After Piketty, is the Study of Economics the Study of Rising Inequality?

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http://www.juancole.com/2014/06/picketty-economics-inequality.html

After Piketty, is the Study of Economics the Study of Rising Inequality?
By contributors | Jun. 12, 2014
By Chris Edwards, University of East Anglia

The economic and political focus is increasingly on the inequality of income and wealth as they both rise in Europe and the US. At a conference on Inclusive Capitalism held near the end of May at London’s Guildhall, Christine Lagarde, the head of the International Monetary Fund (IMF), claimed that rising inequality posed a threat to growth and financial stability and that governments need to narrow the gaps through imposing more progressive taxes.

When even the right-wing IMF criticises rising inequality, then perhaps it is no surprise that the publishing world should witness the huge success of a book on inequality written by Thomas Piketty, professor at the Paris School of Economics. What might be more surprising is that one crucial effect of his work might be nothing to with inequality or capital whatsoever, but could instead help to refocus how we study economics and arrive at less biased conclusions.

Piketty’s basic argument is simple. He argues that over the past four decades the growth of incomes in the rich countries of Europe and the US has averaged 1% or 2% a year whereas the return on wealth or capital has been running at more than 4% a year. Under such conditions, wealth concentration grows as does political tension. We are, he says, returning to a sort of Downton Abbey world of the late 19th and early 20th century; a “patrimonial” capitalism in which inherited wealth dominates and a world in which the economy is characterised, not by talented individuals, but by family dynasties making up only 1% of the population. To join this exclusive club it is more sensible to marry into wealth than to work for it. It might be said that skiving and seducing are now better than striving (whatever Britain’s prime minister might say).

Data mine

Piketty’s contribution has been to look at the pattern of wealth and income inequality in capitalist economies over at least the past 100 years. He, with the aid of a number of colleagues, has assembled a huge collection of statistics on income and wealth distribution in some 20 countries.