The Washington PostDemocracy Dies in Darkness

Top economists say Piketty is wrong about wealth inequality. They misunderstood him.

Nothing in this book says r-g is why wealth inequality has increased <em>so far</em> . (Reuters/Charles Platiau)

The most important thing to remember anytime people fight about Piketty is that 90 percent of them haven't read Piketty. Even the economists.

Here's a recap. Piketty's 600-page-plus magnum opus, Capital in the Twenty-First Century, has become a surprise bestseller in the otherwise dry field of economic statistics due to its not-so-dry argument that capitalism tends toward higher and higher inequality. Now how could that be when wealth inequality and income inequality both fell between 1914 and 1970? Well, in Piketty's telling, that only happened because of a series of unhappy historical accidents: the world wars, the Great Depression, and the sky-high taxes on the rich that we used to help pay for all that. But in the last few decades, income inequality has reached an all-time high, and wealth inequality has started to follow.

This is the part you might have heard of. Looking forward, Piketty also argues that if the rate of return on capital, r, is significantly greater than the economy's growth rate, g, then high levels of wealth inequality will turn into even higher levels of income inequality as investments outpace wages. In other words, wealth will beget wealth too fast for anyone else to catch up even a little. And it will be inherited wealth, too. Or, as Piketty puts it, an age of "patrimonial capitalism."

But this last part is only a prediction. Maybe the rate of return on capital, r, will fall more or the rate of economic growth, g, will fall less than Piketty thinks. Or maybe governments will raise taxes so much on the rich that it doesn't matter. In any case, though, Piketty isn't saying that r>g is why inequality has increased so far. It's why he thinks inequality will keep increasing along hereditary lines in the future.

It's a distinction that most people -- even if they feel compelled to have an opinion on Piketty regardless of their familiarity with his work -- miss. Including, it turns out, the expert economists at the University of Chicago's Initiative on Global Markets (IGM). This ideologically diverse group, you see, was asked whether r>g is the "most powerful force" behind rising wealth inequality the past few decades. And, as you can see below, the respondents were all but unanimous: no.

But this doesn't mean that they think Piketty is wrong about inequality — not unless he does too. Indeed, his research partner Emmanuel Saez, who we can assume is a pretty good stand-in for him, took part in the survey and wrote in comments that r>g isn't the main culprit behind the top 1 percent's rising wealth over the past several decades. "Inequality and savings inequality are now fueling US wealth inequality," Saez wrote, but "down the road r>g will be central as predicted by Piketty."

So, let's try this one last time.

We know that income inequality is increasing to never-before-seen highs. Piketty argues this is due, in large part, to "super managers" who pick pliant corporate boards that will pay them almost anything. We also know that wealth inequality is increasing, though not as much. This, Piketty says, is due to the simple fact that the rich make so much more today that it's easier to amass a fortune, dynastic or otherwise.

And finally, Piketty makes a three-pronged prediction: 1) Global growth will slow down as the developed world ages and the emerging markets catch up 2) The rate of investment return won't fall as much as growth and 3) r will be so much greater than g that the children of today's entrepreneurs will become tomorrow's top 1 percent.

The twenty-first century, in other words, will look more like the nineteenth when it comes to inherited wealth.

Piketty does not — let's repeat that for emphasis, does not — think that r>g explains wealth inequality today. Please actually read his book before you say he does.