, 00:18:49.346 --> 00:18:51.436 pre-World War I inequality. 00:18:51.436 --> 00:18:55.110 Having a decent share of the national wealth 00:18:55.110 --> 00:18:58.500 for the middle class is not bad for growth. 00:18:58.500 --> 00:18:59.781 It is actually useful 00:18:59.781 --> 00:19:02.865 both for equity and efficiency reasons. NOTE Paragraph 00:19:02.865 --> 00:19:04.530 BG: I said at the beginning 00:19:04.530 --> 00:19:06.639 that your book has been criticized. 00:19:06.639 --> 00:19:07.880 Some of your data has been criticized. 00:19:07.880 --> 00:19:10.346 Some of your choice of data sets has been criticized. 00:19:10.346 --> 00:19:12.222 You have been accused of cherry-picking data 00:19:12.222 --> 00:19:14.959 to make your case. What do you answer to that? NOTE Paragraph 00:19:14.959 --> 00:19:16.886 TP: Well, I answer that I am very happy 00:19:16.886 --> 00:19:19.353 that this book is stimulating debate. 00:19:19.353 --> 00:19:21.834 This is part of what it is intended for. 00:19:21.834 --> 00:19:25.128 Look, the reason why I put all the data online 00:19:25.128 --> 00:19:26.974 with all of the detailed computation 00:19:26.974 --> 00:19:29.308 is so that we can have an open and transparent 00:19:29.308 --> 00:19:30.977 debate about this. 00:19:30.977 --> 00:19:32.743 So I have responded point by point 00:19:32.743 --> 00:19:34.535 to every concern. 00:19:34.535 --> 00:19:37.648 Let me say that if I was to rewrite the book today, 00:19:37.648 --> 00:19:39.189 I would actually conclude 00:19:39.189 --> 00:19:41.383 that the rise in wealth inequality, 00:19:41.383 --> 00:19:43.310 particularly in the United States, 00:19:43.310 --> 00:19:45.683 has been actually higher than what I report in my book. 00:19:45.683 --> 00:19:48.928 There is a recent study by Saez and Zucman 00:19:48.928 --> 00:19:50.520 showing, with new data 00:19:50.520 --> 00:19:52.297 which I didn't have at the time of the book, 00:19:52.297 --> 00:19:54.824 that wealth concentration in the U.S. has risen 00:19:54.824 --> 00:19:56.760 even more than what I report. 00:19:56.760 --> 00:19:58.791 And there will be other data in the future. 00:19:58.791 --> 00:20:00.942 Some of it will go in different directions. 00:20:00.942 --> 00:20:05.041 Look, we put online almost every week 00:20:05.041 --> 00:20:07.975 new, updated series on the World Top Income Database 00:20:07.975 --> 00:20:09.875 and we will keep doing so in the future, 00:20:09.875 --> 00:20:12.181 in particular in emerging countries, 00:20:12.181 --> 00:20:15.110 and I welcome all of those who want to contribute 00:20:15.110 --> 00:20:17.456 to this data collection process. 00:20:17.456 --> 00:20:20.264 In fact, I certainly agree 00:20:20.264 --> 00:20:21.878 that there is not enough 00:20:21.878 --> 00:20:23.756 transparency about wealth dynamics, 00:20:23.756 --> 00:20:25.671 and a good way to have better data 00:20:25.671 --> 00:20:27.536 would be to have a wealth tax 00:20:27.536 --> 00:20:29.107 with a small tax rate to begin with 00:20:29.107 --> 00:20:31.446 so that we can all agree 00:20:31.446 --> 00:20:33.010 about this important evolution 00:20:33.010 --> 00:20:36.337 and adapt our policies to whatever we observe. 00:20:36.337 --> 00:20:38.399 So taxation is a source of knowledge, 00:20:38.399 --> 00:20:41.335 and that's what we need the most right now. NOTE Paragraph 00:20:41.335 --> 00:20:43.150 BG: Thomas Piketty, merci beaucoup. NOTE Paragraph 00:20:43.150 --> 00:20:47.150 Thank you. TP: Thank you. (Applause)